Contact: Scott Denne
Facebook’s $2bn purchase of virtual reality vendor Oculus VR, like every billion-dollar Facebook deal, is a bit of a head-scratcher at first glance. The overlap between virtual reality and social networking isn’t obvious, and virtual reality has a long way to travel to go from gaming-focused prototypes to a mainstream computing platform. But Facebook is, in part, a gaming provider and that’s what’s driving this transaction, despite the company’s breathless comments about a future with virtual classrooms and courtside seats for all.
At the time of its IPO in May 2012, gaming was Facebook’s fastest-growing business, but, unlike its core advertising business, gaming revenue failed to make the transition to mobile devices. The quarter before the company went public, revenue from its payments business (derived mostly from taking a cut of fees paid to game developers) doubled from a year earlier to $186m, accounting for 18% of its total revenue. In the most recent quarter, as many of Facebook’s users have migrated away from PCs, its payments (i.e., gaming) business revenue dropped 6% and was less than 10% of its overall revenue.
It’s tough to choke down Facebook’s vision of virtual reality as the future of social networking – its rapid transition to mobile shows that most people are finding PCs too cumbersome, so it’s unlikely that they’ll don headgear to interact with friends. However, the deal gives Facebook a front-row seat to a platform that stands a good chance of being the future of gaming. That level of access and influence during virtual reality’s early days will help Facebook avoid a repeat of its whiff on mobile gaming.
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