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| Investors are watching the shopping spree of Facebook's Mark Zuckerberg who snapped up virtual reality headset maker Oculus in late March 2014 for $2 billion, and weeks before plunked down $19 billion for messaging startup WhatsApp. This Oculus set was demonstrated on Jan. 9, 2014. (Credit: Getty Images / Robyn Beck) |
Facebook's latest multibillion-dollar acquisition of virtual reality headset maker Oculus is prompting some people to wonder if CEO Mark Zuckerberg is already living in an alternate reality.
Longtime technology analyst Roger Kay wonders whether Zuckerberg "is nuts" for agreeing last week to pay $2 billion for Oculus, less than five weeks after inking a deal to buy messaging startup WhatsApp for $19 billion.
Oculus, which got its start on the crowdfunding site Kickstarter, doesn't have a consumer product on the market, just the promise of bulky virtual reality goggles that have generated huge buzz in the video gaming community.
Zuckerberg, for his part, sees long-term implications in the technology, for communication, entertainment and beyond. He was right about mobile, and he's created the world's biggest online social network.
So, is he looney, or visionary?
"Mobile is the platform of today and now we're starting to also get ready for the platforms of tomorrow. To me, by far the most exciting future platform is around vision or modifying what you see to create augmented and immersive experiences," Zuckerberg said on a conference call last week discussing the deal. "Today's acquisition is a long-term bet on the future of computing. I believe Oculus can be one of the platforms of this future."
Facebook's investors seem to think Oculus's promise is too far off. The Menlo Park, Calif.-based social networking company's stock fell 7 percent on Wednesday, the day after the deal was announced, to close at $60.38.
Beyond the sticker shock, the WhatsApp and Oculus deals -- along with Facebook's spurned offer to buy Snapchat for $3 billion -- have raised questions about Facebook's ability to innovate on its own. Some of the company's most high-profile products, such as the Snapchat-like Poke, the messaging service Facebook Messenger and Home, have flopped.
Gartner analyst Brian Blau calls the Oculus acquisition "kind of out of leftfield."
"We have always thought about experience as a focus of virtual reality," he says. "Certainly it can be social, but we have not thought about it as a core social experience."
That's not to say it can't work. There were questions about Facebook's acquisition of Instagram back when it offered $1 billion for the photo-sharing app (the final purchase price was $715 million) in April 2012 -- and Instagram "turned out fine," Blau points out. Facebook said last week Instagram has 200 million users, up from 30 million at the time it agreed to buy the company.
Chris DeWolfe, former CEO and co-founder of MySpace, the Internet's largest social network before it was eclipsed by Facebook, said, "Given Facebook's size, this deal doesn't seem that weird to me."
DeWolfe, who now runs a mobile game company called SGN, figures Facebook's $154 billion market value gave Zuckerberg the flexibility to wager on a technology that could break new ground.
Like Facebook, Google is led by a CEO, Larry Page, who has vowed to make huge investments building or buying technology that might not pay off for years. When Google bought YouTube in 2006 for $1.76 billion in stock, some analysts questioned whether the company had paid far too much for a video site with virtually no revenue and a huge stack of potentially expensive legal claims for copyright infringement.
But that deal is now widely viewed as brilliant. YouTube sells billions of dollars in video advertising and has amassed a worldwide audience of more than 1 billion people.
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