With Oculus, Facebook makes $2B bet on virtual reality

A man tries the Oculus virtual reality headset at the Game Developers Conference 2014 in San Francisco. Facebook's purchase of Oculus puts them in the game with Google.

San Francisco - Facebook is making a $2 billion bet that a virtual-reality headset will one day become the center of its users' social lives.

The largest social network Tuesday said it is buying Oculus VR, pushing into wearable hardware for the first time and stepping into a race with Google. Irvine, Calif.-based Oculus makes a ski-goggles-like device called Rift, now used for playing games, that eventually could immerse people in experiences like classes and sport events.

Facebook Chief Executive Officer Mark Zuckerberg is following Google in seeking growth beyond smartphones and tablets. While Apple's iPhone and Google's Android mobile devices dominate today, developers are looking for new gadgets to showcase wares and are focusing on the more lifelike experiences that Oculus provides, Zuckerberg said in a blog.

"Mobile is the platform of today, and now we're also getting ready for the platforms of tomorrow," Zuckerberg said. "Oculus has the chance to create the most social platform ever, and change the way we work, play and communicate."

Facebook agreed to pay $400 million in cash and 23.1 million shares for Oculus, as well as an additional $300 million if the startup achieves certain milestones, the Menlo Park, California-based company said in a statement Tuesday.

Facebook's claim about virtual reality's potential is hard to prove or disprove, said Mark Mahaney, an analyst at RBC Capital Markets.

"What we do know is that Facebook was late to adopting the mobile platform, though it certainly caught up with this platform shift and is now arguably one of the shift's leaders," said Mahaney, who has the equivalent of a buy rating on the shares. "The question this time is whether Facebook is too early or simply betting on the wrong platform."

Oculus will be competing in a crowded wearable-technology market. Google is rolling out Glass, which are spectacles with smartphone capabilities, and earlier this week teamed up with Luxottica Group, which owns eyewear brands such as Ray-Ban, to help the product go mainstream. Samsung Electronics has introduced smartwatches. Intel Tuesday said it acquired closely held Basis Science, the maker of a wristwatch-like device, website and app that help users track exercise and sleep.

Zuckerberg said on a conference call that he doesn't expect the Oculus devices to be profitable. Facebook plans to make money through software and services or advertising instead, he said.


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