Facebook (NASDAQ: FB), Oculus Rift, and the Next Great Console War

Yesterday morning, Facebook (NASDAQ: FB) subsidiary Oculus announced that its long-anticipated virtual reality headset — the Oculus Rift — will become available to the public in the first quarter of 2016.

For geeks and gamers around the world, the announcement is nothing short of exciting. After all, this is the first time in history a consumer version of virtual reality hardware and 3D gaming will be available for purchase.

For gaming console makers like Sony and Microsoft, the announcement is nothing short of intimidating. With all the excitement surrounding VR consoles, conventional 2D gaming is on the verge of major disruption.

As with any new product release, there are obviously no guarantees here, but it’s safe to say the Oculus Rift has the potential to completely turn the gaming industry on its head.

Video games, at their core, are a way for us to momentarily escape reality, and what better way to do that than to fully immerse our vision and hearing in a virtual world?

Highly Anticipated

Facebook and Oculus have been mostly reticent in regards to what we should expect from the first consumer version of the “Rift,” but the latter has provided us with the following color on the device:

The Oculus Rift builds on the presence, immersion, and comfort of the Crescent Bay prototype with an improved tracking system that supports both seated and standing experiences, as well as updated ergonomics for a more natural fit, and a highly refined industrial design.

Oculus has also released several images, but with a black background, the Rift is a bit difficult to see:

As for specifications, here’s what we can expect:

• 960×1080 resolution per eye (there are two screens)
• 100-degree field of view
• Internal gyroscope, accelerometer, and magnetometer
• Near Infrared CMOS Sensor for positional tracking
• 0.97 lbs.

Of course, it’s near impossible to comprehend exactly how compelling the Oculus Rift is just by looking at the device and a list of specifications. The only way to truly appreciate what this thing can do is to give it a test drive yourself.

Now, obviously I can’t send our tens of thousands of subscribers an Oculus Rift (I wish I could), but I can at least share my own experiences and those of others regarding the device to give you all some perspective.

Here are just a few reactions from technology journalists after taking a demo of the Crescent Bay prototype:

“Using it feels like an almost religious experience all over again, to echo a claim many made about even the original Rift prototype. It’s hard to explain to anyone who hasn’t tried it just what it’s like to use Crescent Bay, but compared to previous versions, you feel far more like you’re actually in the virtual worlds generated by the Oculus software. It was impossible not to shift around to avoid debris thrown by explosions, and virtual bullets whizzing past. Proximity to a virtual dinosaur left me half-expecting to feel the moisture of its exhalation on my face. Standing on a skyscraper ledge prompted a stomach flip, especially given my fear of heights. The new immersive audio tech definitely helps with a sense of immersion, too, and changing the angle and orientation of your head really does change the soundscape in pretty much exactly the way you’d expect.”

— Darrell Etherington, Tech Crunch

“At only six and a half minutes, [the demo] did more on selling me on the concept and future of VR than anything that came before it. This is the kind of thing that I want to have in my house and show anyone and everyone I can. Obviously we’re still not close to the point where VR is as ubiquitous as a console, PC, or smartphone, but the Oculus Rift Crescent Bay demo proved that the future isn’t as far away as I previously thought.”

— Marty Sliva, IGN

“It absolutely blew me away”

— Ben Gilbert, Business Insider

As for my own experiences with the Oculus Rift, I first had the opportunity to demo the device back in 2013 with three separate developers.

The first demo had me hooked up to a stationary bike playing a 3D version of the classic arcade game Paperboy. Sensors attached to the pedals determined my speed. Spatial cameras (like Microsoft’s Kinect) tracked the positioning of my arms to determine when and where I was tossing the virtual newspapers.

Despite the 8-bit graphics, I remember being in utter disbelief of what I was experiencing, mostly in regards to field of view. From a visual standpoint, the Oculus Rift was truly immersive, even in this early stage of development.

The second demo had me gunning down bad guys while attached to a Virtuix Omni walking pad, which is essentially a harness that lifts you slightly off the ground, allowing you to run in place. The device is bulky and probably won’t have much mass appeal as a result, but for hard-core gamers who don’t care how silly they look, walking pads like the Virtuix Omni will be a must-have.

As for the third demo, I was shown a piece of 3D cinema, which felt like a hybrid between a video game and a film. This time there were no peripheral devices required besides the Oculus Rift — which is incredibly important, because it ultimately needs to be able to stand on its own.

While the Rift may be largely marketed towards the gaming community right now, the truth is the device has the capability to expand well beyond that. Much in the way IMAX has become the ultimate movie experience, Oculus has the potential to do the same for virtually all forms of media.

Console Wars

Of course, the big question on investors’ minds right now is what exactly this will do for Facebook’s bottom line. The company dropped $2 billion to acquire Oculus in mid-2014, and we’re soon going to find out whether or not it was worth the price tag.

I don’t want to speculate too much on what the Rift will retail for, but with the development kit selling for ~$350 right now, we can assume the consumer version will be somewhere near or below that price range.

As for how many units Oculus is going to be able to move, that’s still anyone’s guess…

Because this is the first VR headset to hit the consumer market, predicting sales volume on the product is somewhat futile. The best benchmarks we can use are console sales such as the Xbox and Playstation, but it’s still somewhat of a stretch to even put these products in the same category.

If we are to rely on these benchmarks, though, they would certainly indicate that the Oculus Rift could end up having a substantial impact on Facebook’s revenue stream.

Microsoft’s Computing and Gaming Hardware division, for instance, pulled in $1.8 billion in the most recent quarter. That figure represents a meaningful 8.3% of the company’s revenue. If Facebook could pull in the same numbers from Oculus, quarterly sales would increase by over 50%.

Of course, no one is expecting Oculus to become as prevalent as well-established gaming consoles right out of the gate, but it’s not unreasonable to expect the same level of sales within five to 10 years on the market.

Ultimately, Oculus will be dependent largely on the willingness of developers to make compelling applications for the device. With an unproven base of customers in VR, all your mainstream developers like Nintendo, Rockstar North, EA, etc. are all but guaranteed to remain heavily focused on 2D gaming in the near term.

What Oculus needs more than anything is one breakout title to get the ball rolling. Nintendo had Mario, Sony had Tomb Raider, and Microsoft had Halo. Once we see that killer app or game for the Rift, that’s when we’ll know Facebook is going to be the next console king.

Until next time,

Jason Stutman

Check us out on YouTube!