Why Facebook's Oculus Acquisition Hasn't Paid Off... Yet

It's been more than four years since Facebook (NASDAQ: FB) paid $3 billion for virtual reality (VR) start-up Oculus in hopes of dominating the next computing platform. Since its launch in March 2016, Oculus Rift has been one of the most successful VR headsets in the world -- but it's hard to say it's a success by Facebook terms. Rift has only sold around 1 million devices, which is dwarfed by the sales of other platforms; the latest generation of video game consoles sold in the hundreds of millions, and there are 4.6 billion smartphone users .

It's hard to argue that Oculus has paid off in any meaningful way for Facebook, but we are starting to get a glimpse of what the company's plans are going forward and what may be holding the VR industry back. And how those two play out could tell us if Oculus will eventually be a great deal or a bust for Facebook.

Woman wearing VR headset.

Image source: Getty Images.

Oculus needs greater reach

One of the biggest challenges VR companies have faced is getting headsets into people's hands. Traditional VR headsets are expensive ($400 or more) and require high-end gaming computers that cost well over $1,000. The cost of VR headsets is the biggest barrier that Oculus needs to overcome.

The other challenge Oculus needs to solve is how to reach customers. It's one thing to sell 1 million VR headsets to early adopters like gamers, but Mark Zuckerberg has set a goal of getting 1 billion people into VR. That requires a new level of infrastructure to educate and train people on virtual reality . I'm not sure if Facebook realizes how hard it will be to get anywhere near the scale Zuckerberg wants to reach in VR.

Prices are coming down

The first obstacle, price, may already be improving. Oculus Go, a stand-alone headset with three degrees of freedom (i.e. built for 360 video) was introduced earlier this year, and starts at $200 per device. That's less than the retail price of most smartphones, and it doesn't require a high-end gaming computer.

The next step will be making high-end, six degrees of freedom (meaning fully immersive) virtual reality devices more cost effective. Facebook says it will introduce a stand-alone headset with fully immersive VR early in 2019. That could be a game-changer for the company and the virtual reality industry if it's priced comparably to a smartphone or gaming console.

But price is only part of the battle.

Reaching customers is a bigger challenge

The biggest challenge for Oculus, and other handset makers, is teaching customers about virtual reality. VR is a high touchpoint experience compared to past technologies like smartphones, social media, and even computers. Facebook, like others making VR headsets, isn't built to have a long, complicated discussion with customers about how to use VR and why they should spend money on a headset.

We're also seeing that hardware may be the lowest value portion of the virtual reality value chain. There's not a major difference between different headsets like Oculus Rift, HTC Vive, and Star VR on the premium side, and lower end devices are even more commodified.

Unless Oculus can find a way to make a premium VR product with a broad distribution base, the company will struggle to generate the kind of value Facebook thought it was getting when it bought the company.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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