Ever since Facebook’s acquisition of Oculus in 2014, CEO Mark Zuckerberg has poised the move as a strategic bet on a technology that would eventually change the way we communicate. In the company’s most recent earnings call, Zuckerberg asked for “the patience of the investor community” as he reminded them about his belief in Oculus as a long term bet.
Addressing questions from investors and analysts on what’s perceived to be a slow start for Facebook’s VR plans, Zuckerberg didn’t offer up any specific sales metrics for the Oculus Rift, but pointed to Samsung’s recent announcement that 5 million Gear VR headsets have now been shipped (Oculus makes the software that powers Gear VR).
And while he did nod to the delayed rollout of the Rift and Touch controllers in 2016, he believes the company’s efforts in kickstarting VR content is “coming at a reasonable clip.” Facebook has been investing large sums of cash into VR content development—and recently committed another $250 million—some of which has controversially been used to support games exclusive to Oculus’ platform.
Early on there is this issue which is that if you’re a AAA game developer, until there’s a certain volume of units in the field, you’re not going to be able to make enough money to fund your game development just based off of people buying your content. That’s why we’re investing so much capital in content to seed the ecosystem and solve this chicken and egg problem, of you need the content in order to create the ecosystem.
His sentiment mirrored what we heard recently from Oculus’ Head of Content, who elaborated on the company’s belief that their approach is the only way to create a viable, self-sustaining VR content ecosystem.
And while Zuckerberg may be enthusiastic about the pace of VR content development, he reaffirmed his belief in a 10 year trajectory for VR (presumably meaning how long it will take to achieve widespread use), and asked investors for their patience as the company looks toward 2024, the 10 year anniversary of the Oculus acquisition.
…I don’t think that there is really a strategy to pull [VR’s trajectory] in from ten years to five; I just think it’s going to be a 10 year thing. The analogy I always use, the first Smartphones came out in 2013—sorry, 2003—the Blackberry and Palm Treo. And it took 10 years to get to a billion units.
I don’t know there was something that folks could have done to make that happen fast but I think that was pretty good. And if we can be on a similar trajectory of anywhere near 10 years for VR and AR, then I would feel very good about that. And I feel like we’re making the right bets now to plant the seeds for that. But I would ask for the patience of the investor community in doing that because we’re going to invest a lot in this and it’s not going to return or be really profitable for us for quite a while.
To his credit, that’s not spin from Zuckerberg. More than a year ago he told investors the same anecdote about the early smartphone market, and set first year sales expectations for VR headsets in the ‘hundreds of thousands of units’, which by most estimates Oculus has indeed achieved.
“Virtual reality has the potential to be the next computing platform that changes all our lives,” he told investors during a 2015 earnings call. “It’s important to also recognize that this will grow slowly, like computers and mobile phones when they first arrived. So we’re committed to Oculus and virtual reality for the long term.”
And while Zuckerberg’s belief in VR as a long term bet hasn’t changed, the recent verdict of the ZeniMax v. Oculus trial could put a wrinkle in that timeline. While Facebook itself escaped damages resulting from the lawsuit, Oculus (a subsidiary of Facebook) and two of its founders were ordered to pay a combined $500 million in damages to ZeniMax. The trial was not addressed in the company’s most recent earnings call, which was held on the same day, just before the jury came to its decision.
It isn’t yet clear if the verdict will alter Facebook’s plans for Oculus and VR. So far it doesn’t appear to have had any major impact on the company’s stock price.
