Facebook to buy virtual reality goggles maker for $2.5 billion

Facebook to buy virtual reality goggles maker for $2.5 billion
Software designer Julian Kantor (L) takes a picture of Jonathan Feng (R) as he uses the Oculus Rift virtual reality headset to experience his program during E3 in Los Angeles, California June 12, 2013.

SAN FRANCISCO - Facebook Inc will acquire two-year-old Oculus VR Inc, a maker of virtual-reality glasses for gaming, for US$2 billion (S$2.5 billion), buying its way into the fast-growing wearable devices arena with its first-ever hardware deal.

The acquisition, which comes hot on the heels of its US$19 billion deal for messaging service WhatsApp, marks a big bet by Facebook to anticipate the next shift in an evolving technology industry, at a time when consumers are increasingly abandoning their PCs for smartphones.

The world's largest social network was deemed late to recognise the shift to mobile devices and the company's revenue has only recently begun to recover from the late start.

Many in the industry believe that wearable devices could represent the next big platform shift. Google Inc has been testing Google Glass, a stamp-sized electronic screen mounted to a pair of eyeglasses for several years. Last week, it introduced an effort to develop computerized wristwatches.

On Tuesday, Facebook said virtual-reality technology could emerge as the next social and communications platform.

"The history of our industry is that every 10 or 15 years there's a new major computing platform, whether it's the PC, the Web or now mobile," Facebook co-founder and Chief Executive Mark Zuckerberg said in a conference call with analysts and media on Tuesday to discuss the acquisition.

"We're making a long-term bet that immersive, virtual and augmented reality will become a part of people's daily life," the 29-year-old Zuckerberg said, noting that wearing the Oculus goggles was "different than anything I've ever experienced in my life."

Zuckerberg said Facebook was not interested in becoming a hardware company and did not intend to try to make a profit from sales of the devices over the long term. Instead, he said Facebook's software and services would continue to serve as the company's underlying business, potentially generating revenue on Oculus devices through everything from advertising to sales of virtual goods.

While Oculus will operate as an independent company, Zuckerberg stressed that Facebook's plans for Oculus extended well beyond games.

"Imagine enjoying a court side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face - just by putting on goggles in your home," he said.

In addition to game makers, Oculus has garnered some interest from developers keen on creating apps in areas like architecture, automobiles, marketing and education, the company has said.

Shares of Facebook, which have risen 25 per cent in the past six months, were down nearly 1 per cent at $64.36 in late trading on Tuesday.

Facebook's recent spate of acquisitions is somewhat concerning, RBC Capital Markets analyst Mark Mahaney wrote in a note to investors on Tuesday. But he said that for a company of Facebook's size, the deal did not seem "irrational."

"The question this time is whether Facebook is too early or simply betting on the wrong platform. This won't be known for some time. But if it gets the platform right, we're relatively confident that Facebook will develop an effective monetisation strategy for it, thus boosting its overall financial growth," Mahaney said.

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