How Oculus Goggles Became More Than a Virtual Reality; Facebook’s Big Acquisition Rose From a Hotel Demonstration Two Years Ago

How Oculus Goggles Became More Than a Virtual Reality

Facebook’s Big Acquisition Rose From a Hotel Demonstration Two Years Ago

IAN SHERR

March 26, 2014 9:29 p.m. ET

Brendan Iribe traces the surprising rise of Oculus VR Inc., Facebook Inc. FB -6.94% ‘s second-largest acquisition, to a demonstration in a hotel meeting room two years ago.

The videogame-industry executive had traveled to the hotel in Long Beach, Calif., after meeting with Palmer Luckey, a virtual-reality enthusiast who at the time was planning to launch a crowdfunding campaign on Kickstarter Inc.’s website for high-tech goggles. His product eventually became “Oculus Rift.”

Mr. Luckey, clad in flip-flops, shorts and a T-shirt, had cobbled together a prototype using a screen typically meant for a smartphone. The room’s lights had to be turned off to make sure Mr. Iribe saw the best images from the device, which was connected to a laptop.

But once he put it on his head, Mr. Iribe says he was transported to a three-dimensional view of a room from “Rage,” a sci-fi shooting game. “It really worked,” said Mr. Iribe, who would become chief executive of Oculus.

Mr. Iribe acknowledges that he could only use the goggles for a short period of time before becoming dizzy. That problem and others have dogged the virtual-reality field since such goggles emerged in the early 1990s, prompting a brief flurry of attention in movies and TV shows before fading from the Silicon Valley scene.

But Facebook CEO Mark Zuckerberg on Tuesday declared that Oculus—which has yet to even ship a commercial version of the goggles it sells to developers for $350—represents the seeds of an entirely new computing platform. The social network agreed to pay $2 billion in cash and stock for Oculus.

“Virtual reality was once the dream of science fiction,” Mr. Zuckerberg wrote in a blog post. “But the Internet was also once a dream, and so were computers and smartphones.”

Oculus, founded in 2012, stood to benefit from its timing—particularly technology that has been shaped by demands of the mobile-device market.

Manufacturers are churning out smaller, less-expensive displays that produce clearer images. They’re also making more powerful chips for generating 3-D images and gyroscopic sensors, which make it possible for a smartphone to know in which direction it is turned.

These technologies are pivotal to making virtual-reality goggles better, lighter and less expensive. One influence in that quest was Mark Bolas, head of virtual reality research at the University of Southern California.

The USC researcher, who is affiliated with a company that owns Oculus shares, has since 2010 led a lab that is trying to make the technology more affordable. Mr. Bolas, who supervised Mr. Luckey starting in 2011, had published a paper describing how virtual reality headsets could be created using two Apple Inc. AAPL -0.96% iPhones.

Oculus has since come up with ideas for addressing the issues that caused Mr. Iribe’s dizziness, a problem that was considered by many investors to be a hurdle to consumer adoption. The sensation is triggered in part from competing information sent to the brain: In many instances, the eyes see motion, but the body isn’t moving. Oculus executives say they have tackled the problem with better screens, more efficient software and additional sensors that help counter the effect. The company also now offers a camera with its development kits that watch a player’s head as it moves, allowing the device to sense not just up and down, left and right, but also forward and backward.

By the summer of 2012, Mr. Luckey had handed a demonstration unit to John Carmack, a videogame pioneer who co-founded “Doom” and “Quake” shooting-game maker Id Software LLC. He touted the device at a videogame expo in June. In early July, Mr. Iribe, Mr. Luckey and a few others met in Southern California, and discussed a partnership.

Mr. Luckey had planned to launch a funding campaign with Kickstarter to give instructions to customers about how to build their own headsets. Mr. Iribe and Michael Antonov, a former associate of Mr. Iribe, persuaded him to build his own headsets, and offered him about $100,000 to get off the ground.

Mr. Luckey initially demurred, saying he would prefer to do it on his own. Mr. Iribe took him to pizza and offered him a check for a few thousand dollars to buy parts.

“When I handed him the check, he said ‘hmm, maybe it is better to work with you,’ ” Mr. Iribe said, and so they shook on it.

The company’s Kickstarter campaign raised more than $2.4 million, far more than the $250,000 it initially sought, and Oculus has since delivered about 60,000 prototypes to would-be developers. The company also raised more than $90 million from venture capitalists including Spark, Matrix Partners, Andreessen Horowitz, Founders Fund and Formation 8. It has about 100 employees, including Messrs. Luckey, Iribe, Antonov and Carmack.

The sale to Facebook came as a surprise. Mr. Iribe said he initially was unsure of the deal. Oculus directors also initially disapproved, urging the executive team to remain an independent company.

Videogame executives have since been largely supportive, Messrs. Iribe and Luckey said. James Iliff, co-founder of Survios Inc., a startup aimed at offering ways for players to see their arms, legs and hands in the virtual world, said he believed the acquisition gives more legitimacy to the virtual reality industry. More importantly, he said, it will encourage more companies to enter the market.

But not everyone is pleased. Markus Persson, said the company he founded, Mojang, was in talks to bring its popular “Minecraft” world-building game to Oculus before the Facebook deal. Not anymore.

Mr. Luckey said he understood why customers were frustrated, and said he likely would have been, too, if he were in their shoes. But, he said, the team had already given up control of the company when it agreed to its most recent investment round. So, Facebook was a logical next step that gave it capital and infrastructure necessary to make the device and sell it for a low price.

More importantly, though, he said the financial resources at Facebook will allow Oculus to make custom technology, instead of relying on parts that are also used in smartphones. “A lot of people don’t understand how much money it takes to build things—especially to build hardware,” he said.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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