Facebook Inc (NASDAQ:FB) could be on the cusp of recouping its US$2.3bn investment in virtual reality (VR) tech group Oculus after the latter released its latest headset, the Oculus Quest, on Tuesday.
With the VR revolution having only really gathered pace in the last few years, Oculus has already managed to establish itself as one of the industry’s biggest players and is poised to earn the social media giant a tidy sum for its initial outlay.
But what is the Oculus Quest and how could it prove to be an industry game-changer?
New kid on the block
The Quest is the third iteration in Oculus’ series of headsets, following the Rift, which was released in 2016, and the Oculus Go released in May of last year.
However, unlike its predecessors, the Quest is pitched as an all-in-one video game system that allows users to play games in VR without the need of external equipment, in contrast to the Rift which relied on the processing power of an attached PC to play games.
The Go, meanwhile, was portable and did not require a PC but was less high-powered and aimed more at watching content like Netflix and YouTube.
The Quest is aiming to bridge the gap between these previous editions, combining the wireless freedom of the Go with the game processing power of the Rift, but without the hefty expense of a gaming PC to make it work.
According to David Whelan, the chief executive of VR software developer VR Education Holdings Plc (LON:VRE), what gives the Quest a leg up on its predecessors is the prospect of “affordable high-quality VR”, i.e. the power of a gaming machine at a more affordable price tag.
“Up until now, the limiting factor for good virtual reality is the cost of hardware. For a good experience, you would have needed a computer and a VR device, that’s around a US$1,500 expense. With the Oculus Quest that becomes a US$400 device”, Whelan said in March.
The Quest is also proving to be a boon for VRE as its Apollo 11 VR showcase experience, which allows users to witness the 1969 moon landing first-hand from the viewpoint of US astronaut Neil Armstrong, is to be included as a launch title for the device.
With the power of a FAANG behemoth behind it, Oculus has managed to go from strength to strength in line with the growing popularity of the VR market, the value of which is forecast to balloon to US$193bn in 2022 from just US$6.1bn in 2016.
The Rift, which was the company’s first headset, managed to net it nearly half a billion dollars over a three-year lifespan and a return of nearly 200 times on the US$2.5mln it raised in a crowdfunding prior to Facebook’s acquisition.
It was also a good start for Facebook, which bought Oculus in 2014 as part of a push to get more VR devices into the hands of consumers, a strategy that it hoped would increase interaction with its social network.
With the Rift having been retired and replaced by the Go, Quest and a more advanced Rift S system which still requires a PC link, Oculus’ revenues could also be about to get a lot bigger.
Assuming the forecast sales numbers for 2019 are split equally between the three new systems (Quest, Go and Rift S), Oculus could be earning around US$651mln from its headset sales this year alone.
If those figures hold true, and at the very least repeat themselves each year, Facebook will have recouped it’s the value of its US$2.3bn purchase in around six years, although with sales of VR headsets on a growth trend that shows no signs of slowing, it could be even earlier.