Facebook Enters the Matrix, Buys Oculus VR for $2 Billion

Matthew Lloyd/Bloomberg via Getty ImagesGamers wear high-definition virtual reality headsets, manufactured by Oculus VR, at an expo in London. Facebook (FB) has announced one of the most peculiar acquisitions in its 10-year history. It has agreed to buy virtual reality headset maker Oculus VR for $2 billion in cash and stock. "There are not that many companies building technologies that can be the next major computer platform," said Facebook Chief Executive Officer Mark Zuckerberg in a conference call with investors. "We are making a long-term bet that immersive virtual reality will be a part of people's lives." I recently wrote about Oculus, which is developing the Rift virtual reality system for PCs. It's racing against Sony (SNE), which also has its own prototype VR technology, called Project Morpheus, for the PlayStation 4. The Rift, which looks like a thick pair of darkened goggles, lets gamers immerse themselves in a rich, computer-generated 3D world. It's not yet for sale in stores, but the company just unveiled a kit for developers, which sells for $350. The startup, based in Irvine, Calif., was founded by the excellently named 21-year-old Palmer Lucky. It has one of the most famous game developers in the world as its chief technology officer -- John Carmack, the maker of iconic shoot-'em-ups Doom and Quake. So imagine chatting with your Facebook friends not just via instant messages or VoIP calls, but by settling into a virtual cafe with them for an imaginary cup of coffee. Or visiting a doctor halfway across the world and explaining your symptoms in a virtual examination room. Remember Second Life? Like that, but with electronic headwear. For now, the Rift is aimed at gamers. But Zuckerberg seems to be paying more attention to the Rift's other potential uses. He writes:

After games, we're going to make Oculus a platform for many other experiences. 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. This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.

Facebook stock dropped slightly in after-hours trading on the announcement. It recently announced an acquisition of text-messaging company WhatsApp for $16 billion. Oculus raised $91 million from investors such as Andreessen Horowitz. Chris Dixon, a partner at the venture capital firm, said he didn't quite believe in the Rift until he visited the company's headquarters and tried it on for the first time. He says he was instantly sold and compared previous attempts at VR to the ill-fated Apple Newton in the 1990s: "People in tech knew we would have handheld computers. The only question was when." In VR, he added, "The reality is that the technology -- like screens, sensors, and software -- hasn't been good enough until now." (Bloomberg LP, the parent of Bloomberg Businessweek, is an investor in Andreessen Horowitz.) Dixon's bet, and now Facebook's, is that the Rift is the iPhone for virtual reality. And the acquisition gives Facebook a way to combat Google (GOOG), Amazon (AMZN), and others in the hardware business.