More Thoughts on Facebook/Oculus

In yesterday’s post on the Oculus acquisition (link), I focused on the idea that Facebook sees virtual reality as the future of social networking. I was skeptical of the Oculus deal because I see VR as a more fundamental change with much broader implications to the industry.

There is an alternate view, as a commenter on the post pointed out. Let’s assume for a minute that Mark Zuckerberg actually does understand the potential for VR to be far more than a communication technology. As I wrote last year (link), I think 3D displays combined with 3D printing and gesture interfaces can be the foundation of sensory computing, the next big computing revolution as important as the graphical interface revolution of the 1980s. Maybe Mark sees that, and the deal is really about him buying Oculus to remake computing, with Facebook just the vehicle he used to make the deal.

If so, bravo.

The companies that should be driving this new revolution are Microsoft and Apple, but computing incumbents are usually too wrapped up in their existing businesses to spot the next generation. Maybe it takes a relative outsider like Mark to see the potential. And in this case, it’s an outsider with oodles of money. Which is good news, because the new world of sensory computing will need a lot of investment to get it started.

When building a computing platform business, you have to hit a very careful balance between creating infrastructure that no one else can build, and leaving opportunity on the table so that others will invest. A successful computing platform is not a singular entity; it’s an ecosystem that wraps the platform vendor, developers, partners, and users into a network in which everyone invests and everyone benefits from the synergy between the parts.

In this world, the platform vendor is a bit like the conductor of an orchestra. You don’t play the instruments yourself; you make sure they all come together to make beautiful music.

To make sensory computing happen, Oculus will need to focus on four areas: technology standards, interface, economic model, and management.

Technology standards. Someone needs to define how the apps, software extensions, and accessories in the sensory computing world will communicate with each other. For example, how does a gesture recognition tool like Leap Motion communicate with the Oculus hardware and with applications built for it? Oculus needs to take the responsibility for creating the communication standards and APIs, and needs to write the sample code that will make it easy for developers to integrate them. This can’t be left to committees or the open source crowd. Committees are too slow, and open source is too chaotic.

Oculus also needs to write drivers. Lots and lots of drivers, to integrate its systems with the rest of the computing world. Most engineers hate writing drivers; they are boring and difficult and no one ever comes up to you and says, “killer keyboard driver, dude.” As a result platform vendors usually try to leave that detail to the open source community. But that doesn’t work, because volunteer open source developers are even less likely to do unsexy work. Building a platform without drivers is like building a city without sewer pipes. Mark, this is where your money will come in handy. Hire a bunch of good driver developers and put them to work interfacing Oculus with everything.

Some of the first drivers you need are 3D printer drivers. Make it easy for people to create in 3D and bring their creations into the real world.

Interface. Imagine the Mac without menus and windows and icons. A new computing paradigm needs new interface standards: how do we grab objects in a virtual world, how do we control the device, how do we move ourselves around, and how do we do all of that without inducing motion sickness (one of the biggest complaints from early users of the Oculus Rift hardware)? There’s some very subtle and challenging work to be done here. Oculus and its software partners have made a good start in the area of gaming (for example, how do you separate where you’re looking from where you’re shooting from where you want to move?) That same level of thinking needs to go into all aspects of sensory computing.

Economic model. The platform vendor needs to make sure that the people creating accessories and apps for the new platform have a reasonable chance to make money. The platform does not need to guarantee profit for everyone, but the good apps and accessories must have a reasonable chance to rise to the top and be rewarded. The App Store, for all its flaws, accomplished this on iOS. Facebook failed very badly in this area with its platform; it’ll have to do much better for sensory computing to succeed.

To go along with that economic model, you need evangelists: marketing/business managers who know how to recruit and motivate partners and developers. If Oculus had a staff of evangelists in place, they would have fanned out yesterday to explain the deal with Facebook and make sure it didn’t cause developers like Mojang to turn away.

Management. To run all of this, Oculus needs experienced people who have created platforms before and know how to avoid all the mistakes you can make along the way. This is a specialized area of knowledge, and not something you can learn on the job. Platform management is a skill set that doesn’t exist in either Facebook or Oculus today, and it’s also not available in Irvine, where Oculus is based. But it is available in Silicon Valley, 300 miles to the north.

The biggest challenge of all is figuring out how to make all of these changes and additions without overwhelming Oculus and losing its beautiful energy and vision and focus. I watched Palm turn from a spunky innovator into a bloated bureaucracy, and I don’t wish that fate on Oculus.

Some of the work, like driver creation, can be done in parallel without too much disruption to the core of Oculus. But many of the other changes reach into the heart of the company. It’ll take unusually skilled and patient management to implement all these changes. Mark Zuckerberg doesn’t have the time to do this, and I think Oculus doesn’t have all the bench strength it needs today. One of Mark’s key moves in growing Facebook was hiring experienced managers to supplement his skills. I think Oculus needs the same thing.

The big question

What does Mark Zuckerberg really want to do with Oculus? At this point there is enough contradictory information out there that you can read anything into the deal. But the most hopeful quote came from Oculus CEO Brendan Iribe, who described the early discussions with Zuckerberg (link):

“We showed him some of the internal prototypes, and he got so excited about the vision of what we were doing and about the potential that this is truly the next computing platform. He actually said that to us. And it’s like, ‘Wow! We are looking at this whole thing being just that gaming platform. But tell us more, Mark.’ And he started to describe it, and we started to believe it too. And we started to relate it to a lot of the experiences we were having.”

I’m still very skeptical about the risks in the deal, but computing desperately needs new leadership and ideas, and I hope the combination of Oculus and Zuckerberg will deliver them. I want to believe.

Facebook, Ego, and Oculus Rift

When a big company is still controlled by its founders, its greatest strength is that it has the resources and the freedom to do almost anything, regardless of the shortsighted fears of investors. That’s also its greatest weakness. Case in point, Facebook.

I can rationalize reasons why Oculus VR is a good fit for Facebook, but I think the official explanation for the deal is pretty thin. To me, it says more about Facebook’s ego than it does about a coherent long-term strategy. Deals like this between dissimilar companies have a long history of failure in Silicon Valley; to make it work, Facebook will need to be skilled in some areas where it has little experience. The company is also creating important new competitors to itself, in ways that echo Google’s Motorola acquisition. I’m a huge fan of Oculus Rift, so I hope the deal ends better than the Motorola one. But history makes me skeptical.

Why Facebook wanted Oculus

Facebook’s explanation is that virtual reality is a new platform that, like mobile, could revolutionize social interaction. Facebook says it wants to be at the leading edge of that 3D social revolution, rather than trailing it the way it did mobile. That makes sense superficially, but the more you think about it, the shakier it sounds as the reasoning for this particular deal.

First of all, if you believe VR is a new platform, it’s not clear why you need to buy a hardware goggles company. It’s not like Oculus Rift is the only pair of 3D goggles in development. With Facebook’s market strength, it could have set a set a software standard and easily gotten it adopted by all the 3D vision companies. A small minority investment in Oculus would have been enough to secure their support. If you wanted a play in social VR, why not snap up SecondLife? Linden Lab has invested more than a decade in building software infrastructure for social VR, and would have cost a lot less than $2 billion.

Maybe you feel that the hardware and software have to be developed together. That’s a very Apple-like attitude, and therefore trendy in Silicon Valley. There have been persistent rumors that Facebook was working on its own phone. Maybe Facebook decided that it was too late to join the phone business, but it could get a jump on everyone else 3D.

But if hardware-software integration is the key, you’d want to drive deep integration between Oculus and Facebook’s software. You wouldn’t promise to run Oculus as a separate company, which is what Facebook claims it’ll do.

I think the real reason not to buy something like SecondLife is that it’s no longer trendy. Nothing smells worse in Silicon Valley than a company that failed to live up to its over-the-top hype, and the hype for SecondLife was astonishing about seven years ago. Oculus, on the other hand, is still at the takeoff stage in the hype cycle. It is the subject of a cult in the PC gaming community. The company promised to hit a sweet spot of affordability and quality for VR, and hardcore gamers embraced it enthusiastically through one of the first blowout Kickstarter campaigns. Although Oculus wasn’t mainstream news, there are literally millions of Oculus Rift-related videos on YouTube, most of them from enthusiasts drooling over the prototypes.

The cool factor. So by buying Oculus, Facebook makes itself cooler. The trouble is, it makes Oculus less cool. The enthusiasts who embraced Oculus because of its perceived authenticity and deep ties to the gaming world are appalled at the thought of it being owned by Facebook, which is seen as the poster child for lame low-res social gaming. It’s as if Motel Six bought the Ritz-Carlton. The Verge has a nice roundup of the angst here. My favorite quote:  “even Microsoft would have...been better than Facebook.”

Fear of missing out. I wonder if another motivation behind the Oculus purchase was the fear that if Facebook didn’t act, someone else would buy the company. If you feel VR is important and if Oculus is a leader, then maybe you buy it just so you don’t get closed out. The big VCs who invested in Oculus have a playbook for acquisitions, and it usually involves creating competitive bids, or the fear of them, to drive up the price. If Facebook was afraid that a competitor might buy the company, it might have felt the need to make a deal fast at an aggressive price.

Fighting Google. I think the primary motivation for the Oculus purchase was competition with Google. Both companies are led by ambitious technophile founders, and both have more money than they can count. Google has a cool new thermostat company, lots of neat special projects, and a very strong play in mobile that it is leveraging to push its own services, to the potential detriment of Facebook. Google also has a smart glasses initiative. Now Facebook has its own headgear, and the hottest new technology in gaming. The social aspect is important, but I think Facebook just wanted to be a bigger, more dynamic player. As Harry McCracken put it over at Time, “the world's biggest social network is no longer satisfied with just being a social network.” (link).

Isn’t it interesting how companies impose their own mental paradigms on technologies? Google looks at glasses and sees a way to search and consume web services on the go. Facebook looks at goggles and sees a new means for social communication.

That’s exactly what scares the fans of Oculus. They wanted the next great gaming experience, not a communication tool.

Risks of the deal

That brings us to the dangers in the Oculus deal. Let’s start with the thing not to worry about: the money. Facebook has more cash than it can possibly spend. An acquisition like this is just a way of recycling some of it. It’s kind of like Japan Inc. buying golf courses in the US in the 1980s. They had to do something with the money.

What I’m worried about are the odds that the deal won’t live up to Facebook’s lofty expectations. Let’s start with the risks to Oculus.

Loved to death. Whenever a big company buys a little one, there’s a big risk that the acquiring company will smother its new acquisition to death with enthusiasm. Everyone in the parent company is excited about the sexy new partner and has great ideas on how they can work together. There’s no way for the acquired company to deal with even a small fraction of these new ideas; usually it was working flat out just to do the basics prior to the deal and has no bandwidth for anything else.

Often the acquirer will be aware of this mismatch, and authorize the acquisition to hire a bunch of new employees to deal with the overload. But then the acquisition finds itself consumed by the hiring process, and its capacity for work actually goes down while the new employees are hired and trained. Usually first hiring priority has to be given to the parent company’s own employees, meaning the acquisition gets flooded with the parent company’s culture and business practices, and loses much of the distinctiveness that made it valuable in the first place.

To avoid smothering the acquisition, senior management in the parent company has to rigorously limit contact with the acquisition, and allow it to gradually staff up and grow into its new role. Does Facebook have that sort of discipline? So far it’s saying the right things, but the proof will be in actions, not words.

Arrested evolution. I’ve seen this happen over and over again. New device paradigms, if they succeed at all, usually create their own new usage patterns that nobody can predict in advance. To put it another way, we don’t know what the killer app for VR will be yet. Oculus is still in early beta on its first product, so it hasn’t had much opportunity to learn from the market. Chances are that when it ships, it’ll find that customer reactions pull it in directions it didn’t expect. Features that the company expected to be hot will go by the wayside, while something they casually tossed in at the last minute will turn out to be the biggest differentiator. A nimble startup can usually pivot to follow these discoveries. Will Facebook be open enough to let Oculus find its own way in the market, even if that leads it away from Facebook’s core business? If so, it would be a rare big company indeed.

Dealing with developers. Although Oculus and Facebook agree that its long-term future extends beyond gaming, I think it’s fair to say that unless the company is successful in gaming it may not be able to branch to those other markets. Success in gaming means recruiting developers to support Rift. Oculus had a lot of momentum prior to the acquisition, but we’ve already seen one developer (Mojang, the creator of Minecraft) decommit because of the Facebook deal (link).

I don’t think Mojang is necessarily an opinion leader among hardcore gamers, but Facebook’s history with developers worries me a lot. At one time, in the race to defeat MySpace, Facebook embraced developers enthusiastically. It made itself a welcoming platform for them, and many companies, especially game creators, jumped in enthusiastically. But although Facebook offered a lot of technical support for developers, it never put much effort into helping them make money. It was almost as if the company lost interest in developers once MySpace was out of the way.

I’m not saying that Facebook deliberately mistreated developers, but I think it never understood that a successful platform has to be both technically cool and financially rewarding to developers. Facebook never made the economics of its platform work, and as a result its developer base withered way. Some of the survivors switched to mobile instead and became leaders in the new generation of mobile games. To this day if you get them talking in private they’ll tell you about their lingering distrust for Facebook.

Facebook seems a lot more comfortable evangelizing developers to use its login and advertising APIs, rather than creating an economic and technology platform that makes them successful. But that won’t be enough to make Oculus a winner. If Facebook is serious about VR as the next big paradigm, it needs to change itself to embrace VR developers and help them succeed as businesses. Will Facebook learn how to take care of a platform business? Or will it take orders from tiny little Oculus in this area? To me, that’s one of the most important unknowns in the Oculus deal.

Indigestion. My other concern is that Oculus could create internal and external problems for Facebook. Working on VR may pull Facebook’s attention away from other, more pressing competitive threats. To me, the most important near-term challenge to Facebook is the rise of the Asian messaging networks that combine free short messaging with games and other online services. The acquisition of WhatsApp was meant to counter that, but Facebook still has to figure out how it’ll be integrated with the core company. Do Mark Zuckerberg and his management team have enough time and brain juice to figure out how to integrate both WhatsApp and Oculus?

Buying Oculus also creates potential new enemies for Facebook. Until the acquisition, companies like Sony and Microsoft had good reasons to view Facebook as a potential partner in their struggles against Google (remember, Microsoft owns about 1.6% of Facebook). But Oculus founder Palmer Luckey has been outspoken in his criticism of both PS4 and Xbox, saying they don’t have the power to do proper VR. And he has speculated about building mobile wireless chips into the Rift goggles, making them a long-term competitor to the smartphone (link). How will Apple feel about Facebook buying a company that says it’s going to make the smartphone obsolete?

When Google bought Motorola Mobility in 2012, I saw the shock and fear it generated in the Android licensee base. Even though Google eventually sold off most of Motorola, those companies will never again fully trust Google. I don’t think Oculus is the same level of shock to Facebook’s allies, but I suspect they’re now asking themselves whether they can trust Facebook as a partner in the future. That could hurt Facebook in ways it doesn’t even imagine today.

So I’m hopeful because I believe in the potential for VR, but I’m also very worried. For the Oculus deal to work, Facebook needs to understand developers much more deeply, exercise self-restraint organizationally, and navigate a very tricky landscape of allies who are now also competitors. None of those skills are particular strengths of Facebook today.

I hope they can learn quickly.


Edit: There's an alternate view of the deal: What if Mark Zuckerberg really does want to make Oculus into the next generation of computing, not just a social extension? That creates another set of challenges, which I discuss here.