After founder and CEO Mark Zuckerberg announced on his Facebook page his company's acquisition of Oculus VR, the creator of the virtual reality headset Oculus Rift, the question on many minds was, "Why?" What is the business justification for investing $2 billion into a technology that today is anticipated to serve a niche market in the gaming community? Who will be the customers of this technology beyond those that Zuckerberg mentioned who seek a "completely immersive computer-generated environment?"
In the following paragraphs I will propose and support the argument that Facebook invested in "the Rift" for a combination of reasons: the imminent appearance of new technological innovations; the ongoing augmentation of our reality by technology; the continual aggregation of information about us; and ongoing social and economic change.
Following the Clues
The clues to why Facebook made this investment lie in what else Zuckerberg had to say in his announcement. He continued, "Virtual reality was once the dream of science fiction. But the Internet was also once a dream, and so were computers and smartphones." Is this what the acquisition was all about--chasing a dream? Is it possible that this $2 billion bet is not about "science fiction," but will instead be part of bringing the "future to the world, and to unlock new worlds for all of us," as Zuckerberg concluded?
This investment is equal to roughly 1% of Facebook's market value, which at the time I write this post is estimated to be $155 billion. Yes, this investment is smaller by several magnitudes than Facebook's investment in WhatsApp, but it is still a heavy price tag to pay for a science project. There are legitimate questions about the business value of the technology itself. Just a few short months ago in October 2013, the MIT Technology Review asked the yet-to-be-answered question, "Can Oculus Rift Turn Virtual Wonder into Commercial Reality?"
In my mind, this acquisition is about more than a set of high-tech goggles. This investment is part of creating the future of the customer experience. I believe that Mark Zuckerberg and Facebook's management see something that many have missed. This begins with the fact that progressively our reality becomes more augmented by technology each second. Sometimes this is as subtle as in a recent scenario when I emailed my son his itinerary for a trip we booked for him to fly to see his grandfather: His Droid smartphone automatically extracted that information from his Gmail account and notified him when it was time to leave for the airport.
At other times, this augmented reality is more overt. At the airport my son "met" the three dimensional bi-lingual Virtual Greeter who is there to prepare passengers for the security area in the terminal. According to the technology's provider, Tensator, "Innovative HD projected imaging and audio-visual technology creates the illusion of a real person and is customized to deliver specific messaging."
The first time I came across this lifelike three dimensional avatar in Logan Airport's Terminal C" I took pause. For a moment I thought it was a real person. To my son, a member of the first generation of digital natives, his mindset was more of, "Where have you been?"
I believe that Facebook is looking past the geekish goggles that represent today's Oculus Rift form factor, to the near future that today's augmented reality and virtual greeters portend. What Facebook sees is a technology that will be key in the world of the not-too-distant future when there becomes little distinction between the virtual and the real. Facebook sees a world much like that described in the video, A Day Made of Glass... Made possible by Corning:
Increasingly our new reality will be a world where the physical environment responds in ways that are customized to our individual context. Soon we may walk through a mall and enter a retailer known for individualized customer service such as Nordstrom. We may be greeted by a custom avatar who not only knows who we are but can draw upon a digitized profile of us as a customer. The algorithms driving the avatar's "intelligence" will be able to extrapolate insight into what the company's experience means to us.
Today, our purchase history is already fodder. What we have looked at on the store's website or mobile app, too. How long we looked. How many times we returned to a particular category or item online or physically in the store. Any transactions, inferences, behaviors, actions and movements in the real world or online become part of predicting what we want and how we wish to be served.
The trip to the mall may be an easily-understood example of that experience, but in fact the physical visit to an actual retail location is becoming rarer and reserved for special occasions and elite customers. Commerce is changing dramatically. According to USA Today's recent article, "Are malls becoming extinct?", the nation's enclosed malls, "Are currently struggling with vacancy rates of 35% to 50%." In the article, "The Death of the American Shopping Mall," The Atlantic Cities' Jeff Jordan quotes Green Street Advisor as having forecast that, "10 percent of the roughly 1,000 large malls in the U.S. will fail within the next 10 years." According to CNN, 35 to 40% of visitors to Minnesota's Mall of America are tourists.
The future of commerce is shifting with tectonic momentum. Foot traffic to brick and mortar retailers is steadily being replaced by e-commerce. According to the US Census Department, as emphasized in the graph below, the long-term trend continues, with online sales increasing 16.9% year over year in 2013. E-commerce now accounts for almost 6% of all sales in the US economy. Beyond tourists, "Malls are accordingly gravitating toward higher-end stores and retail categories that have, so far, been better insulated from the effects of e-commerce," the USA Today article continues. The effects of these dramatic changes are part of what Facebook may see through their Oculus Rift goggles as they point them to the future.
More facts supporting my premise include that on Christmas Day 2014, 48% of all online purchases came from mobile devices, according to IBM Smarter Commerce Strategy Director Jay Henderson.
"Companies like Apple and Google and Microsoft are building an ever-expanding history of our locations and movements, and trade on this information for profit," wrote technology investigator Hiawatha Bray, in a recent Boston Globe article. Bray included the example of Acxiom, a company "which has files on about 190 million Americans and a half billion people worldwide."
The markets also signal a direction. Investors in CBS Outdoor, the national provider of outdoor messaging, surprised markets as investors drove the stock price up 7% after the company's initial public offering.
Soon, as in Corning's world view, every pane of glass we pass will become a digital interface. In CBS Outdoor's goal, every highway signpost, building side and rooftop will become a surface that can be digitized. Every bit of data we give out, cooperatively or passively, is becoming the input into algorithms creating the next generation of branding and customer experience.
The technology is here. The commercial motivations are here. What is left to be answered is, what companies will have the vision and execution to adapt? Those who don't will join brands including "Circuit City, Borders, CompUSA, Tower Records and Blockbuster" in the sedimentary fossil record, as technology causes all of their extinction.
To many in my demographic--those of us who once marveled that we could send data across the public switched telephone network at 54 kilobits per second--this new reality may seem like science fiction. To those for whom there was never a digital future--Mark Zuckerberg, my son's generation, the two additional generations of digital natives born in his lifetime, and those young folks depicted in Corning's Day of Glass--the digital present and the future of customer experience is overdue.
