Facebook surprised game fans last week by sliding its pointy, vampire teeth deep into the videogame industry. Oculus VR is a company that was quite literally fueled by community enthusiasm—enthusiasm that was converted to Kickstarter donations. So, when Facebook announced that it was planning to purchase the company, all of that enthusiasm was replaced with confusion and hostility.
But the fact that this acquisition caught so many people off guard, even after reddit predicted it, points to a misunderstanding about Facebook’s primary business model. Sure, the company is dressed up like an unassuming social network, but looks can be deceiving.
Here’s a tweet that sums the situation up nicely:
Yup. Facebook became Google, but it happened a long, long time ago.
People don’t even bat an eye when Google announces some kind of crazy acquisition or weird project. This is a company that’s currently working on a driverless car, invested $40 million on North Dakotan windmills, and recently started buying robotics and artificial intelligence companies by the boatload.
Everyone kind of giggles when Google announces another investment, but chalks it up to Google being Google. Everything seems to make sense when you’re a nebulous technology company.
Google has made millions from its goofy projects, and the company is constantly expanding into new areas. But, I’ll let you in on a little secret: Google’s primary business is data acquisition.
Don’t forget that the centerpiece of Google’s business plan is its search engine, which generates ad revenue and collects massive amounts of customer data. Mining this data for popular trends helps Google predict which investments will be good, and which will fall apart. It’s like a roadmap for consumer spending in the near future. And when it comes to data, Facebook and Google have a lot in common.
At one point in its history, long before I had to pay to promote my own status updates, Facebook was a simple social network. But these days, the vast majority of its revenue is made from advertising, which means that Facebook, like Google, is in the data collection biz.
Facebook knows where you live. It knows your phone number. It’s familiar with your crappy taste in music, and it knows which videogames you’re currently playing. It also knows how you feel about the Oculus Rift, based on your likes and sharing history. If anyone has the data to support a swan dive into the virtual reality market, it’s Facebook.
Avinash Kaushik, the Digital Marketing Evangelist at Google, assured me in an email that Facebook has the data to back up its acquisitions. “Unquestionably yes,” he said. “But many of the acquisitions these companies do are related to the future, the possibilities a few years out. And in that sense some of the ‘now data’ is less useful than you might imagine.”
Facebook’s data definitely has a short shelf life, but in Oculus VR’s case, hyper-recent data is vital. The second Oculus Rift development kit is already available, and the consumer version is expected to launch in late 2014 or early 2015. So, any data that Facebook has will be salient when the product hits the market. And since Facebook is already stalking each and every potential customer, it shouldn’t be difficult to advertise effectively.
Social networks and virtual reality certainly aren’t a match made in heaven, and Mark Zuckerberg’s awkward announcement message makes the connection sound even more forced. But this is the type of acquisition that makes sense for Facebook’s data, and if Zuckerberg wants his company to avoid a MySpace-like extinction, he needs to build a parachute.
Catherine Tucker is an economist and marketing professor at MIT’s Sloan School of Management. She believes that Facebook is planning for its inevitable demise. “I don’t really view the purchase [as] being about data usage,” she said in an email. “Instead I view it [as] Facebook perceiving that its grip on the social networking market is fragile and to consequently always be looking about for the next big thing in case technology and consumers move on.”
Until last week, Facebook has been focused on staving off extinction. The company purchased Instagram in 2012, and spent $19 billion on WhatsApp in February. Neither Instagram nor WhatsApp has been flooded with advertisements, which means that Zuckerberg’s crew isn’t looking for ad revenue. They’re collecting smaller social platforms to support their current business model: the collection of precious data.
Oculus VR, however, is a step outside of Facebook’s wheelhouse, which means that Zuckerberg probably won’t attempt to turn the Oculus Rift into some kind of Facebook-centric Frankenstien device. Chaining Oculus VR to Facebook’s current business model would make it vulnerable to a social media meltdown. And that would poke holes in the parachute.
It’s probably safe to assume that Oculus VR isn’t the only company that Facebook has its eye on. Even with Zuckerberg’s massive checkbook, virtual reality is still a niche market and will probably never hit Facebook-like levels of profitability. So, differentiating between Facebook and Google is about to become even more difficult.
Josh Engen is a freelance journalist from Minnesota whose work has appeared in Sports Illustrated and The Escapist. He still thinks the Virtual Boy will be the next big innovation in virtual reality.