Can Facebook, Inc. Win the Virtual Reality War?

By Markets Fool.com

Facebook CEO Mark Zuckerberg raised more than a few eyebrows last year when he plopped down $2 billion for Oculus and its virtual reality (VR) headset Rift. The $19 billion Facebook spent for WhatsApp was a whopper, but the fast-growing messaging service at least made strategic sense in terms of what Facebook and social media is all about. But VR hardware? That's another ballgame altogether.

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Turns out, there may have been some method to Zuckerberg's madness. According to a new report from Business Insider, the world of VR is projected to explode over the next five years, and Oculus' Rift is poised to lead the way.

Expected to be unveiled to the masses in Q1 of 2016, Rift will be on the front end of what will likely become a gaming revolution. And if Zuckerberg has his way, virtual reality will morph into areas that will go well beyond today's 1.2 billion active gamers.

Sky-high expectations
At its current size, the virtual reality market constitutes little more than a drop in the bucket for a company of Facebook's size. (Facebook generated more than $3.5 billion in revenue last quarter.) As per the recent Business Insider report, VR sales will total a paltry $37 million this year, of which Facebook will garner little to none since Rift isn't expected to roll out until next year.

But fast-forward to 2016 and beyond, and the VR market will look quite different. Between now and 2020, VR-related sales are expected to almost double each year, creating a nearly $3 billion market for hardware in five years, with Facebook being a huge beneficiary. The world's 1.2 billion gamers are the obvious target market for Rift, as well as Facebook's new VR partner Microsoft via its Xbox console.

Off and running
Of course, Microsoft has its own VR-like product called HoloLens, which it bills as an "augmented reality" device. But the two tech behemoths see their newfound partnership as a means to expand their respective offerings rather than compete head to head. For Facebook, partnering with Microsoft and its wildly popular Xbox console could prove to be a boon, and it will almost certainly get Oculus sales off and running.

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According to Microsoft, Xbox usage jumped over 30% last quarter thanks to both sheer volume as well as "deeper user engagement." Now imagine all of those gamers with a Rift headset that's fully integrated with Windows 10, let alone the latest, greatest Xbox games and controls?

Agreements like the one with Microsoft aren't a new concept for Oculus CEO Brendan Iribe. Some Facebook fans may remember that he previously made a deal with Samsung to develop its Gear mobile VR device. And with nearly 1 billion mobile gamers globally, that's yet another VR market that appears ready to explode.

Not all about gaming
When Zuckerberg announced the deal for Oculus, gaming was the obvious first choice in terms of how Rift would be developed and initially marketed -- no surprises there. However, Facebook also made it clear that gaming was just the tip of the VR iceberg.

As Zuckerberg put it:

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.

The possibilities are endless, and by most accounts, the Rift virtual reality experience is at the head of the class.

The deal for Oculus may have seemed as if it were little more than a fanciful notion when Zuckerberg shared the news last year. However, as the Business Insider report makes clear, the $2 billion Facebook shelled out could prove to be a steal.

At an estimated $350 per headset, Rift will be an affordable purchase for those 1 billion-plus gamers around the globe. And to think, that's just the beginning of Facebook's VR ambitions!

The article Can Facebook, Inc. Win the Virtual Reality War? originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple and Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.