The Foculus Rift

Andy in the Rift

Enjoying some Rift Gaming

I awoke this morning to the news that Facebook has now acquired Oculus, the company behind the Rift.  Outside of Mark and Palmer‘s Facebook posts this appears to have been greeted with an enormous amount of vitriol across the Net.  That alone is reason enough to dust off the blog, and do a more detailed piece about why I actually think it’s a good thing.

It’s Good for Oculus

It’s about Christmas

Anyone in the games industry is probably already somewhat aware that Christmas is coming.  As “toy manufacturers” each year we need to get our goods ready to be stuffed into Santa’s sack.  To us devs, that pretty much means that the Xmas deadline is the 1st September, which gives the games time for the platform-owner to check them out, and then the manufacture and distribution cycle to kick in.  If you go past 1st September you need increasingly more powerful friends to succeed at hitting a pre-Xmas shelf date (which is really the last Thursday in November, due to how US stores will not change their shelf layout between Thanksgiving and Xmas).

Anyone who’s worked on a game with a bundled peripheral, will know that actually the lead-time on the hardware is even longer than the standard software cycle.  I don’t think it’s a big secret that most of our plastic crap is manufactured in the Far East, and usually China.  It takes approximately 10 weeks for a boat with containers on board to sail from China back to Europe.  So really, if you want a peripheral stuffed in your box, then you’re looking at somewhere around a 1st August cut-off for the peripheral manufacture.

At 5 months out, the conversations are now happening to plan the final push for the finish line.  Across the industry, the overtime starts to ramp up from here, to make sure everything is “just right”.

Seize the Moment

To date Oculus has done a tremendous job of feeding the PR machine.  The amount of hype for their device is astronomic, and there are many people super-stoked for its launch (I should probably do a disclaimer at this point: When DevKit2 was announced I picked up 2 instantly, and am a proud owner of DevKit1).

However PR is a double-edged sword, the more you’re being discussed, the more different outlets need new stories to compete with one another. If they start to smell that the product is vapourware, and not coming out on the timelines they invented in their own stories, then they do turn and the results can be very damaging.

On the grand scale of things, there have not been that many projects to complete yet through Kickstarter.  Where Kickstarter is different, is that project visibility has moved from the pre-launch hype window, right out to project inception.  As we’re seeing with Oculus, this is meaning the media now has to grapple with knowing about an unreleased product for somewhere in the region of two years – any more and they’ll start comparing it to “Duke Nukem Forever”, the classic tale of almost-vapourware.

I believe that Oculus would start facing this problem, if they did not have a product ready for launch, Holiday 2014.

Sony

Last week at GDC, Sony announced their competitor to the Oculus Rift – Project Morpheus.  This is a very serious competitor to the Rift, as Sony excels at all the things the scrappy upstart Oculus is going to struggle with: industrial design / display technology / manufacturing / distribution / combative competitive behaviour.  They showed games running produced by 3rd-party studios, which implies that they are at least at the same phase as Oculus; kits in the hands of (select) developers.

If Sony had a mind to hit Holiday 2014 for Project Morpheus, then they have the massive infrastructure required to make it happen. I do however suspect that Project Morpheus for Xmas would be a “rush job”, based on when the press got wind of Sony’s foray into VR.  There are many, many reasons for Sony to desire first-mover advantage in this space, so this is still feasible.

However if the Facebook acquisition now means that Oculus is not going to be out for Holiday 2014 (more later), then I suspect that Sony will delay theirs too, and launch a more refined product.  I don’t hear that the launch wheels are in motion yet (and of course if I had heard, then I wouldn’t be able to tell you!).  However E3 in June is the time when Xmas product announcements are made, so for now this is all pure speculation.

Investment

To date Oculus has received $92.4M investment.  Launching hardware is expensive, as all the units that you intend to initially sell have to be paid for, before you’ve received any revenue – this is known as inventory.  Let’s do some back of the envelope calculations, massively in Oculus favour:

  • They actually had no other costs (salaries / rent etc.)
  • They can direct-sell millions of units, and don’t need to factor in a retailer’s profit
  • They won’t spend a penny marketing it
  • They can hit a 30% profit-margin on each device sold
  • They will launch at the $350 price they are selling DevKit2 for

This gives them a Bill of Materials cost of $245, or enough investment to commit to manufacture of 370k units.  Of course the other assumptions are absurd – in other words their capital reserves are really only in a position to cover a fraction of this.

Screen Technology

VR really needs a 4K 5-inch screen.  Anyone who’s used the 720p DevKit1 can attest to the giant pixels.  I hear that the 1080p screen in DevKit2 is better, but “Retina display” is probably even higher than 4K.  In fact using Apple’s lowest Retina “Pixels per degree” of 57° and using the 90° horizontal field of view of DevKit1, we see that each eye needs a 5K display to be “Retina”, or the underlying screen needs to be a 10K screen to deliver both eyes.

The trouble is that “Retina display” for mobile phones is around the 1080p mark, and right now Oculus is using off the shelf mobile phone parts, to keep the cost at the very feasible $3-400 range.

The takeaway from this point, is that Oculus has to do large numbers of RiftV1 so that they can commit to purchase 100% of the output from a 4K display manufacturer’s fab to get a 4K RiftV2, and continue that success to get an 8K RiftV3.  I suspect that “large numbers” will need to be significantly in excess of a million units – in other words this is completely out of line with what their investment to date can fund.

DevKit2

Last week Oculus announced that they were now taking pre-orders for DevKit2, which will ship in July. As noted at the start of this piece, this would give developers less than 2 months to prepare software for the increased resolution and lower latency – the very things that they’ve identified to make all the difference between a nauseating VR title, and a fun one.

This is not much time. In addition, there have been noises about the consumer unit coming with a SoC (System on a Chip), which DevKit2 is lacking.

Not Ready

So linking all these points together, I strongly suspect that Oculus is not ready for a Holiday 2014 launch of RiftV1:

  • We’re days away from needing to make a commitment to manufacturing.
  • At the moment there’s not enough capital to afford a launch.
  • Developers don’t have the kit they need yet, to finish a VR game
  • Xmas 2014 is the sweet-spot for a launch window.
  • There’s now a serious competitor, so launch has to be successful straight away.
  • An unsuccessful launch, sets all future VR plans back a long while

The Acquisition

In this context, selling to Facebook makes a lot of sense.  No longer are they the “plucky young upstart”, now they’re the huge mega-corporation.  This changes the market dynamic, as VR can now launch when Facebook says it’s ready to launch, as the expensive managed PR hype-window to achieve this is available.

They now have access to an obscene amount of capital, which can more than cover both the manufacturing cost and a very sizable marketing budget.  When they do come to market, they are now far more primed for success and will be able to prove what they need, in order to upgrade the screen tech for RiftV2.

Facebook as a partner is tangential to Sony.  Whatever Sony do now, Facebook is not a direct competitor.  Sony looks likely to attach Morpheus to their hardcore-gamer machine the Ps4, and Facebook is all about the casual-player.  I believe that both of these spaces can be well served by VR and that both products can thrive together on their own terms for some time.

I hear a lot of chatter that the $2B price is too cheap, and if they had successfully brought a VR product to market I would completely agree – however they haven’t!  In fact TechCrunch is reporting that this is one of the highest IRR (internal rate of return) deals in the history of VC investment, and for that I feel that Palmer and the team should be feeling very good about their successful exit, and setting up Oculus to make the huge impact in the VR space that we all want to see.

Fun times…

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