Why Facebook Plans To Bring Virtual Reality To Social Networking?

Facebook (NASDAQ:FB)  recently announced that it has created a social VR (virtual reality) team focused entirely on exploring the future of social interaction in VR. According to the company, VR will enable a new kind of social connection in future – like “the ability for friends who live in different parts of the world to spend time together and feel like they are really there with each other”.  ((New Step Toward The Future Of Virtual Reality, Facebook Newsroom, February 21, 2016)) Facebook is looking to deliver “real” social experiences in future and promote virtual reality as the “most social platform”. We believe with its Oculus Rift VR headset now available to pre-order, Facebook is looking to bring VR technology into mainstream and make it part of people’s daily lives, which should create a bigger market for its VR hardware.

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A Futuristic Social Platform, Bigger Market For Hardware

According to market researcher Trend Force, the total value of virtual reality market, including software and hardware, will reach $ 70 billion by 2020, a tenfold increase compared to the $6.7 billion number projected for 2016. ^[1] While Facebook is well poised to capture this trend by its acquisition of virtual reality pioneer Oculus for $2 billion, the company appears to be looking at making virtual reality more main stream and generate higher revenues from VR software and social experiences. Since the launch of Samsung Gear VR powered by Oculus in November 2015, Facebook stated that the response has been incredibly strong with over a million hours of video already being watched on Gear VR. ^[2].  While virtual reality is currently being used primarily for gaming, Facebook’s newly created VR team will focus on building social apps in VR to create a mass appeal.

Virtual reality (VR) is believed to offer the most compelling and effective digital advertising with  it is immersive and experiential. Brands such as Coca Cola, HBO and Nissan have ventured into virtual worlds and as this technology becomes more affordable and easily available, an increasing number of advertisers are likely to invest in virtual reality ads. ^[3]  In September 2015, Facebook rolled out a video creation tool which allows publishers to post 360 degree clips to their pages, which can be viewed on Android phones, tablets, desktops and iOS and Samsung gear devices as well. ^[4]  The company announced that it is taking an important step towards improving 360 video in VR and bringing its dynamic streaming technology for 360 video to Gear VR. ^[2] According to our estimates, advertising on the core Facebook platform accounts for more than 70% of its valuation and average revenue per user (ARPU) from advertising is a key driver of this valuation. We expect Facebook’s U.S. and Canada ARPU to increase steadily and reach $80 by the end of our forecast period.

We believe by investing in virtual reality for social networking, Facebook is looking at a twofold benefit. In future, its core platform will be able to provide a new way of social connections, attracting more advertisers towards virtual reality advertising and it will be able to create a larger market for its VR hardware.

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1. Virtual Reality Could Generate $ 70 billion in Real Money by 2020, re/code, December 2015 [↩]
2. Ref 1 [↩] [↩]
3. Virtual Reality: The last frontier in native advertising, Venture Beat, October 2015 [↩]
4. Facebook’s Virtual Reality-Style Ads Are Here With Big Brands On Board, AdWeek, November 2015 [↩]