Digital advertising is getting popular day by day and social media giant Facebook (NASDAQ:FB) is on track to increase its market share. Recently it bought a technology start-up for a hefty $2 billion. Although there are mixed views on how far the new technology can be integrated with Facebook’s applications, CEO Mark Zuckerberg’s vision is clear. Let’s find out what the acquisition is all about and whether it would be a profitable venture for Facebook.
The Oculus Acquisition
Facebook took over Oculus in the last week of March and inherited the company’s immersive virtual reality technology, which the social networking giant plans to use to boost ad revenue.
Two-year-old Oculus has developed virtual-reality or 3D goggles named Rift for gaming. Although mass production of the device is yet to begin, Oculus confirmed that it has distributed nearly 75,000 software development kits to game developers.
Though the Oculus acquisition will not be immediately accretive to Facebook’s profitability, it has immense potential. Facebook has plans to enrich users’ online shopping experiences through Rift. Wearing Rift, a Facebook user can reach a virtual marketplace, get an inside-out view of the desired product, and compare it before making any purchases. This would pique buyers’ interest and marketers could land up selling more products via Facebook.
Facebook generates almost 90% of its revenue from advertising. Last quarter, Facebook’s revenue grew 63% year over year buoyed by a 76% growth in advertising revenue.
The buyout also puts Facebook in a position to compete in the "wearable device" market that is being explored by tech biggies Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Sony (NYSE:SNE). Both Google and Sony are testing their respective wearable devices and very soon a tech war could be waged between Oculus Rift, Google Glass and Sony Morpheus.
A Lead Over Google?
Perhaps it would have better suited Google to acquire Oculus as that way Google could have lessened a rival for "Glass." Google glass is a wearable computer, featuring a touchpad, camera and optical display. But foreseeing the future of virtual reality within the social media platform, Facebook was quick to pick Oculus.
Some Oculus investors feel that Facebook can keep the Rift competitively ahead. The deal actually reminds them of the time when Google purchased mobile operating software maker Android in 2005 and became a tough competitor to Apple’s iOS platform. Only time will tell whether Facebook can be as successful as Google.
But the possibility of Facebook dominating digital advertising with Oculus is definitely more realizable. Although Google is by far the leader in this market, Facebook has made commendable progress to secure the second position by beating stalwarts Yahoo and Microsoft.
Facebook’s growing share is because of its popularity. According to a study conducted by Adobe Systems (a digital media and marketing software solutions provider), Facebook is currently earning higher "revenue per visit" compared with its rivals. A UK-based e-commerce site Shopify also confirmed that majority of its visitors are from Facebook. In fact, orders from Facebook users form almost 85% of Shopify’s total orders generated from social media.
The trend shows that users like to click on advertisements on Facebook’s webpage. With Oculus Rift, the viewership can only get better.
Facebook is a comparatively new player in the huge technology sector, but it was pretty quick in making its presence felt. It’s too early to say if Facebook can beat the undisputed Internet king, Google, in the digital advertising market, but successful integration of and synergies from Oculus could take this social media player to new heights.