Although the remarks about VR and Facebook (NSDQ: FB) Oculus Rift are rampant, it has to be said that this is not a subversive change. In fact, a similar situation has already occurred before. Nintendo is the first company to develop a virtual boy. However, due to the high price and the immature technology, it ended in failure. The times have changed and technology has flourished. However, price may be a key factor in determining success or failure. The following analysis of why the acquisition of Oculus would be a wrong decision and may damage Facebook's stock market.
Optional accessories
Unfortunately, the application of VR is quite limited. Basically what I have seen is a wave of first-person games with VR heads. There are many choices for customers, and most of them tend to be in the game field.
Personally, I tried a VR headshot and got tired after 2 minutes. I don’t feel how immersive it is. This makes me think that VR is just a gradual innovation based on the first person perspective.
Alternatively, it can be considered a similar accessory to the Nintendo Wii motion controller. Just as people need to pay for the entire motion control experience of the Nintendo Wii, the same is true for VR. Since the Oculus Rift is so expensive, people may choose cheaper accessories such as PlayStaTIon VR.
Competitive Advantage
Sony's $400 price is more affordable than the Oculus Rift (Source: PC Magazine)
There are many reasons why Facebook does not have a competitive advantage for Oculus Rift.
First, Sony, not Facebook, which dominates VR's market share. Sony's 30% market share is almost three times that of Facebook. Facebook is one of the last companies to enter the VR market, which is one of the best manifestations of the post-movement advantage, and why Facebook does not have a sustainable competitive advantage. Once technology enters the market, it will produce a cottage, and the maximum income will drop sharply.
Second, Facebook's Rift lacks the value creation and acquisition of its market segments. Media commentary that affects product perception is clearly more inclined to Sony VR, including a lighter and more glamorous design, and a quick set-up for gamers. I used to be a gamer, and I can say that we like the plug-and-play model. We don't like to think.
As mentioned earlier, in addition to ease of use, Sony's Red Sea strategy is also the most likely factor to win customers. Compared to the Oculus Rift, Sony's $400 price is more affordable.
Diversity
I want to consider the issue of Oculus from a theoretical perspective. Oculus is not the core of social media like Instagram and Whatsapp, so I think it's a form of diversification in a non-related market segment. Studies have shown that non-related diversification tends to have a negative impact on company performance and has a 70% failure rate. Within an average of seven years, a failed acquisition will be abandoned. The reason for the failure seems obvious, but it is not. Some reasons include: over-bidding, management arrogance, unachievable synergies, and a non-existent future.
How will Facebook succeed?
Facebook needs to focus on its core - social media. Only Berkshire Hathaway, a company that has succeeded in pursuing non-related diversification. This is a rare situation.
I have pointed out the most influential social media platform as of September 2016.
(Source: StaTIsTIca)
The data on Facebook's social media platform won't lie. Facebook needs to focus on these areas, not games. Ask Microsoft if you can. Although they have been involved in the game field for some time, they still can't get a considerable profit. However, when Microsoft returned to the computer field, profits began to increase. It forms a comprehensive ecosystem of clouds, mobile phones and computers. Facebook social media is also facing the same integration. But the acquisition of VR seems to be difficult to integrate into the Facebook ecosystem.
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