“When you looked through those lenses, you saw this bold new world,” Iribe says. The demo was simple, just a 3-D rendering of a bare-bones room with a short set of stairs leading out of it. But the experience was immersive. Iribe could turn his head and look around, and the Rift responded perfectly.
“You saw this incredible virtual world that was believable,” Iribe says. “It was a hint of it, it felt like it. It wasn’t all there, but it was enough that it got us excited. We were hooked.”
Iribe initially gave Luckey $5,000 to help him prepare for the Kickstarter campaign. But after the demo sunk in, Iribe pushed Luckey to expand his vision. Oculus shouldn’t just raise money to sell VR kits to hobbyists, he argued, it should be a full-fledged consumer electronics company. With enough research and development, the Rift could be a mass-market product.
Luckey wasn’t convinced. “I didn’t know if it was going to be something that I’d earn a living from,” he says. “I wanted to sell a few hundred to game developers so that we could experiment . . . I didn’t expect it would pick up fast enough for there to be a big industry around it.”
Still, outside investment could help Luckey improve the quality of the Rift headset, and fund better marketing materials for the Kickstarter campaign, like professionally produced videos. So Iribe gave Luckey a few hundred thousand dollars of seed capital, and the two men split ownership of a new venture. Mitchell and Antonov made smaller investments and received stock. Oculus VR was born.
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The company’s first order of business was launching the Rift’s Kickstarter campaign. Luckey had decided to use the crowdfunding platform because he figured the Rift’s core market of VR enthusiasts and software developers would be most willing to take a risk on the unproven device. Under the terms of the fundraiser, anyone who paid at least $300 would receive their own Rift prototype kit, which they could use however they saw fit.
With Kickstarter, you don’t have people who are looking to make a large financial return; you have people who just want the thing you’re making,” Luckey said. If everything went as planned, those new users would start making software for the Oculus platform, building an ecosystem of games and applications that would eventually run on a mass-market consumer version of the device.
Iribe was convinced it would work and pushed to set the campaign’s fundraising goal at $500,000. But Luckey worried that was too much. He knew there would be demand from VR enthusiasts, but he wasn’t convinced that community was big enough to fund such a large goal. Under Kickstarter’s terms of service, projects that fail to meet their target get nothing; if the Rift didn’t have the commercial appeal Iribe predicted, the project could die on the vine. So shortly before the fundraiser started, Luckey slashed the target to a relatively modest $250,000, and hoped for the best.
On August 1, 2012, the company launched its campaign with a slick presentation on the Kickstarter website titled “Oculus Rift: Step Into the Game.” An embedded video at the top of the page featured Luckey explaining how he started the project, and clips of him tinkering in his parents’ garage. It showed off computer renderings of the planned next-generation Rift prototype—a glossy, futuristic-looking headset, no duct tape or random wires. It included in-game footage from John Carmack’s Doom 3 demo. And short testimonials from video game luminaries including Carmack, Valve Corporation cofounder Gabe Newell, and Epic Games design director Cliff Bleszinski.
Once the public saw the Rift in action, they turned out in droves. The Kickstarter raised its $250,000 funding goal in less than two hours—and kept on growing.
During that first day of the fundraiser, Luckey was in Dallas, Texas, at the annual QuakeCon gaming convention, running demos of the Rift for interested players. “We were probably the smallest booth at the whole show,” Luckey said. “We didn’t have any signage, just a black table. And we had a line that was over two hours long the entire weekend. That’s when I realized, ‘Oh, man, this is gonna be huge. Ordinary people are interested in virtual reality, not just us crazy sci-fi nerds.’”
As the Kickstarter boomed, it became clear that Oculus VR was going to have legs as a company, according to Luckey, and since he was eager to stay engaged with the Rift’s technical development, it was time to add some more experienced management. A few weeks into the campaign, Brendan Iribe signed on as the company’s CEO. Not long after, John Carmack left a post at ZeniMax Media to become chief technical officer.
When the Kickstarter campaign concluded thirty days later, Oculus had raised $2,437,429—almost ten times its goal—from 9,522 backers.
The result exceeded everyone’s expectations. “I expected more skepticism. I expected that people would need to see it before they believed it,” Luckey says. “But even though VR’s popularity kind of died down a little bit over the past decade, I think people never stopped wanting it.
“Other products have this problem where they have to convince people what their product does, what they can do with it, and why they should buy it. In our case, people have always known what they can do with VR—movies and pop culture have been selling it to them for decades. All we had to do was step in with a good solution. There’s no doubt that the demand was there, just sleeping.”
Chapter 5
TWO BILLION REASONS
Some months after Oculus VR closed its $2.5 million fundraising campaign, at a cocktail party during a video game industry conference, a well-known game designer—who was fairly drunk at the time, and thus shall remain nameless—poked me in the chest with his beer bottle and demanded to know if I’d “tried out the Rift yet.” When I told him I hadn’t, his eyes went wide and his voice went up a few dozen decibels.
“Dude . . . dude!” he shouted. “You have to try it. It’s amazing!”
“Yeah, I want to,” I replied as I brushed spilt lager from my shirt. “I’ve heard a lot of hype about it.”
“Not hype! This is the real thing. VR is all I want to do now. It’s changed everything.”
In late 2012 and early 2013, tech circles were buzzing with a new enthusiasm for virtual reality. In January, at the annual Consumer Electronics Show in Las Vegas, Oculus didn’t even have an official presence at the convention and still stole the show; simply running demos for press and executives out of a hotel room was enough to get the Rift on several “Best of CES” lists. A PC Magazine article called it “virtual reality’s greatest hope.”
And the excitement wasn’t just limited to tech insiders. The successful Kickstarter thrust the Oculus Rift under a spotlight, making Palmer Luckey and his hacked-together headset into stars. The crowdfunding campaign proved there was a surprising level of interest in what most people assumed was a dead technology, but it also put a fresh face on VR. A genius teenager in a T-shirt and sandals—you couldn’t make a better avatar for the early twenty-first-century tech industry if you genetically engineered one and incubated it in a lab. In March, at the ultra-cool South by Southwest Conference in Austin, Texas, attendees packed in to see Luckey on a panel discussion entitled “Virtual Reality: The Holy Grail of Gaming.” The hottest ticket in town that week wasn’t to a film premiere or to see a cool new band—it was a demo of the Oculus Rift.
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Just about everyone who tried out the Oculus Rift prototypes agreed that they were impressive, even amazing. But the wow factor doesn’t always translate into sales. When a consumer version of the Rift headset finally made it to stores, what would keep it from becoming just another novelty for VR hobbyists, engineering geeks, and video game nerds?
When I posed that question to Warren Robinett, a computer game pioneer and VR expert who created games including the seminal Atari 2600 title Adventure, he jokingly suggested a mathematical formula to predict the potential success of the Oculus Rift: F > $ + K. In plain English: The amount of fun the system provides must exceed the sum of its cost and clunkiness.
“Use as an example the VR entertainment system that Hasbro developed twenty years ago, and then canned without bringing it to market,” Robinett said. “Hasbro found that to get a system with a low enough cost that consumers would buy it, the LCDs had to be cheap, the optics had to be cheap, the tracker had to be cheap, and as a result, the VR goggles were clunky as hell. It was pathetic.”
In order to succeed, Oculus would have to keep the price of the Rift headset in the ballpark of other consumer electronics—think hundreds, not thousands, of dollars—while still delivering a polished high-end product. Cheap out on any of the components and the result could be literally nauseating.
And the hardware was only half the problem. “Once you pick your design point in the cost versus clunkiness space, you have to give the game designers and programmers a good enough platform that they can actually deliver a decent, fun game,” Robinett argued. “And it had better deliver a new experience you can’t get on an Xbox or PlayStation . . . like looking down and seeing your guts fall on the ground after you get shot.”
In a very real way, the success of the Rift was out of the hands of the people at Oculus; it would depend on whether outside developers produced content consumers wanted. The Rift might be a spectacular piece of hardware, but it would fail without good software. So Oculus didn’t waste any time getting out its very first product.
On March 29, 2013, Oculus VR started shipping its first “development kit,” known as the DK1, as a backer reward to more than 7,500 people around the world—half of them outside the United States—who had pledged $300 or more to the Rift’s Kickstarter.
“It was largely game developers,” Luckey said. “Most game platforms, when they put out development kits, they very strictly limit who they send them out to. They’re generally very expensive, tens of thousands of dollars . . . [and] they’ll only sell them to certain companies that they approve of. We took the opposite tack. We wanted to make development kits available to everyone, whether they were an indie developer working in their garage, or a triple-A developer with thousands of employees.”
Considering that the new headset shipped only six months after the conclusion of the Rift Kickstarter, the campaign’s backers received a remarkably polished product. Like the prototype that preceded it, the DK1 had a 1280-by-800-pixel screen and a 110-degree field of view, but it was all built into a custom-molded black plastic shell, not held together with duct tape. The headset came with three different pairs of replaceable lenses, so users could adjust the optics to their vision, or they could twist a knob to move the lenses and screen away from their face, leaving room to wear eyeglasses. The DK1 also had a variety of built-in sensors and trackers—a gyroscope, an accelerometer, and a magnetometer—to help track the user’s position and movement. A single wire connected the headset to a control box where users could plug in all the data, video, and power cables that connected the device to their computer. And everything came in a padded, travel-ready hard plastic case decorated with Oculus’s corporate logo.
In some ways, the DK1 was obviously still a prototype. The LCD display was relatively low resolution, so the image it produced was distractingly pixelated. It was also prone to motion blur, so moving objects appeared indistinct and streaky. And it shipped with very little software support or technical infrastructure. It was a device meant for experts to learn from and build on. An ordinary consumer would probably never even get it working.
“We told them straight up, ‘We need your feedback. We need you to work with us to make this thing better,’” Luckey said. “I think that really did help us connect with a community of developers who cared about the Rift.”
And developers weren’t the only people interested in the success of Oculus. Ever since the Kickstarter had concluded, investors had been lining up for a chance to buy into the company.
Initially, Luckey had shied away from outside investment, because he figured an unproven product from an unproven company would automatically be undervalued. If Oculus sold shares, it would have to do so at a deep discount from what the business might eventually be worth.
“VR had never had a successful consumer product, ever,” Luckey said. “It had always failed, and there were many examples of companies that crashed and burned, taking hundreds of millions of dollars in investment with them. If I’m an investor, what are the odds that I’m going to want to invest in this new product, no matter how cool it seems, where there’s such a precedent for virtual reality failing spectacularly?”
But then the Kickstarter campaign had proved there was real demand for Oculus’s technology. And when developers who missed out on the fundraiser turned out in even bigger numbers to order the DK1 directly—eventually the company shipped more than 60,000 DK1 units—Oculus executives decided the time was right to seek outside financing.
“Hardware companies are expensive to run,” Luckey said. “It takes a lot of money to design and ship hardware, and you can’t afford to try to stretch every penny that you have and not raise money. We had to raise money to keep going.”
In June 2013, Oculus closed a $16 million Series A funding round co-led by Spark Capital and Matrix Partners, with participation from Founders Fund and Formation 8—all high-profile Silicon Valley venture capital firms—under terms that set the pre-funding valuation of the company at $30 million. Six months later, powerhouse VC firm Andreessen Horowitz led a $75 million Series B round, with additional capital from all four original firms, at a valuation that put Oculus in the $300 million range.
“The dream of VR had been around so long that most people in the technology community had given up on it,” said Chris Dixon, a partner at Andreessen Horowitz. “When we first met Palmer, we saw he not only continued to believe in the dream but also understood how to put all the key underlying technologies together to make it a reality.”
Valuing a VR company with a prototype headset at $300 million struck many as euphoric. But just a few months later, Oculus’s investors looked like the smartest guys in the Valley.
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By the end of 2013, Oculus VR was one of the hottest start-ups in the country. Investors were beating at the door, practically begging to give the company money; designers and developers waited for hours at conventions for a ten-minute demonstration of their technology. Sometimes it seemed like every executive in Silicon Valley wanted to schedule a meeting. Most of them got turned away by necessity. But there was one tech icon who was so important that when he called, he got connected instantly.
Mark Zuckerberg, the billionaire founder and CEO of Facebook, was friendly with Brendan Iribe, and they had a few general conversations about how the two companies might work together. Luckey also corresponded with Zuckerberg via email, and the two bonded over shared interests in technology and science fiction. “We started off talking to Zuckerberg because we wanted to show off our stuff,” said Luckey. “He’s a big fan of virtual reality, and I think he believes in the same vision that we have, that everyone in the world is going to be exposed to VR.”
Iribe and Zuckerberg talked several times in early 2014 during visits to each company’s offices, and eventually the Facebook CEO had a eureka moment during a demo of the latest Rift prototype. “I’d seen VR before, but this was by far the best experience I’d ever seen,” Zuckerberg said. “It was like teleporting to some other place just by putting on a headset, and it was so good that I didn’t really want to leave.”
Initially, Zuckerberg’s conversations with the Oculus cofounders had been general and hypothetical, along the lines of establishing a technical partnership, perhaps a way to adapt Facebook to the Oculus platform. But after his eye-opening demo, Zuckerberg started thinking that Oculus was the key to something bigger—an entirely new communications platform, rather than just a new route to Facebook.
Meanwhile, Iribe and Luckey realized that Facebook’s financial backing could actually make VR a
mainstream consumer technology. “We really needed to get this hardware off the ground and to consumers, and building hardware is really expensive,” Luckey said. “Let’s say you want to sell a million of these things—that means you have to have a few hundred million in cash just sitting around to build them.” At the time, Facebook had a market capitalization of more than $168 billion, and Zuckerberg had a personal net worth of more than $13 billion, making him the sixty-sixth richest person on the planet. That massive war chest would give Oculus a huge advantage in the unforgiving consumer electronics market.
Once both companies had arrived at the same conclusion, it took less than a week to negotiate the details. On March 25, 2014, Facebook announced that it would acquire Oculus VR in a deal worth $2 billion—$400 million in cash up front, 23.1 million Facebook shares, and another $300 million in performance incentives.
Naturally, Zuckerberg revealed the deal via a post on his Facebook timeline. “Our mission is to make the world more open and connected,” he wrote. “We feel we’re in a position where we can start focusing on what platforms will come next to enable even more useful, entertaining, and personal experiences.”
In Zuckerberg’s vision, virtual reality would provide a natural extension of Facebook’s services, another way to share your life with friends and family. But instead of posting a picture or video of something after the fact, VR would allow users to actually experience events together, even if they live thousands of miles apart.
“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,” Zuckerberg wrote. “Imagine sharing not just moments with your friends online, but entire experiences and adventures . . . One day, we believe this kind of immersive, augmented reality will become a part of daily life for billions of people.”
Defying Reality Page 8