by Randall Lane
The idea for immersive computer displays emerged in the 1960s. Early VR prototypes were primitive, bulky, and hugely expensive, built mainly for government and military applications like air force flight simulators. In the 1980s, the personal computer boom raised hopes for smaller, more consumer friendly headsets, and inspired new art that romanticized virtual worlds: Consumer interest in the technology took off after William Gibson’s 1984 novel Neuromancer, and peaked when nearly a dozen related films (including Johnny Mnemonic, Virtuosity, and Strange Days) were released in 1995.
But while the movies sold tickets, the products went nowhere. Sometimes, excessive costs killed them in their infancy: In the early 1990s, Hasbro spent $59 million and more than three years developing a console and headset called the Home Virtual Reality System, before abandoning the project. CFO John O’Neill told the Associated Press that the gadget’s $300 price tag would have priced it out of the consumer market.
More often, VR was doomed by technical problems. In 1996, Nintendo released a $180 video game console called the Virtual Boy, but its promise of three-dimensional graphics fell flat. The headset’s red monochrome display, low resolution, and use of high-speed vibrating mirrors gave its users neck pains, dizziness, nausea, and headaches. Nintendo sold less than 800,000 units and discontinued the product after a year.
The teenage Luckey went hunting for evidence of this arcane technology. He scoured eBay sales for outdated and abandoned bits of VR hardware, and slowly amassed an impressive collection; in one score, he bought a $97,000 headset for only $87. To fund his efforts, he taught himself basic electronics, and made $30,000 by buying broken iPhones, repairing them, and flipping them for a profit.
From these failures, Luckey hacked something new. “I was modifying existing gear really heavily, using new lenses, trying to swap lenses from one system into another,” said Luckey. “I built some shitty stuff.”
With time, his work improved. In 2009—when he was only seventeen—Luckey started building the PR1, or Prototype One. “The entire optical system was all custom for that head-mounted display,” he said. Meanwhile, college beckoned, and the homeschooler stayed close to home—Cal State, Long Beach, studying journalism, of all things. (“I wanted to be a tech journalist who understood how the technology worked.”)
He kept working on VR systems in his free time, and in the summer of 2011 landed a part-time job working with virtual reality pioneer Mark Bolas at his lab in the Institute for Creative Technologies at the University of Southern California. “Without Mark, there would be no Oculus,” said Jaron Lanier, a computer scientist who popularized the term “virtual reality.” Bolas and his students had spent years refining hardware and software for VR headsets, and all their innovations were open-source; Luckey absorbed their wisdom and their technology, and quickly applied them to his own work.
In April 2012, nineteen-year-old Palmer Luckey completed the sixth prototype of his home-brewed VR rig. He named it after the gap he hoped it would bridge between the real world and the virtual: the Rift.
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PALMER LUCKEY’S PRODIGIOUS SUCCESS could not have happened even a generation before. The open-source head start allowed him to begin his quest on second or even third base, for free, without legally owing anyone a penny. He then harnessed the hive to hone his thinking, collaborating in discussion groups like the forums of a website called MTBS3D, or “Meant to Be Seen in 3D.” Each of his six prototypes was constructed with help from these online enthusiasts, and in turn, Luckey frequently helped solve technical problems for other members of the crew.
At least one of those forum members was no ordinary hobbyist. John Carmack made his first splash in the video game business when he cofounded id Software in 1991; over the following decade, he cemented a legendary reputation working as lead programmer on games including Quake and Doom. In April 2012, he posted for help modifying a Sony head-mounted display. Remembered Luckey: “We had a public discussion about why it would be very difficult to do . . . and then a couple weeks later, he contacted me in a private message and asked if he could buy or borrow one of my prototypes.”
Luckey shipped out one of his Rifts. Two months later, at the annual E3 video game industry expo in Los Angeles, Carmack demoed a version of Doom 3 on the hardware, and sung the rig’s praises to anyone who would listen. Word of Luckey’s gadget spread quickly. Brendan Iribe, then chief product officer at game-streaming company Gaikai, met him for a demo, and was so impressed he offered an investment on the spot. In July 2012, with a few hundred thousand dollars of Iribe’s money as seed capital, Oculus VR was born.
The crowdsourcing, however, was just beginning. On August 1, 2012, Luckey launched a campaign to raise funds so he could build a new prototype and put it in the hands of software developers. He chose Kickstarter, a site that helps people fund passion projects—documentaries, invention prototypes, or whatnot. Donors at the time were banned from getting equity stakes, due to securities laws (the JOBS Act loosened up crowdfunding rules in 2013)—instead, they usually got anything from a T-shirt to the product they were helping to develop.
“If I’m an investor, what are the odds that I’m going to want to invest in this product, no matter how cool it seems, when there’s such a precedent for virtual reality failing horribly?” Luckey said. “I think it would have been very hard to get any other investments . . . but 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.”
Under the terms of the fund-raiser, anyone who was paid at least $300 could receive their own Rift prototype, which they could use to start making software for the platform. Luckey knew there would be strong demand from VR enthusiasts, but was worried that community wasn’t very big, so he set the campaign’s goal at a relatively modest $250,000.
Once the public saw the Rift in action—and heard testimonials from video game luminaries like John Carmack, Valve cofounder Gabe Newell, and Epic Games design director Cliff Bleszinski—Luckey’s fears melted away. The Kickstarter leapt past the $250,000 mark in less than two hours.
During the first day of the fund-raiser, 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,” said Luckey. “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—after thirty days, it topped out at $2.4 million, from 9,522 backers—it became clear that Oculus VR was going to have legs as a company. And Luckey, unlike other wunderkinds, saw his limitations as an executive. His seed investor, Brendan Iribe, became CEO. Shortly after, John Carmack left a post at ZeniMax Media to become CTO. Luckey’s title would simply be “founder,” and he would continue in a grander, more general role, as the face of virtual reality.
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THE KICKSTARTER HOME RUN provided more than just a war chest (and one that didn’t carry any dilution, other than being on the hook for hundreds of prototypes). It turned Luckey, and Oculus, into video game world superstars. At events like South by Southwest and the Game Developers Conference, attendees continued to stand in line for hours to get demos of the Rift.
Venture capitalists started lining up, too. 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. The pre-money valuation was $30 million. Six months later, Andreessen Horowitz led a $75 million Series B, with additional capital from all four original firms at a valuation likely 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,” says Chris Dixon, a part
ner 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 twenty-one-year-old’s prototype headset at $300 million struck many as euphoric. Within weeks, though, it was proven to be a genius investment. Facebook’s Mark Zuckerberg had reached out to Luckey in his preferred fashion, via e-mail, a few months earlier. The older wunderkind and the younger bonded over technology and, yes, sci-fi, and eventually, Zuck came to the Oculus office to try the Rift.
“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.” Zuck in turn told Luckey and Iribe that they may have stumbled into the next generation of computing—an entirely new way for people to communicate, rather than just a new route to Facebook.
A month after that visit, the two teams spent a week hammering out a deal, which eventually totaled $2 billion, including $400 million in cash up front, Facebook stock to fill out the rest, and another $300 million in incentives. Luckey was enamored by the credibility Facebook could bring. “I have been a skeptic of Oculus,” said Michael Pachter, an analyst at Wedbush Securities, tellingly. “And then Facebook came along. Facebook is looking at the hardware as a platform to do other things than gaming—maybe instruction, teaching—and Facebook will get third parties to make content. Now Oculus can realize a broader strategy, with a big bank account behind them.”
Indeed, that war chest was an equal consideration. “Let’s say you want to sell a million of these things,” said Luckey. “That means you have to have a few hundred million in cash just sitting around to build them.” Facebook, in other words, could actually make VR a mainstream consumer technology.
Facebook could also make Luckey rich. Forbes estimates that Luckey owned around 25 percent of Oculus VR, meaning the twenty-one-year-old was suddenly worth a half billion dollars.
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SO WHAT STANDS IN the way of making virtual reality a reality? First, a lawsuit: ZeniMax charged in May 2014 that its former employee, John Carmack, gave Oculus proprietary information (Oculus denies the charges).
Second, there’s competition. In March 2014, Sony announced it was developing its own VR headset, codenamed Project Morpheus, for its PlayStation 4 video game console. “We see it first and foremost as another way of building vibrancy and value into the PlayStation ecosystem,” said Andrew House, president and CEO of Sony Computer Entertainment. “VR is very hot, and not just for games. Non-game people are just coming out of the woodwork because they’re interested in this.”
Google and Amazon, meanwhile, wait in the wings. Google so far has shown more interest in augmented reality—inserting computer displays into the real world, à la Google Glass—than wholly virtual worlds. Amazon has been silent on the topic, but virtual shopping malls are one of the most obvious and promising applications of VR—instead of looking at a two-dimensional photograph of a product, you could pop on a headset and handle it, play with it, or try it on.
The final bit of caution: In 1985, computer scientist Jaron Lanier left his job at Atari to found VPL Research, the first company to ever sell a VR headset. It filed for bankruptcy two years before Palmer Luckey was born. “Recent events are weird for me in a way that the folks at Oculus couldn’t possibly know, in that so many of the designs, the headlines, the little intrigues, and the chatter are similar to what I experienced over thirty years ago,” said Lanier. “All I can say is that I wish Mr. Luckey all the success in the world.”
Luckey is aware of this failure, and many others. This time, however, he thinks the technology is finally ready. “I don’t think there are any comparable products right now,” said Luckey. “We’ve got the best team in the virtual reality industry, we’ve got a lot of the best people in the games industry, we’ve got big partnerships with hardware manufacturers and game developers. I think we’re on the path of making the world’s best virtual reality hardware . . . and I think the consumer product is going to be way ahead of anything anyone else can do for the next couple of years.”
And even if it’s not, Luckey is determined to pursue his dream. Oculus has been in acquisition mode in 2014, buying Carbon Design Group, a Seattle-based product design studio, and RakNet, a game networking engine that, fittingly, is open-source. Cash is no longer an issue for Luckey. And he certainly has the time horizon. “Five years from now, I don’t know if everyone’s going to have a headset,” he said. “But I’ll be doing this until it happens, or until I die.”
CHAPTER 15
Adi Tatarko, Houzz: Breaking into the Boy’s Club
Silicon Valley has a woman problem. The number of tech start-ups helmed by women is pathetic when measured against the potential talent. And the “bro” culture, an unfortunate by-product of a place and time where young men reign supreme, can be even worse. That’s what makes Adi Tatarko especially interesting. Yes, she and her husband have, with far less fanfare than their peers, quickly built up a personal fortune approaching $1 billion, thanks to their ascendant home design site, Houzz. But George Anders details how Tatarko faces hurdles and dilemmas that her male peers simply don’t.
Silicon Valley start-ups tend to get cranking in the rough-and-tumble domains of male engineers: garages, college fraternity rooms, or high-powered tech incubators. Adi Tatarko started Houzz, a Web-based home-design community valued in 2014 at more than $2 billion, in a beanbag chair in her children’s bedroom.
She and her husband, software engineer Alon Cohen, had wanted to upgrade their kitchen and add an extra room to their sunny three-bedroom ranch house in Palo Alto. Yet after two and a half years of flipping through magazines and meeting with architects, they remained stumped, and were especially frustrated by the lack of an online one-stop shop of design ideas. So the couple decided to build one. He worked in a nook next to the kitchen, coding the site. She drummed up content, coaxing a former Sunset magazine editor, Sheila Schmitz, to join her. In one of their earliest chats, back in 2009, Schmitz recalls, Tatarko scrunched down on that beanbag chair and spelled out the guiding philosophy for a site that would ignore everyone else’s proven formulas for e-commerce and opinionated blogging, in favor of a maverick approach that encouraged innocent window-shopping. Five years later, Houzz was one of the two hundred most visited websites in the United States, ahead of the likes of People magazine, United Airlines, and CNBC.
From the family setting to soft-sell strategy, it was an unusual start. But Houzz is an unusual company. Of the 150 largest companies in Silicon Valley in 2013, according to a study by the law firm Fenwick and West, more than 43 percent didn’t even have one woman on the board of directors (versus just 2 percent of the S&P 100), and over 45 percent had nary a single female executive (S&P 100: just 16 percent). Company founders? A rough survey indicates that just one in twenty venture-backed start-ups is woman-run, and those that get off the ground raise perhaps two-thirds as much money. Some of that bias stems from an education system that dissuades girls from science and math; some of it comes from Silicon Valley’s geek-cool “bro” culture. Yet all of it seems to work as an advantage for Tatarko, a verbal tornado who is less likely be talked over than even the most garrulous, deep-voiced man. For the Houzz CEO, her gender helps her understand her market, and create a culture that’s at once rambunctious (“She has no boundaries,” whispers one of her male investors) and inclusive (she serves cake for each of her two hundred employees’ birthdays).
“I’m a woman, so I’m more emotional,” said the forty-one-year-old CEO. “I need things here and now.” Her employees sometimes do impersonations of Tatarko, declaring some big new business goal, while her forty-three-year-old husband, the president and chief technologist, frets that she has promised too much. These skits (and real
ity) always end the same way. The deadline arrives; Houzz’s performance surpasses even Tatarko’s ambitious forecast, and the CEO rises to her feet to gleefully declare: “We did it, even though Alon said we couldn’t!”
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IT’S NOT A COINCIDENCE that one of America’s most successful women tech entrepreneurs hails from Israel, a country correctly dubbed “Start-up Nation,” its tech dynamism fueled in part by the training and maturity forged from mandatory military service—for men and women. Growing up in Israel in the 1980s, Tatarko drew inspiration from a mother who was a real-estate broker and a grandmother who had been a prominent fashion designer for decades, who flew to Paris on her own for exhibitions when women simply didn’t do such things. “I remember coming to my grandmother’s home and being fascinated that she was juggling everything so well,” Tatarko recalled. “She had great support from the rest of the family, and I was so proud of her.”
An international studies major at Jerusalem’s Hebrew University, Tatarko graduated in 1996 with hazy plans to travel abroad and “make ugly places beautiful.” Rambling through Thailand with two girlfriends, she ended up on a fifteen-hour bus ride from Bangkok to the island of Koh Samui. (“We didn’t have enough money to buy plane tickets,” she recalls.) She sat in the front, keeping her distance from three young Israeli men in the back of the bus. But the driver wanted the front seats empty, so he tugged her toward the back and deposited her next to a tall redhead, Alon Cohen.
“We talked nonstop for the whole bus ride,” Tatarko recalled. “It was like four dates, one after another. It was wonderful.” They stuck together for the rest of the vacation. When they got back to Israel, they opened a small tech-services company together, PROmis Software. In 1998, they married, and shortly afterward, they moved to New York, where both saw better career opportunities. The kept heading west: By 2001, they were in Silicon Valley, where Cohen had landed an engineering job at eBay.