Acquired - Oculus

0:00Hey acquired listeners, Ben here. You'll notice for the first eight minutes or so of the episode, my audio quality isn't the greatest, but bear with us, it'll be crystal clear for most of the episode. Thanks. Is Ocular and occluded from the same route? Oh, I don't know. I don't know. Anyway, that feels right, because I think that's our logo right as a... It's an eye, yeah. Yeah, all right. I can see it. Welcome back to episode 35 of acquired.

0:40The podcast about technology, acquisitions, and IPOs. I'm Ben Gilbert. David Rosenfall. And we are your hosts. Today's episode, we are covering the Facebook acquisition of Oculus. A much requested episode by a lot of our listeners in the Slack, and one we've gotten a lot of email about. So, we've now got enough distance from the acquisition that there's a lot more to come, but we feel comfortable covering it. No doubt about that.

1:08We thought now would be a good time to do it, given some of the themes we talked about on the SNAP IPO episode, that this would be a good counterpoint, a different approach to a camera company. Indeed.

1:22So, before we dive in, we have some incredible listeners that leave some great iTunes reviews and sometimes they're even a little host deprecating, but we love them all the same as long as they're five stars and they help us grow the show. So, as we mentioned a couple episodes ago, if you leave one that we think is worth reading on the air, we're gonna go ahead and do just that. So, one we've got from Daniel X is an emoji review, which is trophy, bag of money, unicorn, which I think is quite...

1:51quite appropriate. This one's a little... I had trouble parsing it at first and then I was like, I see what they're doing. The subject is yep, yep. And the description is, that's one of my favorite phrases Ben uses. Oh man, yeah. And super interesting are up there too.

2:12So now I'm going to be incredibly self-conscious every time I use those phrases. Thank you so much. We love you just the same then. And the username on that one is active users. So thank you to all the active users out there that really appreciate my catch phrases. That's great. All right.

2:28Moving on, I'm happy to leave that behind, but the part we're trying to make is leave us iTunes reviews, help us grow the show, we love it, and hopefully, if you're creative, then we get to share it with the rest of our audience. Speaking of the rest of our audience, we've got a slack, so join us at acquired.fm, you can join the over 500 of us that are in talking about tech, M&A, and any news that comes up between episodes. All right, listeners.

2:54Now is a great time to talk about a new partner of ours here on Acquired. LaGora, the agentic operating system that is redefining how the world's best legal teams work. Yup, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. LaGora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

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3:41drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Lugora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work, and this means that the pie can grow even as each individual task takes less time.

4:01And they recently launched LaGora agent offering greater intelligence and performance. The agent lets lawyers set an objective. Then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required. And LaGora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early LaGora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1,000,000 to 100 million in ARR in about 18 months. Truly insane numbers. And that is the real test.

4:53Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in house at a company, you can learn more at logora.com slash acquired and just tell them that Ben and David sent you. Now on to the episode. David, can you take us through the acquisition history and facts? I will as always, Ben.

5:23We pick up our story of Facebook's 2014 acquisition of Oculus, the virtual reality company in 2010 when a 17-year-old a homeschooled kid in Long Beach, California named Palmer Lucky. He'd been homeschooled for its education up till then, and he was taking some classes at Cal State Long Beach, and he had a problem. And his problem was that he loved video games.

5:59And he loved them PC games in particular, and he loved them so much that he had created this like massive setup at home where he had six monitors and he just wanted to get like as immersed into the games he was playing as possible. But even with all these monitors, it still wasn't good enough. He wanted to get like deeper into the game. He wanted like what I was writing this I was thinking about the EA sports EA sports tagline.

6:26getting the areas in the game. I think I read somewhere he had like the largest collection of HMD's head mounted displays of currently existing or hacked together hardware in the world before he he set out to build Oculus. Yes so well his problem was he wanted to literally get get into the game.

6:46And so, you know, lots of lots of kids, myself included, wanted to do that when I was 17. But Palmer actually did something about it, so he went over to USC. And USC had this thing, has this thing called the Institute for Creative Technologies, which is a lab that was created there in 1999. And it was actually funded by the Department of Defense.

7:11And the idea is that in LA, they would combine sort of, you know, the resources of USC, a major research university, kind of all the special effects technology in Hollywood and the video game industry, which has a huge base in LA. And they'd use it to build advanced training and simulation technologies. And what that meant in practice was virtual reality.

7:37Yeah, I mean, it feels a great thesis to me, and it's funny thinking about funded by the Department of Defense. Boy, oh boy, have we seen that? That is a tech theme over and over again in a lot of these companies, either in the company themselves or the research labs they come out of, or even there's the history of Silicon Valley and the importance of how the semiconductor came to be.

7:57Yeah, so Palmer, a 17-year-old kid in Long Beach, he talks his way into getting a part-time job at the ICT at USC. And he's working on a team that's trying to design cost-effective virtual reality, but he still wants to move faster. So in his parents garage, he starts hacking away with basically like components from smartphones trying to make the device that's really going to achieve his dreams, which is be able to play video games in virtual reality. And at the same time, he's on the internet natively as all kids are back then in these days. And he hangs out in forums online. And in particular, at this one forum called the Mint to Be Scene 3D.

8:47discussion forum, which is, I don't know if it was the largest, but it's certainly a very active internet forum dedicated to trying to create virtual reality devices at the time. Yeah, man, forums were like, that's where everything happened back in the day. Totally. It's like back in, you know, the more things change, the more they say the same, right? The original like, you know, Netscape and...

9:11you know, ARP and net days. Yeah, and I mean, anybody like that predating forums or, you know, mailing lists and use net and like, it's just a constant reinvention of the same thing. People see community, internet's incredible for community revision revision revision. Yep. And, you know, now we have virtual reality. So maybe maybe the next great entrepreneurs will meet, you know, in on an Oculus or on a Vive. Yep. So he's on, he's, he's posting progress as he's building these prototypes in its garage, on the meant to be seen forums, and turns out that there are among the other posters on the forum, or lurkers on the forum, is a guy named John Carmack, and that name might ring some bells for some of our listeners. John is it?

10:01probably one of the most famous people in the video game world. He was the co-founder of id software and id created and John in particular pioneered a lot of the techniques. Quick Doom, Wolfenstein 3D, all of the first generation of first person shooter PC games. Yeah, I think his like one of his greatest contributions was the the algorithms to do the shading of shadows so that things look appropriately far away and appropriately lit as you approach them or turn corners, or the things that we take incredibly for granted today, but we're actually required a lot of complexity. Yeah, and I remember, gosh, I was probably in middle school when those games were coming out and they were so far advanced versus anything else on the PC at the time. The PC or the NES. Yeah.

10:58so Carmack is on the forums and he sees and he's on the forums because he is also interested in VR and he kind of shares Palmer's dream that playing video games in VR is gonna be a totally new paradigm and really really compelling and actually his Carmack's dream he had it had released Doom 3 recently he wanted to play Port Doom III into VR. And so he sees, he sees all the progress that Palmer's making and he reaches out to him. And there's no, there's no great hardware out for VR, right? Like if anybody wanted to port to VR at this point, it's like, you know, highly specialized installations in science centers and stuff, right? Yeah. I mean, basically, you know, it's the kind of stuff that USC's doing at the ICT for the military.

11:52or science applications, you know, you're talking hundreds of thousands of dollars for a room scale installation. You know, nothing like what the Rift becomes, which was you could go on Oculus's website and order a development kit for $300. So, Carmack reaches out to Palmer.

12:12Ask if he can buy a rift and and and Palmer apparently says he says an interview later He decided he was just gonna play it cool, and he's like oh, I'll just give you one So so he does and and it's fortunate for for him and for the future of VR that he did this was we're now into 2012 And John Carmack goes to E3, which is the big, one of the two big industry conferences for video games. The other one is GDC, which we're going to talk about in a minute. But John goes to E3 in 2012, which is in June. And he gives, he gives a big talk and he talks about how excited he is about VR. And he shows, demonstrates.

13:00a version of Doom 3 that he's created that is running on the rift. And the rift is like a totally hacked duct tape together prototype that that Palmer had sent him. It was actually duct taped, right? Like there's some that's about meeting with them where like he actually duct taped the display to the head mounting piece. Yeah, they're great videos online. And of course, you know, after this all the tech and video game press covers this and and then goes and tries, tries it out. And where's it? Like the unit is actually duct taped together. Yeah. And just like ridiculous watershed moment when, when John Carmack is demoing on your hardware at E3, you know, it's, uh, this is pre kickstarter. Is that right? Or is this? So this is pre kickstarter. There's not even a company yet. It's literally just Palmer working on this stuff. And, uh, and he's at this point, I believe, either 18 or 19 years old. Crazy.

13:53Totally crazy. So e3 2012 is the big moment for what would the artist that would become known as Oculus. And a few other folks, you know, in addition to the entire video game industry, I sort of take notice and two of the folks who reach out to Palmer when they hear the story about this are two guys named Brendan Arebe and Michael Antonov who also were in the LA area.

14:22They had been co-founders of a company called ScaleForm, which was a video game UI technology company that Adobe had acquired several years earlier. They'd worked at Adobe for a while, and then Brendan actually had left, and he joined a company called GaiKai, which folks in the video game industry might remember, was a streaming video game company that Sony acquired.

14:48a couple years earlier, and the idea being, and actually a lot of consoles use this today, that rather than buying a game on a, you know, a physical media or downloading it, you can play a game just by streaming it over the internet. Well, yeah, I remember, I remember Microsoft showing off some tech like this too, where the whole idea was that, you know, you're done with downloading the bits to your device and in fact on this is actually a Windows phone demo. The device's hardware constrained, but we have all this amazing cloud computing and we're going to in a low latency way stream your interactions back up to the cloud. The game computation is going to happen in the cloud and then stream it back down to your device and it'll feel native. I feel like I've seen a lot of those demos and the trend seems to be toward

15:36powerful clients still. Like we haven't gone to this world where gaming is happening. It's never totally worked, right? I mean, the dream is really cool, right? That like on any, on any client, as long as you have a fast enough internet connection, you don't actually have to do all the hard rendering on the client. It can all be done in the cloud and just streamed his video, but it's never quite lived up to the promise. Yeah. And I think this is kind of a tech trend for me later, but I think to quickly derail into it, it's it.

16:05We continue to pursue this dual track of... pushing the envelope on desktop grade or even yeah, it's called desktop grade gamer PCs. So you see the Oculus hooked up to really, you know, really crazy towers and then simultaneously what we were trying to do in a low power way on phones like phones keep getting more powerful and the the processor and phones keep getting better at originally, you know, apps and then casual games and now a little bit more serious games on mobile. And we're definitely seeing the trend of, you know, anyone who was interested in pushing all the intense compute up to the cloud for games that are played on mobile, well, mobile got good enough to largely just play them themselves. And then the ones that require better experiences, the intense sort of R&D push the envelope of what can be done is really still being done on on towers. And that's not, you know, that's not going away any time soon. Yep. And especially in VR, you need one of the things limiting the market right now, which we'll get into is

17:05You need a super powerful PC to make this stuff work, which not that many people have anymore. Yeah. I remember, uh, we're interrupting a lot, but as a quick aside for listeners, I remember going into David's office, like a few years ago at, uh, Madrona and he's like putting together this like crazy tower to hook up his, uh, his dev kit, Oculus two and telling me about how like, VR's here like we're looking seriously at this now like it's the future like people are maybe not consumer adoption right away And I remember thinking like maybe not consumer adoption right away like nobody has a tower Nobody's gonna buy a $4,000 gaming rig and like that's still kind of the state of good VR right now Yeah, I mean we're gonna get into it, but we still have that at Madrid. It's the thing weighs about 50 pounds. It's huge But anyway, so so Brendan and Michael

17:56coming from scale format and Brendan and immediately from Guy Guy they reach out to, they're really excited about this. They're game guys and business guys in the game industry. Reach out to Palmer and basically convince him that there's a big company to be started here and that they want to start the company together. So the three of them get together with a few other folks who are the initial engineers. Brendan's the CEO of the company. They found the company kind of in June, July.

18:262012. And then immediately afterwards, they launched the Kickstarter in August 2012, which Palmer have been planning to do beforehand, but right after E3, but get delayed as they were starting the company. And the Kickstarter becomes hugely successful. And I actually went and rewatched it right before we recorded this and it is...

18:47It's great to watch but so funny knowing the history of what happens immediately thereafter. So Carmack is featured heavily in the video as are folks from Valve including Gabe Newell. What? The founder of Valve. Go watch the video. We'll link to it in the show notes. He gives a kind of glowing...

19:10discussion of Palmer in the future of VR and he says, quote, we strongly encourage you to support this Kickstarter. We meaning, you know, him and valve. Oh my God, that's awesome. It's so awesome. So on the strength of this, and for listeners that don't know why we're saying that's awesome, like valve in HTC would go on to create the only serious.

19:31competitor to the Oculus right now, and arguably better. Anyway, leaving that aside, the five, and it's hilarious to see him on Team Oculus at the start. Yeah, well, in Valve's head, such a long history with trying to get into VR, but they finally do it right after the Facebook acquisition. So the Kickstarter is hugely successful. They had set an initial goal of $250,000. They end up raising 10 times that there is almost $2.5 million. And then they do something really smart, which is after the Kickstarter ends, they basically just continue it.

20:05on the Oculus website and anybody can go there and order a developer kit for $300. And this is like earlier in the crowdfunding era and it's like amazing to see, you know, if you're an entrepreneur and you're trying to just put together around a 250k, like you don't want to raise 2.4 million because you give up your whole company. But like in the isn't crowdfunding great where, you know, there's no equity. So it's just like money for you to play around with. And sure you have to fulfill those pre-orders and that's the biggest issue with kick starters. But like What an amazing, uh, what an amazing model to bootstrap a company and get some cash in there, you know, long ahead of when you're going to ship the units. Yeah, totally. And, um, you know, and they turn it around pretty quickly, but, but when they, when they put the pre-orders up on the website after the Kickstarter campaign, there's so much momentum continuing that they're selling, you know, supposedly for the first couple of days that it's up on the website, they're selling four to five developer kits, DK ones as they come to be known, quote, unquote,

21:01DK for developer kit the first one at four to five every minute at three hundred bucks a pop which is pretty impressive Wow, yeah, so they go along in there They're working on shipping the developer kit. They start shipping it and by the summer of next year June 2013 The VCs you know start to get us VCs start to get wind of what's going on down there in Southern California and the company ends up raising a $16 million series, a co-led by Spark and Matrix. And then, and that's in June of 2013. And then right after the first, well, the company wise, the first really big victory happens. The John Carmack actually decides to leave Id and join Oculus as the CTO.

21:48And this is a huge, huge moment in the gaming world for the company. Yup, and actually, as someone who wasn't following it that closely at the time, this was the first time that...

21:57I took Oculus seriously and I didn't realize that Carmack was in the video or presenting on stage. This is the first time I'd heard his name associated with it. And suddenly it was like, okay, this company's serious. Like the creator of Doom and Quake is joining as their CTO. Yeah. And you weren't the only person to notice this. They had obviously raised the series A that summer, but Mark Andreessen and Andreessen Horowitz also noticed that John Carmack has just gone and joined this, left it and joined this This baby, baby virtual reality company based down in Southern California. And in December, a couple months later, Andrewson Horowitz ends up leading a $75 million series B in the company. And Mark Andreessen joins the board. So what was the time between that series A and series B? It was six months or less. Wow. And the other.

22:51sort of foreshadowing of the future here. Mark, of course, and why this is important to the story, also happens to be on the board of another company that's going to get involved here, which is Facebook. Yeah. Yeah, that's convenient. Yes.

23:08That was December 2013, a couple months later at GDC, which as I mentioned is the other big industry conference in the video game industry and that happens in San Francisco. That's at the beginning of March and Oculus announces that they've been successful with the DK1 and they're coming out with a new version of the developer kit, so they're still focused on Shipping these to developers. They're not ready to release a consumer device yet, but they announced the DK2 and that that's going to begin shipping in July 2014 and the DK2 is vastly improved over the DK1. Yeah, I think I think yeah, the DK2 is the first one I had tried and I remember putting on on being like, okay, this is very different like this is a You know, I understand what the hype is about now, but I still wasn't like This is this is the next

23:57title wave, but then the one after that, I think the crescent bay, which I don't know if they, like, how many different presents are there? They never actually sold the crescent bay. That was sort of like the first iteration of what would become the consumer version that they'd ship in 2016. Yeah, I think I tried that at 2015, or no, 2015 CES, and they'd take you into this private room and you have like a 15 minute little demo with it, and that was the one. The crescent bay was the one where I was like, Okay, this is the next title wave of technology. Yeah. And it really, you know, the DK2, the DK1 was, you know, still had a lot of the duct tape heritage in it. And I'd say the DK2 did from a, like, software perspective, but from a hardware perspective, it was pretty good and had solid components in it. And when you used it, it really enabled the average person

24:50The average person couldn't, you know, I think just buy one off the internet and set it up on their laptop. However, if you had a friend or knew somebody who had a set up with the DK2, you could put it on and it would kind of just work and you could see what was so amazing and how different and immersive VR was versus just playing a regular video game. Yep. So that was the beginning of March.

25:15And then very shortly thereafter, our recurring character on a acquired, Mark Zuckerberg, comes knocking and he gets in touch with the company and says, hey, heard some really cool things about what you're doing. I'd love to get a demo.

25:32Yeah. Do you know how that introduction was broken? Look, is that through Andreessen? Or like, do you just get an email from Zuck at Facebook that's like, hey. I don't know. It may be out there. Listeners, if you know, hit us up on Slack or shoot us an email. I assume that there were easy channels to make that introduction happen. Yeah.

25:54Some would like the like the snap or original Snapchat episode. Zuck, I believe as the story goes, you know, asked for them to come up to, come up to Facebook's campus and do a demo up there. And Brendan responds and says, Hey, and this is from an interview with Brendan after the acquisition. Hey, you know, actually it'd be better if you come down here because we had better set up here. So just like he did with Evan Spiegel. So get on your private plane and fly down to Irvine.

26:23Mark flies down to Irvine, meets with Oculus, is really impressed with what he sees. And it says, hey, what can Facebook do to help you? And that quickly leads into acquisition discussions. So by the end of the month, the deal's done. It gets announced. Facebook acquires Oculus for $2.3 billion in total of which interestingly, only $400 million in cash.

26:511.6 billion in Facebook stock. And then there was an additional earn out of 300 million. But this was similar to the Instagram deal and the failed Snapchat deal from the year before and WhatsApp. This is sort of cementing Facebook and Mark Zuckerberg's reputation as a very aggressive acquirer. Yeah, yeah. And I think...

27:14I think it, again, we always bleed into tech themes here, but it's really exemplifying Facebook's FOMO. I mean, they're fear of missing out where they see something that they're not currently working on that is either something with an existing strong network effect like a WhatsApp or an Instagram that they could unseat them or a powerful new piece of technology that could become the next wave of computing. And if they're not on it, they're kind of screwed.

27:41They've very masterfully had an M&A strategy to kind of make sure that they stay on top and and don't act like the social network of social networks of years years past. Yeah, and we're gonna get into this in the rest of the show, but I think what's so cool given how often Facebook has showed up on acquired and all the both the IPO and the acquisitions we've talked about, you can really see how and why this philosophy came to sort of rule the day with Mark and at the company, you know, through the IPO when they had the huge disaster with mobile and realizing, you know, Mark realizing as a CEO and the company realizing that they had missed that wave and they needed to, they needed to paddle over to it, you know, with all strength ASAP and that included acquiring Instagram. I saw a fascinating stat that I didn't even think about is that

28:39So Facebook was constantly referred to as a website when they launched and for years after and in 2008 they launched a mobile app, but nobody referred to them like as an app company and it really took them like four whole years after so that you know this founded in 2004 app launched in 2008 still largely a website even though they had an app and it took them all the way until 2012 to be taken seriously as a mobile company and you know now 84 plus percent of their revenue comes from from mobile advertising and I think that it's interesting to note that like it takes time even though you are on a platform or have a technology to make that the competency of your company and I think that Facebook's on opportunity here to you know not let VR evolve around them and then have to play catch up and get on that platform and then like turn the company to be senator on that platform this is an opportunity to say you know we don't know exactly what it is yet if you know

29:37Oculus by Facebook is the platform other people are on it or if Facebook is delivered over VR through Oculus that much is unclear But what is important is they can't afford a four-year lag before starting to play on a platform and and turning the company to be essentially oriented around that platform when that's the one that everybody's on yeah, and it's interesting. I mean you look at You know, the billion dollars they spent for Instagram, the 19 billion dollars they spent for WhatsApp, the three billion dollars they offered Snapchat. You know, those were all examples of they were too late and they needed to come in and take out these unsuccessfully in Snapchat. In its case, take out these threats that were popping up within their current domain. But 2.3 billion dollars was a lot of money to spend for a wave and a technology and a modality that

30:30was even then, you know, I think if, if rational cooler heads prevailed at that moment looking at the company, it was still a long way away. I mean, we're here in 2017 and it's still a ways away even three years later. Yeah. Yeah. So, okay, what was the date of the acquisition? It was, uh, it was March 2014. Okay. So that 75 million series B was in December of 2013. So, moving away from the Facebook side a little bit and looking over at the end reason side of this, they invested 75 million and then just a little over three months later. God, let's see. Yeah. Well, and I think I believe, I don't know if it's official, but in research, I believe the valuation of the end recent round was between 300 and 400 million. Wow. So that's a call it a 10X. I mean,

31:24Yeah, so it's slightly less than less than 10x. But still, that's on a lot of money. Yeah. Well, good for them. Yeah, great for them. All right, listeners. Now is a great time to tell you about a long time friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF than everyone would not and you're done. But in an AI first world, that doesn't hold up anymore.

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32:56Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here. And literally hundreds of acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at Vanta.com slash acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off and just tell them that Ben and David sent you. We'll get into acquisition category in a minute here, but The story doesn't quite end, unfortunately, for Facebook when they acquire the company because two things happen over, well, starting immediately, but play out over the next couple of years. One, it turns out that, you know, Carmack is as important as he was, and I really think...

33:43Oculus, the company and the technology wouldn't exist without him. Unfortunately, his former employer, Id Software, which itself had been acquired a couple years before by a video game conglomerate called Xenomax, they also agreed that Oculus wouldn't exist without Carmack and his contributions. And they end up suing Oculus and Facebook, alleging Carmack, a couple of things. One that Carmack had stolen critical IP.

34:11from his work at Id and taking it to Oculus. And to actually in 2012, Palmer Lucky had met, I don't know if it was when he was meeting with Carmack or with other folks that had signed an NDA with the company. And as a result of everything that happens, Xenomax is alleging that he had violated that NDA.

34:39and alleged, and then, and then you know. And so that lawsuit hits almost immediately after the acquisition, and then only just a month ago as we're recording this in February of 2017, a jury in Texas, which in software is based in Texas, is based in Texas. Actually rules in favor of Xenomax, a $500 million judgment against Facebook and Oculus. And Facebook has said that they're going to appeal, but still that's not good.

35:07Yeah, I mean, that takes it from a two point or a 2.3 up to 2.3 up to 2.8. Yeah, but it gets even potentially worse in that Xenomax has also filed a court injunction arguing that the courts should halt sales of the rift, which would just be terrible. Wow. Yeah. That's that's a far more serious blow. Yeah. It hasn't happened yet, but is potential clearly there.

35:34Posturing and trying to bargain between the parties here. Yeah, I did some research on Xenomax for for this and Yeah, it's actually it's quite a large video game conglomerate. They they own a bunch of studios including the one that makes a video game fans among our listeners will know the Elder Scrolls the fallout series But guess who is on the board of Xenomax? The only the only thing that wouldn't surprise me is Carl icon No, but almost as good. So they have quite the cast characters. They have Cal Ripken Jr. The Iron Man, the baseball player. Yeah. Jerry Bruckheimer, the movie producer. And in addition to less, less moon Ves, who is the CEO of CBS. But this is really the kicker. I just couldn't believe it when I read this. Robert Trump, Donald Trump's brother is on the board of Z. What?

36:31Internet says it's true. Well, what a weird company. God, conglomerates are a weird man. Yeah, totally weird. So, you can't, you can't make this stuff up. Truth is in fact, sometimes more stranger than virtual reality. Yeah. And you know, we'll have a follow up. I'm sure probably not an episode, but this will be an in follow up in future episode. But I suspect.

36:57you're right that the injunction to stop selling the rift is just posturing and trying to get potentially a settlement or more out of the current ruling or something. It would shock me if they stop shipping the rift because of this, but it does feel like Facebook's gonna pay some more money there. Yeah, or at least it's posturing perhaps trying to get Facebook to drop their appeal. But the other major thing that happens after the acquisition that we've alluded to on the show is that Valve and Gabe Newell decide that rather than just supporting Oculus, they actually want to get into virtual reality themselves. So the next year at GDC in 2015, Valve unveils in collaboration with HTC, the Chinese Consumer Electronics Company, they unveil the Vive, which is in many ways a superior product to Oculus and the Rift, and the Vive has

37:54two key innovations that the Rift doesn't have at that point. One are true hand touch controllers. So when you would play the experiences or games on Oculus before Valve came out with the Vive, you would have to use either a keyboard and a mouse or a video game controller or an Xbox controller. And that's just...

38:18Totally boys I believe out of the experience really pulls you out of the presence which is the whole point of VR Valve ships these controllers that enable you to move your hands around and grab things and pick things up and and interact much more naturally with the environment and then they also have the the while it's still tethered the headset that you wear still as a cable coming out of it and attaches to the PC. There are they're called lighthouses that are laser positional tracking boxes that you put in the room and that allow you to walk around the room. So you no longer just sitting in a chair with your hands on a video game controller like the old video game paradigms, but it really changes this into a much more immersive experience. And boy, what a what a brilliant freaking end around by by valve like

39:08Their software company, for listeners that don't know a bunch about Valve, their software company, they make games and they make a platform called Steam, and they make, I think they make most of their money from Steam, and they get a cut of all the distribution of the games that go out over Steam, and Steam's sort of the default way if you're a PC gamer to go and get new games that come out, so basically they own the pipe.

39:29And, you know, they're super wacky company, brilliant, brilliant engineers, they're brilliant game designers that, um, of course, are interested in VR, but like, they're not going to make hardware. That's not in their core competency at all. And they've been, as David alluded to, trying for years to figure out what the right way to get into VR was. And for them to be able to, you know, closely track and be a fan of, of Oculus, see that fall into Facebook's hands, which, yeah.

39:56loosely competitors, right? At the very least, you don't want to put too much of your company's stake on in Facebook's control. And to be able to, in that type of a window, turn around, find a hardware partner like HTC and get into market with a superior product. Like, there's a lot of things that we'll conclude out of this episode, but one of them is that there are people at Valve and HTC that are executionally brilliant.

40:22Yeah, and Valve is a link to this in the show notes. I suspect a lot of our listeners are know the company well, but for those that don't, it is a fascinating place.

40:32their employee handbook leaked on the internet a few years ago. And it's more like a manifesto. There's no hierarchy. Nobody reports to anyone else there. Everybody decides what they work on. Everybody's desk is on wheels. And if you decide you want to work on something else with another team, you just pick you, move your desk over to wherever.

40:54That team is and you start working on whatever they're working on and I believe it's 100% owned by Gabe dual so there's no I mean, there's not a lot of leaks of stuff from shareholders or public disclosures or any or really even like known market cap of the company. It's a very Yeah, it's very very closely held I don't believe Gabe owns exactly 100% but he definitely controls the company Yeah, just one person and they make you know nobody knows outside of valve the exact number but a lot of money, I mean billions of dollars of revenue from, mostly from Steam, has been mentioned. Yep. And if there's an opposite podcast to acquired, it's like, so in the acquired, or in the Corp. dev parlance, you know, acquired is often about the buy, not the build. If there was a podcast that was about the build decision instead of the buy decision,

41:48We would really want to examine what Valve does here and what their existing business with Steam allowed them to do in going into VR and taking this very expensive risk on something that has super unclear business value, especially when they start the venture. Yeah. I don't think there's really any two ways about it. They out execute Facebook and Oculus over the next two years.

42:15Facebook ends up shipping the consumer version of the Oculus Rift before Valve by a week. So the consumer version of the Rift comes out at the very end of March 2016, and then at the beginning of April, Valve ships the Vive. But again, with these two key innovations that Oculus doesn't have, and it's not until December 2016, so just a few months ago now that Oculus finally brings out their touch controllers, which brings them closer to parity with the hand controllers of the Vive. Yeah, and you know what, I mentioned earlier that the Crescent Bay woke me up to the idea that the VR is the next title wave in technology. I'd say the next step function was that was the first time I tried the Vive. I think that there was a thing I think

43:04Google might have even made it, but it was a thing where you could paint and you use the controllers to paint. Tilt brush, yeah. And then it was cool. It's like MS Paint in VR is the only way to describe it. It was an independent company, a couple of developers and Google ended up acquiring it. Oh, nice.

43:19Nice nice. So there's that demo and then there's one in a kitchen where like you go in and you're supposed to like Yeah, but really what ends up happening is like you can just mess every like you can just pick up pans and heave it at a wall and knock the like this is Incredibly thrilling experience of like throwing an entire rolling cart full of dishes on the ground and having no consequences And I say that that was the first time where like I think I was in that thing for like a half hour It felt like five to ten minutes, and that was the first time where I legitimately didn't want to leave. That was the first time where I was like, oh, people are going to get real addicted to this. Yeah, and I'd say for our listeners that aren't into VR, maybe haven't even tried it yet.

44:03go find, it's worth it. You owe it to yourself if you care about technology and thinking about where waves are gonna break in the future. Go find a friend or go to your local venture capital firm that has a vibe installed and try out a few things. Try out till brush. It'll take you back to the first time you used MSPaint on a PC if you're old like me and Ben. Try out there's this.

44:30My favorite, favorite app in game is in VR these days is by our friends over at Recreum. Recreum. Really amazing company in Seattle. And the best I can describe Recreum is you just have to play it yourself and you'll be a believer about the potential of VR. But that's like the first time I played GoldenEye 64 as a kid and had my first, you know, like shooter 3D video game experience and record so much more than that, but just that pure fun. It's it's great. Yeah. And the reason is and we'll get into this. And I think this is part of Facebook's bet is, you know, Facebook, I think Zuckerberg, let me read the quote real quick. He, uh, he's over and over again, said VR is going to be the most social platform. And I think the super cool thing about rec room is like, you're in there just hanging out.

45:19You're doing all sorts, you're in a room, you're playing paintball, you're, there's like all these different activities you can do, but it's all centered around like, you're just like hanging out with other people as if it was sort of real life. And one thing I want to dissect later in the tech themes is like, does that like, do you agree that the, you know, killer, killer app of VR is a social one? But the cool thing about Reck Room is like, when you try, you're like, wow, I really am just like hanging out in here and I could do this for hours with other people.

45:46Yeah, and that's what you know when I said it reminded me it reminds me of what it was like playing gold night the first time like the single player campaign in golden I like you know, it's fine. It's whatever. It's good But like golden I was all about playing with your friends and everything you like all the talking smack and you know the hours and hours and hours I spent in high school and college with my friends playing that you know That's what record is like and it really feels like a glimpse into the future Yep, all right listeners Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part. Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern, like the risks are real.

46:43Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower. Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible, and secure in one place. And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approval, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security. Service now already runs more than 100.

47:29billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates. And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

47:52So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale, go check out servicenow.com slash acquired and tell them that Ben and David sent you. Hey acquired listeners, I'm jumping in with a quick update. In the next section, we talk about where Oculus is today and recent events involving the team. There was some pretty big news between recording and releasing this episode. So I'm here to tell you.

48:17Oculus founder Palmer Lucky has left Facebook. On March 30th, Facebook confirmed his departure following a long stretch of Facebook being very quiet about Palmer. This came after he denied and then confirmed reports of funding a pro-Trump organization called Nimble America and then did not appear at Oculus's developer conference. Now, back to our regularly scheduled programming.

48:40Okay, so let's finish up history and facts you want it David you want to take us to like the recent events of the last last six months to a year and then we'll go on to acquisition category Well, I think we've kind of done that Yeah, I guess I mean person L.Y. So so Facebook yeah, yeah, I mean there's been some really interesting things that have happened as Oculus starts to merge more into Facebook so Palmer Lucky is no longer the CEO of Oculus, but is still at Facebook working on things. That's actually Brandon. So Palmer was never the CEO. Oh, right. Sorry. Sorry. Brandon Eriebe stepped down his CEO. He's now managing Oculus's, quote, PC division, which is basically the rift.

49:19Right, right. And then Palmer similarly is at Facebook. Kind of title lists. And so the way you can kind of think of what's going on at Facebook right now is Oculus is getting more integrated. There's still the Oculus group that makes the Oculus Rift. Facebook has more independent VR teams. There's a PCVR, mobile VR, and obviously we've seen the There's been demos on stage of these incredibly social experiences that may be the future of what Facebook looks like in VR. And, you know, they're shipping the rift, but it's very clear that Whereas with Instagram and WhatsApp they stay very separate Oculus is an acquisition where they're getting much tighter integration with the company and And it looks a lot more like a division than it does a separate company and a one huge marker of that is the the whole team or at least a good chunk of the team move from Irvine up to Menlo Yeah, Oculus's headquarters is now In in Menlo Park with the rest of the Facebook campus, but I think that's a

50:31Perfect transition to acquisition category and I think for me Clearly this is is well you're curious what you will say Ben but to me it's clearly a business line acquisition I mean this is a new product a new platform Not part of the existing wave that Facebook is on That they're buying and and I think you know, it was interesting that they initially kept They tried to run the playbook of keeping the team totally separate and totally autonomous and in particular, you know, kind of at arms length away down in Southern California. But then that didn't work out quite so well as they got ended rounded by valve. And now they're moving it much more in, you know, moving to integrate it much more deeply into the rest of Facebook company.

51:18disagree entirely. I love it. I think it's a technology acquisition. I would say that the signaling initially could lead more to our business line of keeping it separate of it being its own revenue generator. But to me, this is a defensive play on protecting the network that Facebook has and their existing business model.

51:41I think that for them, they looked at this and said, okay, VR is clearly a future. We need to make sure that we have a position on the dominant technology platform of the future. And we are right now at risk of other people building all the hardware in the platforms and us being having nothing to do with it, and then having no leverage in making sure that we have a dominant position on that platform. And Facebook has seen, they've seen, I guess the point I'm making is they don't care about the business line of selling Oculus Riffs to people. And I think that they've looked around and seen crap. We don't actually own the direct relationship with any of our users. They're in a slightly tenuous position where people are into Facebook. They're on it all the time. They're on it every day. It's an essential part of people's lives and provides a ton of utility, but they access it through either their Apple device, their Android device. Facebook desperately tried to make their own phone. That didn't work. Facebook is

52:36in a little bit of a tenuous position in not directly owning their customers and or at least not directly owning the users that they're advertising customers monetize. And I think what Oculus is is them trying to get out ahead and making sure that with this technology that clearly evolves to be the future of computing that they aren't going to be upended by someone else who decides that and we're not going to prioritize Facebook on the platform where all the users are.

53:01Ben, I think you hit the nail on the head. It's about owning the customer relationship at the point of access in the next wave, which they don't right now. It's fun doing this episode right now and in particular after the Snapchat IPO, but it's hard to judge right now. I think if they had kept in fully in that, we're going to keep it separate mindset. This would be a failure. But now that they're starting to integrate it more deeply, that feels like the right approach to me at this point.

53:30Yeah, so let me, this is the third time I've dangerously danced into tech themes ahead of schedule, but let me throw something out there that I think Facebook would be much better off keeping them separate.

53:44And keeping it like its own little division with a kind of a firewall between Oculus and Facebook because as they so Facebook is a horizontal company Facebook needs to make sure that they are on every single platform in the same way so that the most users in the same way that Google needs the most users they need scale can get access to it and the closer they start to integrate these things the more the danger comes up of them prioritizing Facebook features to be Oculus only and not putting them on the Vive or whatever other platforms come to be. And I think that's a really, when you're an employee at a company like that, you start to get confused as to what the priorities are. Like I remember being at Microsoft. You end up with an I message situation, right? Totally. And one that I've experienced personally is like, you know, when you're at Microsoft, like at least a few years ago, it wasn't, if you're in office, you hear the message that,

54:39Office is an important business on its own. Maybe the most important. But then things happen where we don't ship office for iPad because we want to give the surface a head start and be the only platform with office on it. And so with office being horizontal, Windows being a vertical, we take this over to Facebook and say Facebook is the horizontal and Oculus is the vertical. It seems like unless Facebook is believes that the Oculus will be, or the, you know, Facebook VR will be the only VR platform where they will need to reach users. It seems really dangerous to start doing integration. And I would argue that they really need to figure out how to make sure that they're not prioritizing Facebook for Oculus. This gets into the really interesting part of the show, which is, you know, we talked about how Snap is clearly thinking about their future.

55:33and what that's gonna look like in a whatever augmented virtual mixed, whatever you wanna call it, reality perspective. Total aside, I might talk about this in tech themes, but as long as people are debating what to call something, it's not a wave yet. The wave has not yet broken until like phones are just phones. When you're talking about like PDAs or smartphones, like, no, you know, once they're just phones, once it's just like your glasses, then we'll be there. But David, the wave is VR AR MR slash slash slash slash slash. But the breaking of the wave is clearly coming and snaps working on it, apples working on it. Valve has a very successful, arguably more successful than Oculus product in the market. So what should Facebook do? Yeah, I mean, well, one thing you could you could argue they could do.

56:32Is what if they didn't actually let's move into what would have happened otherwise what if they didn't buy Oculus but they found a way to make sure that Facebook was great on all of these platforms like how do they get the leverage to make sure that they have a first-class relationship with customers of VR or do they actually have to own one of them to like have an insurance policy that you know they're gonna invest a ton of money in making this single VR platform really great, but somehow they're gonna have the restraint to never prioritize the Oculus business. Yeah, I don't know. I mean, I think it's the question you were asking, which I feel like we need to get Ben Thompson on this show to discuss like, can Facebook be a horizontal and a vertical business at the same time? I mean, I don't know anybody that's ever succeeded at that. With great restraint, man. Like, you just gotta make it so clear to all of your employees that like,

57:24Oculus is an insurance policy. Oculus needs to be really great, but the main business is Facebook. It means money, and it's going to continue to make money, as long as we don't screw it up. Yeah, easy to say in theory, right? I've literally never seen that happen before. I don't know that you could sell great employees on that. If you're the best VR developer, screw that, I'm going to valve.

57:52Yeah, well, okay, here's a potential counterfactual when we've covered on this show, Android. So Google's a horizontal company. Google search and Google services, Gmail maps, whatnot, work great on iOS as on Android, obviously. And I think it's pretty clear at this point, you know, like we talked about on that episode, the mobile wars are over and that everybody within Google has aligned on making those services work great.

58:22across all platforms and yet they still have Android. But now here's what's key about Android. I think to my mind, Google doesn't make Android phones. I mean, that's changing a little bit. But right, but like the whole strategy was get the software out there, get the operating system, let other people let other ecosystem partners build a great hardware and get it in the hands of people and that use use Android as a way to make sure.

58:51that we are going to be able to continue delivered to deliver these great Google services to everybody across all platforms. A, do you think that's a viable strategy? B, can Facebook do that? Totally a viable strategy. Very interesting. The main takeaway for me is Android itself doesn't make money. It prevents Google from having to give money to other people like Apple.

59:15out of it's out of it. But they do give as we talked about a lot of money to Apple. Yes, but they could give many times more money to Apple if Android didn't exist. And for listeners, that's the of the search engine affiliate revenues that they pay out to wherever the search originates from. Yeah. So Google pays on the order of a billion dollars or more every year to Apple.

59:38in order that Google remains the default search engine on the iPhone. And they actually, it's not just like a straight payment, it's that Apple actually gets a cut of ad words revenue. So it's like a variable rev share for ad words that are served on searches on the iPhone. Yeah. Good to be Apple there. So I think that it's good to be Google. You've got the best business model of all time. Yeah. So the Android strategy, I mean, Facebook.

1:00:07totally could build like Oculus OS and then have reference design and then do the same thing that Android did and have have third parties build the hardware. I mean, is that what Daydream is? Is Google sort of taking that approach with Daydream VR? Yeah, I don't know enough about it to say for sure, but I believe it is similar except that it's on Android phones that are powering it. So there is there is that wrinkle. It's not like it's a It's not like daydream as far as I know I could be wrong, but I don't believe daydreams gonna work on like iOS I think you're right So getting back to the other point that you're making though like I'm I'm not sure it actually buys Google or Facebook much to Build the sort of VR software layer and then let someone else do the hardware. I mean that

1:00:55maybe it does. I don't know. I haven't actually really thought through that. I mean, clearly that's the approach that Valve is sort of taking, that they're going to continue to make money from Steam and Steam is going to be on all the vibes and HTC, you take on all that hardware difficulty and risk and cost for making the hardware. Well, it reminds me a little bit. I hadn't thought about this until you brought it up a couple minutes ago, but I think it kind of comes back to Microsoft, too, right?

1:01:24That's what Microsoft did with the PC, which was build the operating system, give it to everybody, get it out there. Apple wasn't, that's great that Apple exists, right? We'll make office for Mac too, and we'll cripple it. But I think there are plenty of examples whether it's Microsoft and Windows or Google and Android of that type of approach working, it's when you then cross over into trying to be both vertical and horizontal that you get the office for iPad situation. Yeah, I mean, I think it keeps coming down to this. They just have to figure out a way and Google took years to do this to be clear that Android exists to power the search advertising business and

1:02:13It has to be first class and a great OS on its own to have people use it because it's in a competitive landscape but like it doesn't exist on its own to be Google's main revenue stream. And Facebook's just going to have to do the same thing with Oculus and hopefully there's less tumult on the way to get there. Totally. So what would have happened otherwise? I mean, we're kind of in this section right now but where, you know, if Oculus doesn't land at Facebook what happens to it? Well, it's a really good question because they'd raised a lot of money really quickly.

1:02:42But it was going to take a lot more money to get to where we are now. And clearly, I mean, I think if Facebook doesn't acquire Oculus, there's a chance that maybe Valve continues to partner with Oculus and doesn't go off on its own. However, given that they did and if they had an Oculus was still alone and independent, they would have had to do something because we saw with the execution that Valve had when you bring the resources and the huge amounts of money that a corporation like them can to building new technology like that. They were just going to blow Oculus out of the water. Oculus probably only was able to hang on because of the head Facebook's resources. So I think it's

1:03:33It's hard to imagine Oculus remaining an independent company, a fully independent company without needing to, you know, I mean, I guess as we've talked about with both Snapchat and Uber and DD, it is possible to raise huge sums of money these days. But I think it's not just about the money, too. It's about being able to get the right OEM partnerships, you know, think about how much, how many years and how much effort Apple has invested in creating their supply chain. The idea that a startup would be able to do that within a competitive landscape is hard to imagine these days. Yep.

1:04:14Yep, and actually here's a great quote from Palmer Lucky. He said, I'd say we are five years ahead of where we would have been without the acquisition. Pointing to the resources needed to improve the hardware technology as well as encourage software developers to build games and videos to watch on it. There's a strong argument to be made. We would never have gotten there in five or even ten years. And there's a great point that like the Facebook brand boosted the network effect of developers making stuff for it too.

1:04:41Yeah, and we've sort of talked about the evolution of the Rift Hardware. The DK1 was like one step past duct tape, but the DK2, but then the consumer version, these are true good consumer products. Totally. Even with a lot of money, would they've been able to create that? What would real quick, what about the flip side of that? What would Facebook have done in VR without Oculus?

1:05:10Facebook still hasn't done much in VR. But I mean, that's the other thing that, you know, it's just so early, right? Even three years later after the acquisition, best guesses are it's growing and growing quickly, but I bet there are.

1:05:25There are certainly still well less than a million active daily active VR users out there in the whole world You know compare that to like six billion daily active users six billion with a bee You know in mobile So I think Facebook is still totally fine. Yeah, I think so too which is interesting to think about in grading the acquisition is they've so far paid $2.8 billion for a thing that they would have been completely fine without. But, it's a long bet. Yep. Okay. Check the aims. So, running through my list of, I'll just say like, check next to the ones we've really already talked about. But, you know, Facebook doesn't want to get left behind like they did with mobile. Check, already talked about that. You know, owning the customer relationship. Okay, here's the one that I really want to

1:06:14deposit to you. So Zuckerberg often says that Facebook is going to be or VR is going to be the most social platform. And I'm curious, do you think that that's actually where where VR is headed or is Zuckerberg saying this because it's like a mash of like Facebook is the company that connects people and it makes the world more open and connected place? Also, VR is the future. So we therefore must match these things together because You know, our business must survive in the world where VR is the future. Or is it, do they actually have a good confluence and work together well? I think he is, this is maybe foreshadowing my greeting. I think he is both 100% right.

1:06:56And Facebook innocuous have executed poorly on it. You know, I think if you look at the vision that Snapchat is putting that snap is putting forward of, you know, a camera company, right, which is the closest that I have seen to anything resembling, you know, normalcy and a true wave in what we're talking about. Cause like I said, you know, the wave is not quote unquote VR or AR or MR. It's glasses or a camera. It's something that real people everywhere going to use people who don't listen to this podcast. And so I think he's right and I think you just look at snapchat or look at record. Honestly, you know, I mean, that to me is what is the example of what's most compelling in this medium is actually being there and playing with people or doing things together with people. So I think he's right. On the other hand, I think if you look at the product strategy and

1:07:51The history over the last couple years of what Oculus and Facebook have done, you know, they're behind because it's natural hand movements that are so important to that. It's walking around. It's the types of things that Valve has done with the Vive, but it's also what Snapchat's done, which is like to really make this mainstream.

1:08:13You need to get out of the PC entirely. You need to make this something that people are going to be open with in the real world, interacting with other people. I think we've talked about a bunch of my themes too. The only one I would say that we just got a brief mention earlier in the episode, but really came out for me thinking about this and doing the research is Kickstarter, right?

1:08:41Oculus and the Rift being one of the first not the first but one of the first really breakout companies slash products slash ideas to come out of creative endeavors to come out of the Kickstarter platform. And that reminds me of what I think is a deep theme and technology that anytime you can build a platform that enables other people's creativity in kind of ways that you would never imagine, that's a recipe for something special, whether that's an operating system enabling software developers to create and distribute anything like the App Store or Windows or Apple, whether that's Facebook, enabling anybody to share anything that they want to write or say. I think Kickstarter is just a really cool example of that and lead to Oculus. I think it's a great point.

1:09:39Should we grade it? Let's do it. All right, so I, I think you're, you're forced out of this a little bit, but like the strategy of Facebook acquiring the preeminent VR company and paying a lot for that, I think it's great. Like that's, you know, I, so far, if we're, you know, at the date of acquisition, I'm like, this should be an A. Like I really feel this makes lots of sense to me. Facebook needs to be here. I think in the last couple of years, Of where it's ended up I'm gonna go with a C for this acquisition with you know as as we've said before a high level of variance was only revisit this acquisition in years to come Very open to changing that and I think it's very likely it will change but like holy crap they they bought Oculus and then a year later a far superior

1:10:27you know, piece of technology comes out, and it didn't seem that hard for someone else to pounce on it, and especially someone that was so interested in the Oculus in its development. And then on top of that all, I really disagree with Facebook integrating VR tighter. Like I really think that I think they're potentially at risk of not making sure that they understand that Facebook needs to be a horizontal platform that doesn't prioritize anything on Oculus.

1:10:57people that work at Oculus should view themselves as working on a thing that is that makes sure Facebook doesn't get unseated in the future. But ultimately, you know, Facebook is the business. Like they should look at their competition as Snapchat, even though they work at Oculus. Yeah, totally agree. I think you've nailed it on this one. You know, the only I'm tempted to quote.

1:11:22Tom from our Tom, Tom Alberg from our Amazon IPO episode himself quoting Jeff, which is just such a great line in tech that Jeff's saying, Bezos is saying that, you know, it's okay to fail at things. It's not okay not to try. So I want to give Facebook and Mark Zuckerberg a ton of credit for, you know, trying here and seeing, you know, the potential in VR as a future medium and bouncing on it early.

1:11:52On the other hand, he pounds really early and execution has not been great since then. So for the same reasons as you've been, I'm going to go with a C on this one so far. Yeah, and maybe there's an abstraction here. We need to say like, huh, it turns out if you're a horizontal that needs to have scale and reach every internet connected user in the world.

1:12:13then maybe you don't own the hardware platform and like a risk of your business of reaching everyone is that you don't you you know you don't necessarily own that direct customer relationship and that just has to be okay like that just has to be baked into these like mega horizontal scale models yep Because there's no way, like could Facebook have its cake and eat it too? Is there a world where the technology behind Oculus was so breakthrough or anything that they acquire is so breakthrough that it is the only hardware platform? And then they breach everyone and get to own the hardware. I just don't see a world where that's possible. Well, what you're talking about is a monopoly on a direct customer relationship. And you know, monopoly is a word that gets thrown around in tech a lot.

1:12:57usually in conjunction with network effects and the power there. But what's interesting about network effects is at least in the companies we've seen them expressed powerfully so far, very few of those companies actually own the means of ingress, so to speak. They own it in a sense in that Facebook owns the app that people come to and spend most of their time in, but they don't own the phone and Google owns where people find their information, but they don't own the computer or even necessarily the phone, even if it's Android. Right. I think it's just maybe harder or maybe impossible. It's unlikely to believe that Facebook would be able to do that with VR in the future. Yep. Agreed. Okay.

1:13:47Quick follow ups. So one snap. They're still a public company. They are they are still a public company. They have not completely imploded. Their stock is trading below IPO price. Yeah. Well, they're stock is trading up from where they price the IPO, but it is trading down from where it closed on the first day of trading. Which is The real story will come after they release their first quarter and probably a couple quarters of earnings and we see whether they're able to reignite growth. Yep. Yep. Let's just hope that everyone that bought in a very excited way on that first day does not become extremely pessimistic right now. In my, whatever, we're not picking stocks.

1:14:34Forecasting we never time the market blah blah blah. I think it's gonna bounce back a little bit and Let's let's hope for snap sake that the people that bought in our are sort of in it for the long haul and understand that too because I think One interesting point that a friend brought up the other day is tons and tons of millennials bought But snap because it's the first kind of accessible IPO to them that was both large and something they were super familiar with and people bought an emotion of I like this company and you know you don't want to see all those people you know have a super negative is negative experience and lose out. Yeah well. Echoes of the Facebook IPO episode go listen to that one if you haven't already I think that is some some of our our best work you're on acquired. Okay other hot take.

1:15:20Intel acquiring mobile I been here autonomous cars are a thing forget VR Yeah, boy sure seems like it, huh? I think wait is mobile a camera company? Mm in a sense in a sense It's more like an applied machine learning company. It's really fascinating to me that you know, so mobilize a Israeli company They build self-driving car technology and they're bought by Intel for about fifth $15 billion yeah, yeah, and you know what they're really doing is applied machine learning like to me this is a company that is their core competency is is collecting and synthesizing all of the training data and building a pipeline out of that so that they can appropriately hook into all of the systems of someone else that makes the car and make that car self-driving. And it's so fascinating to me that as this market gets so much attention so quickly and it's so clear that this thing is going to happen that

1:16:19by pointing your technology in the right direction and really starting to get market traction with the makers of these cars. If this company was a machine learning company, they would have sold for a 15th of what they sold for. Yeah. It's interesting. I think we might have unexpectedly on this episode touched on a really, really deep theme in technology, which is this vertical versus horizontal idea.

1:16:44Ever since we talked about it a couple of minutes ago, I can't stop thinking about it and thinking about Intel acquiring mobile I and like, okay, yeah, we're gonna be, you know, we're now gonna sell this horizontal platform to all the cart companies to enable them to compete in the autonomous market. Contrast that with a Tesla, which actually used to use mobile I components and did their relationship, took it in-house is vertically integrating, taking an Apple-like approach.

1:17:13I mean, it's very interesting to see this, how this plays out. Rewind 20 years ago, like Tesla is Apple. They're like, you know, totally. They're vertically integrating. They're selling a high-end premium consumer product that's priced and experienced in a premium way. And they capture a lot of value. And the rest of the value is captured by an ecosystem that is based on Intel that are basically component makers. And it's like, you know, history repeats itself.

1:17:42Yeah, well, I think the question is, and actually Ben Thompson wrote a great piece. The smiling curve. The last week, I believe, the smiling curve about this question is, can a combination of Intel be the Microsoft, not just the Intel? Yeah, yeah. And could Intel be the Microsoft, right? Like, can they, is that what they're trying to do here is sort of like level up the stack? Yep. Fascinating. Yep, yep. Fun stuff. Future episode. Intel self-driving OS, we will see.

1:18:08See if that happens. Coming soon to a podcast client near you. Indeed. Speaking of podcast clients, one that you can listen to on your podcast client, my carve out this week is the Podsave America with Cara Swisher interviewing the gang from Podsave America at South by Southwest. So Podsave America is the guys that used to do keeping it 1600 on the Ringer podcast network after this election moved over to start their own media company.

1:18:37called Crooked Media, Podsave America, Podsave the World, and other left-leaning, highly cynical, very funny podcasts. And if you're in to keep an up on all the stuff that's going on, and you want some insights from the people that held those jobs in the Obama administration, it's an awesome podcast, like Podsave America is incredibly entertaining. And the Cara Swisher interview is phenomenal because she might be the best interviewer alive. Like she is so good at...

1:19:06Yeah, like thinking about like what do I want to know? What do I think my listeners want to know? I'm gonna abuse you until I get those things out of you and you're gonna like it because I do it in such a fun and entertaining way and let you tell your story and give you the respect as the person being interviewed and the and starting from a place of like, look, I think you're really smart and I think you have a lot to share. Want to share those things with us. And there's there's this incredible mutual respect between the interviewer and the interview ease and I just highly recommend it. We look up to her on acquired and a lot that we can learn and hope to keep learning as interviewers and podcast hosts and journalists in our own

1:19:49random internet way, kind of sense ourselves. Mine real quick for the week, speaking of left-leaning liberal folks, great article in the New Yorker this week that really made me think by Adam Gapnek, who several years ago wrote this great book called Paris to the Moon, which is just hilarious being in Paris as I am right now for the next month or two. Great satire of the French and of Paris. But he wrote a piece called asking the question are liberals on the wrong side of history in in the New Yorker and willing to it. It's really good, but one of my one of my favorite elements of the piece in which they're several is sort of asking this question like what does the course of history have to say about whether you know what the themes are behind it which which reminds me of course of our podcast and you know what we do on acquired but it kind of makes the point that like

1:20:46Because events turned out a certain way, because Trump won the election, because Brexit happened, et cetera, or other things deeper in history. Like, the human mind is such a, you know, this is kind of an interversky classic stuff is such a like storytelling machine that we seize on to that narrative that like, oh, well, that was inevitable and it reflects this deep truth. But the reality is like, maybe it wasn't inevitable. Maybe, you know, it was a probabilistic thing. Maybe it was even a low probability thing that just happened to happen.

1:21:16And I love thinking about stuff like that. Interesting. Just because it happened, it doesn't mean it was destined to. Exactly. And it doesn't mean that you should create or accept a gospel about the truth behind it, because the truth is complicated. Yeah. Sounds very cool. Cool. All right, listeners. Now is a great time to talk about one of our favorite companies, Statsig.

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1:22:25So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com slash acquired to get started. Well, that's all we've got. Listeners, thank you so much for joining us as always. If you've been a long time subscriber, as we mentioned in the beginning, and you appreciate the show, we'd love a review on iTunes. Make it something stupid, make it something funny. We'd love to read it on air and help us grow the show, get more guests and and really bring acquired to more people. So, yeah, feel free to, if this is your first show, subscribe from your podcast client of choice. You can shoot us email at acquiredfm at gmail.com. Go to acquired.fm, join us in the Slack. Gosh, I don't know what more I could plug, so I'm just going to call it here. Find us in VR. Yes. Signing off. Have a good one. Talk to you guys soon.