Facebook's Lingering Business Problem

On March 25, 2014, about 7.5 years ago, Facebook announced that it was acquiring Oculus VR, the then-leader in the emerging market for VP hardware. Since then, Facebook has been integrating the technology, expanding the offerings, and generally touting the benefits of VR for the masses. Despite this huge investment and PR push, though, VR has not really moved beyond the domain of niche games, or into anything approaching mainstream adaption. Facebook persists in its push, of course, with their most recent offering being a pair of AR glasses reminiscent of Google Glass (which has since been essentially abandoned). I don't think they are going to succeed in their business goal, and I'll explain why I think this.

First, we should consider what their business goal actually is, because that may not be evident to everyone. I believe that Facebook envisions a market for VR/AR applications as an emerging business, in much the same way that smartphone apps were an emerging market when the iPhone was first released. Consequently, Facebook is spending a lot of money (in acquisitions and development) trying to get an early-mover advantage in this market, in an attempt to become the predominant platform through which people acquire VR/AR applications. Note that this is distinct from developing and/or selling hardware, although the two business propositions are interconnected; after all, Apple would not be able to make billions from it's app store without the hardware to run the apps on it. Fundamentally, though, I think the app store is a more attractive business proposition for them, as it represents a more durable advantage than just superior hardware alone.

Facebook has a problem, though. In order to expand beyond casual gaming, and into "lifestyle" VR/AR, Facebook needs people to trust the company to not abuse their personal information, and/or inundate their experience with annoying advertising. Without that trust, given an equivalent product offering, people will actively bias their purchase decisions away from Facebook. Moreover, Facebook will be unlikely to be able to sell their "VR app store" concept to any other hardware vendors, if consumers are actively dissuaded from purchasing products with a connection to Facebook. Their reputation will precede them, so to speak.

Unfortunately for Facebook, this is a very difficult obstacle for the company to overcome. Trust is hard to gain back once it has been lost, and Facebook has built the majority of its corporate value by abusing (or thumbing their nose at) trust. Moreover, their main business model is predicated on obtaining and selling people's otherwise private information; even if they can carve out a market segment where they promise not to do so (as they have with their AR glasses, to some extent), people are likely to realize that this state is almost certainly temporary, and bias decisions accordingly. Out of all predominant public-facing tech companies, Facebook seems the least likely to engender trust among their users, and for good reason.

It will be interesting to see if Facebook can overcome this challenge in some way. I do not see a viable path for them to do so, but I could certainly be wrong. As a company, they a betting big on being able to become the predominant portal for VR/AR apps; time will tell if that bet will pay off.


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