Oculus co-founder bearish: VR games have no market

Jack McCauley, one of Oculus' six co-founders but also one of the company's biggest bears, told CNBC that there won't be a market for virtual reality video games.

Five years after buying Oculus for $2 billion, Facebook is still working on bringing virtual reality to mainstream audiences. But one of the company's six co-founders now doubts whether Oculus can achieve breakthrough progress. McCauley told CNBC that the VR gaming market is not big enough, and if Facebook positions Oculus products as mainly for gaming, it will be difficult to achieve breakthrough success. In a phone interview on Wednesday, McCauley also said, "If we were going to sell VR, we would have started a long time ago."

When McCauley left Oculus in November 2015, he said that the devices he was responsible for had not sold much. He recalled that the original DK1, released in 2013, sold 70,000 units, while the subsequent DK2 sold 150,000 units from 2014. Oculus has not been hit hard because sales of new devices have continued to grow. Market research firm SuperData (a Nielsen company) has estimated that the $199 Oculus Go has sold more than 2 million units since its release in May 2018. According to SuperData, the Oculus Quest, released in May this year, has sold nearly 1.1 million units, while the Oculus Rift has sold only 547,000 units since the beginning of 2018.

Sony sold 17.8 million PlayStation 4s in fiscal 2018, and Nintendo sold nearly 17 million Switches in the same year. In contrast, Microsoft has yet to break through Xbox One sales. This week, The Information reported that Facebook released two new headsets in May, the $399 Oculus Quest wireless model and the $399 Oculus Rift S computer-connected model. At the same time, the tech company is also looking to acquire game studios and acquire exclusive deals to strengthen Oculus' game library.

But there are still many fundamental issues to be solved for VR gaming, said McCauley, who worked on two developer versions of Oculus and oversaw Facebook's acquisition of Oculus in March 2014.

For one thing, many people still feel uncomfortable wearing a VR headset, McCauley said. Also, many people prefer playing video games with friends on a 2D display.

“Video games haven’t evolved to be 3D experiences for a variety of reasons,” he said. “I don’t know what kind of applications VR will have that will allow players to stay connected for six hours like they can with a console.”

McCauley is a video game industry veteran who worked on Guitar Hero for Activision, Xbox 360 for Microsoft, and Electronic Arts before co-founding Oculus. “You put on VR and see a lot of amazing things, but what can you do with it?” McCauley said. “Even when I was working there, I didn’t think people would walk around in public wearing headsets.”

Facebook has enough money to continue investing in Oculus as it has for the past five years, but McCauley believes that continuing to invest so heavily would be very risky.

"I could be wrong, but I have years of experience," he said. "I'm like a lot of people. Everyone has a gut feeling that tells you whether you're right or wrong. And in this case, I think I'm right."

McCauley has been living in semi-retirement since leaving his job in November 2015. He is the innovator-in-residence at Berkeley's Jacobs Institute of Design Innovation, while continuing to build various devices at his own research and development facility, such as a gun that can shoot down drones.