Facebook Buys Crowdfunded Pioneering Virtual Game Company: Opportunity or Betrayal?

Those who remember the 1990s
may recall some really expensive and awful virtual reality games
popping up in arcades right before they mostly died off for good.
Players put on giant helmets that projected a virtual space they
pretended to play in while standing around in the real world
looking like dorks.

While those virtual reality systems are long gone, the dream did
not die. Meet Oculus Rift: a new virtual reality headset that has
developed enormous buzz among gamers and in the gaming industry.
And it owes a significant amount of its development to
crowdfunding. Oculus, the Long Beach company designing the
system, raised $2.4 million on Kickstarter after asking for just
$250,000.

Then, Tuesday afternoon,
Facebook bought Oculus for $2 billion, $400 million of which is
cash. It may seem like a strange acquisition for Facebook—it’s
hardware, not some app that can be incorporated into Facebook’s
offerings. But Facebook CEO Mark Zuckerberg said in a statement
he’s looking beyond the current mobile setting: “Mobile is the
platform of today, and now we’re also getting ready for the
platforms of tomorrow. Oculus has the chance to create the most
social platform ever, and change the way we work, play and
communicate.”

Some of Oculus Rift’s funders feel betrayed and used, though
they’re undoubtedly still going to get whatever perks their backing
paid for. The developer of Minecraft
tweeted that he was canceling a deal to bring the game to
Oculus Rift because Facebook “creeps [him] out.” Reddit
is full of rage about the sale, but rage is half of Reddit’s
deal anyway.

Over at ValleyWag, Joel Johnson, who donated $300 to the Oculus
VR Kickstarter campaign, provides more useful detail as to why
somebody might feel betrayed by the decision. What’s wrong with
Oculus Rift drawing the interest of Facebook, getting bought, and
possibly becoming even bigger than anybody ever predicted?

The fact that everyone involved made a rational choice to sell
out isn’t what I find frustrating, I don’t think. (I don’t even
particularly care that Oculus sold to Facebook and not, say,
Microsoft. Ultimately a sale is a sale, even if Facebook is the
worst possible partner for Oculus of any of the large technology
companies.) It’s that I, as a consumer, bought into the narrative
that underpins almost every Kickstarter project: that without my
contribution, something novel would not exist. And while that
remains true—and is a reason that Kickstarter’s owners continue to
underline that their goal is to fund “creators” and not
“products”—Oculus’ sale to Facebook also highlights the disparity
inherent in the current capitalist and investment structure, where
small investors are excluded from returns by regulation, but
investors with more capital can quickly extract more capital by
pushing a quick expansion into untapped markets, even without
proving that those markets actually, truly exist.

The way our investment regulatory structure is run, those small
Kickstarter donors are simply not allowed to be offered a piece of
the company in exchange for their gifts. Johnson’s early support of
Oculus won’t—and currently cannot—pay off like it would for an
investor. It’s a problem supporters of crowdfunding are trying to
fix, and some are hoping a massive, 585-page new
set of rules by the Securities Exchange Commission (SEC) will
help. The new rules will allow a company to raise up to $1 million
in investment—not just donations—from crowdfunding sources in a
one-year period.

But obviously there are some strings attached, or it wouldn’t
take the SEC the duration of a novel to give companies permission
to sell stakes to small donors. An analysis at VentureBeat
calculates that the
various reporting and compliance requirements the SEC wants to
put into place to allow crowdfunded investment could eat up more
than a third of funds raised this way. The compliance costs eat up
less of the money the more money raised, which doesn’t exactly
encourage these companies to stick with smaller donors. For those
who are frustrated that their early financial support of Oculus
won’t pay off with a share of Facebook profits, they are going to
have to use the developer’s kits they paid for to try to make
awesome games instead. Clearly what Farmville needs is the
feeling like you’re on the actual farm, begging your virtual
friends to help you milk cows.