Alphabet Forms VR Division To Counter Facebook's VR Advertising Push

  • Alphabet is forming a new VR division headed by veteran Clay Bavor, former VP for product management.
  • VR is expected to transform many industries including gaming, entertainment, design, and advertising.
  • Alphabet is taking the necessary measures to counter Facebook's push to VR advertising with both affordable VR gadgets and ambitious technology projects.

Alphabet Inc-A (NASDAQ:GOOGL) is forming a new Virtual Reality (VR) division, according to rumors first published by Re/Code. A Google spokesperson confirmed the changes, but declined to comment further. The new VR division will be headed by Clay Bavor, former VP for product management, whose Twitter profile now reads "VP, Virtual Reality at Google."

The Wall Street Journal notes that Alphabet is trying to keep up with some of its rivals in the rapidly expanding world of virtual reality, which some analysts predict will transform many industries including gaming, entertainment, and design.

Facebook (NASDAQ:FB) is the main competitor of Alphabet in the race toward mainstream consumer VR. Since Facebook acquired VR company Oculus VR in 2014 for $2 billion, technology analysts and investors have been speculating on the plans of the social networking giant for next-generation, Oculus-powered VR.

"It’s probably not the next five or even 10 years before virtual reality surpasses smartphones, but I’d be very surprised if 15 years from now, we’re all still carrying around little slabs in our pocket that we have to pick out and use, when instead we can just project virtual information into our environment," said Oculus creator Palmer Luckey.

Facebook's strategy is beginning to become readable: The company, which is moving aggressively to make VR mainstream, recently released a first alpha version of a virtual world for users of VR headsets powered by Oculus Rift technology. It also unveiled new media partnerships that aim to bring Facebook VR technology to consumers.

The company is also working on a video app that would support "spherical" videos, halfway between video and VR. Spherical video, which has tremendous potential for video advertising, could be an important part of Facebook's push to challenge Alphabet’s YouTube in online video distribution.

Of course, Alphabet has its own VR projects, that will now be managed by Bavor's new VR division. Bavor was a creator of Google Cardboard, a $20 gadget that, when paired with most smartphones, becomes a virtual-reality headset. Cardboard is too entry-level to compete with the Oculus Rift and other high-end VR headsets, but it has a place in Alphabet's VR strategy as a cheap entry point to start seducing consumers with the wonders of VR. In fact the Oculus Rift is now available to pre-order for $599, a price much higher than previously expected and hardly affordable by average casual consumers, which underlines the need for cheaper entry-level solutions.

Forbes notes that many brands are beginning to consider VR as the future of digital advertising since it is immersive and experiential. To maintain its leadership position in the search ads business, which accounts for more than 70 percent of the total business, Alphabet must invest in this future trend. Alphabet already offers spherical video on YouTube. And, as video content gradually moves to VR content that can be viewed by millions with affordable Alphabet devices compatible with most smartphones, the company will be keeping a competitive edge in the VR advertising space.

As far as more ambitious projects are concerned, Alphabet is accelerating its efforts to develop wearable technology for VR and Augmented Reality (AR) and reviving Google Glass as Project Aura. The company is also working on Project Soli, a radar sensor on-a-chip for precise detection of hand and finger motion, which could permit creating a new user-interface paradigm based on free hand and finger motion in 3D.

But the most ambitious of Alphabet's projects in VR/AR is the company's investment in Magic Leap, a secretive Florida AR startup that is developing a new VR/AR headset and related technologies. According to science fiction writer Neal Stephenson, considered as one of the founding fathers of VR and was hired by Magic Leap as Chief Futurist, the company's VR/AR technology "is going to blow doors open for people who create things."

It appears that Alphabet is trying to cover all bases, with affordable VR gadgets to introduce consumers to the coming waves of VR content, but also ambitious technology projects oriented to the future of advertising. Therefore, investors should rest assured that the company is taking the necessary measures to keep its leadership and status as a buy-and-hold tech stock.

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