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Facebook’s acquisition of Oculus VR is big news on many fronts. My fellow analysts are deconstructing it as we speak, whereas in this post I want to share a few words on what the purchase tells us about the future of innovation. Its symbolic significance is quite striking, and I’m not only talking about how symbolically it will bring together two innovator generations from different decades under one roof in a new decade. For someone who experienced entertainment being reshaped by the 1990s PC games and social life being redefined by the 2000s social networks, the fact that John Carmack and Mark Zuckerberg will be now working together is significant by its own merit. But it’s not as significant as that other thing I’m referring to.

That other thing is crowdfunding, and I can’t stress enough how big a deal it is in this context. Oculus is the first billion-dollar company to take off from a crowdfunding platform (Kickstarter), but you can be dead sure that it won’t be the last. The way crowdfunding is democratizing access to finance will send some very fundamental shockwaves across the entire technology market, and that is particularly the case with anything that relies on hardware. Oculus Rift is a perfect example: its bet on virtual reality is so experimental that it most probably (would have) had a hard time trying to get enough seed funding from VCs to turn its concept into a product, at least on favourable terms. The VC money kicked in once the developer version of Rift was available, but its first crucial productization steps were taken thanks to the Kickstarter backers. It’s easier to impress with a proof of concept than a mere concept.

The thing is that in hardware the leap of faith from the concept to the product tends to be quite much more dramatic than in software. In today’s platform economy a start-up can largely create software out of toil, tears and sweat (let’s not include blood in there), and thus have something reasonably viable and impressive ready when it goes knocking on VC’s doors. That is not the case with hardware, which requires purchasing physical goods before anything concrete can happen. If the product is “connected”, “smart”, etc. then those goods can be prohibitively expensive for people who operate without external funding. That’s where a crowdfunding campaign can really make a difference. Importantly, besides providing access to funding it can also be an invaluable market research exercise, as the start-up will get some kind of sense of how many of the prospective customers might actually be willing to put their money where their mouth is. It’s all about derisking the productization process.

All this will also make crowdfunding a major enabler for IoT, which involves a plethora of invented and reinvented physical products. I’m currently conducting a study about the IoT developer landscape, and that enabling effect is indeed one of my main premises. In addition to Kickstarter and Indiegogo, the two leading crowdfunding platforms, makers and IoT start-ups can nowadays also turn to alternatives that specialize namely in hardware products, such as Crowdrooster and Dragon Innovation. These players curate their campaigns quite closely, and besides the funding platform provide incubating support (e.g. by way of workspace, marketing, design) to the covered entrants. 

What it means to the big picture is that hardware is about to get an extra shot of innovation in its arm. More and more of the new game-changing products will in future come from younger, scrappier and more experimental companies, instead of large corporations that have traditionally been the ones able to stomach the old productization risk. It’s a fascinating change, really, with many implications on the market.

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