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Zuckerberg’s Reality

Facebook Inc.’s eye-popping $2 billion acquisition of Irvine startup Oculus VR Inc. is a long-term bet on the future of computing, Mark Zuckerberg told analysts last week.

The near-term bet is on gaming, a segment the Menlo Park social networking company knows well from ubiquitous games, such as Candy Crush and FarmVille, that constantly invade newsfeeds on its site’s personal pages.

Dublin-based King Digital Entertainment PLC, the maker of the Candy Crush franchise, raised $500 million in an initial public offering last week. The debut fell short of expectations, but it looks like there’s help on the way.

“We’re going to focus on helping Oculus build out their product and develop partnerships to support more games and accelerate their plans,” Zuckerberg said in a conference call last week.

About 40% of global mobile traffic is related to gaming. Another 40% is spent on social communication, with Facebook accounting for half of that market share, according to Zuckerberg.

Global video game sales, which include hardware and software, combined with mobile, PC and online game sales, topped $93 billion last year, up 17.7% from 2012, according Stamford, Conn.-based industry tracker Gartner Inc.

The fast-growing market prompted the Oculus acquisition, Facebook’s second priciest buy in its 10-year history behind its $19 billion purchase of WhatsApp in February. The company acquired Instagram for $1 billion in 2012.

“The financial analysis we did focused primarily on the games because it’s the furthest along and it’s the clearest opportunity where we have other businesses we can compare it to,” said David Ebersman, Facebook’s chief financial officer. “We could comfortably justify the sole valuation of the company just on the games opportunity.”

Orange County has long been a prominent locale for the gaming industry. Irvine-based Blizzard Entertainment Inc. helped usher in a new game genre, the “massively multiplayer role-playing game,” with the release of “World of Warcraft” 20 years ago. The company typically drives revenue for its Santa Monica parent, Activision Blizzard Inc., the largest game maker in the world with sales of $2.27 billion last year and record adjusted profits of $621 million.

Amazon.com Inc. boosted its presence in Orange County this year with the acquisition of Irvine-based video game maker Double Helix Games. The world’s largest online retailer also has its Amazon Game Studios unit here, as well as in Seattle and San Francisco.

Other notables include game publisher Little Orbit, based in Rancho Santa Margarita, which recently released “Monster High 13 Wishes” and “Barbie Dreamhouse;” and Lake Forest-based publisher KOG Games, a unit of KOG Corp. in South Korea, the maker of the online action game “Elsword,” in which players pick from six customizable characters as they explore a fantasy world and battle rivals.

Newport Beach-based video game maker inXile Entertainment shook up the crowdfunding world last year, raising $4.1 million on Kickstarter from 74,000 backers. That put its role-playing game, “Torment: Tides of Numenera,” in rare company among the approximately 40,000 projects launched on the New York-based crowdfunding site at the time.

Torment was the fourth highest-funded project on Kickstarter and the second highest in the gaming sector, trailing only the Android-powered $99 OUYA game console for TV made by Santa Monica-based OUYA Inc., which raised more than $8.5 million through some 63,000 backers.

InExile raised more than $2.9 million in 2012 for its post-apocalyptic “Wasteland 2,” a predecessor to the popular “Fallout” computer game series.

The $2 billion price tag Oculus attracted was the third highest sale in Orange County in more than three years. Washington, D.C.-based Danaher Corp. acquired Brea medical instruments maker Beckman Coulter Inc. for nearly $7 billion in 2011. Dell Inc. acquired Aliso Viejo-based Quest Software Inc. in 2012 for $2.4 billion (see related price comparisons, OC Insider column, page 3).

Zuckerberg shied away from questions about monetizing an unknown technology such as virtual reality, but he provided some thoughts on how his company could drive revenue.

“We’re not going to try to make a profit off the devices long term,” he said. “We view this as a software and services thing. If we can make this a network where people are communicating and buying things, virtual goods, there might be advertising in the world, but we need to figure that out down the line. That’s probably where business will come from.”

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