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Why Facebook thinks game-streaming is the future of Oculus VR

Jason Rubin, Facebook's vice president for special gaming initiatives, tells Protocol how Facebook thinks about gaming — and why streaming games are the future.

Jason Rubin

Jason Rubin's comments about cloud VR as an ultimate goal shed new light on Facebook's cloud strategy.

Photo: Courtesy of Facebook

In December, Facebook made one of its most intriguing acquisitions in years, spending a reported $78 million to buy PlayGiga, a Spanish company specializing in cloud gaming. It seemed to put Facebook on a path similar to that of Google, Microsoft, Nvidia and Amazon: Each is working on its own way to stream games from data centers rather than relying on PCs or consoles. But Facebook's cloud gaming ambitions have remained a mystery. For months the company has essentially refused to discuss it.

But in an interview with Protocol, Jason Rubin, a gaming lifer who is Facebook's vice president for special gaming initiatives, said that within Facebook, Oculus could present a major opportunity for cloud gaming. He said that while no actual cloud products were imminent, big brains at the company are thinking hard about how cloud technology could revolutionize virtual reality. This week, Facebook celebrates the first birthday of the Oculus Quest, the company's first modern VR headset that does not require connection to a computer. Facebook hopes that the Quest's ease-of-use propels VR into the consumer entertainment mainstream.

Rubin also said Facebook is pushing its previously far-flung gaming divisions to work more closely together. Oculus now appears to be operating more like a traditional Facebook division than as an independent subsidiary. Vivek Sharma, previously Facebook's head of gaming product, was promoted earlier this year to VP of gaming and is now Rubin's boss.

People close to Facebook's gaming divisions said the company will deploy PlayGiga's cloud gaming technology first on more traditional gaming platforms like phones and PCs. Yet Rubin's comments about cloud VR as an ultimate goal shed new light on Facebook's cloud strategy.

This interview has been lightly edited for length and clarity.

Before we get to products, I have a basic organizational question. I can't always understand what goes on within Facebook.

Yeah. Facebook's org structure is opaque internally, and I'm sure completely and utterly impossible to follow externally. For gaming, in the past the verticals were so separate, we didn't really have that much interaction with each other, but now there's a significant amount more chatter back and forth between the various gaming verticals, and we're really getting a lot closer and creating a more cohesive package to deliver.

Part of my transition onto the gaming team and away from AR/VR, which is Oculus' parent, is the fact that I bring all the knowledge of what was going on over there as well as all of the relationships, so the teams can get closer to each other. So the two major gaming pillars — Facebook Gaming and Oculus AR/VR — have that connection.

We're not going to call you the Facebook gaming czar yet, right?

No, there are multiple Facebook gaming czars. Think of us as that table of mob bosses that comes in and sits around the table, without the baseball bat moment. So far nobody's gotten the bat, but we're a bunch of people working on games.

Who else is at that table beside you and Mike Verdu [VP of content, AR/VR]?

Vivek Sharma, who is my manager and runs Facebook's gaming group. I'm working more on the day-to-day game strategy and he's working more on running the game group, as well as overseeing other things that I don't have a role in right now. So he and I are working over on the Facebook Gaming side.

You have Leo [Olebe, global director of games partnerships], who maintains a lot of the partnerships, as well as Ash [Jhaveri, VP of business development], his manager, who's the head of parts of our partnerships organization and certainly runs every game partnership, along with others outside of gaming.

There's Vijaye [Raji, VP of entertainment], who's Vivek's manager and also oversees entertainment and video at Facebook. And then we have also the ads side. Our game ad business is massive. They have a seat at the table as well.

The other thing I'd say is that outside that group, interest in gaming rises right to the top. I mean Mark [Zuckerberg] believes in communities, and he goes looking for communities that are strong and upcoming. You have massive communities like religion, nationalities or sports. Gaming is quite large and growing in that list of community groups, and is becoming more social over time.

As you work on new technologies like mixed-reality streaming, would we be more likely to see that first on a service like Twitch or on your own Facebook Gaming platform?

It depends on what the thing is. From a broad, top-level thought process, we want to entertain consumers, and we want to get information about our products out. If the most effective way to do that would be to go to Twitch first, we would probably go to Twitch first. But there are a lot of times where what we want to do isn't available in the marketplace in any form, and the only way the marketplace gets to do it is if we build it ourselves.

And in that case, you want to work with your internal teams, right?

Yeah, because they're the only ones that you can convince to take a flyer on some idea you have that doesn't necessarily make sense either financially, or they just don't believe in it.

So hypothetically, if you wanted to get Call of Duty on Oculus, who would make the call to [Activision Blizzard CEO] Bobby Kotick? Who says, "Hey Bobby, we want Call of Duty on Oculus. What's that gonna cost?"

It certainly wouldn't be me, even though I know a lot of people at Activision, because I'm not in the AR/VR group. It would probably at this point be Mike Verdu who would call and get that communication going.

It might be Boz [Andrew Bosworth, VP of AR/VR], it might be Mark, if they're in the right place at the right time and Mark knows that we're interested in it. Again, that's a hypothetical, but that would be the direction that we would take.

Oculus Home Oculus users could soon have more AAA games to choose from.Photo: Courtesy of Facebook

How important are those AAA, top-quality games in particular for Oculus and for Facebook going forward?

It's important, and specifically important because there's a segment of the gaming market that wants VR and is very interested in VR, but is waiting for VR to have credibility from the few brands that those gamers believe in. And that audience is necessary to get to mass-market, to get to scale. You will see those AAA products. Regardless of who makes the call and what the actual deal is, I think you will see those products.

You all fundamentally believe that you can generate these larger sort of AAA experiences on the onboard Quest hardware and architecture without needing to be plugged in to a computer?

We're going to pull AAA apart for a second. Let's start with the graphic fidelity. It isn't going to happen anytime soon for a portable device to have PC graphics on-headset for simple physics, battery and heat-dissipation reasons.

So if what is meant by AAA is the graphic fidelity of Asgard's Wrath, that's not happening on a local headset, for the same reason that people can't get those games to run on phones and anything else that's battery powered and needs to dissipate heat. You can plug it into a wall, and you can put a liquid-cooled or fan-cooled graphics card in it, and sure. But you can't do that on somebody's face.

There is a way that you can do that on a device and stream it to somebody's face wirelessly, and that probably will happen relatively soon. The problem with that is that's not horribly portable like the Quest is, and what we're finding from consumers is they really want that portability.

In the longer run, and now I'm really waving my hands around and speaking like [Chief Scientist of Facebook Reality Labs] Michael Abrash, there should be ways to stream that from a computer, over your Wi-Fi, to your face. I won't get into the incredible amount of challenges that need to be overcome to get there, but in the long run, that's the way that head-mounted devices end up with AAA-graphic-quality games.

If you get away from the graphic quality for a moment, and you get into the depth of experience, length of experience, craftsmanship of the experience, I think you can get some really big, amazingly deep games onto the Quest platform, and I think you're going to see them in the next year or so. Depending on what we're looking at, it's more a budget/time issue than it is a graphic fidelity/processor issue.

But, again, ultimately we'll throw those processors in a server farm somewhere and stream to your headset. And a lot of people are going to say, "Oh my god, that's a million years away." It's not a million. It's not five. It's somewhere between.

I can tell you this: Nobody is banking on cloud processing making standalone VR headsets viable. We have to make them viable with the chipsets that are in them. But in the long run, cloud solves a lot of problems because it most effectively puts the processing power where it's needed. Now there's latency issues, resolution issues, frame rate issues, tons of issues. And it's a hell of a lot more uncomfortable when it's a frame that's right in front of your face than it is when you miss a frame on a TV that's across the room. So all of these things have to be solved, but no one thinks it's impossible. It's a hypothetical that can be done but it's not coming anytime soon. It is very, very complicated.

When we talk about the potential trajectory of VR as a mass consumer category, some people liken VR to 3D television. Is that a fair comparison?

The answer to that question is simple. 3D television delivered the exact same experience in a way that was interesting, but in the end pretty crappy. So the same movies, the same television shows, maybe a few made-for-3D things because they wanted to show you waterfalls or a forest or something, but ultimately it was watching television with a kind of fake depth. That was its one trick and it was pretty crappy. After watching it for a while, regardless of the technology, your eyes got tired.

And there's a good reason for that, by the way. It wasn't real 3D. You couldn't look around anything. All it was was stereo, and the stereo was made for a very specific interpupillary distance, the distance between your pupils. People's pupils are variable. And some people are wider, most people are in the middle, and then some people are very narrow. And only people that had almost exactly the IPD it was made for got a good experience. Everybody else got a really crappy experience.

VR is an utterly different situation. It's giving you a very, very different experience. VR gets better and better and better every year. VR is an infinitely-evolving ecosystem of totally different content. And so you can't compare the two.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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