The deal calls for $400 million in cash and 23.1 million shares of Facebook common stock worth about $1.6 billion. The accord includes $300 million more in cash and stock based on incentives.
"We view this as a software and services thing, a network where people can communicate and buy things," Facebook CEO Mark Zuckerberg said in a conference call Tuesday. "That'll be where the business will come from."
The head-gear-mounted technology, a hit at the Consumer Electronics Show in Las Vegas in January, is the brainchild of Palmer Luckey. He was 21 at the time of CES. Brendan Iribe is CEO and co-founder.
"We believe virtual reality will be heavily defined by social experiences that connect people in magical, new ways," Iribe said in a statement.
Oculus board member Antonio Rodriguez, a general partner at VC firm Matrix Partners, says Facebook will let Oculus operate as an independent business — as it has previous acquisitions.
Facebook's play for Oculus continues its aggressive moves beyond mobile advertising.
Although Oculus has generated buzz by presenting lifelike video-game experiences, the company has shown examples in other realms such as entertainment, which might appeal to the social-networking giant. "(Facebook) sees broader applicability than just gaming," says Edward Jones analyst Josh Olson.
Oculus is Facebook's second multibillion-dollar blockbuster purchase this year. In February, it announced plans to acquire messaging app WhatsApp for $19 billion.
Having focused solely on the software side of the industry, Facebook's plunge into a hardware business such as Oculus is surprising, says Gartner analyst Brian Blau.
"(Facebook has) talked about not wanting to be a hardware company," Blau says. "They want to do software and infrastructure, and they're clearly focused on social. Virtual reality isn't any of those things."
