November 2012
“MARLBORO CIGARETTES?” MITCHELL ASKED, AS HE AND LUCKEY APPROACHED a duty-free shop at LAX.
“Marlboro Red cigarettes,” Luckey replied, reading off an email list of things McCauley wanted them to bring to China. “He needs three cartons.”
“Does it really say that?” Mitchell asked, half distracted.
“Cone eyepieces, cylindrical eyepieces,” Luckey recited from the list of things McCauley needed them to pick up before meeting him in China. “Plexiglas control box and three cartons of Marlboro Red smokes.”
“Oh,” Mitchell remarked offhandedly. “Wow.”
Luckey could tell Mitchell was preoccupied, and he had a pretty good idea what with: ZeniMax.
Over the past couple of months, the relationship between Oculus and ZeniMax (the parent company of id Software, where John Carmack worked) had begun to sour. Following mutual enthusiasm at E3—ZeniMax grateful that Luckey had freely lent them his prototype, Luckey appreciative that ZeniMax’s Doom 3: BFG Edition demo had helped put Oculus on the map—a lot had changed in a short amount of time. Ultimately, the wedge was a result of Oculus and ZeniMax being unable to reach an agreement about how best to work together going forward. Up to this point, there had been informal collaboration between the companies—the type of casual back-and-forth that typically exists between hardware makers and software providers; though slightly enhanced in this case due to Carmack’s passion for VR and his unique contractual freedom to go above-and-beyond with hardware vendors. But despite their loose collaboration, Oculus and ZeniMax had not yet hammered out any sort of formal agreement. In fact, save for an NDA that ZeniMax had Luckey sign before E3 (to receive the testbed that Carmack had offered him), there wasn’t a single piece of documentation at all between the two sides.
By early August, both companies knew this ought to be resolved. Formal discussions between the two sides began on August 7, with a call between Iribe and Todd Hollenshead, the CEO of id Software, and the negotiations got off to an optimistic start. No numbers were discussed, but it was clear from the mutual respect and exuberant enthusiasm that both sides saw this partnership as a when-not-if inevitability.
The problems began a month later, when Iribe sent over an initial proposal to “kick off” negotiations. There were many facets to the offer but the crux of it was this:
From Carmack’s perspective, accepting the technical adviser offer seemed like a no-brainer. “I already do that for free,” he told ZeniMax management—so, to him, 2 percent equity for merely formalizing that arrangement seemed like “free money.” As for the investment opportunity—that wasn’t really up to him. Though, technically speaking, none of it was really up to him. Ultimately everything went up the chain to ZeniMax CEO Robert Altman, who thought Oculus’s initial offer was an insult. And he felt even more insulted when, later that month, Oculus sent over a newer “investor prospectus,” which listed Carmack as an adviser/endorser. This had not been finalized! Nor had ZeniMax given Oculus approval to use the DOOM logo (nor, for that matter, had ZeniMax even officially agreed to produce a VR version of Doom 3: BFG Edition for the Rift). Finding all this unacceptable, ZeniMax sent over a counterproposal on October 19 that they felt better reflected their “past and continuing contributions” to Oculus.
As with Oculus’s initial proposal, there were many facets to ZeniMax’s counter. But what it boiled down to was that without making any financial investment ZeniMax wanted 15 percent nondilutable equity in Oculus.
To Iribe, this was a ludicrous offer. Forget whether or not 15 percent was fair, or even a percentage that Oculus would be willing to part with, but “nondilutable” equity stakes—meaning those where a stake-holder’s ownership percentage remains the same even as new money is raised—were pretty much unheard of in the investment community.
For the first time, the exec team at Oculus began to consider the possibility that a deal might not be struck and they’d be unable to ship Doom 3 with DK1. Especially after Iribe’s latest reply to ZeniMax, which described their counterproposal as “so far out of the ballpark, we’re left wondering if there’s any hope.” That was sent November 13, the same day that McCauley requested those Marlboro Reds. And though there had been no word from ZeniMax, there would be plenty of chatter from McCauley now that the guys had finally arrived in China.
“Wercome . . . to the Puhr-maan Hoterr!” McCauley exclaimed, speaking in an over-the-top, stereotypical Asian accent that he hoped would make Luckey and Mitchell shake their heads as their cab arrived at the Pullman Hotel. Located in Dongguan, the Pullman was the only Western-style hotel within about twenty miles of Berway (the factory where the Rift would be manufactured).
“Oh man,” Luckey whispered. “It’s 2012: you can’t say shit like that!”
“Especially not in front of the valets!” Mitchell said, embarrassed. As they would soon discover, McCauley recycled that same stupid off-color impersonation every single time they pulled up to the Pullman.
Given McCauley’s age, the guys just rolled with it and chalked it up to Jack fulfilling his dual role as Oculus’ wacky uncle. And what choice did they have? Until the day all ten thousand headsets eventually shipped (or whatever the number now was), the fate of Oculus rested in Jack McCauley’s hands.
To be fair, McCauley was no tyrant. He could get persnickety, sure, and he was a bit set in his ways, but it was obvious to anyone who spent five minutes working with the guy that what motivated him most wasn’t money or power; it was an unquenchable quest for product excellence. Pure as those motives appeared to be, that didn’t change the fact that McCauley wielded an incredible amount of power. He was the linchpin of Oculus’s manufacturing operation, single-handedly responsible for contracting every vendor needed to produce the devkit—all of whom were based in China and who would have been invisible to any American who lacked McCauley’s expertise; the guys had to trust him. Not only in regard to the price of driver circuits and other technicalities like that, but in other areas, too.
Like when McCauley decided that he didn’t want to move down to Irvine, and instead wanted to keep working out of his lab in Livermore. And when McCauley said that he needed to hire (and sometimes travel with) an office assistant whose previous job was with the Taiwanese American Junior Chamber of Commerce Northern California. And when McCauley explained that he needed the company to pay for near-weekly trips to China? Sure. Why the hell not! Of course, there was still the issue of McCauley being a loose cannon on email. Typically, Iribe would be the one to try and rein him in. But since that didn’t seem to be working, Luckey had recently tried his hand at peacemaker. “We want to be careful about putting Carmack on emails,” Luckey wrote McCauley. “He wants to help, but it’s probably best to pool our knowledge at Oculus before contacting him.” Luckey, hoping that his loose cannon might respond better to humor, ended his email by explaining that “even if we don’t really know what we’re doing, we should make an effort to appear as if we do!”
“I’m just gonna throw this out there . . .” Mitchell started, before glancing over his shoulder to make sure McCauley was out of earshot as he and Luckey got off the elevator at their floor one morning. “Maybe there’s some higher level to Jack’s joke that we’re just not getting. Is that possible? Like, is it a reference to something?”
“Nah,” Luckey replied. “Jack’s just a crazy old man!”
The guys harrumphed in laughter, and then synced up about what time to meet tomorrow (way too early), if there had been any word from ZeniMax (nope), and whether Jack’s particular brand of crazy more closely resembled that of a loon or of a fox (inconclusive). Then before disbanding to their rooms for the night, Luckey asked Mitchell if Iribe (who had visited Berway in August) had told him much about what to expect at the factory.
“Okay,” Mitchell said, with a grin growing on his face, “you know those super-high-tech factories? Like that one Amazon has, with the robots? Well, Brendan said that Berway is basically the total opposite of that.”
“What does that mean?” Luckey asked.
For a moment, Mitchell considered the best way to relay what Iribe had told him about Berway. Should he talk about Elaine Chan, the enigmatic managing director, who had worked with McCauley for over ten years? Or maybe he should warn them about the smell—the ferocious scent of hot plastic—that dominated not only the factory but the entire city as well? Or perhaps the best preface was to describe just the commute, to tell the guys about how a factory employee would arrive tomorrow in a van, and then zip them through all these crazy off-the-beaten-path roads that were lined with little shops that sold tools, components, and assorted electronics. With each of these thoughts, Mitchell chuckled to himself, which only made Luckey even more curious. This is why it felt a little cruel when Mitchell decided to forgo these little details and respond with this:
“Like virtual reality, Berway is something you’ll just need to see for yourself.”
“SHE SINGLE-HANDEDLY BUILT THE COMPANY,” MCCAULEY EXPLAINED THE next morning, during their bumpy van ride over to Berway. “She’s just amazing.”
McCauley was talking about Elaine Chan, relaying her bio before they soon met her at the factory. “She’s from a family of nine people,” McCauley continued. “Ten, actually, but one of them died. The father died, too, before Elaine could remember him. The mother raised those kids. No welfare, they didn’t have that back then. So she had to make it work. They all lived in apartments stacked up in bunk beds. They didn’t have the money to send her to college, so Elaine got this job on an assembly line. Then she got a job over in an office and she excelled at it. She’s very hardworking and clever, in a way. She’s not technical, but she’s very smart and she’s very shrewd. And she’s made of iron. Once she makes up her mind on something, you cannot change her mind. And if you get on her bad side, she won’t forgive you for a long time.”
“Have you ever gotten on her bad side?” Luckey asked.
“Oh yeah,” McCauley replied. “Yelling matches. Most over money.”
With Oculus, it hadn’t quite escalated to that level, but it came close. Mostly because Chan had little interest in fulfilling the order. Even for a friend, an order this small just didn’t seem worth the headache. To sweeten the deal, McCauley suggested that Iribe also use Berway to manufacture the controllers for the other venture he had recently invested in (Wikipad). Chan, however, still had doubts; but after all she’d been through with McCauley, how could she resist?
“So don’t forget: she’s doing us a favor,” McCauley reminded them as the van dropped the guys off outside a beige factory in downtown Dongguan: Berway Technology Ltd.
It was neither like the robot-roving factories of the future nor the I Love Lucy factories of the past. It was something in between, but so unlike the visuals we associate with automakers (gritty, pristine), food processors (orderly, sanitary), or even sweatshops (oppressive, dangerous). To Americans experiencing it for the first time, it felt like a place of contradictions.
Starting with Elaine Chan, whose relaxed gait, cheerful welcome, and perpetually smiling heart-shaped face seemed to betray McCauley’s description. This was no Iron Lady, it seemed, as she began walking them through the factory. But she soon broke away, ever so politely, to bark at an employee with scalding ferocity. Then just as politely as she had left, Elaine Chan returned with that unbreakable smile. “We go now!” she chirped, and then continued with the factory tour.
Technically speaking, Berway was big, occupying two entire city blocks, over five hundred thousand square feet in size. Yet almost everywhere inside felt kind of claustrophobic—whether from the tooling machines or the two dozen on-site engineers. Upon further observation from Luckey, the oppressiveness was probably a result of drab coloring (the floors were forest green, the rest faded whites and grays), relatively low ceilings, and a suffocating smell of plastic.
Another idiosyncrasy was the level of noise at Berway. The place had 32 assembly lines, 128 set injection machines, and over a thousand workers on the floor; yet walking through it all, there was hardly any sense of cacophony. Where was the clatter? The moans and groans? The bloated grumble of machines? Those were all there, if you listened hard enough, but something about the layout seemed to deter such moments of observation. At first, Luckey was tempted to chalk this oddity up to some sort of high-level feng shui. But by about the third time Mitchell whispered what they were all thinking—“this place is so messy”—it was too hard to believe that any harmony here was a by-product of design. And that’s when Luckey realized that the opposite was true; this place was such a bastion of chaos that no singular instance of disarray really had any chance of standing out.
After the tour, the guys sat down with Chan to chart out a production schedule for manufacturing DK1. McCauley did most of the talking, making no bones about the fact that they desperately needed this done ASAP.
“How much ASAP?” Chan asked.
“We need to ship by March,” McCauley said.
“This March? Of the 2013?”
“Yes, Elaine. Remember? We talked about this already.”
“I don’t know this talk,” Chan said (somewhat unconvincingly). “March in five months. What talk is this?”
“Come on,” Mitchell interjected. “There’s gotta be a way. I mean, before the screen issue, you were going to be able to do December. Right?”
Something about Mitchell’s comment rubbed Chan the wrong way. And though the tone of her reply lacked bark, there was a glint of ferocity in her eyes. “Quality very important,” Chan said. “My company—not very big company—but our R&D team very strong. We can work on famous product with our customer. And very quick to complete the product. Normally it take one year. But we can do it six months.”
“Is there any way to accelerate that?” Mitchell asked.
“We’re down to do anything on our end,” Luckey added. “I know you work on a lot of products. A lot of great products. It’s amazing! But the Rift . . . it’s our morning, noon, and night. There’s not a thing in the world I wouldn’t do (I don’t think).”
“It is special,” Chan said, looking deeply at Luckey. “But you are very young. You make the idea, but you do not know how to make the product.”
Luckey smiled. “That’s why we have Jack!”
Chan giggled. “Okay! We work! But: first I want to say a thing.” She then paused for a moment to think, searching not so much for the words, but to momentarily strip away any sense of facade. “For me, I’m just manufacturer. I make the product. But personal, I think many company will want to do similar product. So Oculus, you will need to maintain the special. More features? Yes, but also other. Okay then! Now we go through schedule and planning. Then you meet engineering. We try March.”
As much as the guys were tempted to probe Chan about maintaining “the special” (and what she meant by “the other”), they couldn’t ignore the chance to finally work out a road map that shot for March. Ultimately, they decided upon this:
|
PHASE |
DESCRIPTION |
# OF DAYS |
Design Verification |
Selection and validation of components |
21 |
Design Finalization |
Final specification locked |
1 |
Tooling 1 (T1) |
Manufacturing of injection molds |
56 |
Tooling 2 (T2) |
Fine-tuning for part function and fit |
10 |
Tooling 3 (T3) |
Final fitting, matching, and polishing |
6 |
Preproduction (PP) |
Small verification build (aka “pilot run”) |
5 |
Mass production (MP) |
Full-scale build (500 pieces per day) |
12 |
Chinese New Year |
Annual factory shutdown |
28 |
Sea Freight |
China to US (including cus-toms) |
28 |
Estimated First Arrival |
Approximately 5,000 developer kits |
n/a |
Shipping |
From California to final destination |
7–28 |
There was just one problem: the schedule was nothing more than words on a page. To hit this timeline, they needed Berway’s engineers to make it happen, and at first glance, the engineers seemed to think this timetable was hilarious.
“Oh, Jack!” laughed HK, Berway’s in-house electronics guru.
Unraveled and confused, Luckey and Mitchell huddled together to try and make sense of what had just happened. What was the point of even drafting the schedule if these dates weren’t realistic? And if the timetable was so far off base, why hadn’t McCauley spoken up? Wasn’t he supposed to be some kind of expert? McCauley proved then that’s exactly what he was; though what he demonstrated here was a unique and unusual brand of expertise.
“So that’s what the cigarettes are for,” Mitchell noted, as McCauley broke out a carton of Marlboro Reds and started divvying up packs to the engineers. And little by little, the scheduling estimates started to improve. That mold they said would take a week? Maybe it would really only take three days.
“I feel like I’m watching a prison movie,” Mitchell said, as the guys watched McCauley wheel and deal.
“That’s just how it is,” Luckey replied. “When you open your heart and mind to the wonders of the Puhr-maan Hoterr.”
As the weight of the day finally fell off Luckey’s and Mitchell’s shoulders, they felt a little guilty about giving McCauley such a hard time. Granted, it was all behind his back (and granted, he was a little nutty), but, seriously, where would they be without this guy?
He confidently handled the “Hong Kong shuffle,” which was a phrase that McCauley used to describe the tricky dance of transporting components between China and Hong Kong in a way that minimized costs while adhering to tax, custom, and certification laws. To be perfectly honest, the Oculus guys didn’t totally understand how it all worked—why the tariffs were ultimately cheaper if components passed through Hong Kong or why certain items from abroad weren’t required to meet certain Chinese regulations—and, even more honestly, they didn’t really want to know. Because whether or not it was kosher to swoop through all these loopholes, doing so was necessary to keep their scrappy start-up afloat.
“How did you even learn all this stuff?” Mitchell later asked McCauley, as they chugged through rural China on a rickety little train.
“Who could have even taught you all this stuff?” Luckey asked, kicking his foot against a bag of cheap Chinese luggage. Inside were hundreds of resistors that McCauley had acquired no more than an hour ago, picking them up at some small podunk resistor factory in exchange for a pile of cash. Now they were on their way to some other obscure factory so they could be traded for something else they apparently needed. “You’re like some kind of evil import-export genius!”
“Oh no, no, no,” McCauley said, his face nearly blushing. “You just pick up these things, you know? Because here’s the truth of the matter: I’m not the smartest guy. Really, I’m not. But I love designing and working on things and I’ve done it my whole life. It’s the most important thing to me. More important than my loved ones, believe it or not. I hate to say that, but it is.”
Like many times before, he had failed to answer the question. But that was okay; McCauley had earned the right to ramble. What his words lacked in specificity he more than made up for in sincerity.
“I’m getting pretty fed up with ZeniMax,” Mitchell said a little later, speaking in a firm whisper so as not to wake a half-dozing McCauley. “I mean: as big as ZeniMax is, they’re not Epic. Or Valve. Or a dozen other companies that wouldn’t be such dicks. Okay, I get it, we’re a start-up. But come on. We’re not, like, some dudes-in-their-dorm-room start-up. But”—Mitchell continued, now playing devil’s advocate to himself—“the press will kill us if we lose Doom.”
“Two things,” Luckey said. “One: we can’t lose Doom. We just can’t. And for that matter, we can’t lose John. And two: while I agree with you, obviously—we’re not some little rinky-dink start-up—it is interesting that now is when we’re having this conversation. Just in the sense that in almost every way, start-ups are at a distinct advantage from big companies. Even middle-sized companies! But in this specific instance—shuttling between weirdo factories to circumvent . . . whatever—this is like the one case where being small actually helps us. Like, no company moves that fast on a consumer electronics product. And people imagine that big companies can move fast because they have huge resources, but because we’re under the radar, too small to worry about any red tape, we’re actually able to get shit done. We’re actually able to move faster than any legitimate company could ever move.”
“I like that,” Mitchell said. “I’ll take that silver lining. And you know what? This is Carmack we’re talking about. He wants to do this . . .”
“Yup.”
“So,” Mitchell finished, “there’s gotta be a way to figure it out.”
In the silence that followed, as their train wrapped through a slew of smog-filled cities, it was hard for Luckey and Mitchell not to stare out the window and wonder: But what if there’s not?