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While the market for virtual reality goggles and software will rise into the billions, an even larger market could await Facebook ( FB ) in an area it knows best: online advertising. Facebook entered the VR market in 2014 with its $1.9 billion acquisition of Oculus, which began shipping its $599 Rift goggles last month. It launched with 30 games, with another 70 or more coming by year’s end. We’re in a “golden age of video,” declared Facebook CEO Mark Zuckerberg at the company’s F8 Developer Conference that ended Wednesday, where the company showcased some new projects and gave a 10-year outlook. And among the highlights was more talks of its plans for virtual reality, a market Facebook aims to lead. Virtual reality headsets are seen as the future in gaming and entertainment. But merely entering the gaming field with hopes of knocking it out of the park was not the core reason Facebook acquired Oculus, says Robert Enderle, president of the Enderle Group research firm. Instead, he points out, the 360-degree view that virtual reality provides is an extremely large canvas for the placement of ads, such as branded product ads inserted into the games or virtual billboards with ads of the latest blockbuster movie mixed into the scenery. “(VR) advertising is already being tested,” Enderle said. “Virtual reality lends itself to the advertising model because there’s a lot more real estate.” The Oculus acquisition also was a defensive move by Facebook, he says, letting it play a leadership role in virtual reality if it becomes the next big thing. It puts Facebook in a good position if users of its social networking site take to the idea of engaging in a virtual world through Facebook. 2.5 Million Unit Sales This Year, Or Less Than 1 Million? “If the social media audience moves into VR, Facebook is ready for that pivot,” Enderle said. Estimates vary as to just how large the virtual reality market overall will get. Piper Jaffray analyst Gene Munster expects Oculus will sell about 500,000 Rift headsets this year. Cantor Fitzgerald analyst Youssef Squali puts the number at 600,000 “Facebook is positioning itself at what we believe is the epicenter of a multiyear, multibillion-dollar growth opportunity in virtual reality,” Squali wrote in a recent research note. He says the Oculus platform could account for about 10% of company revenue by 2020, and help sustain Facebook’s overall revenue growth for years. Research firm CCS Insight estimates virtual reality devices, including the related augmented reality field, will exceed $4 billion in sales in three years. CCS projects 2.5 million virtual reality and augmented reality devices will sell this year, jumping to 12 million devices next year, and doubling beyond 24 million in 2018. Tirias Research analyst Jim McGregor is more conservative, estimating total sales for first-generation headsets at well less than 1 million units for 2016. “While the $599 price tag for the Rift is relatively high, it’s not outside the reach of gaming enthusiasts,” McGregor told IBD via email. But, he says, there’s more to the overall cost. The Rift also requires a powerful desktop gaming PC “in a price range above $1,000 to operate,” he said, “pushing the costs even higher for many.” VR competition is lining up to be intense. Taiwan-based HTC began shipping its VR headset, called Vive, on April 5. It will retail for about $800 and feature hardware similar to that of Facebook’s Rift. Sony has a VR offering coming for its PlayStation console, with a $400 price tag. It’s expected to be in stores by Q3 or Q4. Sony will have the benefit of leveraging its installed base of 30 million PlayStation 4 users. There’s also the HoloLens from Microsoft . ( MSFT ). Rather than making it a game system, Microsoft is focusing on the business market for its augmented reality headset. Facebook Can Raise The Bar On VR Content Enderle says that even with the rising competition, Facebook faces no serious business risk with its VR headsets. “Oculus is the most prominent leader, giving (Facebook) the opportunity to define this new entertainment medium,” he said. “Acquiring Oculus and investing in the development of Rift really has no downside for Facebook, even if they sold the headsets at a loss.” Oculus does have the lead in key areas, agrees  Paul Teich, another analyst at Tirias Research. Facebook is in position to set industry standards and fuel enthusiasm for the just-emerging market, he says. “It will spur a lot of manufacturers to make headsets that are Facebook-compatible,” Teich said. Oculus will also be able to raise the bar as to the type of content that Facebook wants to promote. “They’re trying to push industry faster than it might otherwise go,” he said. Besides the direct revenue, virtual reality could be a compelling feature the encourages people to spend more time with friends on Facebook, providing a more engaging social networking site — and boosting ad sales. Instead of looking at a flat picture of someone on the beach, for example, with virtual reality googles a user could have a view as if they were actually there, with a panoramic view. But there’s a lot of work to be done in the VR field. “What you can do with the Rift, at that price, is impressive,” Teich said. “But while it’s good, it’s not yet good enough.” For now, Facebook downplays Oculus as a generator of revenue and profit. “With Rift, it’s early in the evolution of VR,” Facebook CFO David Wehner said on the company’s Q4 earnings conferce call in late January. “It’s early to be talking about large volumes. So, at this point, I don’t think we’re giving a lot of color around supply chain and that sort of thing. It’s not going to be material to our financials this year.” Image provided by Shutterstock .