FORTUNE –Facebook CEO Mark Zuckerberg describes virtual reality as the “platform of tomorrow.” To back that assertion up, his company in March bought the small firm Oculus VR for $2 billion, sparking a frenzy around VR that hasn’t been seen in years.
There’s no arguing that the purchase puts the Menlo Park, Calif.-based company at the forefront of the technology, which digitally simulates a three-dimensional world. But several key questions remain despite the buzz over the deal: Why is it that, after being in development longer than Oculus’s 21-year-old CEO Palmer Luckey has been alive, VR technology is still not ready for prime time? And on Facebook’s (FB) part, is Zuckerberg even right in targeting VR as the next big technology to watch — or is he just setting himself up for another disappointing purchase?
There are three primary reasons for VR’s arrested development over the past three decades. Until recently, virtual reality technology has always needed more computational power than was readily available on home PCs, mobile phones, and gaming consoles. For that same reason, it lacked mobility. And the technology itself has lagged somewhat, lacking sufficient resolution and head-tracking capabilities to create a truly convincing virtual experience.
Technologists have largely overcome these obstacles in the last few years, thanks to faster microchips, an explosion in broadband infrastructure, and a proliferation in the use of sensors in mobile devices.
“The technology has been moving at a crawl up until two years ago,” says Jeremy Bailenson, director of Stanford University’s Virtual Human Interaction Lab. “From a technological standpoint, the hardware is becoming lighter, more realistic, and cheaper. From a software standpoint, we have passed the tipping point.”
So why won’t Oculus — or Sony (SNE), its much larger competitor — commit to a release date for a VR platform that is ready for prime time? The trade-off between performance and price may be partly to blame, Bailenson says.
“There are dozens of display companies, including Sony and Oculus, who are racing to be the standard,” he says. Bailenson says he met with Zuckerberg a few weeks before he bought Oculus and gave the billionaire a copy of his book Infinite Reality, a VR primer for undergraduates and novices. “I think VR has the potential to transform education, preventative medicine, and just about every domain imaginable,” he adds.
There are myriad applications for the technology — military training, health care, etc. — but the most immediate potential lies in the $100 billion video game industry, where consumers are welcoming of a novel, new way to experience titles.
This is perhaps the strongest reason underscoring Facebook’s interest in Oculus. The social company has seen great success in using its platform for simple gaming, and has given birth to several large companies — Zynga (ZNGA) among them — because of it. Does Zuckerberg think that VR is the next wave?
“Facebook’s acquisition of Oculus seems motivated more by fear than by good business alignment,” Forrester Research analyst James McQuivey says. “Facebook missed the shift to mobile, and it feels like Facebook executives have sworn to never miss another big shift again. Only unlike mobile, virtual reality will only ever be a niche, even if it eventually becomes a very exciting one.”
That’s because virtual reality is still constrained by the size of its hardware, the lack of content for it, and above all, the saturation limits of your five senses, McQuivey says. Try to graft that onto a social experience, and the proposition becomes even more fraught.
“Your Facebook friends certainly won’t be developing virtual reality content anytime soon,” McQuivey says, “which makes the fit between social media and virtual reality less than obvious.”
It has been done before: 10 years ago, Linden Lab’s Second Life came to market with a 3-D virtual world where users could customize an avatar and socialize with each other. The company and concept received much attention for a time, but peaked at fewer than 100,000 concurrent users, ultimately failing to achieve broad adoption.
Today’s VR technology, while far more sophisticated and more likely to see broader adoption, also risks the same fate: niche appeal. “I can tell you that immersive VR is not the next big platform after mobile,” Gartner research analyst Brian Blau says. “We see wearable devices as very important, but it’s not just limited to head-mounted displays. It includes products like watches, fitness trackers, or even connected devices such as home appliances and cars.”And even then, it’s a long-term play at best.
“Today, Oculus is only an HMD product,” Blau says. “It’s not a content system, and we know that it’s content that will actually drive any VR ecosystem forward. So many more pieces need to come together before we see the emergence of a VR platform.”