This kid wants to reinvent virtual reality

April 9, 2013, 2:30 PM UTC

FORTUNE – Ask Palmer Luckey why virtual reality never took off, and he’ll tell you that the technology wasn’t ready. The displays used then weren’t sharp enough, the response time too sluggish, and headsets too bulky to use comfortably. Worst of all, those devices could cost tens of thousands of dollars. “Even if a company was great and did everything right, there wasn’t a chance they were going to do a high-quality, affordable VR headset,” he says.

What’s changed? Smartphones and tablets have made some crucial parts, like the display or motion-tracking technology, ubiquitous — not to mention software and processing power have increased dramatically. Enter the Oculus Rift, a virtual reality headset with a 7-inch screen that has many in the video game industry salivating over the promise of richer gaming experiences. John Carmack, co-founder of the game studio iD software and lead programmer of games like Doom and Wolfenstein 3D, has called Rift “the best VR demo probably the world has ever seen.” Gears of War designer Cliff Bleszinski expressed his love for the device at a recent conference. And Minecraft mastermind Markus “Notch” Persson is also a fan.

The Oculus is the result of three years of experimentation on the part of Luckey, a home-schooled, self-described virtual reality enthusiast who grew up in Long Beach, Calif. Inspired by the work of videogame console tinkerer Ben Heckendorn, Luckey experimented with virtual reality on his own, building early prototype devices assembled from his collection of 45 or so different devices. He also did a tour as an engineer at the University of Southern California’s Institute for Creative Technologies in the Mixed Reality lab where he helped research virtual reality systems. “There was nothing that was really the kind of quality I was looking for,” he remembers. “So I decided I was going to work on one on my own.”

Twenty-year-old Palmer Luckey wants his virtual reality headset to transform the way players game. Credit: Oculus VR

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Luckey’s work caught the eye of Carmack, who learned about it on a forum for 3-D enthusiasts and contacted the 20-year-old for a headset to test drive. Carmack would eventually use the prototype to demo a version of Doom 3 at the Electronic Entertainment Expo, or E3 game conference, giving the device an audience who marveled at the device’s wide viewing angles. (While most virtual reality headsets offer a 40-degree perspective, Rift serves up a 110-degree view for a more immersive experience.)

Luckey co-founded Oculus VR with CEO Brendan Iribe, ex-chief product officer of the cloud-streaming company Gaikai, not long after E3 to develop the hardware and software further. Last year, the Irvine, Calif.-based startup raised over $2.4 million on Kickstarter — far over the original $250,000 Luckey had hoped for.

According to Iribe, the focus is now on shipping the hardware and software tools to developers necessary for them to create new games specifically for the headset and modify existing games to play well. “By the time the consumer version shifts, there should be a large number of games being made for it,” he says confidently. An updated version of Team Fortress 2, a free-to-play shooter from game creator Valve, is the first game to officially support the 3-D experience offered by Rift. (Doom 3, meanwhile, has been delayed.) A price for the consumer version hasn’t been determined yet.

Over 10,000 developers have already begun receiving development kits, but the company remains mum on the availability and official pricing of the consumer model. First things first: Luckey wants to address early feedback by using a sharper, high-resolution display and possibly including a feature called positional tracking, so what players see in a game more accurately reflects their bodies’ movements. In which case, when most players do get their hands on Luckey’s VR headset, gaming may feel less simulated and, dare we say it, more real.

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