Virtual reality in China. The next big thing or the next big bust?
There has been a lot of chatter about the potential of virtual reality in China. Many say that China will be the first major market for virtual reality.
By some estimates, the Chinese VR market will reach $860 million in 2016 and grow to $8.5 billion by 2020. It’s no surprise, China has a very active VR ecosystem.
According to Canalys about 6.3 million VR headsets will be shipped worldwide this year, with 40% of them going to China. High-end VR adoption in China is being mainly driven by VR arcades, and on the other end of the spectrum, hundreds of low-end VR headsets made available for purchase.
The Chinese VR market will grow to $8.5B by 2020
That said, it is a nascent market, which comes with a multitude of unknowns and unpredictability. Nevertheless, it’s an exciting space and we in the U.S. have a lot to learn from China’s experimentation thus far.
Let’s back up and take a look at the recent developments in China in the VR space.
Products
- Head Mounted Devices:
Everyone is getting into the head-mounted device (HMD) game. Within this category, you have the high-end VR headsets, like HTC Vive and Oculus. While HTC Vive has seen popularity in China, Oculus has not. This follows given that Facebook is not available in China.
Local high-end, PC-only headsets include AntVR and Deepoon E2, although their quality is not up to par with Oculus.
You also have low-end headsets, a la Google Cardboard, such as DeePoon, BaofengMojing, ZTE, LeTV, 3Glasses, and Huawei. According to Shenzhen’s hardware supplier, there are more than 100 HMD manufacturers in China because the lax intellectual property laws create the opportunity for multiple copycats to exist.
- Mobile VR:
These low-budget VR headsets are oftentimes categorized as “Mobile VR,” which means the headset turns your mobile phone into a VR viewer by adding some plastic biconvex lenses to a frame in which you insert your phone.
They range from $10–50. The most common usages of a Mobile VR headset are watching 2D movies, using it in 3D video arcades, and playing video games. Most recently, Xiaomi unveiled its first Mobile VR headset, called the Mi VR Play (which is currently only available to a limited group of beta testers).
- Non-HMD:
There is a third category of individual VR usage that has cropped up in China, namely media players that allow you to watch 2D content on a display that you attach to your face. They have USB ports so that you can insert your own content.
People liked these because they give the effect of a much larger screen. While these devices have been around for a while, like the high-end Sony HMZ (which has since been discontinued), cheaper alternatives have continued to crop up on the Chinese market.
- Context-Specific Hardware:
In addition to media players, which work well if you don’t own a PC, there are a number of VR hardware startups developing physical accessories that pair with customized software, such as guns, bicycles and suits. Like the Oculus Rift VR bike trainer, which for instance, gives you the experience of riding a bike on the Great Wall of China, there are multiple copycat Chinese companies creating accessories to offer more immersive virtual reality experiences.
90% of the world’s electronics are made in Shenzhen
Landscape
- Shenzhen is now probably second to Silicon Valley in terms of development of tech products globally. According to Forbes, 90% of the world’s electronics are made in Shenzhen. They are well-poised to drive innovations in VR, particularly in hardware. If you are a tech geek and haven’t visited Shenzhen, you are missing out.
- VR and PC-based gaming is much more popular as a source of entertainment in China as compared to the U.S. Urban centers are chalk full of high-end VR stores, arcades and cafes. Unlike the U.S., China’s urban leisure culture revolves around indoor entertainment, like shopping malls, especially in the winter. Part of this is due to the extreme amounts of pollution in cities like Beijing, one of the most polluted cities in the world.
- Major real estate partnerships with VR companies over the next several years will accelerate the growth of this segment of the market. As an example, HTC plans to open over 10,000 VR experience centers in China.
- The Big 3 in China — Baidu, Alibaba, and Tencent — are positioning themselves as middlemen in the VR market by seed funding VR startups and opening their platforms to content and hardware developers. It’s a smart strategy: eventually the dominant hardware and software developers will emerge, and it will be on one of the Big 3’s platforms. According to IQiyi.com, a Baidu unit, China has over 200 VR startups. It’s no secret this is an emerging market, venture capital investment in China’s VR industry was about $1.1B in Q1 2016, according to Digi-Capital (as reported by Bloomberg).
- China’s tech industry is also aggressively pushing the creation of incubators and accelerators. For instance, the Vive X accelerator recently opened offices in Beijing and Shenzhen. The Chinese government began a campaign to support tech entrepreneurship in 2014 and since then has opened over 1,600 startup incubators.
Takeaways
- No content leaders have yet emerged in China’s VR landscape. While there is an abundance, perhaps overabundance, of VR hardware options, content options remain sparse and development lags behind in that area. Whoever wins the race for content wins the VR game. This applies to the U.S. VR market as well.
- One of the biggest challenges China will struggle with on the VR content side is the blocking of foreign companies’ content, much of which will be far superior to native content, if the past is any predictor of the future. For instance, China only allowed the Xbox and PlayStation to be sold in the mainland as of last year. The Chinese government’s interference in VR is yet to be determined, but can potentially have a stifling impact on the burgeoning space.
- The quality and latency of even the high-end Chinese HMDs are still not at the level of the Vive or Oculus. That may change eventually, but remains a barrier to mass adoption. Moreover, the cost of the high-end PC-based headsets is yet another barrier to adoption. VR will not succeed in the home for many years still, given the cost and space investments needed for it to be worthwhile for the user. While Chinese VR companies are solving this problem by shifting the cost of the hardware to the arcades, amusement parks, and cafes offering VR experiences, with customers paying via a pay-per-use model, this strategy is unlikely to effectively scale to other countries, such as the U.S.
- The most likely other application of VR in China, other than gaming/entertainment, is education. China has the ability, based on its government structure, to fund and require all schools to use VR in its curriculum. That would instantly generate mass adoption.
- The other untapped but very exciting application of VR technology is integration with mobile platforms. Of course, we should expect VR experiences to be able to be paid for via WeChat’s payment service or via AliPay in the not too distant future. But once VR has the capability to make one-to-many or many-to-many communications more immersive (think conference calls, family group chats and lectures), integration with a mobile platform, like WeChat, which serves 800M active users in China, will be inevitable. This would allow VR to expand beyond the more limited application of entertainment.
The world is at the brink of a new era in technology, with the introduction of breakthrough technologies like VR/AR, advanced AI, drones, and driverless cars. What happens in China in VR will inform to some extent VR’s ultimate success or demise globally.
But also, the U.S. VR industry can learn from China’s ultimate successes and failures. American tech entrepreneurs and VCs in the VR space should be closely watching China. Let’s not forget that China started out ahead of the U.S. in pushing a mobile-first business model, but the U.S. was able to learn from China and arguably, do it better, or at least on a broader scale (partially due to China’s insular nature). For example, before Tinder there was China’s Momo. Before Facebook had in-app news articles and before Snapchat had QR codes, WeChat had these functionalities.
The most exciting thing about VR is that finally, smartphones are becoming inexpensive enough that billions of people worldwide have access to them. If better VR content is developed, if the price of good quality VR headsets is driven down due to intense competition in markets like China, and if headsets evolve into more user-friendly, functional forms (although, Mark Zuckerberg thinks VR glasses are still a decade away!), the future of VR may start to become a reality.
Minal Hasan is the Founder and General Partner of K2Global and is a guest contributor of Haptical. The opinions and information provided here is the writer’s personal view and does not necessarily represent the perspective of our editorial. Send us a message, if you’d like to contribute an article to Haptical.
