It is the year 2044. The world’s resources have been depleted and the US economy has collapsed.
Its citizens escape by plugging themselves into a virtual world called the OASIS. Such is the premise of the classic dystopian novel Ready Player One, now being turned into a film by Steven Spielberg.
In the tech world, virtual reality (VR) is the next big thing.
The term was first coined in the late 1980s by the American computer scientist Jaron Lanier after he left video developer Atari to establish one of the first companies selling VR goggles. However, it has taken another 30-odd years for the technology to catch up with the plots of science fiction writers. Analysts are now grappling with the key question of how quickly it will go mainstream.
Earlier this year, the Chinese government forecast that the country’s consumer VR sector may triple in revenues to $860 million this year and then rise almost tenfold to an estimated $8.5 billion by 2020.
Analysts from Goldman Sachs have predicted that the global VR market could be worth $80 billion by 2025 under a base case scenario, or $182 billion in accelerated mode.
The huge disparity between these two figures not only demonstrates how the sector is still at its early stages of take-off, but also just how difficult it is to predict the eventual winners.
One contender is Taiwanese handset manufacturer HTC. Having developed the first Android smartphone in 2002, it was undercut by rivals led by Samsung, which launched proprietary software. HTC has been trying to avoid another hardware cul-de-sac in VR, and investors seem interested, with its share price rising nearly 50% since Goldman produced its bullish report in May.
HTC released a VR headset, the HTC Vive, in March. It was developed in association with gaming company Steam and has won positive reviews from critics, who say it is superior to a rival product developed by the Facebook subsidiary Oculus Rift.
The more optimistic analysts believe HTC could sell a million helmets this year, about 200,000 more than Oculus Rift.
However, both companies could soon be overtaken by Sony, which is launching its VR helmet in October. Pre-orders have already sold out and commentators have predicted that Sony could offload 10 million within the first two years, because the headset is compatible with the Playstation 4, which has 40 million users.
They are less enthusiastic about HTC because it has fewer gaming titles than Sony and it costs roughly $2,000 to plug the helmet into a PC console.
However, Taiwan’s Digitimes says HTC is teaming up with Hewlett Packard to provide cheaper PCs to run the HTC Vive on.
Content will be king in the VR world, so HTC has established an app store called Viveport. Competitors in the sector will need deep pockets too. At the end of June, HTC also launched the Virtual Reality Venture Capital Alliance (VRVCA) in association with 28 venture capital firms, including Sequoia and Matrix Capital.
Unsurprisingly, China’s BAT troika (Baidu, Alibaba, Tencent) are also major investors in VR, and HTC has been working with Alibaba in particular. Earlier this summer, Alibaba demonstrated its view of the future of online shopping when it previewed Buy+, another VR product which should go live later this year.
China’s TMT Post concludes there is a “natural fit” between e-commerce and VR, especially in online shopping for items such as clothing, which many customers prefer to visualise, feel or try on.
The current iteration of Buy+ takes them into a computer-generated world where they can wander the store with an assistant called Xiaoyu and then zoom in on items that they want to explore further – in other words, it models the experience as much as possible on browsing in a real world shopping mall.
TMT Post points out that artificial intelligence has not yet been incorporated into the product (Xiaoyu’s dialogue is pre-programmed, despite the human voice). And a computer-generated supermodel also tries on the selected items, meaning that customers won’t be able to see themselves in their virtual togs in the early version of Buy+ (but they can get a more realistic sense of what new spectacles or jewellery might look like, with a smartphone app called Realmax).
But product functionality looks set to rapidly improve following Alibaba’s investment in Silicon Valley start-up Magic Leap as part of its $793.5 million fundraising in February. Magic Leap is regarded as one of the world’s most promising VR companies, but also one of the most secretive.
In this case tech journalists believe one of its first products will be augmented reality glasses that allow users to superimpose computer graphics over the physical world. Trying on “virtual” clothes is an obvious application that will likely have piqued Alibaba boss Jack Ma’s interest.
Alibaba has also set up its own VR research unit, Gnome Magic Lab, which is building software tools so that brands can set up their own virtual stores on Tmall.
Baidu, meanwhile, has launched a VR community called Baidu VR+. It hopes to create a platform for developers to share ideas and content, and it wants its video streaming unit iQiyi to become the leading platform for Chinese language VR content, featuring interactive films, concerts and sports events.
Tencent launched its own developer support programme, Tencent VR, last December and it has been bulking up its gaming content, including the purchase of a majority stake in Finnish company Supercell, which developed one the world’s most lucrative video games Clash of Clans (see WiC331).
Tencent founder Pony Ma told an industry conference recently that the company is looking at VR’s impact on the future of its hugely successful mobile text and voice-messaging service WeChat. “VR could represent the next generation of information exchange,” he concluded.
However, he also dampened expectations by citing some of the technological obstacles to VR’s wider adoption, including bandwidth constraints, which China’s plans for a new 5G network may resolve.
Ma predicted that it might take two or three years for VR technology to make a fuller breakthrough.
But Chen Zhaoyang, founder of DeePoon, which manufactures low-end VR helmets, tells TMT Post the technology is almost at the tipping point where humans embrace the virtual world.
Companies such as DeePoon and Baofeng Mojing present a dilemma for existing manufacturers such as HTC, Oculus Rift and newer entrants such as Huawei, which will also ramp up its investment, according to consumer products president He Gang.
Data cited by Tencent Technology suggests that there are about 100 cheaply priced VR helmets already retailing for $30 or less in China. Does this indicate the sector will suffer the same competitive strains as the smartphone market, where companies such as Xiaomi proved so successful at undercutting established players?
HTC believes not and says that the winners in the sector will concentrate on customer experience over price. And for those who cannot afford a headset, HTC is offering out-of-home experiences instead, teaming up with retailers Suning and Gome to open 10,000 VR experience sites over the coming year.
Yet another new entrant in the Chinese market is 1990s tech darling Nokia, which has partnered with the hyper ambitious Chinese firm LeEco to distribute its OZO VR camera. The camera is aimed at filmmakers producing VR content, where it hopes to corner the market for professional content creators.
Nokia executive Guido Voltolina also told The Fast Company that he is impressed at the number of places at which consumers can already have VR experiences. “It’s growing at a speed I’ve not experienced in either the US or China,” he said.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.