When historians look back on Alibaba’s Singles’ Day of 2016, they might focus less on the huge $17.8 billion in sales and more on the company’s demonstration of its virtual reality (VR) capabilities. For the e-commerce giant chose to mark this year’s discounted shopping extravaganza by letting its customers venture abroad for the first time, using VR headsets to wander around Macy’s New York store and browse the items on offer.
President Mike Evans describes it as the “test bed for the future of e-commerce”. Ahead of the event, Alibaba practically gave away 150,000 headsets on Taobao. Their use as marketing tools is one reason why Chinese sales have started to pick up strongly, according to iheima.com.
The website recently analysed fierce competition in Shenzhen where VR manufacturers say domestic sales have rocketed from 20% to 40% of their total revenues in the space of a year.
China’s IT manufacturing hub has also just hosted its annual hi-tech fair. The domestic media says VR was the big draw of this year’s six-day event, which took place last month. Liang Zhensheng from NINED Digital Technology told state broadcaster CCTV that “China’s VR industry almost began at the same time as the US, but now I think we’re leading in developing applications.”
At the sharp end of the industry chain, iheima.com says rabid competition is destroying margins. It visited one factory which was making mobile phones until May this year and decided to switch to VR headsets. Factory manager Gu Lele says the number of production lines have been expanded to eight to catch the Christmas rush and it is pumping out 300,000 to 500,000 VR headsets a day. The website also spoke to a shopfloor worker surnamed Gao whose daily job is to label 3,000 headsets destined for Walmart in the US. Keen to earn overtime, he is hoping he will soon be labelling 5,000 each day.
Gu tells iheima.com there are probably 10 factories of a similar size in Shenzhen and a further 100 smaller factories producing about 3,000 headsets per day. He calculates 30 million headsets were shipped from Shenzhen in September alone.
But iheima.com notes the toll this is having on prices. Since 2015, prices for the most basic VR headsets have dropped 75%. Iheima.com says some companies are making nothing per headset and believes consolidation will be inevitable in 2017. But Gu replies that, “Shenzhen is a magical place. Just when you think it’s not possible to shave costs any further, some item of raw material will drop that bit further.”
At the other end of the value chain, the world’s emerging VR brands have been loathe to reveal sales figures at such a nascent stage of take-off. As we reported in WiC338, the Chinese government has forecast the country’s consumer VR sector will triple to $860 million in sales by the end of this year, and then rise almost tenfold to an estimated $8.5 billion by 2020.
At the high end of the market is Taiwanese company HTC, which has joined with US gaming company Steam to form HTC Vive. Their main rival is Facebook’s Oculus VR, which also launched its own product in early 2016 and has recently deployed Asynchronous SpaceWarp technology so users can use VR headsets on lower spec computers.
However, last month Sony launched a VR headset, which is compatible with its PlayStation 4. Its 50 million user base gives the Japanese firm a huge head start.
Google has also just launched Google Daydream, which is made from fabric and links to smartphones in a similar fashion to Samsung’s Gear product. Quartz, an online magazine, is not that impressed by the Daydream’s aesthetics, complaining “about having to strap on a headset made of the same material as a pair of sweatpants”.
Quartz also believes VR still has a long way to go before it captures the public imagination. But few disagree about the potential for the virtual economy to complement growth in the sharing economy. Instead of scrolling though photos of an apartment on Airbnb, why not wear a VR headset and walk through it to get a better feel for the place? And if money is tight, why not just stay at home and experience what it feels like to climb Everest without actually going there?
As Sony Interactive president Shawan Layden has recently suggested, “We’re not exactly sure what’s going to be the hit genre for VR. But in 12 to 18 months we’re going to find things that can only be experienced in it.”
© ChinTell Ltd. All rights reserved.
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.