2016 China Tech Trend Prediction I : Be ready for the virtual reality boom
This is the first article of our 2016 Prediction series. Read other stories in our 2016 Prediction series on Medium: II, III, IV.
2015 marks a year of disruption for the Chinese tech industry. The early half of this year saw a frenzy of success in all sectors, but following the stock market crash in June, a general perception among observers that a “winter for capital is coming” became prevalent in the industry. During the latter half of the year, hundreds of startups perished and established ones struggled to forge ahead.
After the disruption and consolidation of 2015, what will be the trend in the Chinese tech world for 2016?
AllChinaTech presents an in-depth series into trending tides in the Chinese tech world to better understand 2016.
In this series, we’ll present our insights through five different areas. We believe the following five sectors will heat up or will continue to be the focus of competition for much of the tech world in China. They may vary in stages and scale but all will see substantial growth in the coming year.
To begin with, in line with global trends, the first rising sector will be virtual reality.
2015, a boom year for virtual reality
In the last two weeks of 2015, three Chinese companies released their virtual reality products and announced plans for 2016, Chinese social network and gaming leader Tencent, smart device maker and video site LeTV and leading virtual reality startup FiresVR. Prior to this, video streaming and torrent downloading site Baofeng, launched the fourth generation of their VR glasses product, their first-ever all-in-one VR device in November, and set up a special VR venture capital fund.
At face value it appears that 2016 will be a year of growth and excitement for virtual reality in China. But is this really the case?
Looking back on the development of virtual reality in China, the niche sector was placed on an express track toward the end of 2015. Despite the enthusiasm, the telltale signs of immaturity are plain to see with inconsistent technical standards, inadequate market recognition and disappointing content being a common feature of the scene in China. All these issues may possibly postpone the bloom of virtual reality in China.
In spite of all this, we believe that 2016 will be a milestone for virtual reality in China and have some specific predictions for the sector in 2016.
1. Competitors and clones will rise but quality may vary
With a solid manufacturing foundation, it’s never hard for Chinese companies to follow trends in the hardware sector. Featured in the list of existing VR developers in China, you can see big names like Tencent and LeTV, and also fast-paced startups like FiresVR and DeePoonVR.
However, behind the seemingly prosperous scene, few companies have released impressive products so far. The low technical barriers for entry-level products has contributed to a frothy prosperity in the current VR market in China with the most basic Google Cardboard-type products proliferating.
With its stock price having hit the daily upper limit on the Chinese stock market for 34 days in a row in the early half of 2015, Baofeng has become one of the most well known virtual reality companies in China. But even after the fourth generation product, the company’s Baofeng Magic Glasses is still just an enhanced version of a Google Cardboard experience. Baofeng introduced an all-in-one VR helmet in November but no sales date has been confirmed as yet.
LeTV, which just entered the market with a seemingly ambitious plan, released a VR headset last Friday, but much like Baofeng, the LeTV unit offers a Google Cardboard-type experience. Though LeTV also says it will launch an all-in-one headset soon, information released so far on the upcoming product seems to be pretty ambiguous.
Another newcomer to the field, Tencent, confirmed its VR team has developed an all-in-one headset in May 2015, but has announced no specific details or plans about the VR helmet. Considering that Tencent only released its Mini Station console this year, the product may likely be an attachment to the Mini Station rather than an independent device.
Startups that have been in the field for a long while, instead, seem to be performing better than the newcomers. DeePoonVR, a VR startup, just announced it has raised USD 30 million in a B-series funding. Its Oculus Rift-like “E2 DeePoon” VR helmet successfully raised RMB 1.1 million (USD 174,724) on JD.com’s crowdfunding platform in June. The company claims its new headset is compatible with 99% of the content developed for the Oculus Rift.
As more capital floods into the VR sector in China, we can expect more talent and resources to pour into the field. Baofeng, for instance, established a special fund for VR-related startups in June after it went public.
The flow of capital will attract more people into the field but at the same time it may lead to more bubbles in the sector. The current products on the market have already been varied with regard to their quality.
For the moment, VR glasses are a dominant category in the market. But even for VR glasses, prices can vary from 10–20 USD to as low as 10–20 RMB in China. The low quality copycats may possibly experience even stronger sales because of their low price.
“The low price of copycat products is attributed to cuts on quality control. It’s not merely hardware manufacturing, they’re cutting on software development and content investment as well,” a tech blogger wrote on Chinese tech news website TMTPost. “Users that buy a low price product to try it out, never come back, complaining the experience is awful.”
As in many other hardware sectors in China, copycats bring down the price bar of products and contribute to market expansion. But in the long term, low-quality products will be detrimental for the entire industry. The industry’s in urgent need for a proper industrial standard to be set, bringing down the price margin and leaving minimum development room for inferior products in the market.
2. The first to build a viable ecosystem will lead the game
In consideration of the need to bring the industry up to a more mature level, prominent players like Tencent are applauded at the current stage. These established companies have far more resources to give impetus to industry.
When Tencent was first rumoured to be developing a virtual reality headset in May, the response of most smaller VR companies was positive: finally a big company is going to help us improve the market.
The rumor was finally confirmed after half a year. Tencent announced its plan to build up a VR platform and launched its software developer kit in December. Its Vice President also disclosed at a press conference that Tencent had already developed its own all-in-one VR helmet back in May.
In fact, Tencent already entered the VR industry through investing in American company AltSpace, together with Google last year. AltSpace is focusing on developing a VR social platform. Meanwhile, Epic Games, another game developer with investment from Tencent, is also developing virtual reality games.
Commenting on Tencent’s current moves, venturing into virtual reality is highly likely for the company considering the Chinese tech leaders existing assets and need for a vibrant product ecosystem centered around games.
With its two mega social networks QQ and WeChat, Tencent has easy access to hundreds of millions of users in China. Its app store also holds 22.2% of the Chinese Android app store market, while Tencent Games hold 27.34% of the market as of the third quarter 2015, according to market research company Analysys. On top of all this, Tencent also owns two production companies that will possibly contribute to VR content in the future.
At the same time, WeChat and QQ user growth has entered a plateau, and their capacity to bring traffic to other Tencent products, especially Tencent’s games has diminished. As games accounted for 53% of Tencent revenue in Q3 2015, the social network giant needs to seek the next traffic driver for its gaming business. Virtual reality, given its enthusiastic reception by savvy game players, may possibly be the platform it needs.
“Tencent is best positioned to build up a product ecosystem.”
Considering all these facts, Tencent is the most likely to have an advantage building up a product ecosystem for virtual reality among Chinese tech leaders. Will Tencent however be able to monopolize the market?
Another company that may possibly be able to challenge Tencent in the sector is Chinese smartphone manufacturer Xiaomi, though it hasn’t openly indicated any interest yet.
“We are excited about the potential of V.R. technology, which we believe is still in its early stages of development, and we’re watching this space closely,” Hugo Barra, Vice President of Xiaomi said in an interview with The New York Times.
” Xiaomi-backed companies are exploring virtual reality.”
However, two Xiaomi-backed companies made moves into virtual reality at the end of 2015. Video streaming and torrent downloading site Thunder and game developer KingNet, co-invested USD 30 million in DeePoonVR, currently one of China’s most mature virtual reality startups.
Apart from this investment, Xiaomi’s strategy in hardware also indicates it’s unlikely to miss a new trend in smart devices. This year alone, Xiaomi added many new members to the Mi smart device family including Xiaomi’s Ninebot Mini hoverboard, its electric bike, the YunBike, and a new generation of the Xiaomi air purifier.
With the success of the Xiaomi TV and set-top box, Xiaomi is pursuing a stronger content ecosystem. The company invested in leading Chinese video streaming sites Youku Tudou and iQiyi under a USD ten million content development plan.
Another important factor is that Xiaomi’s smartphone shipments have fallen short of expectations this year. Under the current circumstances, Xiaomi may likely make a strategic move into other hardware, boosting the confidence of investors and consumers.
Virtual reality is in fact another content driven platform similar to smart television. Considering this, it’s possibly the move Xiaomi sorely needs, and it’s not hard to interpret why LeTV, a company strong in content development, has become one of the pioneers in the field.
Major players in the field are all vying to get a leg up by releasing their SDK’s and enclosing more developers into their own proprietary product ecosystems. Notable among them, Tencent, FiresVR and DeePoon appear to have the most expertise in the area at this current stage. It’s similar to what happened with the smartphone industry: once an operating system becomes dominant, it can then take the dominant position in the industry and become a standard setter.
3. Content will determine the course of VR in 2016
Without abundant consumption-ready content in the field, current users of virtual reality products are still innovators or early adopters of the new technology. The general response from current users shows a severe shortage of attractive content in the field.
“When you first put on a VR device, you feel like you’re entering an amazing world. But the feeling only lasts about five minutes, soon after being replaced by boredom [of lack of content]” a writer at Pingwest, a Chinese tech blog site, wrote in a review of available VR devices.
The freshness of a new device can lure in innovators and early adopters, but if the market wants to cover a majority of consumers, it needs a sustainable supply of quality content.
But even for leaders in the industry, like Sony, content development isn’t an easy job. Though Sony claims it has over 30 VR games, according to engadget, what consumers have access to numbers only about twenty or so demo games.
China currently doesn’t have any game giants the size of Sony or Activision Blizzard, nor does it have animation moguls like Disney or Pixar. Is it truly possible to realize high-quality content in the short term?
To project into the future, we need to first get back to the question of who can be a content contributor and what type of content can be developed into VR.
In the U.S., apart from tech giants and game developers, the traditional media is playing a significant role in the pioneering of the sector. The New York Times distributed a Google Cardboard product to its 1.1 million print subscribers with a link to its VR content app NYT VR in November. The Times is believed to be launching more VR-based content, most likely mini-documentaries in early 2016.
But what most users are gravitating towards is content centered around entertainment. The 2-minute Avengers spin-off VR video clip co-launched by Marvel and Samsung, has been watched hundreds of thousands times on YouTube.
Chinese VR players to watch in 2016: LeTV, Tencent and KingNet
In the entertainment area, many companies have experimented with different content in China. In October, Tencent Video live streamed a concert of Korean pop band Big Bang in VR format. Kangsi Coming, a popular Taiwanese television program, shot its finale in virtual reality in December with help from the Zhou Yongming-led (the ex-CEO of HTC) media group Digital Domain.
LeTV, with strong content ownership in China, is planning on developing its own virtual reality content with the launch of its Cardboard-type VR headset. It plans to cover entertainment programs, VR movies, VR live concerts, and even VR news broadcasting. Considering the expertise LeTV has presented in content development in the past few years, they may possibly become a strong competitor in the field.
But prior to entertainment, the gaming industry in China may be the most likely to experience success in the virtual reality arena.
Tencent and KingNet are both strong in game development. According to a report by government-backed game research institute, CNG Games, and international market research company IDC, the Chinese game industry saw an income of RMB 140.7 billion (USD 31.25 billion) with a year-on-year increase of 22.9%. For companies like Tencent and NetEase, revenue generated from games accounted for more than 50% of revenue in Q3 2015. Once virtual reality games become trendy, these companies will catch up immediately to latch on to the lucrative business.
Education may be another area with potential for high-quality content. Google launched its educational program Expeditions in May 2015 with support from institutes like the American Museum of Natural History and the Chateau de Versailles.
The biggest Chinese museum the ‘Palace Museum’ ventured into digitalization with its digital division launching a trial operation in December 2015. According to People.cn, the new division has a virtual reality theater as well as an amplified reality exhibition that engages visitors. Several applications launched by the Palace Museum have been awarded Best of 2015 by the Apple App Store China this year. We may possibly see it become one of the most competent content providers in virtual reality in the near future.
Originally published on AllChinaTech. Follow us on Facebook & Twitter.
Rhea Liu | @yushan_l | December 28, 2015 06:58 pm
Rhea Liu is a writer at AllChinaTech. She acquired a Master of Science in Communication Studies from Boston University and a Bachelor of Arts in English Literature and Linguistics from Beijing Foreign Studies University. She also co-founded a podcast featuring Chinese post-90 generation lifestyle and intercultural communication. You can follow her on Twitter @yushan_l.
