This VC says China will drive VR adoption worldwide

Originally published in Tech In Asia

Everything you’ve heard about VR in China is probably true.

As of Q1 2017, China comes behind the US and Japan as the third largest market for virtual reality. But with a population of 1.4 billion mobile-first consumers and a centralized government that’s heavily investing in VR and AR, China is destined to become the first country to reach mass adoption.

Ten years from now, the Chinese tech scene will change massively. But what is happening now and what will happen in the interim? What can global markets learn from VR/AR adoption in the East?

I talked to Ryan Wang of Outpost Capital, a Beijing and San Francisco-based VC focused on VR, AR, blockchain, and the future of exponential technologies. Wang has driven deep into the China VR scene, traveling to more than 20 cities to find out more about how people are adapting and using VR. Here are his thoughts on some of the biggest topics on VR in China.

When the VR boom in China started

The VR boom started with manufacturing companies in Shenzhen producing cardboard headsets roughly around Q3 2015. When the Oculus SDK came out in 2016, manufacturers set their attention to shipping out a similar product. Throughout that year, VR became the hottest sector for investments, and startups were flocking to make content, later switching to B2B space.

Investors in China also participated in 36 deals, totaling US$1.2 billion in disclosed funding in the VR and AR fields. Although 90 percent of China’s VR startups shut shop late 2016, figures show that the industry is expected to expand more than four times in 2017, as more major players enter the industry and new content drives growth.

“We are looking at a fully booming VR ecosystem in China,” Wang said.

VR arcades as the main driver of adoption

There are over 10,000 VR arcades, but many are operating at a loss. There’s no distribution system for content, they lack quality software, there are currently no standards for games, and the lines that went down the block aren’t there anymore.

The biggest problem at this point is that there are no real users.

But this is just the beginning. Some of the top companies in the VR arcade space are working together to set up a dedicated distribution channel to import high-quality foreign content to VR arcades in China, creating an opportunity for creative talent around the world.

“The biggest challenge for the industry is not that we don’t have a big enough installation base. Right now, we have 5 million plus headsets out there. That’s not a big number, but at the same time, that’s not a small number. The biggest problem at this point is that there are no real users,” Wang said.

At this point, the average Vive (a VR system) user spends five hours in VR a week. By the end of 2017, VR arcades may be the reason users start spending two to three hours in VR every day. These early adopters will start building the VR society from the inside out and will most likely come from Chinese VR arcades, giving hope to the industry.

“Although the data doesn’t look very good right now, I think [it is] still a great opportunity,” Wang said.

Consumer mindset

Compared with consumers in the US, consumers in China are much more forgiving of new technology. US consumers tend to wait until the technology is proven before adopting en masse.

“In China, people are not happy with what they have today. They have a more adapting mindset. If something is slightly better, most likely they’re waiting to try it and they are waiting to use it,” Wang said.

Also, China is a mobile-first population. Mass adoption of VR will happen with mobile, which gives China a unique advantage. The US may be the driver of VR/AR technology, but in terms of getting people to actually use and believe in it, China is leading.

‘Innovative World Economy’

The most important driver of consumer adoption is the fact that China is a government-led society, and the government is working hard to both push the adoption of this technology and stimulate the ecosystem so it happens faster.

At the annual B20 Summit in 2016, President Xi JinPing went on record to say that VR will be part of China’s new “Innovative World Economy.”

“The new round of scientific and industrial revolution with internet at its core is gathering momentum, and new technologies such as artificial intelligence and virtual reality are developing by leaps and bounds. The combination of the virtual economy and the real economy will bring revolutionary changes to our way of work and way of life,” the president said.

“It’s always easier for any new technology to penetrate into a centralized system rather than a distributed system,” said Wang.

Education to introduce families to VR

Outside of gaming, education will be another main driver in consumer adoption. There are more students in China than anywhere else in the world, but not enough teachers to grow that generation.

On a smaller level, Chinese parents care a lot about their kid’s education and they are willing to spend money. On average, a Chinese household spends 20 percent of their household income on their kid’s education. In the US, that number is less than 5 percent.

China as center for tech innovation

Due to inflation and strong monetary regulation, it’s getting harder and harder for Chinese money to leave the country. In a few years, China may attract talent from the US to test ideas out on a booming ecosystem.

Wang said:

“The leading technology and the leading content [in the US] […] these guys don’t have a market to go to. They have the key stuff but they can’t commercialize it. But for these guys [Chinese companies], they have all the channels to commercialize, they have the market ready, but they don’t have the high-quality content.
“In China, we’re at a stage where all the platforms have been set up, all the distribution channels [have] been set up, and the frame of the ecosystem has been built up. But in terms of quality of the content, the quality of the software […] its not really there yet.”

This provides an opportunity for top industry talent from the US to go to China, work within this already set up infrastructure, and deliver high-quality assets to the Chinese market first.

In the short term, the US will drive technology and China will drive adoption. In the long term, both countries will need to work together to drive a globalized movement toward VR and AR adoption. The speed of that cycle will depend on how much capital is injected into the sector.

Advice to entrepreneurs, investors, and anyone who wants to make a global impact

Any investor, entrepreneur, developer, or creative technologist who wants to make a real impact in VR will need to understand which market is going to achieve mass adoption faster and which market will be bigger.

“In the traditional financing model in the US, we know that [it’s] super hard for any startup to break into a foreign market. They’ve all been a bit big — series B, series C-type companies — so they have enough resources and bandwidth to think about going into a foreign market. But we think that [it is] really critical for companies to build an early presence in China to get awareness for going on. We’re saying, ‘Hey, you need to evaluate your business from day one. You have to understand [what is] going on. You have to know who [your peers are]. You need to be sensitive and have an awareness of the opportunity, and do something if you have what it takes to connect the dots.”
One clap, two clap, three clap, forty?

By clapping more or less, you can signal to us which stories really stand out.