Can China Tip the Virtual Reality Market for VIVE and Virtual Reality in General?


On November 14, HTC unveiled its ambitious virtual reality (VR) strategy for China with the launch of a cross-hardware content platform (VIVE Wave) and developer kit rollout of its all-in-one VR headset, the VIVE Focus. The VIVE Wave was touted in a recent press release as being “an open interface that enables interoperability between numerous mobile VR headsets and accessories, with Viveport as the content platform for compatible devices. This allows VR content developers to more efficiently and attentively develop content while offering them a much broader reach of potential customers across multiple vendors.” Meanwhile the VIVE Focus will have six degrees of freedom tracking and is powered by the Qualcomm Snapdragon 835 chip. Pricing and availability have not yet been announced. The Wave is an attempt to unify what VIVE says is a fragmented Chinese market, while the Focus is VIVE’s attempt to build revenue.

Apparently, VIVE has bet most of its chips on China. Will the strategy pay off?

Understanding the Competition

First, VIVE will have to learn to coexist with competitors. In late 2016, it was reported that Chinese tech giants Baidu, Alibaba, and Tencent (BAT) were leading VR investment in China, collectively backing more than 200 VR startups. Alibaba is driving e-commerce and video content, Tencent is primarily targeting gaming, and Baidu is targeting video and e-commerce. Those names were noticeably absent from VIVE’s list of Chinese partners (note: HTC announced a partnership with Alibaba Cloud to explore cloud gaming in August 2016). In addition to BAT, VIVE’s hardware partnership list was missing two of China’s largest VR headset manufacturers, ANTVR and Big Friends.

Beyond navigating the Chinese competitors, success for VIVE will hinge on two questions: 1) will the VIVE Focus deliver the right balance of price and performance to find traction between lower priced smartphone headsets and premium-priced personal computer (PC)-based headsets, and 2) will Chinese content developers build compelling enough content to spur consumer interest.

Let us set the hardware issue aside and simply talk about an element on the content side.

Making Virtual Reality Video the Next Killer App

The closest candidate to be a killer app for VR might be live action VR video. According to VR investor and entrepreneur Mike Wadhera:

VR video… captures moments of reality by recording the physical world with an array of cameras. At the low end is monoscopic (2D) 180° video; at the high end is stereoscopic (3D) 360° video. VR video also encompasses next-generation light-field video, which many consider to be the holy grail, enabling you to move around the scene freely without having your motions constricted.

In August 2016, Oculus announced that video has been the most popular form of content for Gear VR to date, with more than 3 million hours of video watched. A wide range of media publishers and media enablers are building the ecosystems to distribute professional VR video for consumers to access with their devices. NextVR, for example, has published VR video experiences for the National Basketball Association (NBA) and has agreements to publish content for all five major professional sports leagues in the United States with more coming in Asia.

VR video will become an increasingly important tool for marketers, particularly e-commerce merchants, real estate agents, property rental companies, and the travel industry. Perhaps even more important for VR market adoption will be the eventual increase of user-generated VR video. A growing number of 360° consumer-grade cameras are now available, with some priced as low as $210 (including the Detu 360° camera in China for 1,400 RMB). Facebook, YouTube, and other platforms are either already featuring user-generated VR video or are in the process of enabling it. Tractica expects 360° camera prices to continue to drop over time and user-generated content to increase over the next 4 to 5 years.

VR video is not without its challenges. The key for VR video adoption will be improvements in mobile VR video playback technology, with a goal of enabling smartphone VR to consistently deliver video at 60 frames per second (fps). This is perhaps where VIVE will excel with the all-in-one Focus over smartphone-based handsets.

More Challenges from Baidu, Tencent, and Alibaba

According to a story published in Upload in July 2017, VIVE will have to face BAT. Baidu announced in May its intention to build the largest Chinese language VR video service. The report said that Baidu is already working with more than 300 partners, including VIVE partner BaoFeng. But will Baidu’s streaming content be available through the VIVE Wave platform?

Tencent is one of the world’s largest gaming companies and is investing in games and in other VR entertainment content. As the owner of the world-renowned mobile messaging app WeChat, the company’s focus is squarely on smartphone-based VR.

E-commerce is driving Alibaba’s interest in VR. The company built VR shopping experiences that include a VR mall called Buy+ last year. Ensuring the broadest reach is important for Alibaba, which is focused almost exclusively on smartphone-based VR.

Will the Market Support Virtual Reality Pricing?

Tractica believes that all-in-one devices are the key to VR’s global growth over time. Tractica’s Virtual Reality for Consumer Markets report stated:

Tractica forecasts that all-in-one [head-mounted display] HMD shipments will grow from fewer than 200,000 in 2016 (China), to approximately 7.4 million annually in 2021. While there are many practical and technical challenges for all-in-one HMDs, particularly potential weight issues and limited usage times from batteries, Tractica expects all-in-one HMDs to become a significant segment of VR HMDs. In concept, these devices will be more powerful and more specifically designed for VR than smartphone HMDs, enabling users to freely move without a tether, which is an advantage over PC-based HMDs, and perhaps they can strike a middle ground of quality and price between smartphone and PC-based devices. All-in-one HMD revenue will grow from $120 million in 2016 to $4.4 billion in 2021.

The question in the case of VIVE’s Chinese initiative for all-in-one devices is whether the market will support what will certainly be higher than smartphone headset prices for the content being produced. The bottom line for HTC and Vive though is not necessarily can they tip China into mass market adoption of VR, it is more about can they sell enough Vive Focus units to be profitable.  If their target numbers are modest, let’s say between 2-3 million annually for 2019, then they have a chance to succeed.

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