(Chinese Version)

When it comes to the investment into cutting-edge technologies, China lags far behind the US. While American tech giants such as Facebook, Google, Microsoft, Amazon have long been devoted to developing artificial intelligence, virtual reality, drones as well as unmanned driving technologies, BAT, three of the largest Chinese Internet companies, are still busy competing in the O2O and RSS market

However, Tencent’s recent moves suggested that it aimed to be the pioneer in developing virtual reality technologies. On December 21st, 2015, Tencent officially announced a set of VR plan consisting of parts such as device plan, SDK developer plan and developer support plan, etc. Zhuang Jishun, COO of Letin VR, soon voiced his support for the plan, believing that the plan would boost confidence and courage in the industry.

However, Yan Chi, CEO of VR Fires, didn’t think so. He revealed that Tencent had carried out TOS+ for a long time, yet most of its plans were bluffs and had no practical implications at all.

So is Tencent, an entertainment giant, bluffing again in VR sector?

Still lagging behind?

Virtual reality technology isn’t novel at all. As a matter of fact, it first emerged in labs back in the 1960s, but didn’t catch much attention since it was too expensive to develop such technology at that time. Today, the entire electric components and devices industry is becoming mature with the rise of smartphones while virtual reality technologies also began to enter into the consumer market with the rapid development of virtual electronic contents.

While video and game sector are both the buffer zone for the technological revolution and the origin for the next generation technologies, Tencent has a big advantage in video and game sector. No wonder Tencent is one of the first one among BAT to eye on this sector.

Although Tencent has announced that its Tencent OS+ would be adopted in its wearable devices, game consoles and other virtual reality devices long ago and has carried out a new set of VR plan this time to add more details, it is still lagging far behind. According to public data, Tencent’s plan looks basically like this: Releasing its own Head Mount Display (HMD) for mini consoles and PCs in the first half of 2016, releasing a public version for ordinary users in the latter half of the year, and developing virtual reality technologies on smartphones and all-in-one PCs.

Lou Chi, CEO of VR Fire, treated Tencent’s recent moves as merely a gesture: “While many people love ‘imagining’ the implications of Pony Ma and his Tencent, I don’t think so. In my opinion, virtual reality will be merely an element of Tencent OS+’s poster, and a concept for future mini stations.”

Mr. Lou seems to be speaking the truth, especially when we see Tencent’s moves from the perspective of the entire industry. According to Cui Haiqing, a partner of Baofeng Mojing, developers of virtual reality technology are hitting a bottleneck: they can’t turn their technologies into products and enter into the consumer market easily, which might help explain why the ecosystem here in China hasn’t been established yet.

On the one hand, consumers will have to not only buy a console and a hamlet for a couple thousand RMB but also buy a PC of high-grade configuration; on the other hand, they will have to have a large space to hold these devices, which could be quite a luxury for ordinary Chinese consumers.

“Chinese consumers were so excited when HTC Vive and Oculus Rift were released, but neither of them are mature enough in commercial sense,” said Mr. Cui.

Tencent is definitely well aware of this fact, and that’s why it plans to release hamlets in the first half of 2016 and develop virtual reality technologies on smartphones and all-in-one PCs in 2017.

As a matter of fact, many developers that boasted they would never enter this market are currently competing for their share in the Chinese hardware industry.

An adequate profit-sharing mechanism

As far as I’m concerned, videos based on virtual reality technologies are commonly sold in bundles. Although I don’t know exactly the average price, it is probable that these films and videos are much cheaper than traditional ones. In this case, video producers based on virtual reality are left in quite an embarrassed situation.

To solve this problem, Tencent came up with the following profit-sharing mechanism on its VR Store:

• Game: Profiting by download times, by play time and by game pops;
• Video/Cinema: Copyright fee, PGC pay-on-demand model and UGC pre-video ads model;
• Advertising: Profiting by traffic, main resources and distribution channels.

In other words, Tencent plans to gather a good amount of developers based on its own distribution capabilities.

However, some problems remain. When we take into consideration the small crowd of users of VR contents, we might easily find that both “profiting by download times” model and “UGC pre-video ads” model are unfeasible here in China. For example, the producer of the first Chinese VR film “Alive At Last” had no choice but to drop the idea of profiting by adopting these two models and finally sold their copyright to others.

“Since the amount of users remain limited up till now, one can drop the idea to make profit in the consumer market,” Mr. Zhuang, a content provider, and Mr. Cui, a game developer, both agreed on this point.

What can Tencent do?

Although Mr. Zhuang was pessimistic about Tencent’s profit-sharing mechanism, Tencent is still going to make Letin VR one of its first batch of partners. “After all, Tencent is Tencent, and can certainly afford such a program,” said he.

Now that VR Fire and Tencent have consecutively opened its platform to other developers, it is crystal clear that the industry has gone across the first stage of competition. As the first Chinese VR film was released, a series of VR film producing companies are established. Yet, what’s the biggest attraction of Tencent among all the burgeoning software and content-oriented platforms?

Above all, the large user based of Tencent QQ and WeChat must be a shiny point of Tencent. As a matter of fact, Tencent’s Q3 financial report reveals that there are already 650 million registered users on WeChat, which could be a great resource for Tencent to reply on.

Indeed, it is reported recently that Tencent is currently integrating virtual reality technologies to QQ and WeChat, so that VR developers may reply on the Tencent’s user base and reach a larger crowd.

“Most users of VR devices are also developers, so whoever can promote these devices to more consumers will ultimately stand out,” an insider suggested, “although Tencent and Qihoo 360 used to have a problem, it certainly won’t deny 360 Software Assistant’s access to WeChat and QQ.”

Mr. Cui of Baofeng Mojing also suggested that the game “Paradise Kingdom” his team was developing right now would be released on Tencent’s platform. It is reported that Baofeng Mojing currently has around 500,000 users and planned to increase that number to 10 million in the next year.

For sure, Tencent is a great platform for virtual reality contents developers to reply on. However, one should be aware that a couple of obstacles were holding back the development of virtual reality industry here in China (to name just a few): the lack of hardware standards, high-quality contents as well as some side effects of virtual reality devices such as dizziness. There is still a huge gap between the virtual reality device and content developers can design and develop and the kinds of products consumers want most. What Tencent can do is at most link developers and consumers together and help them better interact with each other.

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[The article is published and edited with authorization from the author @Li Qin, please note source and hyperlink when reproduce.]

Translated by Levin Feng (Senior Translator at PAGE TO PAGE), working for TMTpost.