A Booming Age For VR: A Complete VR Hardware Investment Report
摘要： The VR hardware industry is no different from other emerging hardware industries and it’s gong through the same path like many of its predecessors. But we should note the fact that big companies are using startups to test the waters and waiting for the opportunity to make a blitz and crash all those startups.
How hot is the VR industry exactly? We might find some answers in the stock market. In the depressed Chinese stock market, several VR companies still maintain a relatively high stock price. There’s even a crazy stock that has had 39 times of limit-ups. In this capital winter in which entrepreneurs are suffering a lot, a mass amount of capital still continues to pour into the VR industry despite its ambiguous future.
But how many people actually understand the VR industry? How many people are just simply following the trend blindly? And would 2016 be the year in which the VR industry takes off, or the year the investment bubbles within this very industry continue to grow?
After six months of joint research with several research powers, TMTpost’s Investment Potential Research Center has come up with a complete report on the VR industry that’s based on the research of the industry’s operation and statistics. The report covers fields ranging from the hardware, content, control, VR camera and projector, developer tool and platform, and consuming scenes. It illustrates the current condition of the VR industry and its future tendency from these six dimensions.
This is the very first complete in-depth report on VR ecosystem and investment tendency. The full report will be released on the 2016 T-EDGE VR Summit on May 20th, jointly hosted by TMTpost and New York Times. (For more information, please go to: http://www.tmtpost.com/event/t-edge/2016VRSummit)
Starting from this week, TMTpost will gradually roll out the open version of the report. Users that have registered and become “potential investors” will receive the open report and final report after the release immediately.
What follows is the first chapter of the open report.
The development of the competition in the hardware sector
2016 is going to be the year for the VR industry, an emerging sector that has already received much of attention from the world, to further develop and thrive.
According to estimates from Goldman Sachs, the VR/AR industry will grow to USD 182 billion by 2025 with its hardware sector reaching the scale of USD 110 billion and the software sector hitting USD 72 billion. In China, even leading Internet enterprises like Baidu, Alibaba and Tencent have announced to march into the VR industry. However, it’s important to note that the industry is still in its early stage where everyone is testing the waters. So far there hasn’t been any company or product that has shown dominant strength.
A disruptive and transforming market in its early stage of rapid growth naturally draws the attention of individual investors and investment organizations. Statistics show that in 2015 a total investment of USD 3.5 billion from more than 200 VC organizations had been poured into the VR industry.
But for most investors, there are many thresholds in the VR industry that are making it difficult for them to dig deeper into this very industry: the complex specific sectors; constantly emerging startups; the advanced technology and content; unclear business model etc.
After six months of joint research with other research powers, TMTpost’s Investment Potential Research Center has come up with a complete report on the VR industry that’s based on the research of the industry’s operation and statistics. The report covers fields ranging from the hardware, content, control, VR camera and projector, developer tool and platform, and consuming scenes. It illustrates the current condition of the VR industry and its future tendency from these six dimensions, serving as references for investors to make better decision in investing in this very industry.
In the 2016 Report On Chinese VR Industry’s Startup Scene And Investment Tendency, the output hardware is the first field it focuses on.
Currently, there are two main kinds of VR terminals:
So what are the differences between Chinese VR hardware projects and overseas projects in terms of their investment value and development tendency? What are the strategies to counter direct competition from giant companies? How to produce VR content? How to distribute the content? How to construct the transforming platform for developers? Is all-in-one VR device the future?
These are the questions that needed to be solved before making assessment or investing in VR output equipment.
The competition is about to heat up
If the VR industry is a battlefield, then the war horn has been blown, calling for different powers to join the fierce competition. In the last two weeks, the top three To-PC VR helmet makers of the consumer level had subsequently launched their new products. So far, SONY PS is priced at USD 399; Oculus rift at USD 599; HTC vive at USD 799. Alibaba announced later on 17th the establishment of its VR research center, the company’s very first strategic move in the VR industry after Tencent.
The VR startup scene is known for the output products. Up till today from 2014, many startups have emerged from the ground. A few years ago we had the smart phone wave and in recent years we encountered the wearable trend. Now we have VR hardware. The VR industry is maturing in production, supply chain and marketing strategies. Besides that, its To-C market has grown large enough. There are enough capital active in this industry as well. And there are many successful cases in this industry. The startup scene today is empowered by the Internet age, which will definitely attract entrepreneurs interested in the hardware sector.
However, we should also consider the possibility that VR output hardware might encounter similar obstacles the smart phone industry had experienced before.
Giants are officially in, how will VR hardware startups cope with that?
“Some entrepreneurs entered the VR hardware sector without knowing anything about the industry at all,” Xu Siqing, founder of Alphastartups showed his hesitation on investing in the output hardware sector after researching on the VR industry.
He believes entrepreneurs must be extra careful with making innovations of any kind in the VR hardware industry since industry giants can easily make use of the situation. The pressure from the giants within the industry is making it difficult for startups to survive and the situation is only worsening. In China, Baidu, Alibaba, and Tencent already have a clear layout while companies such as Huawei, Xiaomi, and Lenovo etc. have exceptional brand influence, technologies, channels, user base, cost scale, and mature production and supply chain. That said, startups face fierce competition in the country.
If we were to analyze the successful cases in China, we would find most of them were made by entrepreneurs with exceptional background. Startups that survive have both the money and a set of business resources. Xiaomi, founded by Lei Jun, is one of the examples. “The smart hardware sector has no chance at all except for in the pornography industry,” an industry insiders from a startup stated. “The To-C sector is screwed up.”
“Xiaomi, Huawei, and Lenovo’s advantage lies in their ability to process projects and lower the cost with their scale,” a senior manager from a renowned international investment company commented, believing that some VR companies that have rolled out hardware products first and posses a certain degree of advantage will build barriers in the technological sense. “For that, it’s very difficult for startups to rely on the power of image or scale.” He stated that most manufacturers of VR hardware components are from Japan, South Korea, and Taiwan, while a few core components are from the hands of western companies. In this case, without core technologies, it’s impossible for startups to compete with Huawei.
In the Chinese mobile VR industry, companies like Baofeng Mojing, LingVR, PICOVR, SnailVR, VIRGLASS etc. have emerged. And in the PC terminal industry we now have Deepoon, ANTVR, 3Glasses and HIGHGLASS, etc. According to estimates, the future layout of the VR industry will undergo fundamental changes, starting from all those VR forerunners. LingVR’s CEO Zhang Shubin believes that the VR industry focuses on experience economy and its strength lies in VR’s ability to provide users with immersive experience. In terms of capital, LingVR has LeTV’s support. Nowadays, it’s common for companies to cooperate through financing, resource sharing, and industry expansion. The user experience is the most important thing for VR products. Without a good user experience, scale and other advantages are not going to work either.
However, so fat there hasn’t been any star company in the hardware sector that could be the role model, or let’s say, standard setter. But we do have some first-tier companies in the market now.
“Some hardware makers will go out of business,” DeePoon’s CEO Chen Zhaoyang said, stating that the content is more important in competing with rivals. “Compared with the hardware sector, the content sector lacks product sources. On one hand, hardware makers and platforms encourage developers to produce content with subsidies. On the other hand, hardware makers have to roll out consumer-level products and achieve a shipment volume of over ten million so as to drive content makers forward.”
VR hardware makers’ way out
Thus, after one year of testing the waters, some VR hardware companies start undergoing transformation.
Recently, a report from Deutsche Bank states that content is the core of VR. When the hardware sector meets its bottleneck, the quality, quantity and the experience of the content become the game-changing factor that attracts consumers. Oculus and Google continue to invest in the developer ecosystem of the content while SONY PS relies on its vast gaming content resource and user base to magnify its advantage in content so as to make up the shortcoming brought by the low pricing of the hardware. In investors’ opinion, relying on the hardware to cash in lacks growing potential.
Thus, in the last 6 months, well-known gaming companies have been marching into the VR field; listed film and advertising companies have been investing in the VR industry; and Internet giants have rolled out their VR content developer platform in hopes of building an ecosystem.
VR helmets tend to focus on gaming, videos, and apps. However, different brands designed their products in accordance with the demands of their target audience. Geared to towards VR gamers, it is destined that LingVR would find it hard to become another Baofeng Mojing, meaning to have abundant content resource in films and TV shows. “We value the quality of the content more,” said Zhang Shubin, “We wish to product gaming content of great quality and introduce popular content to our platform. And of course we want to make traditional gaming content available on our VR platform as well and upgrade their content experience.”
Deepoon VR on the other hand represents a common tendency. The company has developed and launched its VR SDL and starts to hold its VR game developer competition so as to encourage and guide small and medium-sized game makers to produce VR products within their system. In the film sector, Deepoon rolled out its VR video and content distribution platform 3D BOBO. According to Deepoon, 3D BOBO has amassed 2.4 million users.
“The VR industry now indeed has the tendency to transform through integrating content and hardware,” Inlife-Handnet’s CMO Zhao Qingquan stated. “And of course, there are indeed people that just want to cash in with this concept temporarily.” Inlife-Handnet had intended to build its own developer platform where the aggregation and distribution of content can be achieved. However, the initiative eventually failed.
As a hardware and software solution provider, Inlife-Handnet possesses advantages in manufacturing chain, stereoimaging, and 3D collecting and display technologies. Furthermore, in the situation where To-B business accounts for 70% of the markets share and the demand for To-C content is not very urgent, the transformation of self-built content platform tends to be unnecessary.
“Content is not our strength. If we develop our own content platform, then we would lose the opportunity to cooperate with other professional content platform.” stated a senior manager from a renowned investment company. “And it’s easy for us to be distracted by that when investing energy on hardware technology. In this case it’s not a good option for us. Inlife-Handnet is clear about its industrial positioning.”
Content is actually the most difficult part to make. Companies like Microsoft and Sony can convert their existing gaming content or interactive applications from other platforms into VR. In contrast to that, startups lack such resource. Besides, it’s hard for them to convince developers to use their platform to develop content when they don’t have a large user base. Platform provider can use this as the entry point to creat an ecosystem. For instance, Tencent VR is doing exactly the same thing.
However, the VR industry in China is still on the rise, meaning it’s still in its early developmental stage. “When the marker is not mature enough and there’s a lack of cooperation on content, that means the market is not ready.” Zhang Shubin. “Maybe in the future there will be cooperation on content, but at present the most important thing is to make better service as well as hardware.”
The tendency of all-in-one VR
In the hardware sector there is the next direction of upgrade: all-in-one VR. Looking from the user logic, VR products are divided into two groups: PC and mobile terminals. However, they share one common ground, which is they all need third party device to provide content source and some functions. It’s like they need a video output device to work. As the user experience of VR continues to improve and VR technologies advance, Chinese VR makers started to adapt the product model of mobile all-in-one VR during October 2015 to January 2016. At that time, lots of all-in-one VR products emerged in the market, drawing the attention of capital.
“All-in-one is the future of the VR industry,” Deepoon VR’s Chen Zhaoyang believes that all-in-one products are easy to carry and mobile, which can appeal to ordinary consumers.
In Zhao Qingquan’s opinion, CMO of the Shenzhen-based Inlife-Handnet, all-in-one VR is just a proposition. Inlife-Handnet has product lines such as VR helmets and ViuLuxVR. Zhang has once considered the feasibility of all-in-one VR product before as well, but eventually decided not to go for that direction. “The concept of all-in-one VR products is only hot in China,” Zhao said. “In fact, there hasn't been any forerunner all-in-one product in overseas product yet. Most so-called all-in-one products are just built-in VR glasses for smart phones. At present, it’s impossible for domestic brands to bring about really good all-in-one products.”
“All-in-one VR products are harder to make than smart phones since all-in-one VR products have everything smart phones have and other extra components that smart phones don’t have,” Zhang said. “For instance, smart phones don't really need optical components and vision algorithm.”
LingVR has been going for the all-in-one direction ever since the founding, making it one of earliest startups in China that entered the all-in-one VR sector. However, so far the company has only rolled out a mobile product called LingVR MK. The company’s CMO Zhang Shubin revealed that at present the next version is still in development and there hasn't been a set date for the release since the company might need more time to refine the product. Rumor has it that the price of the new product would be around 3000 RMB.
“The development of all-in-one products involves technological challenges such as lowering the delay of the image output and insuring the vision experience etc. Even giant companies will have to come across these obstacles before entering this area,” said Zhang Shubin.
All-in-one products’ special design and development set up many obstacles for the developers. “The high level of integration of all-in-one products also means less space, for which their specs won’t be too good. The drive update and optimization of the software and the heat problem would be hard to solve,” Zhao said. “It might result in entry-level experience due to the performance of the products. If we could not make a really decent all-in-one product, we should just focus on an immersive VR glasses product instead.”
Thus, Inlife-Handnet’s main goal in 2016 is to make split type product better. Such plans with compromises are recognized by some VR companies. Split products and all-in-one products both possess the advantage of mobility and are easy to carry around. However, split products separate VR helmets from consoles, which makes it more convenient for developers to bring about better and deeper experience in terms of technological aspect.
Inlife-Handnet expects to achieve a shipment volume of PC helmets of over one hundred thousand in 2016. As for the split products, Inlife-Handnet’s goal is 50,000 to 80,000. LingVR’s CEO Zhang Shubin estimated that in three or five years the inventory of VR glasses would reach over one hundred million while that of all-in-one VR would reach over ten million and PC helmets would reach one million.
The hidden entry point of the VR industry, behind the hardware fad
Compared with the mainstream VR products overseas, Zhang felt that there’s quite a gap between Chinese products and overseas products. In the technological aspect, China has kept up with developed countries, especially in the field of mobile products, CPU, and GPU.
As VR hardware technology develops, applications and software would have to keep up with the pace as well. However, that’s what China is short of. Hardware like VR helmets are just like Xbox instead of smart phones. The latter meets some consumers’ showoff demand while the former relies on the content and it performance to attract users. It’s estimated that VR helmets would enter the product category just like high-end earphones.
In the current market SONY and Samsung have rolled out their mature products. Google on the other hand also has some low-cost products. In order to compete with international heavyweight, the best direction for startups to go might be developing entry-level products that have high performance and decent user experience close to products from SONY, Samsung, and HTC.
“Only a few competitive companies will ultimately survive in the hardware sector. It’s just like the smart phone industry, which eventual became a comprehensive war,” Alphastartups’ founder Xu Siqing didn't think highly of the investment in hardware startups. In his opinion, the logical process is startup companies enter the field through content and technologies and eventually enter the VR hardware sector. If it’s the other way around, there would be lots of obstacles standing in the way of development.
The development period of software is shorter and can reach users quicker, showing more possibilities and flexibilities. Hardware on the other hand, once launched into the market, there’s little chance of refining it through updates. Furthermore, the development period of hardware is longer and costs more if there’s any bug that needs fixing after launch. The development period determines the growth of a company. A development chain comes with more uncertainties.
Xu Siqing believes that the fields of image capture, image editing and processing, production, and real-time transmitting technology are worth investing within the VR ecosystem.
Meanwhile, development tool providers will have to work harder. Chinese companies haven’t made it to the top in the global community in the field of development tool. Faced with competitions from companies like Facebook and Google that have abundant traffic and resources at their disposal and use this advantage to attract developers to their platforms so as to build an open ecosystem where users can acquire commercial applications and content. During this process, major platforms can offer development tools out for free, maximizing the interest as a result. However, startups that rely on development tools to profit will be sacrificed in this situation.
Despite all the disadvantages, the potential of VR is still recognized by the industry. One common sense in the industry is that startups that have the best, most mature or even leading team, technologies, and products are the ones that are worth investing. With all that, after the investment is being poured in, it won’t be hard for startups to launch commercial products and build bigger channels.
VR Hardware Startup List
a. Mobile VR device (helmet)
b. PC VR device (helmet)
c. All-in-one VR
d. AR smart hardware
[The article is published and edited with authorization from the author @PotentialInvestor, please note source and hyperlink when reproduce.]
Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.