(Chinese Version)

The capital always follows the trends closely. Starting from 2014, in which year Facebook acquired Oculus at USD 2 billion, investment organizations around the world have been poking around and investing in this particular field.

Statistics show that in 2016’s Q1, the investment in Chinese VR industry reached ￥1.8 billion. Industry insiders estimated that this year will be the booming age of the VR industry in China and the scale of this market will grow by 36 times to ￥55 billion in the future 4 years.

However, if you categorized the investment in this industry, you would find that investment in content is larger than the hardware. The shift of investment focus and Chinese people’s mindset on manufacturing have devalued the area of hardware in the VR industry, believing that China can’t come up with good hardware. So what are the fundamental causes to this phenomenon?

Knockoff culture is deeply rooted in China’s manufacturing image, making people distrust the quality of Chinese products

China is a global manufacturing hub, the world’s factory. However, China is also famous for its knockoff products due to the lack of patent protection. It has even become a culture in China to copy from brands and manufacture cheap knockoffs.

For years, the lack of innovation capability of many Chinese enterprises and intellectual property protection have resulted into a mindset that pays little attention to creativity and innovation.

Chinese enterprises have grown accustomed to buying technologies and products, and using vague slogans or features to gain traction. It’s common for these companies to exchange technologies with money and exchange technologies with markets. But eventually, no matter the approach, it’s still the copy & paste form. Ultimately, the world has the impression that products from China are generally cheap and of poor quality. Because of that, hardware from different industries in China are hard to gain the public and even the industry’s recognition.

Chinese VR industry is more about vague features instead of actual technological breakthroughs

VR started to gain traction in recent two years. But it wasn't until this year the industry starts to show explosive growth. Up till now there are tons of options of VR products for consumers to choose from while two years ago there were only a few products on the table, which is no doubt a big leap forward for the industry. As this particular industry further develops, the capital also starts to eye on the VR industry and considers it another well of fortune.

VR companies can also be divided into two categories: emergin startups and resourceful giants.

Startup companies are generally technology-driver and are in their early phase of development. Besides making product R&D, they also spend lots of time on crowdfunding and running massive promotion campaigns through numerous publicity stunts.

Due to the factors above, the focus of these companies started to shift, resulting the lack of product R&D and actual technological progress. Some companies would even roll out products that are far different from their original blueprint with little technological innovation.

The other group, which is giant enterprises with abundant resources, are more relaxed with the capital turnover for they possess the capability to amass financing in the capital market. Furthermore, these companies already have their brand image and therefore little efforts are needed from them to engage in promotion campaigns. VR, as an emerging industry that has shown broad market potential, naturally became their target.

At present, apart from independently developing VR products, many enterprises tend to acquire VR companies through high premium methods such as cash or issuing new stocks etc., in hopes of building their industrial ecosystem as fast as possible. However, hot as the industry seems to be, there hasn’t been any enterprise that has in fact achieved incredible success in the sector.

The VR hardware industry is undergoing profound changes as 70% of startup companies go out of business or start to make content instead

2016 has been considered as the big year for the VR industry. But the inconvenient truth is 6 months have passed many VR companies are actually going down in the business despite the fact that some VR companies have successfully amassed financing.

“Even pigs can take off when an emerging industry starts to boom,” Lei Jun, founder of Xiaomi, once commented. However, this theory obviously doesn’t work for all companies, especially for startup companies that are committed to VR hardware.

The founder of VRZINC Liu Yun stated once in an interview that 70% of VR hardware startups failed last year, and that in 2014 there were over 200 companies that developed VR helmets in China and the number plunged to around 60 in 2015. Many industry insiders agree with this prediction, since the capital market might cool down after a rush.

VR FIRES’s CEO Lou Chi also stated once: “Another group of VR helmet startups will go out of this year. As for other hardware startups and mobile gaming developer teams that are having trouble making money, they will eventually turn to VR content.”

As far as industry insiders’ concern, cost is the main incentive that drives them from making hardware to content. Compared with hardware, the cost of content making is lower and therefore it’s favored by the capital.

Dreams are beautiful, but the reality is too harsh to bear. What is going to happen is that a small percentage of hardware startups will receive investment and thereby get to survive the pressure with many more startups ending up dead without having the opportunity to find financing. This is the shuffling process of an industry, pretty similar to the period in which traditional phone maker giants AMOI and BIRD eventually turned out to be a failure. It can be expected that more startups will go out of business in the coming 6 months.

In some sense, the capital market in China neglects the R&D of VR hardware. As the capital and other resources flow to the content sector, people also start to focus more on the development of content. When people’s focus starts to shift, they unconsciously tend to think that China falls short on quality products, which will bring about disastrous result when the products enter the market.

Phone makers keep up with the trend and enter the hardware sector

In recent years, besides traditional phone makers, some other Internet phone makers have started to launch their VR equipment as well. The entering of phone makers into the industry no doubt injects the industry with fresh blood, but we also need to think about a question: Why are they doing this?

a. The capital market makes the VR industry hot. According to statistics from iiMedia Research, the market scale of the VR industry in China in 2015 had been ￥1.54 billion, and the number is expected to hit ￥5.66 billion this year. Such market potential naturally draws the attention of smart phone makers in China.

b. The market is saturated. It’s a fact that Chinese phone makers will have great difficulty bringing about innovative and creative products, and that’s why they are betting on the VR industry, in hopes of helping the Chinese smart phone industry gain momentum again.

c. As I have mentioned before, Chinese companies are really good at following the trend and learn from the best. For example, the globally leading brand Huawei has announced products that are quite similar to Samsung’s Gear VR but hasn’t revealed the launch date and price yet. It’s apparent that Huawei doesn’t really believe VR can make much of contribution to the company’s business interest, but the company also refuses to do nothing when there is a new hot market.

Since VR also belongs to the criteria of smart terminals, as long as there is potential in VR to become the next tech revolution, the company will invest in it despite the immature technologies.

So far most VR products launched by Chinese phone makers are accessories of smart phones. There is no standard for VR hardware and content, or application scenarios for commercial use. However, thousands of companies will enter the VR sector and join the fight for the downstream technology market. Thus, it’s better to find a way to get to the top of the chain as soon as possible.

Chinese phone makers have noticed this and that’s why most VR products in the market nowadays are affordable like many smart phone brands. But the lack of mature technologies will be the Achilles' heel of these products, which might even impact the sales performance of smart phones.

There are many issues in the Chinese VR industry, but progress has been made in hardware technologies despite the odds

Looking at the overall situation, although there are still many issues existing in the VR industry in China, there are also technological progress in the hardware sector.

For instance, Huawei is now a globally renowned Chinese enterprise with lots of patents at its disposal. Behind Huawei’s achievements lies the company’s constant accumulation of technological advancements. Even though Huawei at current state is still catching up with its heavyweight peers, the company has higher chances of bringing about popular items if the company really focuses on the R&D of the product.

China is a global leader in all-in-one VR hardware technology. But unfortunately the shift of focus caused by the capital’s flow to content is making the industry and the public think little of the hardware industry in terms of value.

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

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.