Can 5G extend the life of HTC’s desperate VR business?

5G is like a "tonic pill" that has suddenly rejuvenated many industries. At the beginning of 2019, large financing events in the VR industry occurred one after another. Among all those who are full of confidence and waiting to start, HTC is obviously the most eager one.

Since HTC officially partnered with game company Valve in March 2015 to launch the head-mounted VR device Vive, it has placed its hopes on VR as a new technology to reverse its declining performance. Most of the $1.1 billion it received from selling its mobile phone business to Google was also spent on VR.

What was the result? In the recently released Q2 2019 financial report, HTC not only continued to lose money as expected, but was even involved in a scandal involving fraud in its VR business.

At first, it was claimed that "Viveport has 900,000 game contents", but netizens soon pointed out that the number of HTC Viveport PCVR contents was only 1,665 (according to HTC's official app store data). After the official quickly fixed this bug, the second version of the financial report changed the description to "900,000 game contents were used".

The incident quickly disappeared, but the confusion of two completely different concepts made it hard to tell whether it was a slip of the hand or HTC was desperate...

At the MWC (Mobile World Congress) held in February, HTC CEO Wang Xuehong said that cloud computing combined with 5G transmission speeds can transform each AR and VR terminal into a powerful computing device.

It seems that in front of 5G, HTC is exuding the momentum of "help me up, I can still be strong". Can 5G really become HTC's life-saving straw and help this shaky company turn danger into safety?

HTC's VR dream: a strong start, then a weak start, then a weak start...

Just like HTC’s mobile phone business, its VR products have also been successful.

"VR is an important product that will lead HTC's development in the next decade," Wang Xuehong confidently stated to the public in 2015.

At that time, HTC's smartphone business was already declining. The high-end flagship market was occupied by Apple, Samsung, and Huawei, and the mid- and low-end markets were dominated by fierce newcomers such as Rongxiao, Xiaomi, and Oppo. HTC was gradually forgotten by people due to its product positioning of "neither high nor low". "Han shan" and "rice noodle rolls" have become old and outdated terms.

Subsequently, HTC decided to go all in on VR. On the one hand, it teamed up with video game company Valve to launch the head-mounted virtual reality product HTC Vive, officially entering the VR industry. At the same time, it also began to build a software ecosystem, launched the online app store Viveport, and held the "HTC Vive VR Competition" the following year, in order to support scarce original VR content and encourage developers to find breakthroughs for the explosion of VR in games, film and television, medical care, education and other aspects.

According to data released by Superdata, in 2016, which is known as the "first year of VR", HTC Vive ranked second in VR device sales with sales of 420,000 units, second only to Sony's Play Station VR. In just one year, it occupied about 30% of the global high-end VR market share, and everything seemed to be going well.

But the glory under the spotlight did not last long, and the entire VR stage became dim as winter arrived. In 2017, VR, the "high light" of the electronic consumer market, began to fall from the altar, and manufacturers launched a price war to grab the market. Oculus, which had a "big brother" behind it, reduced the price of Rift+Touch to $399, which dealt a heavy blow to HTC Vive, which was priced at $799 at the time.

Before the company could recover from the pressure of being forced to cut prices, the market for all-in-one headsets priced at 1,000 yuan also came under pressure. Oculus teamed up with Xiaomi, which was known as the "price butcher" at the time, to make Vive Focus (priced at 3,999 yuan) difficult to sell.

There was another option at the time, which was to avoid price wars and not compete with cheap all-in-one machines, but to continue to explore the experience advantages of PC VR. The Vive PRO launched by HTC later also showed this trend.

As the last straw, HTC's relative leading advantage in the VR market and its all-in investment will naturally not be easily abandoned. In 2018, the world's first HTC Vive flagship store opened, and it continued to participate in various exhibitions. At CES 2018 in the United States, HTC released the successor of HTC Vive: Vive Pro.

However, with the still high price, Vive Pro does not have any amazing breakthroughs in other technologies, it only improves the resolution, and naturally it has not become the "chosen one" that can turn the tide.

Will everything change in 2019? Not long ago, at the 2019 Mobile World Congress in Shanghai (MWCS2019), HTC teamed up with China Mobile to launch a 5G cloud VR solution. After the six-degree-of-freedom all-in-one VR machine HTC VIVE FOCUS PLUS is connected to the 5G network, it can use the cloud server to experience the same enjoyment as PC VR.

Even if the time is not right, the horse will not pass away. Since 5G is said to be the era of VR, it seems that HTC has finally ushered in its "best era". Can it win this comeback?

Before the 5G boom, HTC may need to learn from history

Although 5G has begun to be deployed on a large scale around the world, it is still puzzling how long VR has to go and whether HTC can survive until dawn given the unclear business model.

First of all, we all know that HTC's brand image among young consumers has seriously aged. It once led the mass smartphone market with innovative highlights, such as the first dual-camera, transparent glass back cover, and color-changing back cover, but has been forgotten by people in the great waves. In the VR market, HTC's competitors are also technology giants such as Samsung, Sony, and Google. Even Apple and Nintendo, which are invincible in the mass consumer market, are waiting for the opportunity to enter the market. Once these brands start to exert their strength, it is probably necessary to question whether HTC's market appeal can compete with them.

We know that content is the biggest bottleneck of the VR industry. It is undeniable that HTC has done a lot of work in the VR developer ecosystem and has a certain first-mover advantage. For example, the Vive X accelerator program has helped some VR startup teams gain exposure, established an international virtual reality research institute with the Shenzhen Municipal Government, and launched the VR game paid membership service Viveport Infinity, which allows developers to obtain more commercial returns through the revenue-sharing model...

However, this advantage was quickly surpassed by Oculus, which has a large business and a financial sponsor. In the AR/VR Innovation Report of XRDC (formerly VRDC), "2019 XRDC AR/VR Innovation Report", HTC Vive, which has been the "most popular platform for developers" for three consecutive years, is no longer in the limelight, and Oculus' products have surpassed it. With such a "fan loss rate", how long can HTC's content advantage last?

Both content and users can be acquired through large sums of money, but HTC is facing an uncertain business model and profit prospects.

It is not difficult to find from the "price war" mentioned above that HTC's core idea is to pursue profits, and it rarely takes the initiative in pricing. The mobile phone business was once complained by many people for its "low cost performance", and the same story is still happening in the VR world. Insufficient funds also make it difficult for HTC to invest more in exploring new technologies compared with its peers. VR applications in the 5G environment are still a wasteland, and various possible implementation methods need to be continuously verified. At this point, whether HTC, which is eager to realize cash, can have an advantage in core technology, I am afraid it is too early to draw a conclusion.

For example, HTC's recent VR technology solution uses cloud servers to send content to hardware devices, but with the data transmission rate required by VR, cloud processing will bring significant additional delays. In response, HTC used a very inconspicuous label on its official website to remind everyone that the cloud VR experience without a PC "depends on the development of MEC technology and 5G infrastructure." In other words, it means wait until the network is ready...

This lack of understanding of core technologies may be related to HTC's outsourcing background. Mobile phones are outsourced, and VR is also pieced together. HTC Vive is licensed by Valve, Vive Focus is licensed by Qualcomm, and Vive Focus streaming technology comes from Riftcat, which makes it difficult for HTC to have a say in industry standards and prices.

Not long ago, the VR industry organization composed of AMD, NVIDIA, Oculus, Valve and Microsoft just released the VirtualLink specification, which is an open industry standard that can support the next generation of VR headsets to connect to PCs and other devices through a single high-bandwidth USB Type-C connector. This standard can enable devices with few ports such as thin and light laptops to achieve VR experience, solving the problem of popularization. However, HTC has nothing to do with such an important breakthrough moment... Valve, which cooperated with HTC in the early years, also launched its own VR headset Valve Index. How the cooperation between the two will change in the future is still unknown.

HTC is like a middle-aged man who can't get rid of the curse of "mature enterprise"... Richard Tedlow mentioned in his monograph on the history of American retail that "the biggest obstacle facing mature enterprises is their lack of willingness to do so." For those innovations that redefine the trajectory of existing technologies, the only way for mature enterprises to lead the commercialization process of these technologies is to enter the value network where these technologies can create value. At least for now, HTC's existing advantages in this value network are not enough to restore its former glory.

When the time comes, where is HTC's opportunity?

Of course, we cannot conclude that HTC has no hope for the future development of VR. This is obviously not objective. So we can also try to explore where are HTC's business opportunities in the face of the 5G wave?

At present, HTC's once proud B-end market development capabilities and the rigid demand for VR hardware on the B-end are colliding with each other.

At present, high-end VR products are still mostly used in To G, such as government and schools, and To B factories, power industry, etc. In some high-risk industries and related vocational education, such as fire education, traffic safety, emergency rescue and other fields, 5G will provide a high-quality, high-bandwidth communication environment to achieve remote real-time interactive teaching and collaboration through VR.

Moreover, compared with the mass consumer market, the latter is relatively less sensitive to price and pays more attention to the company's strength and stability in B-side services, which is where HTC's brand value still remains.

HTC is also acting quickly, and just established a business unit called Vive Enterprise Solutions last month to provide enterprises with systematic XR solutions including software, hardware and services.

In addition, HTC Vive remains the world's second most popular distribution platform for VR developers, with a market share of over 50% in China, which means that its industrial location makes it easier to distance itself from latecomers.

"With the arrival of 5G, mobile network speeds have rapidly increased to the level of fiber optics. Next year, there will be new VR devices, which has prompted us to develop a VR version of WeChat." At the Internet Conference in November 2018, Ma Huateng ignited the fire of 5G+ VR with this sentence. This may foreshadow a future where new social networks are developed on hardware, and the new war has just begun, and the top players still have opportunities.

Since HTC has tied its fate closely to VR, welcoming 5G has become a foregone conclusion. The road ahead is unbearable to look directly at, so it is better to look into the distance, perhaps a new story with a broad horizon is waiting behind the dawn...