How long will it take for VR to enter its spring?

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Overall, the development of the VR sector is lower than previously expected, but some sub-sectors, such as vertical industry applications or relatively basic technological breakthroughs, deserve continued attention.

2016 is the legendary first year of VR.

In just one year, VR has gone from being a hot topic to a “winter” of rational cooling. So is this field worth paying attention to? If so, what are the most promising areas?

As 2016 is coming to an end, Shunwei Capital would like to launch Serious Thinking produced by the Shunwei investment team and contributed sincerely by Duan Yu (Duan Lang), our investment manager known as the “Little Prince of Hardware”.

I remember the first time I heard a friend from my former KuaiPan talk about VR at the end of 2014. After the meeting, I did some work with shame, but I still didn’t understand why Facebook spent $2 billion to acquire Oculus. In Shunwei’s office, which was still located in Juanshi Tiandi in Wangjing at the time, I met many teams and demos, but I still couldn’t convince myself that this “blindfolded” helmet with poor image quality really represented the future?

Until the end of last year, I experienced HTC Vive for the first time in the office of TVR director Fang Xiangyuan (called Zhongguancun Virtual Reality Space, which is really awesome). The shocking feeling is really indescribable, and it also made me start to invest a lot of enthusiasm in the VR field. From 2015 to 2016, I have talked to more than 100 companies. Although the overall development of the VR sector is lower than expected, there are some experiences worth summarizing, and some sub-sectors are still worth continuing to pay attention to.

1) What exactly are we talking about when we talk about VR?

Most people naturally think of various head-mounted displays (HMDs).

As shown in the picture below, from the simplest Cardboard phone case (or should it be called a viewer) to the HTC Vive, which has the best experience so far, the sense of immersion (including viewing angle, picture resolution, refresh rate, delay, and other parameters) is different and the price varies greatly.

In a word, experience comes at a price, and it’s up to you to decide how much or how little you want it.

(Data source: compiled by the author based on public information)

Deutsche Bank's report carefully summarizes this parameter comparison table, so I will not translate it into Chinese, but just paste it here. It can be seen that in high-end VR headsets, in order to ensure low latency and no afterglow, OLED screens have become standard (in fact, it is still difficult to get OLED screens from large manufacturers stably). In terms of effect, large manufacturers have also achieved a latency of about 20ms. In addition, the interaction method of "handheld controller + head tracking" has also become mainstream.

(Data source: Deutsche Bank)

2) In fact, the ecosystem behind the headset is more important

Compared to hardware such as head-mounted displays, the following picture can actually present the upstream and downstream of VR head-mounted displays, as well as the ecosystem of the hardware layer, the middle layer, and the content layer. It can be seen that in addition to the head-mounted displays that consumers can directly experience, the upstream also includes head-mounted display manufacturers, chip manufacturers (image processing, transmission, etc.), and some sensors (such as gyroscopes). The supporting products also include spatial positioning equipment (lighthouse), input equipment (Ximmerse), etc.

(Data source: compiled by the author based on interviews)

Regarding the hardware layer, the current situation can be summarized as follows:

• a) Headsets: PC headsets, mobile headsets, all-in-one headsets, etc. PC headsets are mainly dominated by three major foreign manufacturers, while domestic headset manufacturers mostly focus on all-in-one headsets as their main research and development target (Baofeng, Dapeng, etc.)
• b) Interactive devices: LeapMotion for gesture recognition, Ximmerse for controller, etc.
• c) Shooting equipment: Consumer-grade panoramic camera products are gradually enriched, such as ThetaS, Insta360, Perfect Environment, etc.

Looking up one level, the middle level is also a level that is easy to overlook. It can be summarized as follows:

• a) Google: The Daydream platform has united major mobile phone manufacturers, and the future mobile VR platform may tend to be unified
• b) In the early days, the acceleration was mainly focused on games and videos. Now, there are application layers in subdivided fields such as game recording and panoramic audio.

In terms of content, there are quite a lot of startups in the first half of 2016, but there are relatively few high-quality domestic platforms or content teams. Here is a brief summary:

• aVideos and games are the two main themes of content. Some major games have appeared on the PC side (Final Fantasy, Assassin's Creed), and mobile terminals are mainly based on video content.
• b) The original mature teams of PC games began to produce VR games. In terms of industry applications, the business models of real estate, home improvement and offline experience stores are relatively mature.
• c) Panoramic video platforms: Youtube, Facebook, iQiyi, Youku, Tudou

To sum up, I think that the overall landscape of the VR industry has become clearer so far, especially with the launch of the Google Daydream platform, which has made the "sphere of influence" of various manufacturers in the mobile VR field much clearer.

3) The maturity of the industry requires shipment volume as a prerequisite

Emerging industries always face a chicken-and-egg paradox: without content, consumers won’t buy and hardware won’t sell; without hardware sales, developers won’t have confidence and won’t produce good content. This cycle is usually broken by “killer apps”, such as Microsoft’s Office or Angry Birds on smartphones. However, a major prerequisite for the emergence of these hit apps is that the shipment volume/penetration rate of hardware products reaches a certain basic level.

There are many VR veterans among Duan Lang's readers. Without further ado, here's the chart: In 2016, the number of PC VR units in use was only about 4 million, with a penetration rate of less than 1% (relative to PC game players).

(Data source: Deutsche Bank)

The number of mobile VR devices in use should be around 15 million (excluding the cardboard version. Samsung Gear has just exceeded 10 million, and the number of other all-in-one devices is not large). Obviously, when Deutsche Bank made this forecast, it did not take into account the catastrophic impact of Boom 7 on Samsung.

(Data source: Deutsche Bank)

It is worth mentioning that although various fake Cardboards are despised by professional players, news from Huaqiangbei claims that more than 7 million units are shipped each month, 50% of which are exported and 50% are sold domestically. At this rate, the number of Cardboards in the world should be close to 100 million, which is still amazing.

According to our observation, users of fake Cardboard mainly watch videos (such as Orange and Baidu), and the usage time is about 20 minutes. However, these two video platforms have already had millions of downloads and hundreds of thousands of daily active users. How these users will be converted in the future and what impact will it have on the industry is a very interesting topic.

4) Current VR is similar to smartphones from 2007-2008

Whether it is PC or mobile, VR devices have just exceeded 10 million shipments. What does a penetration rate of less than 1% mean? To make a slightly forced comparison, I think the current VR devices are similar to the smartphones of 2007-2008:

The devices have just appeared, the penetration rate is less than 5%, and there are not many developers. It is expected that in two years, if the number of mobile devices exceeds 100 million, there will be at least 4-5 million daily active users, which will be enough to support several application developers, and the software ecosystem will be easier to form.

(Data source: Deutsche Bank)

5) Investment should focus on vertical applications

According to our observation, over the past 16 years, investment in VR hardware has gradually decreased, and VR content and industry applications have become mainstream. A data report from IT Orange also confirms this:

(Data source: IT Orange)

As a representative of industry applications, VR house viewing has taken the lead due to the popularity of real estate brokerage in the first half of the year. Of course, NextVR's VR live broadcast of NBA is more remarkable in terms of technology, which has also attracted more public attention.

Compared with VR house viewing, VR football viewing or VR car viewing, we prefer to conduct in-depth research on the underlying technologies behind these industry applications.

The capture of the human body and even the entire environment (Holographic Capture) is becoming more mature (in terms of precision and speed, it can even be done in real time), and the application of this technology will effectively expand the application space of VR and generate many interesting applications, such as real-time panoramic remote meetings, holographic tracking and recording of wedding/proposal scenes, etc.

In fact, Holographic Capture will have more applications in the AR/MR field, but due to the length of this article, we will not go into details here.

To sum up, I think VR is still an exciting field:

Although the overall development of the VR sector is lower than previously expected, some sub-sectors, such as vertical industry applications or relatively basic technological breakthroughs, are still worthy of continued attention.