REALITY BITES

BY DAVID DAWSON

REALITY BITES

BY DAVID DAWSON

Has China’s prophesied VR boom become a virtual disaster?

来势汹汹的虚拟现实技术真的火了吗？

At 50 RMB for a few minutes in the virtual reality (VR) booth, customers in the swanky downtown Beijing mall just weren’t biting. Double that price got you three turns, but the 15 minutes of cutting-edge entertainment still didn’t seem enough of a drawcard, especially when shoppers could happily kill a couple of hours at a 3D matinee movie next door for even less.

Such is the current state of VR entertainment in one of the more polished offerings among the thousands of“experience outlets” and arcades that have proliferated around the country, primarily in Shenzhen and other firsttier cities, on the back of a promised VR craze.

After forking out the 100 RMB and selecting the horrorthemed “Horrible Village” ride, I was recommended an alternative, “Perception of Death” as “more fun.”The resulting experience, a brief trip in a wheelchair through what was presumably a burnt-out insane asylum, infested with zombies and ghosts, was blurry and lacked interactivity. Aside from the ability to peek a few extra degrees in any given direction, undergoing this Perception of Death was not all that different to one of China’s many dubiously titled “4D” cinemas, which, aside from moving chairs and occasional blasts of watery mist, are essentially the same as standard movies, albeit without any hope of a decent script.

But be it shooting at robots in a desert with a sniper rifle, or skiing through alpine forests with quick turns and jumps—which, unlike the horror games, can make some users feel nauseous––lackluster experiences like these cut to the heart of the problem facing the VR industry: The hardware for a prophesied boom may or may not have arrived, but the software just isn’t there yet.

Throughout 2016, even as hundreds of VR startups crashed and burned, bullish reports in both mainstream and trade media heralded a new world of virtual entertainment. In November, a South China Morning Post columnist speculated that VR would soon be used to offer sneak peeks of travel destinations, while museums would offer virtual tours, calling the success of the industry“virtually assured.” If its boosters were to be believed, VR was on the cusp of revolutionizing everything from education to shopping, work and entertainment.

Doubters were confronted with the explosion in VR experience outlets around the country, as well as some hefty investment by big companies. Last July, tech giant HTC based in Taiwan, which produces the Vive headset, announced plans to open 10,000 such VR experiences throughout China, in partnership with Vive retailers, along with 10 billion USD in investments with local VC firms to support the industry. Another company, EMAX, already has around 170 outlets in East Asia; Quartz estimated the total outlets on the mainland in September 2016 at around 300.

If last year marked a dizzying summit in VR investment, by the time 2017 rolled around, things were looking less optimistic.“The VR industry was stimulated by a large scale of capital flow, but this also brought about a decline,” Alger Liu, an analyst with market research group iiMedia, told TWOC. “In 2016, VR was confronted with a booming industry because a mass of capital flowed into investments.”

Retail giant Alibaba offered virtual “shopping experiences” on Taobao via cheap cardboard-andsmartphone headsets as a sales gimmick to push products; customers could visit Times Square in New York and view products in Macy’s flagship store. Meanwhile, tech companies, led by Vive’s HTC, banded together to form a multi-billion dollar investment alliance and partnered with the Shenzhen government to push the technology via a 1.5 billion USD research institute

Even as everything seemed at full steam, cracks began showing late last year. In 2015, several hundred Chinese firms were jockeying to produce their own headsets; by late 2016, according to startup founder Fang Wenxin,there were barely 10. In December, China Daily blamed the proliferation of copycat producers for bringing a “winter” upon the industry and suffocating fundraising. Other sources dispensed with talk of a boom entirely: One report pointed out that 90 percent of domestic startups had declared bankruptcy and the remaining players—firms such as AlfaReal, Storm Magic Mirror, and Miido—had started to lay off staff and withhold salaries.

“TO SOME EXTENT, THE CHINESE VR INDUSTRY MIGHT HAVE BEEN UNSUSTAINABLE FROM THE VERY BEGINNING, EVEN THOUGH IT LOOKED LIKE IT WAS FLOURISHING”

TWOC contacted two venture capital groups and reached out to four different VR startups, to comment on the recent spate of closures. Most did not respond, while one startup said that it was currently “not a convenient time to talk” and would prefer to wait until it was.

Essentially, smaller companies all run into a similar problem: while there is plenty of enthusiasm for VR experiences and the potential is there, vast sums of money and technological know-how are required to produce original, polished VR software. Currently, Chinese VR content comes mainly in the form of simple games and videos—there’s little quality in either field, and a low uptake in costly domestic hardware means that brands lack customer loyalty. The billion-dollar big hitters may have hopes of cracking this market, but the smaller startups have far more limited horizons than many had assumed.

“The requirements of the VR industry are generally underestimated,” Liu said. “The operational and technological level of these startup companies varied dramatically, especially in terms of hardware manufacturing techniques. To some extent, the Chinese VR industry might have been unsustainable from the very beginning, even though it looked like it was flourishing.”

Liu pointed to the vast investment required to produce hardware, such as headsets, that is both comfortable and cost-effective. “This has remained at the elementary stage so far, providing little possibility in achieving a technological breakthrough,” Liu said.“Consequently, homogenization has become a big issue, because small businesses don’t have any advantages when competing with big ones. When investors realized this, they started to lose interest and confidence in the VR market, and began to withdraw money at the end. Many companies couldn’t survive without financial support.”

Of course, actual technological development is not necessarily the same as setting up a VR “experience”center. For between 6,000 and 10,000 RMB, anyone can order a Vive headset online. The primary competitors, the Facebook-backed Oculus Rift, retails for between 5,600 and 13,800 RMB, depending on the importer and model. As the basic investment required to set-up shop, it’s pretty minimal, while for the truly cash-strapped, there are cheaper, local options like LeEco and Baofeng.

The relatively low cost of entry made VR experiences an attractive small business to launch—particularly for the young, generally male entrepreneurs who want their own business in this industry. But there are a lot of questions over whether VR arcades are helping or hindering the industry’s development as a whole. While they may expose more people to the technology, it might be detrimental to the overall VR industry if the experience is sub-par.

Even when the technology is cutting edge, there are still problems motivating consumers to buy. Awareness of VR is still relatively low, despite all the experience centers around the country, and a significant number of people get motion sickness from undergoing rapid movement in headsets. Liu cites iiMedia research saying that over half of Chinese consumers have never even heard of virtual reality, while 71 percent wouldn’t think about buying it. He also points out that unit costs need to come down for most consumers to consider buying the technology.

Despite the recent hardship, VR is not going anywhere for now. American companies may dominate headset manufacturing for the time being, but large Chinese companies have carved out a niche in the VR market. Storm and LeTV have made their presence felt, while 3Glasses is currently one of the leaders in the market—due, in large part, to their manufacturing base in Shenzhen and a partnership with Microsoft. Between that, and a 60 million RMB deal with film company O-film to buy their stock, 3Glasses has achieved a valuation of 560 million RMB.

In the meantime, manufacturers will be crossing their fingers and hoping for some magic-bullet piece of software that makes the hardware behind it all worthwhile. Some commentators claim that China’s passion for education may drive VR’s future success, as kids sit in VR classrooms. Others say that virtual shopping experiences will pay for themselves via increased consumption.

But, perhaps, producing a skiing game that doesn’t make users sick would be a good start.