PERSPECTIVE: The Dynamics of AR, VR Market in Modern China

Part 2 of the two-part overview of China's push to integrate 5G and VR into its technologies across sectors like telecoms, education, entertainment and medicine.

Steve Kanaval
    Jul 05, 2019 5:05 PM  PT
PERSPECTIVE: The Dynamics of AR, VR Market in Modern China
author: Steve Kanaval   

For Part 1 of the overview, see The Dovetailing of 5G and Virtual Reality in Modern China, published June 4,

On the entertainment side, in cities like Shanghai, virtual reality arcades are on the rise. In 2016, China had an estimated 3,000 VR arcades, according to iResearch Consulting Group, but by 2021 this number is expected to grow 13-fold amounting to revenues of $782 million. 

"China has the potential to take more than $1 of every $5 spent in the industry globally by 2022," the Silicon Valley consultant, Digi-Capital, said in a report from 2018. In the same report, VCs around Silicon Valley noted the shift to later-stage investment and development in China compared to early-stage in North America. The difference in momentum was that North American VR developers and startups were effectively waiting for the consumer market to gain traction. 

This scenario has not occurred in China where domestic VCs have opened their wallets along with the government creating runways for growth.

The dynamics of the augmented reality market favor China significantly as well. AR is precisely where new markets will emerge with eCommerce sales, advertising spending and location-based entertainment like the popular Pokemon Go. 

Furthermore, another driver in adoption could be the release of a smartphone connected smartglasses from a premium name like Apple or Samsung. Alibaba and Tencent would benefit significantly from smartglasses sales and China could in total hold 25 percent of AR revenues globally by 2022. In addition, not to be outdone by fellow giants, Baidu is investing heavily in VR shopping, which would only be more fluid with smartglasses coupled with powerful 5G.

Notable Use Cases and Risks

Already, use cases are adding up with messaging filters like Google's Playground allowing for virtual characters to interact in photos. Targeting high-end consumers, Hilton employed VR through Singapore-based company, Untitled Project, to showcase a virtual stay at the Conrad Maldives Rangali Island, a hotel with residences residing more than 16-feet below sea level. 

Untitled Project creative director Warren MacKenzie said, "Though nothing can match the experience of actually being there, our approach was to give the viewer the sensation of being immersed in one of the most breath-taking marine environments." 

One potential risk factor to watch in the Chinese market is the effect of VR on the brains of developing children. Jinping's government slowed the releases of mobile games as the concern in the country was that young minds were growing increasingly addicted. 

At the moment, VR's long-term effects on children are not clear. Research is in progress but since VR only recently went from being a gimmick to a more common media medium, the real-time effects of the technology are scarce. Jeremy Bailenson, a researcher at Stanford's Virtual Human Interaction Lab, admitted that research on neurological and cognitive issues was basically nonexistent. 

That said, if China's government finds that there is substantial research to support negative impacts on children, this planned VR rollout could be quite limited.

(The opinions expressed by contributing analysts do not reflect the position of CapitalWatch or its journalists. The analyst has no positions in any stocks mentioned, no plans to initiate any positions within the next 72 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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