Chinese VR industry's future hanging by a thread, while Apple ready to “distort” the reality

The VR/XR field is now a total distortion when two poles of situations happen simultaneously.

Two unrelated incidents shook the VR industry in China last week: ByteDance reportedly laid off hundreds of employees from Pico, its VR business line, and Tencent was rumored to have axed its entire XR unit.

The news broke around the same time that a meme started to trend online:

It appears that Chinese IT firms are abandoning VR technology as the metaverse hype subsides and are scrambling to embrace AI in light of the growth of ChatGPT-like chatbots.

What a pity! Especially given how far the VR industry has progressed since the turn of the decade, from cardboard VR glasses to all-in-one VR headsets, the industry itself has seen enough rises and falls, and few chances remain before the bubble bursts for good.

One of these chances is Apple’s upcoming headset. According to previous announcements, Apple is finally rolling out its AR/VR device this year. However, it has once again delayed the debut; now the projected announcement date has been moved from this spring to June, according to a Bloomberg report.

“It would be catastrophic for the VR industry in China if Apple failed to launch its headset at the WWDC,” said STEVEN, a person in the VR industry who’s familiar with the matter.

Although VR and AR devices are nowhere to be seen in Apple’s current product line, the company is deemed a key player in the industry. “Everyone, especially VR companies in China, is waiting for Apple’s debut to point them in the right direction,” said Max Ive, an ex-Xiaomi employee who used to work on interactive design for Xiaomi’s AR equipment.

The current VR/AR market in China is lukewarm at best; instead of pouring money into R&D and launching products that the majority of potential consumers aren’t buying, it may be prudent for VR manufacturers to wait for Apple's product to be released and then follow suit.

VR/AR is a highly expensive field for new players to join. The largest acquisition in the Chinese VR field happened in August 2021, when TikTok owner ByteDance acquired Chinese VR company Pico for a whopping 9 billion yuan and merged it into ByteDance’s VR-related business line. For ByteDance, that 9 billion yuan bought itself an entry ticket into VR, and that’s just the beginning.

The different approaches to R&D in VR spawn numerous different possible solutions to tackle the problem and create an immersive experience for users. Chinese enterprises do not have the time, money, or patience to waste on trial and error, which is why Apple's product will serve as useful guidance.

It’s not as if Chinese companies have never attempted to do it themselves.

Xiaomi, the leading phone maker in China who also makes a range of consumer electronics, has rolled out three VR products in the past: the Xiaomi VR Glasses, the Xiaomi VR Glasses Play2, and the Xiaomi VR Standalone (Oculus Go’s China edition). Out of the three, the Xiaomi VR Standalone made a big splash in China at the time of its debut in 2018. Ma Sijie, who now works at Pico, helmed the project and said that Xiaomi would “go above and beyond” to meet the market’s expectations at the time.

According to VR enthusiast Antony Vitillo's blog The Ghost Howls, the project eventually came to a halt due to "disappointing sales and usage," low profit, and a lack of content. Xiaomi laid off its entire VR team in August 2019. Xiaomi VR Standalone 2 never came out.

Huawei, the leading ICT company in China, has also invested in VR and AR since 2015. In early 2016, both Huawei and Huawei’s sub-brand Honor rolled out phone-based VR glasses. Later, Huawei launched Huawei VR Glass in 2019, Huawei VR Glass 6DOF in 2021, and Huawei Vision Glass in 2022. But none of them became a phenomenon—the Huawei VR Glass sold less than 300,000 units by October 2020 and was discontinued in the same year.

Before Tencent “shifted the developmental path of hardware and made personnel adjustments,” the company’s XR efforts were promising. Tencent launched its XR unit in June of last year, with over 300 employees. The unit, which aspired to build a "world-class tech team" for both software and hardware, had access to a wealth of resources, especially considering Tencent's extensive history in the video game industry.

Black Shark, a Chinese gaming smartphone manufacturer supported by Xiaomi, was once the subject of acquisition discussions by Tencent. However, the acquisition deal reached a halt, and Black Shark laid off over 100 employees from August 2022 to January this year, equating to nearly 80% of its workforce.

Without hardware, Tencent’s path into VR seems obscure—it might not be worth the investment to bet on content (i.e., games) when hardware hasn’t matured yet.

Nothing concrete suggests that these companies are giving up on their VR and AR attempts entirely—on the contrary, sources have told PingWest that Xiaomi is lying dormant and waiting to strike after Apple’s headset comes out.

Out of all the VR players in China, ByteDance’s Pico is a unique case—it has rather mature hardware, especially with the upcoming PICO4 Pro being a high-end performance device. Yet it lacks content; Pico currently has around 200 apps on its platform, which equates to 4% of that of Quest.

When asked how close the Chinese VR industry is to forming an ecosystem, STEVEN sneered and said, “Not by a long shot.”

In addition, the two most popular applications for VR devices in entertainment scenarios are gaming and movie-watching. But in China, both applications face roadblocks.

In terms of gaming content, there are very few game developers capable of making VR games, considering that it might take “30 to 50 times more code to compile a VR game than a regular one,” said STEVEN.

The development of VR games would be incredibly hard, especially considering the licensing system. The National Press and Publication Administration (NPPA) issues video game licenses for all games in China, which creates a necessary and hasslesome hoop for game makers to jump through. In addition, China’s ongoing anti-addiction campaign has stifled the growth of the video game market in an effort to protect the youth.

The same hoops persist in film and TV in China. In terms of movie-watching, a dominant portion of VR content in that realm is made up of porn. “60 percent of the top VR websites are porn platforms,” according to a report by Mashable in 2017. And according to Ive, that pattern still exists.

However, pornography, or any indecent content, is largely prohibited in China and only exists underground, making it incapable of driving a content ecosystem.

That leaves two other options for VR applications: productivity or social.

With Meta’s VR brand Oculus’s new Quest Pro targeting productivity scenarios, the question of whether VR headsets have more potential in being productivity tools or entertainment devices surfaces. When used as an office tool, VR headsets help to host virtual meetings, display 3D objects, and generally act as a giant, even borderless, three-dimensional white board. It opens users up to new possibilities, but is it eye-opening enough for the $1,499 price tag? (Or $1,100, since Meta dropped the price for a week recently.) Doubtful.

According to a poll on Reddit, most onlookers think that the Quest Pro sales are below expectations.

 “VR has huge potential in social,” said STEVEN, who added that “compared to what VR might do for social, all previous online social methods are flat.”

Being backed by ByteDance, one of the most successful and influential social media companies that made TikTok and Douyin, Pico naturally has an edge in social scenarios.

Last September, when Pico announced its Pico 4, it was made clear that a TikTok app would be built into the device. In addition, Pico is planning to roll out a Horizon Worlds-like VR social platform dubbed “Pico Worlds” in early 2023.

According to the video demonstration released by Pico, Pico Worlds will offer avatar customization (with legs), object creation, and other world-building tools.

"While designing the Pico social experience, it wasn't about inventing a new platform; rather, we sought to use current platforms to connect and promote more intimate conversations and a more emotional experience," a Pico spokesperson explained in the video.

Ultimately, VR's impact on society is akin to the question, "Which came first, the chicken or the egg?" Using VR headgear for social purposes necessitates a larger user population, which is currently nonexistent. And "chatting with friends" may not be a compelling enough use case to convince people to buy the headsets.

According to STEVEN, the VR business still confronts numerous challenges, and the maturation of the foundational technology could take another 5 to 10 years. Will the bubble pop once more this time? We will find out shortly after the release of Apple's mixed reality headset.

Writer: Zijing Fu