How does 5G unlock the development potential of VR?

In March 2014, Facebook announced that it would acquire Oculus VR for nearly $2 billion, just 600 days after Palmer Luckey, the founder of Oculus and a young genius, launched a crowdfunding project on Kickstarter for his VR headset prototype. Facebook's high-priced investment stimulated the enthusiasm of entrepreneurs and investors to make money, and also opened up the rapid development stage of the VR industry for more than two years.

On April 30, 2019, Facebook delivered its long-awaited product Quest as scheduled at the F8 annual developer conference. This consumer-grade VR all-in-one device, priced at $399, was sought after by a large number of users on the first day of pre-order. However, the talented young man Palmer Luckey and the former Oculus CEO Brendan Iribe, who facilitated the $2 billion acquisition, have left the company they had worked so hard to build.

In the past five years, the VR industry has gone through different stages of rapid growth, cold reshuffle and sedimentation. Is there still a chance to make money in the VR market today? As 5G construction continues to evolve, will VR, as an important application scenario of enhanced mobile broadband (eMBB), usher in new development opportunities?

Hardware and content constrain each other, VR market fails to explode as expected

Virtual Reality refers to the virtual reconstruction of the real world using modern technologies such as computers. Users can interact with objects in three-dimensional space instantly and without restrictions, as if they were there. Unlike AR and MR, VR provides users with an immersive experience that is isolated from the real world. It has three basic characteristics: immersion, interaction, and imagination. It is considered to have the potential to become a new generation of general computing platform.

2016 was considered by the industry to be the year of VR explosion. Oculus, backed by a giant, officially launched its consumer product Rift CV1, which took four years to develop. HTC Vive, jointly developed by HTC and Valve, and PSVR developed by Sony made high-profile debuts one after another. Samsung also launched its glasses-shaped product Gear VR, which costs only US$99, to compete for the market. At the end of the year, the sales performance of the flagship head-mounted display devices of the three giants generally fell short of expectations. The highly anticipated Rift CV1 only sold 355,000 units (Canalys, 2016). Although Gear VR achieved sales of more than 2.3 million units that year (Canalys, 2016) thanks to Samsung's strategy of bundling mobile phone sales and a lot of publicity and promotion, its unremarkable VR experience and relatively poor content broke people's fantasy about the VR world.

Why was the VR market in 2016 so quiet? As Zuckerberg said at Oculus Connect 5 in 2018, the development of VR needs to solve two major problems:

• Establish a self-sustaining industrial ecosystem.
• Build a VR device (Form Factor) that is comfortable to wear, easy to move, and has performance that supports user needs.

Looking back at 2016 from today, I’m afraid the VR industry at that time did not solve any of these problems.

From the perspective of the VR industry chain, we can roughly divide it into four major links: hardware equipment, technical support, content application, and distribution channels:

Hardware

Including output (display) devices and input devices, each head-mounted display hardware manufacturer builds its own or ODM production, purchases chips (CPU, GPU, auxiliary chips and controllers, etc.), sensors, displays, optical lenses from upstream component suppliers, and integrates input devices (motion capture, head tracking, gesture recognition, auxiliary peripherals, etc.) to achieve human-computer interaction characteristics, and integrates them into VR head-mounted displays (output devices) for end users, which include PC/host VR, VR all-in-one machines, VR glasses, etc.; terminal hardware is the key to initial market penetration and the cornerstone of content ecosystem cultivation. Giants such as Oculus, HTC, and Sony are in a leading position.

Software System

Including system platforms (operating systems, toolkits, SDK/API, etc.) and processing software (information collection, engines, encoding and decoding, rendering and presentation, etc.). Most system platforms are developed by leading hardware manufacturers and are relatively fragmented. Various types of software are optimized based on VR features to support the development of VR applications and content.

Content and Application

Content production is mainly divided into two directions: games and film and television. Industry applications are mainly concentrated in education and training, real estate, medical care, retail and other industries.

Distribution Channels

VR content is distributed through online channels (app stores, game platforms, VR websites/communities, etc.) and offline channels (offline VR experience stores, IMAX theaters, Internet cafes, etc.).

As the infrastructure of the industry chain has not yet been fully built and is limited by the maturity of hardware and technology, the overall VR product experience is unsatisfactory.

1. Many general hardware modules are attached to mature industrial chains such as smartphones and computers. The very small VR market demand makes it difficult to drive upstream suppliers to customize development and production for them.
2. Limited by the lack of maturity of hardware (optical lenses, display screens, sensors, chips, etc.) and technology (near-eye display, interactive perception, computational rendering, wireless transmission, etc.) at the time, the VR device experience was poor, as shown in the following:

• The display screen resolution and refresh rate of VR devices are insufficient, and the response time is long, which cannot meet the VR near-eye 360-degree panoramic display requirements, causing screen windows, tailing and jitter, which in turn brings visual fatigue and dizziness, affecting user experience and usage time.
• The perceptual interaction is not smooth enough. Most devices can only support 3DoF interaction. The positioning accuracy and frequency of the sensor equipment are insufficient, and freezes and delays are prone to occur in highly interactive content.
• Due to the limitations of wireless transmission capabilities, PC/console VR with a better experience must be connected to the host via cables. The high-configuration host computer completes the calculation and rendering and transmits the content to the headset via cables, severely limiting the user's movement space.

The maturity and penetration of the hardware market have not reached a certain threshold, and the content ecosystem rooted in hardware is like a tree without roots.

The sluggish hardware shipments make it difficult for the development and production costs of excellent VR content to be covered by subsequent sales revenue, and developers lack the motivation to continue creating.

The VR content development ecosystem is attached to the systems of large manufacturers and is relatively closed and not open to each other. Some developer platforms restrict developers to one platform through exclusive agreements, further limiting the growth of developer income. At the same time, a content copyright protection mechanism has not yet been established, and the interests of developers are not well protected.

The weak sales of VR hardware devices have made excellent content developers reluctant to invest in content development, and the lack of excellent content has further restricted the sales of hardware devices. The contents hinder each other, making it difficult to form a healthy interaction, and naturally it is difficult to establish a self-sustaining ecosystem.

The VR ecosystem continues to evolve as all parties in the industry accumulate strength

In the past two or three years, although VR has disappeared from the spotlight of public opinion and capital attention for a while, technology giants still invested heavily in technology research and development and content construction, trying to define product forms and lead the development of the industry, and entrepreneurs who have survived many hardships and survived the test of time are also continuing to innovate in various segments. In today's VR market, the industry foundation has gradually settled and accumulated, and is gradually entering a stage where hardware is approaching the level of consumer products and software and content are developing rapidly.

Hardware equipment

Equipment shipments pick up:

In the third quarter of 2018, global VR/AR shipments reached 1.9 million units (of which VR shipments accounted for more than 95%), ending four quarters of negative year-on-year shipment growth and achieving a year-on-year positive growth of 8.2%; global VR shipments are expected to reach 36.7 million units in 2023, with a compound growth rate of 47% from 2019 to 2023 (IDC).

Entering a new product cycle:

VR all-in-ones with strong mobility and moderate pricing will become the main form of VR headsets in the future. Their share of the global VR device market has increased from 3.9% in Q2 2017 to 30.1% in Q2 2018. In Q3 2018, the shipment of VR all-in-ones reached 391,000 units, a year-on-year increase of 418% (IDC).

Oculus Quest is officially on sale, priced at $399, with an integrated system, six-degree-of-freedom tracking of the head and hands, inside-out spatial positioning technology, and more than 50 games. Quest, which positions itself as a game console, brings a new experience to users and will greatly promote the development and prosperity of mobile content (especially six-degree-of-freedom games and entertainment content).

Hardware and technology breakthroughs:

Display module, AMOLED has gradually replaced LCD with its advantages of fast response, high contrast, low power consumption, and light weight, helping VR devices to make significant improvements in screen clarity, refresh rate, etc.

Computing and rendering chips, the current VR volume and the foreseeable future market size have attracted the attention of major chip manufacturers including Qualcomm, Intel, and Intel. Among them, Qualcomm has released the first XR1 platform for mid- and low-end VR/AR all-in-one machines.

Rendering algorithms, eye tracking, gaze point rendering, asynchronous time warp (ATW)/asynchronous space warp (ASW), cloud rendering and other technologies are being explored and developed.

For interactive control, the robustness and accuracy of inside-out solutions that use vision, inertia and other principles for spatial positioning continue to improve. Multi-channel interactions such as full-body motion capture, immersive sound field, tactile feedback, and voice interaction are also constantly integrating to enhance the user experience.

Content/Application and Ecosystem

Phenomenal C-end content emerged: Beat Saber was released on the Steam platform in May 2018. The music elements + block-cutting movement + VR format were sought after by a large number of players. As of the end of February 2019, the sales of this game had exceeded 1 million copies, becoming the best-selling work in the history of VR games.

In addition to popular content, the amount of VR content is also growing steadily. Taking the Steam platform as an example, the number of VR players in the total Steam players increased from 0.4% in January 2018 to 1% in March 2019, and the number of VR game content increased from 2,694 to 4,091 (Qingting.com).

In addition, users who have not purchased high-end VR devices can only experience high-quality content such as Beat Saber through streaming or connecting to peripherals such as Nolo. In the future, the popularization of six-degree-of-freedom all-in-one machines will further lower the experience threshold for gaming and entertainment content.

B-end applications are gradually being implemented: Although it is still uncertain when VR will detonate the C-end market, facing the B-end market with relatively clear and stable demand, VR startups are starting from practical pain points such as cost reduction and efficiency improvement, and have formed a large number of single-point solutions and business practice innovations in typical application scenarios such as education and training, real estate and home improvement, retail marketing, medical care, and government public services. It may still be the mainstream trend for startups to rely on the B-end project system to obtain cash flow in the next 1-2 years.

Since B-side content is still in a relatively scattered state, and the production of B-side content requires cooperation with players and resources in the industry (especially in education, medical and other industry fields with a certain degree of professionalism), we will continue to pay attention to the deep integration of VR and the industry, and explore startups that have underlying technology platform capabilities and can achieve integrated delivery of hardware and software.

In addition, the VR market has also returned to the capital field and received capital support. In 2018, startups raised more than $2.2 billion in the VR field (36Kr/Qingting.com): VR training company STRIVR ($16 million), VR music platform MelodyVR ($30 million), VR offline experience store Sandbox ($68 million), VR game company Resolution Games ($7.5 million). The investment community's attention has begun to shift more to VR content, channels, software and integrated solutions.

Riding on the 5G boom, VR development ushers in new opportunities

As hardware and content continue to develop and mature, the exponential increase in data volume and real-time interactive experience has triggered the demand for more and faster transmission on communication networks. Network transmission capacity has also become an important bottleneck restricting the development of VR. The high bandwidth and low latency characteristics of 5G are just the right remedy.

High bandwidth enables wireless headsets:

The high-bandwidth feature solves the problem of video service transmission. Since 8K or even higher resolution content takes up a large amount of space, VR videos of only a few seconds in length are also in the hundreds of megabytes or even gigabytes in size. The 5G transmission rate can reach 10Gbps, and its bandwidth can fully cover the real-time transmission rate requirements required for high-definition VR content, helping VR headsets to become wireless.

New network features improve data transmission:

5G achieves end-to-end low-latency transmission through new frame structures, waveforms and multiple access technologies. At the same time, it introduces edge computing to move part of the data processing capabilities to the edge of the network closer to the user terminal. Data no longer needs to travel back and forth between the core network and the user terminal, effectively reducing data processing and transmission delays.

Operator industry promotion:

VR/AR is considered to be the fastest practical application for eMBB scenarios. In the early stage of 5G commercialization, it will play a role in verifying the business model and increasing traffic revenue. Operators/equipment manufacturers may promote the model through subsidies, which will further reduce VR hardware costs and expand sales channels. In July 2018, Fujian Mobile has joined hands with Huawei, Pico, Dapeng and other partners to launch the first operator cloud VR business trial.

Of course, the real release of 5G capabilities needs to be based on the operator's infrastructure deployment and large-scale popularization process, and also depends on the promotion of major events (such as the 2022 Winter Olympics). This is a gradual process.

Whether the future VR market will become a game console market focused on gaming entertainment, or a consumer terminal market covering the general public, we can only wait and see. However, 5G will undoubtedly inject new vitality into the forward evolution of VR. Broadband Capital will look forward to 5G boosting the VR industry together with all VR industry entrepreneurs and embrace the upcoming wave of development.