Training Chinese eyes on alternate realities

▶ They’re spending big, not on headsets but on content ▶ “China’s VR industry at this point … lacks core technology”

Hip-hop dancers, military marchers, and daredevils in winged suits are bringing China’s internet titans into the world of virtual reality. The video stars are central players in a $1.1 billion global VR spending spree by Alibaba Group Holding, Tencent Holdings, and Baidu.

The three are taking a different approach to the virtual-reality business from their overseas competitors. Instead of building headsets like Sony, Facebook, and HTC, the Chinese companies are positioning themselves as middlemen: seeding startups and opening their platforms to content and hardware developers while they wait for a dominant headset to emerge.

All three “want to focus on creating platform and content,” says Ricky Lin, a Beijing-based analyst at Iresearch. “The issue facing China’s VR industry at this point is that it lacks core technology, so they need to hedge their bets.”

Baidu, Alibaba, and Tencent have a combined market capitalization larger than Israel’s gross domestic product, and they serve 688 million internet users in China. Now they’re trying to get ahead in a domestic VR market expected to reach 55 billion yuan ($8.4 billion) in value within four years, from 1.5 billion yuan last year, according to Guangzhou-based iimedia Research. Iqiyi.com, a Beijing-based unit of Baidu developing content and hardware, says at least 200 startups are working in China’s VR industry.

“A lot of people think this industry will mature fast with the push of capital and media,” says Duan Youqiao, who oversees Iqiyi’s development of a VR content platform.

Immersive video and game applications could be the first VR businesses to mature. VR content distribution will rely heavily on streaming; about 504 million viewers regularly use streaming sites, according to China’s Ministry of Industry and Information Technology. Iqiyi is experimenting with streaming live concerts. It wants to build the largest Chinese-language VR service and says the key to that will be an app suite making movies and games compatible with any head-mounted device. “VR will become Iqiyi’s main business,” says Duan.

Alibaba, China’s biggest e-commerce company, is developing Vr-enhanced shopping for its 400 million users. The Hangzhou-based emporium has created 3D renderings of hundreds of products and will issue standards for merchants to create their own Vr-enabled shopping options.

Alibaba set up Gnomemagic Lab, named after characters from World of Warcraft, to create content with its video streaming unit, Youku Tudou, and Alibaba Pictures Group. It’s also invested in Magic Leap, which promises a headset that superimposes images on the real world.

Tencent, whose Wechat and QQ instant-messaging services have more than 1 billion users combined, is increasing spending on videos, games, and anime to keep customers engaged.

Original Force, a Tencent-backed company specializing in computergenerated content, is working on VR movies. Original Force is also an investor in Florida-based Pulse Evolution, which created concert holograms of Michael Jackson and Tupac Shakur.

“The VR industry will change the way people engage in entertainment,” says Iqiyi’s Duan. “VR in the future could be a much larger industry than we imagine.”

The bottom line China’s domestic virtual-reality market is expected to grow to $8.4 billion in the next four years, from $229 million in 2015.