VR in China to expand over 400% in 2017

• China's virtual reality (VR) market* is expected to expand 441.2% in 2017 as competition intensifies and the market becomes more diverse. 
• While VR hardware startups looked too risky, the capital markets remain optimistic about investing in startups for VR content. 
• As more and more interesting VR content becomes available and business models diversify, a number of companies may close or face stagnation. 

China's VR industry is expected to expand more than fourfold in 2017 as more major players enter the industry and new and exciting content drives growth, IDC forecasts.

The VR industry in China experienced a roller-coaster ride in 2016, as strong growth at the beginning of the year sputtered into a disappointing finish at the end of the year. IDC data shows that VR shipments in China reached 204,000 units in Q316, up 367.9% from the previous quarter, in contrast to the sluggish growth from Q315 to Q116, when many consumers took a wait-and-see approach after major international VR brands announced that they were entering the Chinese market.

The VR market began to pick up speed in Q216 and the growth accelerated in the next two quarters thanks to global shipments of Sony PSVRs. Before Q216, IDC says that the majority of VR vendors in China were local companies, and most of these were startups. The big boys - HTC, Samsung, Sony, LeTV and others subsequently entered the market, followed by Xiaomi, Huawei, Microsoft and Lenovo, leaving little room for startups. Some startups were put out of business before shipping a single unit.

This made VR hardware startups look too risky in the capital market, leading to a so-called VR capital winter. IDC says investors remain optimistic about investing in startups for VR content. Rovio and Supercell could be 'hidden gems' here, the research firm said.

IDC expects China's VR market to expand 441.2% in 2017 as competition intensifies and the market becomes more diverse. The VR market is expected to see the following trends this year:

Major players to enter the market
Mobile phone vendors have found a driver for user upgrades. Inspired by Google, 80% of mainstream mobile phone vendors will start releasing VR products. Meanwhile, traditional tech giants Lenovo, Dell and HP will work with Microsoft to improve their competitiveness in the VR market. Content-oriented Internet companies such as Tencent, LeTV, iQiyi and Baofeng will also test their fortunes in the VR hardware market. VR hardware startups will face greater entry barriers, while players that established an initial footing in the market will need to set a clear direction for development to maintain their positions in the industry.

Different VR platforms will command different niches
Sony, Microsoft and Vive will become the top three desktop VR platforms in China, while Daydream will lead the mobile VR platform space. Startup content makers and hardware suppliers will have to choose a platform.

Screenless head-mounted displays to see explosive growth
Led by mobile phone vendors, screenless head-mounted displays will make up 62.9% of all VR shipments in China in 2017. Screenless head-mounted displays offer consumers a decent VR experience at a relatively low price, helping to boost VR product awareness among consumers.

Desktop head-mounted displays to grow more than fourfold
HTC, Sony and Microsoft will lead the growth in desktop head-mounted displays. Startup desktop head-mounted display vendors in China will strengthen their partnerships with VR experience stores and business applications, or team up with large platforms for further growth. Experience, cost/performance ratio, and platform will be three key factors for the success of desktop head-mounted displays in 2017.

Independent head-mounted displays to make inroads
Despite technology and price constraints, independent head-mounted displays are expected to find a path to growth thanks to support from chipmakers and screen producers. After identifying a target audience, independent head-mounted displays should have a chance in overseas markets, as well as the gift and business applications markets.

Better content to become available, light industrial applications to emerge
Impressive VR content will emerge in the first half of 2017. Vendors will experiment more in the VR industry and gradually develop light industrial applications for VR, focusing on presentation and entertainment.

VR experience stores to expand further
As of Q316, China had over 5,000 VR experience stores. More stores will open and be accessible in lower-tier Chinese cities. A wider range of accessories will become available. Themed movies and games will be offered together to consumers as a package.

iCharts

*In Q316, cardboard shipments in China reached 1,268,000 units and maintained double-digit QoQ growth. Cardboards are excluded in the current analysis, as IDC does not consider it a VR product. Large shipments of cardboards have played a big role in popularising VR, however, IDC said, noting that it is a double-edged sword due to the poor quality of user experience they offer.