Virtual reality 2023: The dark tide is surging and it is difficult to move forward

Our reporter Qu Zhongfang reports from Beijing

The field of virtual reality still hasn't exploded in 2023. Internationally, Meta (NASDAQ:META) has cut its Reality Labs revenue by 42% year-on-year in the first three quarters of this year, as Meta (NASDAQ:META) has cut its headset Quest 2 sales and Microsoft has cut its social space Altspace VR and other teams, the focus has shifted to generative AI, and in the domestic market, PICO, which has the largest market share, publicly announced on November 8 this year that it would adjust its organizational structure and reduce more than 300 employees, accounting for about 23% of the total, while QIYU VR, which was incubated by iQiyi and founded in 2016, fell into the quagmire of business shutdown this year...... Obviously, this casts another shadow on the already slow-moving virtual reality market.

Recently, when the reporter of "China Business Daily" asked this question to relevant enterprises and many practitioners, many interviewees admitted frankly that product sales are declining this year, and the development of the industry still needs a period of time. In June this year, Apple's long-awaited headset product VisionPro was released, which will be available for sale early next year; at the end of September, Meta launched the Quest 3, although Apple's addition and Meta's continuous efforts have brought higher attention to the field of virtual reality, but the driving benefits in the consumer market and business have not yet appeared.

It should be noted that in the field of virtual reality, there are many abbreviations such as VR (referring to virtual reality in a narrow sense), AR (augmented reality), MR (mixed reality), XR (extended reality), etc., generally speaking, XR is a general term covering VR, AR, MR, etc. In order to facilitate readers' understanding, and to align with the relevant documents issued by the Ministry of Industry and Information Technology and other departments, this article uniformly uses "virtual reality" to refer to the XR category commonly used in the industry.

Sales declined, and the industry as a whole was under pressure

Shanzi, general manager & editor-in-chief of VR gyro, who has long been concerned about the trend of the virtual reality industry, pointed out that "declining sales, reducing costs and increasing efficiency" is one of the keywords of the virtual reality industry this year. From 2021 to 2023, the sales of Meta's Quest products declined, mainly due to the price on the market, and the connection of new products was not very good. It is expected that by next year, the entire industry will remain relatively stable, and even if Apple's products are on sale, there may not be much explosion, until the transition from XR products or VR products in the previous stage to the new interaction and new ecology in the next stage.

"This year's decline in sales is obvious to all, but this is a very good starting point, although the sales are reduced, but in fact, whether it is technology or products, the entire industry is precipitating, there are still many big manufacturers entering the game, so give them a little more time. Case Shanzi said.

A source from the agent sales channel told reporters: "It is true that the shipment data of various brands have not performed well this year. For a long time, the commercial value of virtual reality is still in its own name, and it has long relied on capital, so when the capital shrinks and the economy declines, the "slimming" action of virtual reality-related business in the technology manufacturers follows, and it is not difficult to understand.

Meta's financial report shows that in the first three quarters ended September 30, the company's total revenue was $94.791 billion, a year-on-year increase of 12%. Meta's revenue structure is divided into two parts: first, the application software series (Family of Apps) contributed revenue of 93.666 billion US dollars, an increase of 13% year-on-year, and second, the revenue of reality labs was 825 million US dollars, a year-on-year decrease of 42%. Meta management said in the discussion of the results that in the first nine months of this year, the reality laboratory division reduced the company's overall operating profit by about $11.47 billion, and the operating loss of the division is expected to increase significantly in 2024.

When ByteDance made business adjustments to PICO, the PICO team also mentioned in a public statement: "At present, the XR industry is still in the early stage of exploration, and PICO is also facing many challenges in terms of product experience, user Xi, and ecological construction. According to insiders, another domestic manufacturer, Qiyu VR, failed to cash in the final payment of the investment funds of Qingdao West Coast New Area, the investor introduced at the end of 2022, and the slow bailout action of the parent company iQiyi, resulting in the rupture of the capital chain, and the arrears of wages and layoff compensation for all employees could not be cashed. Up to now, investors and iQIYI have not responded to this.

According to the research data released by market research institute Counterpoint in October, the shipments of China's VR market fell sharply by 56% year-on-year in the first half of this year, marking the end of the growth of China's VR market for two consecutive years in 2020~2022, and the development has come to a standstill again, and the decline of the Chinese market is more serious than that of the global VR market. According to data from IDC, another research firm, global virtual reality hardware sales fell 44.6% in the second quarter of this year, the fourth consecutive quarter of decline, and the market's sluggish performance is not surprising given that the economic downturn has dampened demand growth.

It is worth mentioning that despite the continued downturn in the consumer market, in recent months, a number of companies in the AR field have completed a new round of financing. Rokid, a domestic AR glasses company, completed a $112 million Series C financing at a valuation of $1 billion in November; in October, Thunderbird launched a new consumer-grade AR glasses product and announced the news of tens of millions of financing in the A+ round; and Liangfengtai, an industrial AR service provider, announced the completion of a C+ round of financing of 270 million yuan in September this year. In the interview, two leaders from the AR+ industrial manufacturing field mentioned that although there are not many bright spots in the business progress, the pace of development of industrial AR is relatively stable.

What has Apple's entry stirred?

To say that the most notable event in the virtual reality industry in 2023 is undoubtedly Apple's official entry. In June this year, Apple released its first mixed reality product, Vision Pro, at WWDC (Worldwide Developers Conference), with an initial stock of about 400,000 units, and a sales target of 1 million units in 2024. According to domestic and foreign media reports, Apple's Vision Pro entered mass production in December, and the supply chain is ready to produce 1 million units per year, and it will be launched in the North American market in January 2024 at a price of $3,499.

Apple CEO Tim Cook said that Apple's Vision Pro and its Vision OS system bring a new spatial computing platform. With the advantages of the ecosystem, Vision Pro can keep pace with other Apple products such as iPhone, iPad, and Mac, and its application scenarios can be expanded from games and entertainment to social networking, office, and life.

A veteran who has been observing the virtual reality market for a long time said that from the price of up to $3499, coupled with the first new product named "Pro (Professional Edition)" and other moves, Apple's Vision Pro intends to test the water in the market and consumer education, mainly for developers, geeks and other customer groups, almost integrated with the current highest hardware configuration.

Apple, as a heavyweight player in the market, has "stirred" the industry in at least a few ways. First of all, it has increased the attention of the virtual reality track and attracted more and more forces to join, including many mobile phone manufacturers. In the view of Case Shanzi, mobile phone manufacturers have already made a layout in this field, and it is very likely that they will launch relevant outputs in 2024 or 2025. Secondly, in terms of technical route and product functions, Apple's Vision Pro blurs the boundaries of VR, AR and other terms to a certain extent, and the video perspective technology it uses (VST) is different from optical perspective technology (OST), simply put, it is realized through VR, breaking through the traditional VR/AR headset in the application scenario, the main game and entertainment scene, and expanding the functional application to daily office, communication and other productivity scenarios. According to the aforementioned virtual reality market veteran, many companies are already following and imitating Apple's route, such as many content teams that used to develop functions around the controller of the headset, but now they are turning to gesture operations and so on. Finally, the development of the native content ecosystem of virtual reality is expected to further accelerate.

IDC reports that although 2023 will be a year of another decline in virtual reality headset sales, the market is expected to rebound in 2024, thanks to new hardware products such as Meta and PICO, as well as Apple's Vision Pro entering the market and the increasing number of start-ups, global virtual reality device shipments are expected to reach 30.3 million units by 2027. Ramon T. Llamas, director of mobile device and AR/VR research at IDC, noted that Apple's entry will bring much-needed attention to this "niche market" and will force other companies to compete differently. For some, it's inevitable to go head-to-head with Apple, while for others, it means building moats in specific niches. In some cases, both may be present.

According to the "Action for the Integrated Development of Virtual Reality and Industry Applications (2022-2026)" jointly issued by the Ministry of Industry and Information Technology and the Ministry of Culture and Tourism, by 2026, the overall scale of the virtual reality industry in the mainland (including related hardware, software, applications, etc.) will exceed 350 billion yuan, the sales of virtual reality terminals will exceed 25 million units, and 100 backbone enterprises with strong innovation capabilities and industry influence will be cultivated.

It is obvious to all that the state and many local governments have successively introduced relevant favorable policies or documents in the virtual reality industry, and at the industry level, in 2024, Apple's Vision Pro will officially enter the market, Meta Quest is expected to enter the domestic market, coupled with more and more players, the virtual reality field is expected to usher in a new situation. At the same time, it is also worth paying attention to whether the AI large model and generative AI that will be popular in 2023 will open up a new market space for virtual reality. Cui Haitao, CEO of Gudong Technology, pointed out that whether it is for the C-end or the B-side, it is necessary to find the just-needed scenarios in a down-to-earth manner, and then infinitely close to the cost-effective and user experience expected by customers. It is not difficult to see that virtual reality will obviously continue to fight a protracted battle after several rounds of hot and cold tempering.

(Editor: Wu Qing Proofreader: Yan Jingning)