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VR Focus: Market leaders reach high, differ on strategies

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VR Focus: Market leaders reach high, differ on strategies

This is part 1 of a 3-part series about virtual reality trends around the world. Part 2, which covers Facebook's VR efforts, was published Dec. 20, while part 3, focusing on Apple's alternative approach to VR, was made available Dec. 21.

When it comes to mapping strategies for virtual reality, all directions point to Asia. The three market leaders in that part of the world - Samsung Electronics Co. Ltd., Sony Corp. and HTC Corp. - have each taken a different approach with their VR headset releases over the past year, to varying degrees of success.

The Samsung Group unit was the first to hit the consumer market in November 2015 with its smartphone-based Gear VR, developed with Facebook Inc.'s Oculus. The $99 headset uses a range of apps on Samsung's Galaxy devices to display movies, facilitate gameplay and provide immersive experiences.

Next came Taiwanese tech firm HTC's Vive in April. The $799 device is considered more of a niche product, as it requires a high-end gaming PC to operate. As such, HTC is moving toward commercial use of its technology by setting up VR gaming cafes and its Viveport Arcade platform in China and Taiwan, with an eye toward taking the concepts global.

Sony's $399 PlayStation VR is the newest product out of Asia, launched in October after months of anticipation. It serves as a companion to the recently released PlayStation 4 console models and their library of games.

Despite the late start for Sony, industry experts believe its mid-range strategy is currently the best out of the three Asian VR market leaders.

"Sony is attempting to appeal to gamers, who are usually eager adopters of new technology," S&P Global Market Intelligence analyst Greg Potter said in an interview.

He explained that the Japanese company benefits from having a large, ready-made consumer base through the PS4, which just surpassed 50 million units sold worldwide. Sony also controls the software ecosystem for its devices, so it gets to see all the related profits.

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Ryan Wang, co-founder of Outpost Capital, a venture capital fund focusing on VR and augmented reality technology, agreed on Sony's outlook.

"VR is heavily relying on gaming at this early stage, and Sony will obviously lead the industry during that time," he said in an interview.

But he also pointed out that HTC is currently enjoying a "unique monopoly window" in China, where the PlayStation is not very popular and Oculus' parent Facebook is banned. This leaves HTC as the only major player in a large market.

As for Samsung's budget, lower-tech tactic, Wang said it would be fruitful for the South Korean company over the long term because "mass adoption of VR is going to start with mobile."

These views are reflected in sales projections through the end of 2016 by SuperData Research, which Samsung leads with a total of 2.3 million headsets expected to be sold.

Sony had been predicted to ship as many as 3 million headsets in the two months after its debut, but its sales figures were revised down to 745,000 units. Meanwhile, HTC is projected to sell 450,000 units before 2017, which by contrast is considered a strong number for the high-priced, limited-use product.

The three headsets out of Asia will contribute largely to what Deloitte predicted would be the first billion-dollar year for VR, which includes around $700 million in hardware sales for 2016.

Neither Samsung, Sony nor HTC responded to requests for comment.

However the numbers shake out, VR is not expected to meet the same fate as another high-tech trend, 3D TV, which debuted amid much hype but died out within a few years as consumers quickly lost interest.

Kota Ezawa, a Citi analyst based in Tokyo, said in an interview that 3D TV was a challenging concept that was often restricted by group usage within families, whereas VR is more of an individual experience.

Wang added that "3D TV is an alternative display, that's it. VR, however, is a new computing platform that's going to enable endless possibilities."

The Asian tech trio now must begin exploring those possibilities to transform VR from a gimmick into a profitable business segment. With hardware development out of the way, content becomes key and so must diversify beyond gaming.

"VR broadcasts of live events such as sports games and concerts show some promise, though it's still early and many technical problems remain to be worked out," Potter said. Hollywood is also still trying to figure out the best way to use the technology, with IMAX Corp. leading the effort.

Wang believes that business-to-business applications have potential, and that while HTC's VR arcade concept is buzzworthy, the business model needs to be proven first.

In addition to leisure and entertainment applications, Ezawa sees commerce and business opportunities for VR, such as for conferences, training, exhibitions and travel. He also noted that lowering hardware costs in order to increase the number of headsets sold would be essential to monetization.

"So far, the main mechanism [in VR] is in the graphic processing, and it is at the center of the costs," Ezawa explained, pointing out that "fortunately, GPU cost performance is improving over time, and its evolution is so quick that VR headsets and computing systems will become more affordable."

Ultimately, a profitable VR market must be built on industrywide efforts rather than a few individual players. In addition to new content genres, enabling technologies such as eye-tracking still need to be developed, according to Wang. Infrastructure also will need to be upgraded to handle growing demands on bit rate and computing capacity.

In line with this call for collaboration, Samsung, Sony and HTC recently joined other VR leaders including Oculus and Google Inc. to form the Global Virtual Reality Association, which aims to develop and share best practices and research with the technology.

"It's hard to imagine just a few players being able to represent the VR industry when it becomes mass market media," Wang concluded.