VR (Virtual Reality) and AR (Augmented Reality) technologies are essential components in the conception of a metaverse. Although it is still difficult today to project the use of AR/VR headsets/lenses on a daily basis, it is very likely that they will constitute, in one way or another, the “metaverse experiment of tomorrow, at least if it happens. Before looking specifically at the Tencent case, let’s do an overview of the Chinese VR/AR market.
VR/AR: a promising market?
Thanks to Beijing’s unwavering commitment to promote the development of VR/AR, the market revenue is expected to reach nearly 300 billion yuan by 2024. Although somewhat limited by their reliance on foreign microchips, pico AND DPVRChina’s leading VR headset manufacturers are rapidly expanding their international presence.
China VR/AR Segment Revenue – 2019/2024
Apart from government initiatives, tech giants are flocking to the sector. Over the past two years, six of the top ten VR/AR patent applicants worldwide came from Asia, led by Samsung Electronics and Tencent, with 4,094 and 4,085 applications respectively. Baidu, Huawei, Alibaba and others have also joined the march to integrate VR technology into mobile, e-commerce, video and gaming. ByteDance even made its first foray into VR by acquiring Pico for nine billion yuan in August 2021. There is no doubt that they all want to get ahead in the race for the global metaverse.
According to industry forecasts, entertainment and consumer are the consumer-facing sectors that can showcase the true capabilities of the metaverse. Between 2025 and 2030, the market size of commercial VR/AR applications in the Chinese entertainment industry will reach approximately 15 billion yuan, with a compound annual growth rate (CAGR) of 11%. The size of the gaming and shopping markets is expected to exceed ten billion yuan. The concept of interactive digital spaces should lead to a radical change in the way people interact and consume. By supporting real-time events, spaces and objects, the highly interactive virtual realm can make the static online shopping experience more exciting and meet the challenges of remote work.
China VR/AR Market Size – 2025/2030
Tencent, the Asian ogre
Tencent is one of the largest technology companies in China. Given its prowess in social media and gaming, as well as the scale of its business, the company is a strong contender for the metaverse.
Tencent’s WeChat is the most popular social media platform in China, with over 1.2 billion monthly active users, and WeChat Pay has over 800 million. Owning the biggest names in video streaming (Tencent Video, DouYu and Huya) and music (KuGou Music, QQ Music, Kuwo Music and WeSing), Tencent has built a complex content ecosystem and is the largest platform for professionally made (PGC) in China.
Tencent’s main content platforms
Source: Tencent, 36Kr, TechCrunch
As of the fourth quarter of 2021, nearly 250 million users paid for Tencent’s value-added services, including 124 million for its video services and 85 million for its music value-added services. The company is also China’s #1 game publisher and #2 cloud player. Tencent also has a very diversified investment portfolio. It controls major stakes in several well-known game studios around the world, including Riot Games (100%), Supercell (84%), Epic Games (40%), Activision Blizzard (5%) and Roblox (undisclosed). From AI and big data to IoT and VR/AR, the company has made multiple acquisitions. Due to anticipated regulatory filings, it recently canceled its first investment in hardware maker Black Shark, a gaming phone brand backed by Xiaomi.
In 2020, Tencent CEO Ma Huateng first used the term immersive convergence to describe his vision of the metaverse.
“The metauniverse is an exciting thing, but it’s also a conceptual thing. We are at a relatively advanced stage to see the metaverse, which is about making the virtual world more real and the real world richer. Tencent has several technical modules, including the basis of interaction and social media, AI and the ability to create a community game platform, can create a metaverse as building blocks“.
In September 2022, Tencent further explained this term in a white paper. The focus is on real-life experience, solving real-life problems using immersive technology.
Practical commercial applications were also emphasized. During Tencent’s 2021 earnings conference call, Ma first shared the three possible paths to this vision: video games, a gaming social network, and a VR/AR-augmented real-world experience. As the main driver of the company’s revenue and investment portfolio, video games are the most likely plan. Compared to Meta Platforms, the company is weaker in the field of hardware such as headphones or smart glasses. The company has not communicated a timeline for the realization of its metaverse.
In July 2021, it launched LuoBuLeSi in partnership with Roblox. The Chinese version of Roblox, in which users can create and use a virtual avatar, was suddenly pulled five months later to work on a new version. In January 2022, Tencent launched a new 3D interactive space called Super QQ Show on its QQ messaging platform and later filed a patent for virtual concerts. We can think that Tencent’s existing ecosystem, which is ubiquitous in the gaming and technology space, can theoretically help achieve a high degree of interaction in the metaverse without decentralized infrastructure.
To end on a “Metaverse” note, thanks to its widespread network and although it may take longer than expected, as well as require multiple iterations, Tencent is very well positioned among its peers to succeed in a future Chinese metaverse. Let’s also remember that in 2022, the prospect of global interaction in the metaverse has taken a big step with the creation of Metaverse Standards Forum, which aims to develop interoperability standards for the new technological paradigm. Founding members include Adobe, Alibaba, Autodesk, Epic Games, Google, Huawei, IKEA, Khronos, Meta, Microsoft, NVIDIA, Qualcomm Technologies, Sony and Unity among others.
In the next episodes we will analyze the main opponents of Tencent: Huawei, Alibaba, Baidu, NetEase and ByteDance. While you wait for these next episodes, I suggest you watch this video from the Wall Street Journal which highlights the issues revolving around the Chinese metaverse.