BUBBLE OR BUD？

By Li Gejing

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COVER STORY

BUBBLE OR BUD？

By Li Gejing

Can virtual reality's promising future escape its current investment bubble？

‘Every 10 or 15 years， there are new computer platforms that are more natural， immersive and help us interact in the world every day. I think that will be augmented or virtual reality （VR），” said Mark Zuckerberg， founder and CEO of Facebook，at the China Development Forum earlier this year. In March 2014， Facebook bought VR startup Oculus， closing the acquisition with $2 billion.

China's e-commerce giant， Alibaba Group， which plans to use VR to enhance the online shopping experience for its hundreds of millions of users， announced in March a new research and development laboratory—GnomeMagic Lab—focusing on VR applications for e-commerce，online gaming and video streaming. In July， Alibaba showcased its “Buy+” VR application at an exhibition in Shanghai. The application enables buyers to shop in a 3D environment by using a pair of VR glasses.

“The world is undergoing a technology revolution， which is unleashing the potential of the human brain，” asserted Jack Ma，Alibaba founder， Chairman and CEO， “and it will blow everyone's mind in 30 years.”

Like Zuckerberg and Ma， many believe that VR will lead to important changes in society through its infuence on cognition，communication and behavior. But， the industry clearly faces signifcant problems，and from an investment perspective， it still has a long way to go to reach maturity.

Blowing bubbles

In any sector， prospective investors can detect the existence of infated asset prices and over-enthusiastic sentiment by checking how company valuations compare with accounting realities. By this standard， the VR industry certainly seems to be in the midst of an investment bubble.

In early 2016， for example， the estimated market capitalization of LetinVR， a 360-degree video content creator， reached 210 million yuan （$31.6 million）. A closer look at LetinVR's operations， though，reveals a different picture. In 2015， the company's total revenue was only 900，000 yuan （$136，000）， and it registered a loss of more than 1 million yuan （$150，000）. LetinVR's sole achievement to date—the alleged frst VR flm to be produced in China—failed to attract the expected viewing fgures. Believing that a company with such a high market cap isn't caught up in investment fever is rather diffcult.

Liang Xiao， co-founder of Qianyuan Fund， a company specializing in investing in VR and entertainment industries， said，“A bubble exists in the VR industry， and it is not small.”

Zhang Hailang， founder and CEO of Sightpano， a VR content provider established in 2005， points to bottlenecks in the development of VR. As the underlying technology has yet to fully develop， the market is still exploring VR's full potential in terms of baby steps. Meanwhile， due to current software and hardware limitations，consumers struggle to comprehend what all the fuss is about and to grasp the practical implications for daily life.

Currently， it is listed companies， rather than venture capital firms， that are making notable VR investments. Alpha Group， one of China's largest and most successful animation and entertainment organizations， has invested in various companies along the VR industry chain including Sightpano and Noitom Technology. Enlight Media， China's leading film production company， has in-creased its investment in interactive art company 7D-VISION. The speed and scale of investment made by listed companies cannot be ignored.

Readers enjoy works of popular science through VR technology at the National Books Expo in Baotou，Inner Mongolia Autonomous Region， on July 28

Introducing VR into their business portfolio greatly benefts listed companies seeking to stay ahead of the curve. The huge investment such organizations make in turn raises the expectations of VR startups. Opportunists sensitive to investment hotspots also tend to take advantage of the spree. Although they may lack specifc industry expertise， having identified areas soaking up investment， they package projects attractively to enable them to secure financing. Thus， the heavy inflow of funding from listed companies combined with a bunch of eager but fckle entrepreneurs has cultivated a bubble.

The way forward

Despite the inflation， Liang sees VR as an unstoppable trend. “［There's］ no doubt about that. And， that's why companies are racing along the VR track. In the future， VR will evolve from an industry to an elementary discipline that concerns every aspect of our daily lives，” he noted.

Nonetheless， although investment enthusiasm continues to blossom， the bubble will likely burst sooner or later， so the present is a critical period for VR companies to fnd ways of creating value.

Companies that supply underlying technologies， in particular， can raise the VR industry to a whole new level despite perhaps not immediately becoming proftable themselves. Development in the fundamental technology—from systems and acquisition devices and software to data transmission and output devices—can address the nascent VR sector's current shortcomings and significantly improve efficiency across the entire industry.

A visitor takes a VR roller-coaster ride at an experience center in Changle， Fujian Province， on July 11

“Noitom's Perception Neuron technology is a case in point，” said Liang. “Companies with such ideas are worth investing in， as they can help elevate the entire market.”P(pán)erception Neuron is a versatile and adaptable motion capture system developed by the Beijing-based company.

Content creation and production also deserve more attention. “Just claiming to be the frst to make VR flms， music videos and TV shows is meaningless，” said Liang，who highlighted the current lack of premium VR content as a problem. “Whether content is marketable depends on user responses. We should try to increase ［the number of］ video views and engage more users. Companies should focus on creating high-quality works， collecting users' feedback and profting from building content.”

Moreover， VR companies should adapt their offerings according to the characteristics and needs of different industries，and come up with viable business models. Tailor-made plans based on the situations of different industries are highly necessary. In this respect， teams with experience in target industries might have an edge over those working only in the VR feld， Liang said. “This is because they know what's going on in a particular industry and can provide more practical solutions.”

The author is a senior professional in VR investment

Copyedited by Chris Surtees

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