Insanely virtual

AT THE heart of an emerging technology cluster in London’s Shoreditch lies the Stage, a big mixed-use building complex that is being developed by Vanke, a Chinese real-estate company, among a few others. A potential Chinese buyer of one of the flats in its 37-storey residential tower recently had a look around. She went from room to room, observing the furnishings and fittings. She marvelled at the city views from the balcony and peeped inside the refrigerator. There was no need for a flight to London. She toured the property using virtual reality (VR) goggles at Vanke’s global marketing centre in Shanghai.

The use of VR kit is quickly becoming widespread in China’s property industry. Few real-estate firms in other countries are as advanced. China is fast emerging as the world’s most important VR market, thanks to rapid adoption by property firms and by companies in other industries. The prompt take-up is not because Chinese firms make the best VR headsets, which they do not. In fact, the pioneers in cutting-edge hardware are America’s Oculus, which is owned by Facebook, Japan’s Sony, South Korea’s Samsung and Taiwan’s HTC. It is in California, not Chengdu or Chongqing, that the best software for VR games and movies is being developed.

But professional use of VR by Chinese companies (rather than by consumers) means that the place where the fledgling industry may make its very first fortune is the Middle Kingdom. Goldman Sachs, an investment bank, forecasts that the global VR market could well expand from next to nothing now to be worth as much as $60 billion by 2025. Hardware would account for half of the market and software the rest. Goldman also predicts that mainland China will already account for a third of global VR headset sales this year (see chart).

In the West the interest in VR has mainly focused on consumer applications like gaming. By contrast, in China business applications are an immediate and profitable avenue for growth. Property developers like Vanke are using VR to peddle expensive properties that are overseas or not yet built, and architects are using it in design. Education is another promising field. NetDragon, a Chinese software firm that attracted attention when it acquired Britain’s Promethean World, an online education outfit, for some $100m last year, is testing how VR software and hardware can be used in mainland schools (one idea is that headsets could tell when children are tilting their heads, indicating boredom, meaning a change of subject or teaching method is required).

Companies specialising in VR are spending a great deal of time examining the growth in China’s market. In addition to the quick adoption by Chinese businesses, this is for two other reasons to do with the consumer side, reckons Huang Zhuang, founder of China’s Nao Chuan Yue, a startup VR outfit. First, mainlanders are enthusiastic early adopters of whizzy technologies, even if the early versions are somewhat imperfect. Second, China leads the world in the use of the mobile internet. Mr Huang is convinced that the majority of users in future will access VR via their web-connected smartphones, not via goggles attached to personal computers or self-contained devices.

In other countries, including America, it is difficult for people to try out VR technology, notes Ryan Wang of Outpost Capital, a Californian venture-capital firm with investments in the sector. They have to fork out $1,000 or more to experience high-end VR. That means there is as yet no clear, affordable path for American consumers to adopt the technology, says Mr Wang.

China, on the other hand, already has a full infrastructure in place for consumers to try it out. The very best VR equipment, such as HTC’s snazzy Vive goggles, can be found at theme parks, shopping malls and experience centres right across the mainland. There are over 100,000 internet cafés offering VR sessions for just a few dollars. Dozens of local manufacturers are making cheap VR adaptors for smartphones. Purists look down on them, yet they could prove useful “gateway drugs” into what VR could eventually become, says Anjney Midha of KPCB Edge, a technology investment firm in Silicon Valley.

So great is China’s potential that HTC is treating the market as its first priority. The firm has forged alliances with Suning and Gome, two Chinese electronics retailers, to distribute its products. It plans to set up over 10,000 sophisticated “experience centres” for VR across the country. It has made deals with thousands of karaoke bars and gaming cafés. Alibaba, a big e-commerce firm, plans soon to launch a service that will allow the purchase of physical goods using VR equipment. VR movies are soon coming from Tencent, a gaming and messaging giant. “There is faster adoption and a wider embrace of VR here than in any market in the world,” declares Alvin Graylin, a VR executive at HTC.

It is possible that VR executives are making overly optimistic projections, as if wearing their own headsets, but the moneymen are certainly listening. A consortium of several dozen venture-capital firms that are investing in the sector, organised by HTC, held its first meeting on September 20th. Fittingly, although the group included several Silicon Valley firms, the get-together took place in Beijing.