VR (Virtual Reality) and AR (Augmented Reality) technologies are essential components in the conceptualization of a metaverse. While it is still difficult to predict the day-to-day use of AR/VR headsets/lenses today, it is very likely that they will, in one way or another, constitute “the metaverse experiment of tomorrow, at least if it happens at all. Before looking specifically at the Tencent case, let’s give an overview of the Chinese VR/AR market.
VR/AR: a promising market?
Thanks to Beijing’s unwavering commitment to promoting VR/AR development, the market’s revenue is expected to reach nearly 300 billion yuan by 2024. Though somewhat limited by their reliance on foreign microchips, pic And DPVRleading Chinese manufacturers of VR headsets are rapidly expanding their international presence.
China VR/AR Segment Revenue – 2019/2024
In addition to government initiatives, tech giants are flocking to the industry. Over the past two years, six of the top ten VR/AR patent applicants worldwide were 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 games. ByteDance even made its first foray into virtual reality by purchasing Pico for nine billion yuan in August 2021. There is no doubt that everyone wants to get ahead in the race for the global metaverse.
According to industry projections, entertainment, and consumer are the consumer-facing industries that can showcase the true capabilities of the metaverse. Between 2025 and 2030, the market size of commercial VR/AR applications in China’s entertainment industry will reach nearly 15 billion yuan, with a compound annual growth rate (CAGR) of 11%. The size of 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 events, spaces and objects in real time, the highly interactive virtual realm can enhance the static online shopping experience and address the challenges of remote working.
China VR/AR Market Size – 2025/2030
Tencent, the Asian ogre
Tencent is one of the largest Chinese technology companies. Given its social media and gaming prowess, as well as the size 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 created a complex content ecosystem and is the largest platform for professionally generated content (PGC ) in China.
Tencent’s main content platforms
Source: Tencent, 36Kr, TechCrunch
As of the fourth quarter of 2021, nearly 250 million users have paid for Tencent’s value-added services, including 124 million for its video services and 85 million for its value-added music services. The company is also the No. 1 game publisher in China and the No. 2 cloud player. Tencent also has a very diverse investment portfolio. It controls major stakes in several renowned game studios around the world, including Riot Games (100%), Supercell (84%), Epic Games (40%), Activision Blizzard (5%) and Roblox (undisclosed). From artificial intelligence and big data to IoT and VR/AR, the company has made numerous acquisitions. Due to early regulatory filings, it recently discontinued its first investment in hardware maker Black Shark, a Xiaomi-backed gaming phone brand.
In 2020, Tencent CEO Ma Huateng first used the term immersive convergence to describe his vision of the metaverse.
“The meta-universe is an exciting thing, but it’s also a conceptual thing. We’re at a relatively late stage looking at 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, artificial intelligence, and the ability to create a community game platform, which can create a metaverse as the building blocks”.
In September 2022, Tencent further explained this term in a white sheet. The focus is on real-life experience, solving real-life problems using immersive technologies.
Practical commercial applications were also highlighted. During Tencent’s 2021 earnings conference call, Ma first shared the three potential paths to this vision: video games, a gaming social network, and a VR/AR-enhanced real-world experience. As the company’s primary revenue driver and investment portfolio, video games are the most likely plan. Compared to Meta Platforms, the company is weaker in the area of hardware such as headphones or smart glasses. The company has not communicated a timetable for the realization of its metaverse.
In July 2021, it launched LuoBuLeSi in partnership with Roblox. The Chinese version of Roblox, where users can create and use a virtual avatar, was abruptly 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 on virtual concerts. We can think that Tencent’s existing ecosystem, which is ubiquitous in the gaming and technology space, could, in theory, help achieve a high degree of interoperability in the metaverse without a decentralized infrastructure.
To wrap up on a “Metaverse” note, thanks to its sprawling network and while it may take longer than anticipated and require multiple iterations, Tencent is very well positioned among its peers to succeed in a potential future Chinese metaverse. We also recall that in 2022 the prospect of global interoperability in the metaverse has taken a big step with the creation of the 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 waiting for these next episodes, I suggest you watch this video from the Wall Street Journal that highlights the issues surrounding the Chinese metaverse.