VR (Virtual Reality) and AR (Augmented Reality) technologies are essential components in the conceptualization of a metaverse. Although today it is still difficult to project the use of AR/VR headsets/lenses on a daily basis, it is very likely that they will in one way or another constitute “tomorrow’s metaverse experiment, at least if it happens. Before looking specifically at the Tencent case, let’s take an overview of the Chinese VR/AR market.
VR/AR: a promising market?
Thanks to Beijing’s unwavering commitment to push the development of VR/AR, the market revenue is expected to reach nearly 300 billion yuan by 2024. Although somewhat limited by their dependence on foreign microchips, pico and DPVRChina’s leading VR headset manufacturers are rapidly expanding their international presence.
VR/AR Segment Revenue in China – 2019/2024
In addition to government initiatives, tech giants are swarming into the sector. Over the past two years, six of the top ten VR/AR patent applications 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 purchasing Pico for nine billion yuan in August 2021. There is no doubt that they all want to advance in the race for the global metaverse.
According to industry projections, entertainment and consumer are the consumer-facing sectors that can showcase the true possibilities of the metaverse. Between 2025 and 2030, the market size of commercial VR/AR applications in the Chinese entertainment industry will reach nearly 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. Supporting real-time events, spaces and objects, the highly interactive virtual world 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 troll
Tencent is one of China’s largest technology companies. Given its social media and gaming prowess, as well as the scale of its business, the company is a strong contender for the metaverse.
Tencent’s WeChat is China’s most popular social media platform with over 1.2 billion monthly active users, and WeChat Pay has over 800 million. With 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 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 No. 1 game publisher and No. 2 cloud player. Tencent also has a highly diversified investment portfolio. He 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 AI and big data to IoT and VR/AR, the company has made several acquisitions. Due to expected regulatory paperwork, it recently shelved 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 for the metaverse.
“The meta-universe is an exciting thing, but it’s also a conceptual thing. We are at a relatively advanced stage to look at the metaverse, which is about making the virtual world more real and the real world richer. Tencent has several technical modules, including the foundation 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 technologies.
Practical commercial applications were also highlighted. During Tencent’s 2021 earnings conference call, Ma shared for the first time the three potential paths to this vision: video games, a social gaming network, and a real-world experience augmented by VR/AR. 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 hardware such as headsets or smart glasses. The company has not communicated a timetable for the realization of its metaverse.
In July 2021, she launched LuoBuLeSi in collaboration with Roblox. The Chinese version of Roblox, where users can create and operate a virtual avatar, was abruptly pulled five months later to work on a new version. In January 2022, Tencent launched a new interactive 3D space called Super QQ Show on its QQ messaging platform and later filed a patent for virtual concerts. We can believe that Tencent’s existing ecosystem, which is ubiquitous in the gaming and technology space, can theoretically help achieve a high degree of interoperability in the metaverse without decentralized infrastructure.
To end on a “Metaverse” note, thanks to its sprawling network, and while it may take longer than expected as well as require multiple iterations, Tencent is very well positioned among its peers to succeed in a potential future Chinese metaverse. Let’s also remember that in 2022, the prospect of global interoperability 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 sections, we will dissect the main opponents of Tencent: Huawei, Alibaba, Baidu, NetEase and ByteDance. While you wait for the next episodes, I suggest you watch this video from the Wall Street Journal, which highlights the issues surrounding the Chinese Metaverse.