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Chinese Firms Jostle for Space in $8.5-billion Virtual Reality Market

| May 18, 2016 11:37 PM EDT

A customer tries out a virtual reality headset made by Samsung.

Chinese companies, led by titans Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc., are positioning themselves in the virtual reality (VR) market ,which is expected to grow 36 times in the next four years to 55 billion yuan ($8.5 billion), Bloomberg reported.

According to the report, the three giant companies serve as middlemen to several startups and offer their platforms to content and hardware developers while anticipating the release of VR headsets.

"All three of these companies want to focus on creating platform and content," Ricky Lin, a Beijing-based analyst at IResearch, said. "The issue facing China's VR industry at this point is that it lacks core technology, so they need to hedge their bets."

The move by Chinese firms came as part of government efforts to drive up the slowing economy by reducing its reliance on heavy industry and ramping up innovation. After China started supporting entrepreneurship in 2014, about 1,600 high-tech incubators for startups have opened.

According to iQiyi.com Inc., a Baidu unit, there are at least 200 startups engaged in China's virtual-reality industry.

London consultancy Preqin Ltd. said that venture-capital investments in China rose by about 50 percent to $12.2 billion in the first quarter, while about $1.1 billion was invested in the same period, in the VR industry, according to California-based Digi-Capital.

"A lot of people think that this industry will mature fast with the push of capital and media," Duan Youqiao, who oversees iQiyi's initiative, said. "The VR industry right now is like when we were still living in the ages when horses pulled carriages."

The virtual reality market in China is expected to rise to 55 billion yuan by 2020 from 1.5 billion yuan last year, and Baidu, Alibaba and Tencent, collectively known as BAT, are expected to invest in the market.

According to the government, online video is seen as a potential segment as 504 million Chinese are regular users of streaming sites. The Ministry of Industry and Information Technology noted that the first VR industry to mature could be the immersive video and game applications.

On May 12, Canalys announced that 40 percent of the 6.3 million headsets that will be shipped worldwide will go to China.

iQiyi.com, which is working with more than 300 partners, including Baofeng Technology Co. and Le Holdings (Beijing) Co., announced on May 5 that it plans to build the world's largest Chinese-language VR service, including a new app suite that makes its movie and game offerings compatible with any head-mounted device. The company is also producing VR films and trying out streaming live concerts.

Meanwhile, Baidu has started an artificial intelligence project in April dubbed the "Baidu Verne Plan" and led by Baidu's chief scientist, Andrew Ng, and Chinese science-fiction novelist Liu Cixin.

Alibaba, on the other hand, is developing VR-related shopping experiences for consumers, creating 3-D renderings for hundreds of products and allowing merchants to create their own VR-enabled shopping options.

Tencent is also investing in videos, games and anime comics to maintain users of its services. The company also streamed VR concerts for South Korea boy band Big Bang and has acquired the rights to more than 300 Japanese anime franchises, in addition to numerous smartphone games.

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