Although the VR industry has entered a downturn, it hasn't stopped major manufacturers from investing. Perhaps they don’t fully understand what VR is, but the strong pull of capital tells them this could be the next big opportunity. They started pouring real money into an industry valued at $100 billion, and entrepreneurs who sensed the trend began to flood in. Listed companies that didn’t want to be left behind started competing for VR projects, aiming to create the next big investment return for their limited partners—some expecting tenfold or even hundredfold returns.
By the third quarter of 2017, AR/VR investments over the past 12 months reached as high as $1.8 billion, with $300 million invested just in the last quarter alone. Both investors and users showed signs of returning to rationality after the initial hype. The reality presented by VR is an artificial world created by computers, filled with images and sounds that respond to user input. Its core features are often described as "immersion, interaction, and imagination."
Augmented reality (AR) involves overlaying digital information onto the real world, allowing users to perceive the virtual as part of their surroundings through devices. It represents a new interface for human-computer interaction.
The VR industry had a rollercoaster ride in 2016, with periods of intense excitement followed by cooling down. Ultimately, the value offered by the entire VR industry failed to captivate early adopters. The current so-called "cold winter" is because the products haven’t yet won over the first wave of users. In other words, the technology maturity, service systems, pricing, and overall user experience of VR hardware and content still fall short of driving sustainable growth.
However, many of these challenges are slowly being addressed. Global tech giants like Google, Microsoft, Samsung, and Qualcomm have entered the VR space, helping establish industry standards. This has also attracted numerous smartphone manufacturers, accelerating the development of the entire supply chain.
In the first half of 2017, VR investment began to soften, and both corporate and venture investors were actively looking for opportunities in mobile AR. According to Digi-Capital’s latest "AR/VR Report" and data from the Deal Database, for every $10 invested in the sector, $4 went into AR/VR technologies. Additionally, $1 was allocated to gaming, along with investments in photography and video.
So, how did the VR industry continue to struggle in the first half of the year? Every successful business needs a closed-loop ecosystem. When there's good hardware and compelling content, more users are drawn in. More users mean more revenue, whether through direct payments, advertising, or other models. That revenue then attracts more developers to create better content and hardware, forming a positive cycle. As this loop expands, the industry matures, and capital begins to flow in.
According to public data, China's VR market is growing rapidly. It's expected to surpass 10 billion yuan in 2018. Over the next five years, the market is projected to grow at a compound annual rate of over 80%. By 2021, China is likely to become the world’s largest VR market, with the total industry size reaching 79.02 billion yuan.
Even though VR investment was relatively modest in the first half of 2017, interest in mobile AR started to rise. Experts suggest it's unclear whether this interest will lead to success for smart glasses, VR, or mobile VR startups.
By the end of 2018, ARKit, ARCore, and Camera Effects had already reached over 900 million users. Mobile AR startups might take up to 12 months to start generating revenue, meaning investors and the VR community need patience as the early AR market develops. New portfolio companies are expected to take the lead during this phase.
Looking ahead, AR/VR technology holds vast potential. Each day brings new ideas and solutions that aim to enhance our modern lives. Unimaginable possibilities are emerging from the digital world, enabling humans to freely move between virtual cyberspace and the physical world. The lines between the virtual and the real are becoming increasingly blurred.
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