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This company wants to challenge Facebook’s Oculus: Inside China’s Startups

Pico aims to capitalize on a VR market that is expected to hit USD 5.76 billion by 2020 in China.

Source: provided by pico

The first half of 2020 has seen virtual reality (VR) headsets become one of the most sought-after and hard-to-buy tech products due to a combination of the pandemic impacting manufacturing and soaring demand. Many people, spending more time than ever cloistered at home, sought to throw themselves into a VR experience.

Facebook (NASDAQ:FB), the owner of VR company Oculus, shipped 141,000 Oculus Quest units in the first quarter, leading to the devices being sold-out in many regions. Following the trend, Chinese VR startup Pico also presented a new standalone wireless VR headset in March—the Pico Neo 2—which is lighter, smaller, and more powerful than the first generation, enabling more immersive and realistic VR games.

According to the company’s founder, Henry Zhou Hongwei, a VR industry veteran who previously worked as an engineer for acoustic and optical components company Goertek, his company has continued to upgrade its products—seven in total—at a steady pace since its launch in 2015 in the eastern coastal city of Qingdao.

“We wanted to bring the VR experience to the consumer level from the very beginning of our establishment. We bet on the standalone wireless type of headset devices instead of phone-based VR or tethered ones,” Zhou told KrASIA.

Pico competes in a VR market that is expected to hit USD 5.76 billion by 2020 in China, accounting for near a third of the global market valued at USD 18.8 billion, with an increase of 78% versus 2019, according to research firm IDC.

Zhou’s standalone concept might be onto something. Google’s DayDream mobile headset and Samsung’s Gear VR, which are mobile-powered (meaning the phone works as the screen and processor) were both retired from the market in 2019, while Facebook reported high growth in sales of the Quest line, a standalone VR headset powered by two six degrees of freedom (6DOF) controllers, running on a Qualcomm Snapdragon 835 chipset.

The social giant made USD 297 million in non-advertising revenue during the first quarter of 2020, up 80% annually, “driven largely by sales of Oculus products,” including the headsets and content-purchase.

Henry Zhou Hongwei, founder and CEO of Pico. Source: provided by Pico

Shifting to game-heavy devices  

Although the appearance of Pico’s products hasn’t changed a lot over the years, the logic behind its flagship headsets continues to evolve. The firm manages two lineups for its core products—the G series and Neo series. The G series focuses on VR video-watching experiences, while the Neo series is a higher-end line designed mainly for VR gamers.

The Neo 2, powered by a Qualcomm Snapdragon 845 processor and featuring six-degree-of-freedom (6DoF) room-scale tracking, a technology that allows users to move forward, backward, left, right, up and down in the virtual world, represents a significant step for the company. Weighing 340g without the strap and the battery on the back—which is designed to counterbalance the headset—the device promises a more comfortable VR experience. In total, its weight is 670g, compared to Oculus Quest’s 571g. 

Its price, RMB 4,399 (USD 621.47), also puts the device in direct competition with Oculus Quest, which sells at USD 400, but has been in and out of stock for weeks due to shortages.

Pico’s Neo 2 standalone VR headsets. Source: provided by Pico

On top of the hardware side, Pico runs its in-house VR operating system. Neo 2’s library consists of the Pico Store and content from third-party platforms including iQiyi VR, VeeR VR and Visbit. The company says it will update around five games monthly to the Neo 2’s Pico Store, which only has 57 games and applications now. Besides, the device can stream games from Steam’s bigger pool of VR content.

According to Zhou, the G series, which has a price tag of over RMB 2,000 (USD 282.55), sold more than 100,000 headsets last year, indicating a 100% year-on-year spike. But he thinks the new Neo 2 will have stronger momentum and will bring a healthier income stream to the company.

“When it comes to the scenarios of using a VR-related product, there are two scenes—video and game,” said Zhou. “Our conclusion is the gaming market is more solid. Because gamers will spend more time on it and they are willing to pay more for it. That’s what we will focus on in the future.”

“Standalone VR headsets will be a personal entertainment device, like a game console,” he says, adding that “they can provide a more immersive experience when watching videos, playing games, and probably, virtual socializing,” Zhou said.

Zhou thinks VR gamers have higher user stickiness and willingness to pay. Source: provided by Pico

The path to becoming the No.1 VR headset maker in China  

So far, VR headsets are still targeting a niche group of users, but the pool is expanding. In Zhou’s opinion, there are four premises of VR products’ popularization: quality product, rich content, affordable price, and good branding.

“The product itself must be able to provide a high-level user experience and has a vast and curated library of content to consume. Then, prices need to be lowered down through better cost management, especially in a price-conscious market like China. Also, to make buyers accept your products, branding, and marketing are necessary,” he concluded.

Tech giants are making forays into the XR industry, an umbrella term encompassing augmented, virtual, and other extended-reality technologies.

Recently, Goggle’s parent company Alphabet is reportedly set to gobble Canadian smart glasses maker North as part of its efforts to make a groundbreaking extended-reality wearable. Meanwhile, Apple has reportedly formed a secret internal team to build its own headsets. The iPhone maker intends to roll out a combined VR and AR headset in 2022 and expects to release AR glasses by 2023, according to Bloomberg.

Zhou notes that these powerhouses’ efforts represent a big boost to the whole VR industry in terms of content, supply chain, and user acceptance, although, in the future, they might become direct competitors with Pico.

Currently, Pico has global enterprise-facing businesses and domestic market-focused consumer-level products. “We partner with Chinese and international clients who are in the education, healthcare, and entertainment industries, providing them with our hardware and software development kits,” said Zhou.

“Our consumer-level market is mainly in the home market at this stage,” he added. Pico is not alone, as just in China, smartphone vendor Xiaomi (HKG: 1810), television maker Skyworth, and streaming company iQiyi (NASDAQ: IQ) have all launched VR devices.

However, the company expects to become profitable by the end of the fourth quarter of 2020. Revenues will be generated from headsets sales, in-app purchases, and business services, says Zhou. 

Pico is currently also active in fundraising to support its further research, development, and marketing. In 2018, it closed a Series A round securing RMB 167.5 million (USD 23.66 million) from GF Securities’ investment arms Guangfa Qianhe and Guangfa Xinde, together with Qingdao Jufeng Venture Capital.

“2020 will be a breakout year for the VR consumer market, at least in the European and American markets. There will be a one-or-two-year delay in the Chinese market, but, sooner or later, the virtual reality business will explode here as well,” Zhou predicted.