According to Greenlight Insights' forecast, the global VR+AR industry will be worth about 200 billion yuan in 2020, including 160 billion yuan for VR and 45 billion yuan for AR, and the domestic market will reach 90 billion yuan. In terms of sales, global VR/AR sales will reach 18.8 billion US dollars in 2020, with consumer spending dominated by VR games and VR movies. The recovery of VR headset shipments shows that the VR industry has once again ushered in a high-speed growth prospect since 2016, and high-quality content and popular products will drive the rapid growth of VR hardware equipment. In this issue of Smart Insider, we recommend the report of Cinda Securities titled "Hot-selling games drive hardware popularization, 5G promotes large-scale application of VR industry", which reveals the technical characteristics of VR, the current status of the industry and the liberation of restrictions on interaction, hardware and other aspects of the VR industry and large-scale application as 5G is promoted. Four major technical features of VR 1. Lightweighting is a continuous consideration during the deep iteration period The concept and technology of VR have been developed for a long time, and entered a period of explosive growth in 2016. The concept of VR was proposed by a novelist in 1935; the VR prototype was developed by Morton Heilig in 1962, but the machine was a research machine and was not delivered to ordinary consumers; in 1994, Nintendo and Sega launched VR products for the game industry, but due to the average equipment cost and content application level, the penetration rate was low; in 2016, major manufacturers such as Oculus launched VR equipment with more affordable application level, experience and price, and the VR industry entered a period of explosive growth. ▲VR industry development history After the outbreak, VR products entered a period of deep iteration, and the direction of continuous development is to ensure performance while achieving lightweight. VR products have gone through various types of development stages from before 2016 to 2020. The early Cardboard mobile VR has long been eliminated due to poor display effects; Samsung's mobile VR glasses connected to mobile phones were limited by the performance of mobile phone chips at the time, with low processing power and poor display effects, and were gradually eliminated in the early market that focused on performance development. Then the VR market was occupied by VR helmets that connected the host and the PC. This type of product has good display effects and performance is supported by the host-level graphics card, but this also brings the problem of heavy weight, inability to carry, and discomfort caused by long-term wearing. With the development of processor chip technology, all-in-one VR helmets have emerged. This type of product integrates hardware such as chips and display groups and can be carried at any time, but it still has the problems of heavy weight, high chip energy consumption, and poor product life. The future development direction of VR product form should be towards lightweight. Huawei's recently launched VR glasses are a major attempt to develop towards lightweight. They are VR glasses connected to mobile phones and weigh only 166 grams. Combined with the fact that they can be connected to the 5G network through mobile phones, they have great potential for future development. ▲ Development history of VR product forms ▲Related parameters of several representative products from major VR manufacturers The immersion of VR products is still in the partial immersion stage and is developing towards deep immersion. China Academy of Information and Communications Technology divides the development of virtual reality technology into five stages, namely no immersion, primary stage, partial immersion, deep immersion, and full immersion. The current VR product experience is in the partial immersion stage, which is mainly manifested in technical indicators such as 1.5K-2K monocular resolution, 100-120° field of view, 100M bit rate, 20 millisecond MTP latency, 4K/90 frame rate rendering processing capability, inside-out tracking positioning and immersive sound. ▲Grading of virtual reality immersive experience Latency is one of the sources of dizziness when using VR headsets . For a high-quality VR experience, the most important thing is the delay between the physical movement of the user's head and the real-time refresh image on the helmet reaching the user's eyes. The human sensory system can perceive relatively small delays in vision and hearing within a certain range, but when the absolute delay is controlled within about 20ms, these delays are almost imperceptible, and the smaller the delay, the less likely users will feel dizzy when using the product. Display delay is the main component of VR device delay, accounting for 69% . Taking Oculus Rift as an example, the total delay of Oculus Rift is 19.3ms, of which the screen display delay is 13.3ms, the calculation delay is 3ms, the transmission delay is 2ms, and the sensor delay is 1ms. The screen display delay accounts for 69%. Display delay is the main component of VR device delay, accounting for 69% . Taking Oculus Rift as an example, the total delay of Oculus Rift is 19.3ms, of which the screen display delay is 13.3ms, the calculation delay is 3ms, the transmission delay is 2ms, and the sensor delay is 1ms. The screen display delay accounts for 69%. Fast LCD and AMOLED technologies will maintain their dominance in virtual reality near-eye displays in recent years. Fast LCD can lower the entry barrier for VR products with similar experience and low price. The refresh rate of Fast LCD and AMOLED displays currently used by mainstream VR is mainly 90HZ, and the corresponding inter-frame delay is 11.1ms. The main difference between Fast LCD and AMOLED is the response time. LCD has a longer response time due to its inherent panel characteristics. According to information from Panelook.com, the Fast-LCD panel launched by domestic giant BOE has a maximum response time of about 5.5ms, and the display delay after adding the inter-frame delay reaches 16.6ms. The response time of the AMOLED screen is very short and can be ignored. Obviously, AMOLED has better performance and can effectively reduce the delay. The core products of major manufacturers such as Oculus and HTC all use AMOLED, but its price is relatively higher than Fast LCD. VR products using FastLCD panels are low in price, and the additional delay of 5.5ms affects the product experience to a certain extent. However, with the further improvement of the screen refresh rate in the future, the impact of the inherent response time of LCD will be reduced, and the price advantage of LCD panels will be more obvious. ▲Fast LCD and AMOLED features Low-resolution screens can cause a screen door effect. Due to the slow improvement of LCD display technology, this problem is difficult to be completely solved in the short term. The screen door effect refers to the phenomenon that the human eye can directly see the pixels of the display due to the insufficient resolution of VR glasses. VR glasses currently generally use customized resolution AMOLED or Fast LCD high refresh rate displays. Taking Oculus Quest as an example, its single-eye resolution is 1440*1600, which exceeds 2k level, but in fact this product still has a screen door effect. The indicator that determines the screen door effect is the pixels per degree (PPD). The maximum PPD that the human eye can recognize pixels is 60. If the PPD exceeds 60, the phenomenon can be completely eliminated. Calculating the PPD for Oculus Quest, 1440px/110°=13.1 pixels per degree, 1600px/110°=14.5°, it can be concluded that the PPD of Oculus Quest is about 14, and the screen door effect exists. At present, the screen resolution of display screens is increasing slowly, and high-resolution screens are expensive and not suitable as display screens for consumer products. Before fundamental technological innovation occurs, the screen door phenomenon can only be improved but not completely repaired. Field of view (FOV) is another core indicator of the display effect of head-mounted display devices, which affects the user's immersion level. The field of view angle in VR represents the range that the human eye can see. Human vision is composed of two fields of view: monocular FOV and binocular FOV. Monocular FOV refers to the field of view of a single eye. Normally, the horizontal angle of the monocular field of view is between 170°-175°. The binocular field of view is a combination of two monocular fields of view. When combined, the viewing angle is usually 200°-220°. The overlapping stereoscopic part of the two monocular fields of view is the binocular field of view, which is about 114°. We can see 3D objects within this perspective. Whether in the virtual world or the real world, humans obtain virtual scenes through stereoscopic binocular fields of view. A larger field of view can satisfy users to see more details and produce a deeper sense of immersion. The main ideas for increasing FOV are to shorten the distance between the human eye and the lens and to use a lens with a larger diameter . Shortening the distance between the lens and the eye will result in too high magnification and a serious screen effect. Using a lens with a larger diameter to increase the field of view will also cause problems. The middle of a large lens is thicker, which increases the weight of the lens. Although the weight problem can be solved by an ordinary Fresnel lens, a lens with a larger diameter will cause aberration problems such as light artifacts. ▲Human daily FOV ▲Thick lens, close distance to increase FOV principle Oculus uses hybrid Fresnel lenses to increase FOV, reduce lens weight, and reduce optical artifacts. Fresnel lenses will become a key technical means to solve the problem of increasing FOV. Ordinary Fresnel lenses are very suitable for reducing the weight of large lenses. They can provide large apertures and short focal lengths, bringing lenses comparable power to traditional lens designs, but with a lighter weight. However, for traditional Fresnel lenses, diffraction and other artifacts associated with the Fresnel structure limit their use in imaging applications. Oculus has developed a new hybrid Fresnel lens that does not increase the thickness and weight of the lens and reduces optical artifacts while increasing the size and FOV of the lens. This technology has been used in Oculus Rift products. The technical level of Fresnel lenses will continue to improve with R&D investment. Wearality is developing a Fresnel lens that is one-quarter the thickness of the original, thinner, and has a FOV of 150°. Variable focus technology will become the development direction of VR headsets in the next stage. Convergence-accommodation conflict is a major factor causing dizziness. It is caused by the mismatch between binocular convergence accommodation and visual refraction while binocular parallax produces 3D effect. The headset cannot accurately reflect the corresponding changes of focal length and convergence when viewing near and far objects in the real world. To address this problem, Oculus has developed a prototype of variable focus technology, Half Demo. The prototype uses a mechanical device to move the screen back and forth to change the object distance and the focal plane position of the optical system, so that the human eye's observation effect in VR is consistent with that in reality, solving the problem of convergence-accommodation conflict and reducing dizziness. This solution that can effectively improve user experience will be the development direction of the next stage. The immersive feeling of VR games requires the VR devices to have accurate perception and interaction capabilities. When users move in the VR environment, the processor needs to quickly perform complex calculations and transmit accurate dynamic motion characteristics back, thereby generating a strong sense of presence and reality. However, to realize this type of application, the device must first sense the user's position in the virtual space, including distance and angle. At the same time, the accurate grasp of hand movements is of great significance in the VR game experience. By capturing hand movements, the user's interactive experience in the game can be enhanced. VR devices have completed the upgrade from 3DOF to 6DOF for body motion perception interaction. The so-called 6DOF means that objects can be displaced and rotated in the X/Y/Z axis. The 3-axis displacement plus the 3-axis rotation together is 6-degree-of-freedom movement. 6DOF basically represents all the movement directions of objects in three-dimensional space. In VR products, 3DOF corresponds to 6DOF, which means that the product can only rotate in 3 axes, but not in 3 axes. In simple terms, 6DOF VR headsets represent that they can not only sense the up, down, left, and right rotation of the user's head, and reflect the changes in the picture on the display, but also sense the movement of the human body in space, which is of great significance for the application of VR games. At present, mainstream VR headsets have achieved 6DOF in terms of user body motion recognition. Inside-Out will become the mainstream 6DOF technology for head-mounted display tracking and positioning in the future due to its high-quality technical features such as no preparation and anti-occlusion. The current positioning and tracking solutions for VR head-mounted displays are roughly divided into two types: outside-in and inside-out. Outside-in relies on external cameras and transmitters to capture and track the user's movements, so it has strong precision and accuracy. However, its reliance on external sensors means that when the tracking object is far away from the sensor's ranging or is blocked by an object, the user's accurate position cannot be obtained; the user cannot leave the effective monitoring area of the sensor at will, which limits his free range of movement. Inside-out does not require any external sensors, so it can be used in environments without hardware setup and markers. It is not affected by occlusion issues and is not limited by the sensor's monitoring range, so it has more diverse mobility and a higher degree of freedom. Also because it does not rely on external devices for calculations, inside-out has higher requirements for head-mounted devices, and the current accuracy level is lower than outside-in. Compared with outside-in, inside-out has the fundamental advantage of being unrestricted, so it will become the focus of future development. The disadvantages that exist in the short term will be improved with technological innovation. ▲ Comparison of outside-in and inside-out features Virtual movement technology can solve the problem of adapting mobile interaction and visual content in VR games, such as walking in large spaces and walking repositioning. At present, whether it is a VR product that relies on inside-out or outside-in technology, users actually need to cooperate with real-world movement when walking in some games. They can only walk in a limited space, which requires a large space and has low safety. VR games such as "The Elder Scrolls 5: Skyrim" completely abandon real human movement and use teleportation instead of walking by clicking on the handle, which greatly affects the immersive experience of the game. Various technical routes in the field of virtual movement, such as walking redirection technology in full gait, can achieve the effect of limited space and unlimited walking, but its technology is relatively complex. Virtual movement technology will be an important technical solution for VR to solve the problem of simulating real movement in games, and will play an important role in further improving user immersion in the future. ▲Virtual mobile technology route Eye tracking technology gives VR more possibilities and will become an important direction for future development . At present, the interaction between VR users and VR is limited to the three types of head, body and hands mentioned above. Eye tracking technology will become the fourth largest interaction method besides these three. It has become the focus of the industry, and major companies have increased their R&D investment in this direction. Eye tracking solution providers such as Tobii have launched a number of eye tracking devices. Qualcomm's VRDK developer headset has also added Tobii's solution. Qixin Yiwei has shipped aGlass eye tracking development kit for Vive headsets. Oculus demonstrated an eye tracking VR prototype in 2018. Apple has also participated in it, acquiring SMI, a well-known company in the field of eye tracking, and has planned to implement patents related to eye tracking technology. After the pursuit of performance, the current development direction of VR devices tends to be small and lightweight, and VR all-in-one machines are currently the choice for small and lightweight . For users, PC-side VR helmets require cables and external devices because the rendering of the picture needs to be completed on the PC, and the activity area is limited, which greatly affects the user experience. VR all-in-one machines are currently a small and lightweight choice. They get rid of the limitations of being attached to other computing terminals. When running locally, they rely on built-in processors for rendering. At the same time, they can transmit data wirelessly. After accessing the 5G network in the 5G era, the application scenarios are more extensive. According to IDC data, the domestic VR all-in-one machine market showed a rapid growth trend in 2018, with an increase of 123.6%. The VR market is composed of 44.1% PCVR headsets, 26.6% VR all-in-one machines and 29.3% screenless devices. It is expected that the market share of VR all-in-one machines will increase by 11.6% in 2019. In 2023, VR all-in-one machines will account for 59% of the market shipments. According to data from BaDoinkVR, the number of consumers of all-in-one VR devices gradually increased in 2019, and this type of device accounted for 60%. VR games require much more processing chip rendering capabilities than desktop games. First of all, compared with the load requirements of mainstream game screen rendering and film production rendering, the current immersive experience-level rendering load has increased by 7 times and 2 times respectively, which is equivalent to the pixel throughput per second of 4K ultra-high-definition TVs. Secondly, in order to obtain timely feedback, the user interaction delay of traditional video games must be less than 150ms, while the virtual reality delay requirement must be less than 20ms. In order to meet the delay requirements, the VR game screen frame rate must reach 90FPS, while the traditional desktop game screen reaches 60FPS and the human eye will not feel any delay on the screen. The 90FPS frame rate requirement means that the chip rendering capacity per second in VR games needs to be increased by at least 50% compared to traditional games. The high picture clarity and high frame rate requirements make VR games require higher chip processing capabilities. ▲2018-2023e VR product shipment share by type ▲The number of pixels rendered per second in virtual reality, games, and movies The flagship all-in-one products released or launched by VR in 2019 mainly use Qualcomm Snapdragon 835 chip solutions, and their technical level lags behind the mobile phone chips of the same period. According to the data of VR Gyro, we counted the price range and chip solutions of VR all-in-one products released in 2019. It can be found that the chip solution used by flagship VR products (priced at around 2,000 yuan) is mainly Qualcomm Snapdragon 835, accounting for 41.7% of the total VR all-in-one product releases. The all-in-one products released by the leading companies HTC and Oculus all use this chip. Domestic low-end products (around 1,000 yuan) mainly use the domestic chip solution of Allwinner VR9. Some flagship products use Samsung Exynos chips. On May 21, 2019, the Oculus Quest VR all-in-one device was released, which uses Qualcomm Snapdragon 835 chip. The Xiaomi 9 mobile phone launched at the same time uses Qualcomm Snapdragon 855 solution, and Oculus Quest lags behind by two generations. ▲The proportion of various chip solutions for VR all-in-one machines in 2019 The performance of Qualcomm Snapdragon 835 chip is still far behind that of desktop-level CPU and GPU. Taking Oculus Rift as an example, the minimum device requirements provided by Oculus are NVIDIA GTX970 GPU and Intel I5-4590 CPU. Qualcomm Snapdragon 835 is a SOC that integrates CPU and GPU. By comparing these two aspects with the GPU graphics single-precision floating-point performance data of the minimum hardware requirements of Oculus Rift and the CPUGeekbBench4 running points, we can find that Qualcomm Snapdragon 835 is far weaker than GTX970 and I5-4590 in terms of performance, which results in the picture clarity and smoothness of the game "Robo Recall" on Oculus Quest being weaker than Oculus Rift. ▲Performance comparison between Qualcomm Snapdragon 835, GTX970 and I5-4590 The inability to use desktop-level hardware and the weak performance of mobile-level chips mean that the gaming experience of all-in-one VR devices is currently poor. All-in-one VR devices need to be small and portable, and have long battery life to meet daily use. Therefore, they cannot use desktop-level CPUs and GPUs that consume a lot of energy, generate a lot of heat, and are large in size. Relying entirely on mobile chips for local rendering makes it difficult to support the extremely high performance requirements of VR games. VR game interaction and hardware limitations are expected to be liberated Compared with 4G, 5G has important features such as large bandwidth and low latency that meet the needs of VR development. Compared with traditional communication technologies, 5G is not a traditional single communication technology. It is a comprehensive new technology that organically integrates multiple communication technologies on the premise of traditional communication technologies. It has many advantages such as fast speed, high traffic density, short latency, high energy efficiency, support for massive connections, and enhanced mobile bandwidth. And because of the huge difference between 5G and 4G, as well as its significant advantages, the development of 5G technology will drive the development of the VR industry. ▲Comparison of key technical indicators between 5G and 4G High-quality VR video content has extremely high bandwidth requirements. The field of view of a VR headset is generally around 110°, and a panoramic video is a 360° sphere, which is more than three times the field of view of a VR headset. The screen resolution of a VR headset is generally 2K or 4K, so the optimal resolution of a panoramic video is also more than three times that, that is, 8K or 12K. Only when this resolution is achieved can you have an excellent viewing experience, but this resolution requires extremely high broadband rates. In addition, the refresh rate of traditional videos is mostly 25Hz/30Hz/60Hz. In order to reduce latency, the refresh rate of VR devices needs to be increased to 90Hz, and the corresponding bit rate is greatly increased. According to Lighterra's data, the commonly used H.264 encoding format, 1k resolution, 25FPS, the overall video bit rate is about 2.64Mbps, corresponding to a 1k video bit rate of about 10Mbps at 90Hz. Then we can calculate the H.264 encoding format. At 90Hz, the bit rate of 8k needs to reach 152Mbps. ▲Bitrate of HD video at different resolutions 5G's large bandwidth allows users to smoothly watch high-resolution panoramic videos, VR live broadcasts and other VR content in various environments. According to data from the China Broadband Alliance, in the third quarter of 2019, China's average fixed broadband average available download rate was 37.69Mbit/s. Many users are unable to smoothly watch high-quality VR video content online. With the current average broadband rate, they can only watch ordinary videos with a resolution of 2k. According to Visibit data, as the quality of VR content gradually improves, the development of broadband network speed will gradually lag behind. On the 4G network, the average network speed is only 24.02 Mbit/s, and VR devices cannot smoothly browse high-quality panoramic videos. This also limits the application scenarios of VR all-in-one devices when they are carried out. 5G can reach 1024Mbp/s in terms of user experience, which can fully meet the video needs and further meet the bandwidth requirements of future VR high-quality videos. The further implementation of 5G technology will promote the diversified coverage of VR content from traditional videos to panoramic videos, online games, live sports events, etc. 5G's low latency makes interactive VR online gaming smoother and can effectively reduce latency in 4G environments . The current flagship VR device latency is generally within 20ms, but is generally very close to this latency level that can easily cause dizziness. For example, the Oculus Rift latency mentioned above is 19.3ms, while Sony's PSVR latency is 18ms. The current 4G theoretical air interface latency is 10ms, and the average user latency is 40ms. If 4G is used for VR online gaming, the overall latency will exceed 60ms, which makes players very likely to feel dizzy. At the 2019 MWC, Nokia's booth had a table equipped with cameras. Players played table tennis in a virtual space. The ball and table were virtual. The cameras could track the players' movements and determine whether they caught the ball, so that players wearing VR headsets could play with their opponents in the virtual space. Due to the delay in the 4G environment, the players failed to catch the ball many times. After the network switched to the 5G network in the 3.4 to 3.8GHz frequency band, the players were able to return the ball smoothly. 5G can free VR devices from the constraints of wired transmission cables . Current PCVR and console-based VR both require long cables to connect to the host. When the sensor detects hand or body movement, it transmits the information to the processor of the PC or host via cables for rendering, and the host then transmits the rendering results to the host via cables. Due to the low latency and large bandwidth characteristics of 5G, its performance is not inferior to that of cables. After adopting 5G technology, PCVR or console VR can get rid of the constraints of cables, improving the user experience and the user's spatial mobility range. 5G+ cloud gaming technology makes it possible to "pull a big cart with a small horse", reducing hardware costs while improving user experience . The chip part has been analyzed. The rendering volume of VR games is much larger than that of traditional games and traditional videos. VR all-in-one machines have two considerations: battery life and heat dissipation. Therefore, they can only use mobile chips with weak chip performance. This leads to the problem of "a small horse pulling a big cart, wanting the horse to eat less and run faster" in VR all-in-one machine rendering. Although the rendering quality of VR all-in-one machines can be improved by stacking computing power, this will increase the hardware cost of VR devices and hinder the development of VR technology. The application of 5G+ cloud gaming technology will make it possible for low-performance processors to render high-quality images. The principle is that 5G can put 3D graphics operations in the cloud, which is the technical route of cloud gaming. In this way, the powerful PC-level CPU and GPU in the cloud can be used to perform 3D graphics operations, and then transmitted back to the local VR/AR device in the form of a video stream, so that VR/AR devices with mobile chips can also display the top-level image quality. At the same time, since the body itself does not participate in rendering, a chip with weaker performance can be selected to reduce costs while improving battery life. It can also reduce unnecessary other heat dissipation modules, reduce the overall quality of the body, and make the VR all-in-one machine more portable. VR cloud gaming can only flourish in the 5G era . VR cloud gaming actually puts rendering in the cloud, and the biggest challenge is network latency. If the technical solution of cloud gaming is adopted, then the network latency becomes part of the motion-to-image latency, and the network latency will increase the overall motion-to-image latency. At present, based on the situation of home broadband, the latency of cloud gaming is about 150 milliseconds. For example, Google's cloud gaming service Stadia, after preliminary testing by Digital Foundry, currently has a network latency of 166 milliseconds. If such a technical solution is used in VR, it will definitely make users feel dizzy due to the latency. The low latency feature of 5G can come into play at this time. Its 1ms delay enables the 5G VR cloud gaming solution to meet the requirements of qualified user experience. Through the delay split, it can be seen that the local rendering and transmission time of the VR all-in-one machine are 3ms and 2ms respectively. Using the 5G+meta-game technical solution, the overall up and down transmission time is 2ms, and cloud computing uses high-performance CPU and GPU rendering time should be shorter than the local rendering time of the mobile chip. Therefore, under 5G conditions, with the same picture quality, the overall transmission and rendering delay of the cloud computing solution will be lower than the current VR all-in-one machine. With the rapid development of 5G construction, VR cloud games will stand out with lower hardware costs and better picture quality. The three major operators invested 180.3 billion yuan in 5G in 2020, and jointly worked on 5G+VR construction. According to China Telecom's financial report, the company's capital expenditure in 2020 was 85 billion yuan, of which 5G expenditure accounted for 53.3%, or 45.3 billion yuan. China Unicom stated that its 5G-related investment was 35 billion yuan, released the "1+2+N" 5G XR strategy, and announced the establishment of the 5G XR Ecological Alliance. At the same time, it held a series of 5G co-frequency resonance activities and announced cooperation with 3Glasses, Nreal, Nade Optics, etc. in hardware, content, services and other aspects. China Mobile stated that its 5G-related investment was 100 billion yuan, and released its 2020 VR-related strategy. In 2020, the VR business will focus on China Mobile's 5G users and gigabit home broadband users, and plans to develop China Mobile's VR business user scale of 5 million, of which VR headset terminal users will be no less than 1 million. At the same time, an internal document from China Mobile also showed that it aims to develop 5 million VR users and no less than 1 million VR headsets by 2020. VR Market Development Status 1. VR industry evolution process According to the definition of virtual (augmented) reality in the China Academy of Information and Communications Technology's "White Paper on the Application Status of Virtual Reality (VR) in China 2018", VR technology is a new generation of information and communication technologies such as near-eye display, sensory interaction, rendering processing, network transmission and content production, based on an immersive experience, from the perspective of promoting the expansion and upgrading of information consumption and the integration and innovation of industry applications, focusing on the new generation of information and communication technologies, products and services covering core components, pan-intelligent terminals, network transmission equipment, and cloud equipment. In a broad sense, virtual reality (VR) includes augmented reality (AR). In 1956, the first VR device Sensorama was launched, and in 1968, Sutherland designed the first head-mounted display. In 1989, Jaron Lanier formally proposed the concept of Virtual Reality, and the following year, Thomas Caudle proposed the concept of Augmented Reality. After that, from 1995 to 2015, the oldest batch of VR devices began to be launched, and Nintendo, Google, Oculus, Sony, and HTC successively released their own VR hardware devices. 2016 was the first year of the development of the VR industry. MR representative products HoloLens and Oculus Rift were launched, and large domestic and foreign Internet technology companies such as Facebook, Samsung, Sony, Google, Microsoft, HTC, Apple, Qualcomm, Huawei, Tencent, Xiaomi, etc. have all made layouts. In 2017, Apple released the iPhone X based on AR technology. On March 24, 2020, the first 3A game blockbuster "Half-Life: Alyx" developed entirely based on VR experience was officially released. The blockbuster game is expected to drive the take-off of VR hardware devices. ▲The evolution of virtual reality As early as the beginning of this century, developed countries such as the United States, Europe, Japan and South Korea began to introduce various policies to support and encourage the development of the virtual reality industry. As early as 2000, the U.S. Department of Energy formulated the "Long-term Nuclear Technology R&D Plan", which clearly proposed to focus on the development, application and verification of virtual reality technology. The main application directions in the early days were high-end manufacturing such as defense, information technology and aviation. For example, the "Horizon 2020 Plan" proposed by the European Union in 2014 listed 37 funding projects in the field of information and communication technology, of which 4 projects involved intelligent human-computer interaction, and the funding amount for projects involving virtual reality reached tens of millions of euros. In 2017, the United States began to explore the application of virtual reality in the fields of mental illness and primary and secondary education. In 2016, the South Korean government planned to invest 405 billion won (about 240 million yuan) in a special fund in the next five years to cultivate the virtual reality industry. It plans to support potential companies in the development of virtual reality services and products in the fields of game experience, theme parks, cinema stereo projection, education circulation, entertainment, etc., operate a 40 billion won virtual reality special fund, build a virtual reality industry zone around Sangam-dong, Mapo District, Seoul, and continue to hold activities such as the "Korea Virtual Reality Festival". my country's virtual reality industry started late. After entering the first year of the VR industry in 2016, the government began to frequently issue various policies to vigorously support and encourage the development of my country's virtual reality industry. The policy framework system of linkage between ministries and provinces has gradually taken shape, and the virtual reality industry has entered a period of policy dividend release. At the central level, on December 25, 2018, the Ministry of Industry and Information Technology issued the "Guiding Opinions on Accelerating the Development of the Virtual Reality Industry", pointing out that it is necessary to seize the new opportunities of virtual reality from initial cultivation to rapid development, increase investment in the research and development of key technologies and high-end products of virtual reality, innovate content and service models, and establish a sound virtual reality application ecosystem. At the local government level, various places have successively formulated local virtual reality industry policies or action plans according to their own characteristics, and have successively established 15 virtual reality industry bases represented by Beijing, Nanchang and Chengdu. ▲Virtual reality industry policies in various cities in my country At present, the VR industry is mainly active in terms of capital and development speed in developed countries such as the United States and Europe, and China is following quickly. The United States is the birthplace of VR industry technology, and the VR industry has a long history of development. With abundant talents, a superior investment environment and advanced technology, it leads the development of the global VR industry. The hardware and software development capabilities of the United Kingdom are at the forefront of the world, especially chip processors, core computing power and components. Germany and France are relatively active in the application technology innovation of VR in the manufacturing field. France can be said to be the highland of the VR industry in Europe, mainly deploying VR headsets and their mobile terminals, and is committed to the application of VR in high-end manufacturing fields such as aviation. Compared with developed countries in the United States and Europe, China's VR industry development is relatively backward, but with policy support and the background of the 5G era, VR industrialization and application will take the lead, and basic theories and core technologies are expected to follow up quickly. After a quiet period from 2017 to 2018, the capital market resumed its investment and financing activities for the VR industry in 2019. In 2019, the global VR/AR financing amount was 33.6 billion yuan, a year-on-year increase of 58.5%, and the number of financing transactions was 203, a year-on-year increase of 34.4%. In 2019, as in 2018, financing activities were mostly concentrated in the second half of the year. In the first half of 2019, the VR/AR financing amount reached 12.9 billion yuan, a year-on-year increase of 55.2%, and the financing amount in the second half of 2019 was as high as 20.6 billion yuan, a year-on-year increase of 59.8%. The outstanding financing performance in the second half of 2019 mainly relied on four large investments, namely Unity's completion of financing of 525 million US dollars in July, Yueliang Fengtai's 250 million yuan C round of financing in August, Facebook's acquisition of CTRL-Labs for 1 billion US dollars in September, PTC's acquisition of Onshape for 470 million US dollars in October, and NetDragon Websoft's strategic investment of 150 million US dollars in November. Overseas capital remains the main force in VR/AR. ▲Global VR/AR financing in 2018-2019 ▲Comparison of global financing amounts in the first half/second half of 2018-2019 (100 million yuan) Domestically, the total amount of VR/AR financing in 2019 reached 4.9 billion yuan, nearly doubling from 2018, and the number of financings was 54, only 4 more than in 2018. While the number of investments remained basically the same, the amount of investment nearly doubled, indicating that VR/AR investment activities in 2019 were more concentrated and in-depth. The amount of financing in the second half of 2019 was basically the same as in the first half of the year, at 2.5 billion yuan, but it was a significant increase compared to the 430 million yuan in the second half of 2018. 2. Industry Chain Analysis The virtual reality (VR) industry chain mainly includes four links: hardware, software, content production and distribution, and applications and services. 1) Hardware. The hardware link includes the whole and parts, which can be divided into core devices, terminals and supporting peripherals according to their functions. Among them, core devices are subdivided into chips, sensors, display screens, optical devices and communication modules. The leading chip suppliers are NVIDIA, Qualcomm, Intel, AMD and Rockchip. Currently, most of the chips used in flagship VR products (priced at around RMB 2,000) are Qualcomm's Snapdragon 835. All-in-one products released by leading companies HTC and Oculus all use this chip. Domestic low-end products (priced at around RMB 1,000) mainly use the domestic chip solution of Allwinner VR9, and some flagship products use Samsung Exynos chips; Sensors include image, sound, and motion capture sensors. Well-known suppliers of sensors include TE and Sony (new generation sensor device PS Move). Display screens include LCD, OLED, AMOLED, microdisplay and other display screens and their driver modules. Representative companies include: BOE, Samsung, LG, CSOT, etc.; Optical devices include optical lenses, diffractive optical elements, imaging modules, 3D modeling modules, etc. Representative companies include: Apple, Texas Instruments, 3M, Changjiang Liwei, Crystal Optech, etc. Communication modules include RF chips, WIFI chips, Bluetooth chips, NFC chips, etc. Representative companies include: HTC and ASUS Group, etc. Terminal devices include PC, mobile and all-in-one devices. Representative companies that provide PC devices include Oculus, Sony, HTC and Pimax; representative companies that provide mobile devices include Google, Samsung, Baofeng Technology and Xiaomi; representative companies that provide all-in-one devices include Pico, iQiyi, HTC and Oculus. In addition, the supporting peripherals mainly include handles, cameras, and somatosensory equipment. 2) Software. Virtual reality software is mainly used to support software and software development toolkits, which include UI, OS and middleware. It represents companies such as Unity3D, Microsoft, Google, Oculus, Unreal, etc.; the software development toolkit includes SDK and 3D engine, which represents companies such as HTC, Google, iQiyi, Huawei, etc. 3) Content production and distribution. In addition to hardware and software, content production and distribution occupies a relatively important position in the VR industry. High-quality content can often promote the progress of hardware equipment and technology. VR technology is widely used mainly in games, live videos and social networking. Representative enterprises mainly include large game developers such as EA and Innerspace, etc., and video live content output providers Disney, HBO, Lanting Digital, etc. The main applications and distribution platforms of VR applications include Steam, Viveport, Oculus Rift, Dapeng, BBC, iQiyi, Youku, etc. Currently, the number of PCVR content on Steam VR has exceeded 4,000. 4) Applications and services. With the clarity of virtual reality + industry demands, industry applications have become popular before the consumer side. At present, more promising applications and services in the VR field are diversified, including education, medical care, services, manufacturing, tourism and commerce. ▲Illustration of the virtual reality industry chain VR market size : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : Geographically, China will achieve its largest AR/VR spending ($5.8 billion) in 2020, followed by the United States ($5.1 billion), Western Europe ($3.3 billion) and Japan ($1.8 billion). ▲Forecast of China's virtual reality market size ▲Distribution of market share in VR/AR industry in 2020 : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : According to Cydie's estimates, the potential of VR/AR headset equipment shipments will be gradually released from 2019 to 2023. It is estimated that by 2023, the shipments of VR headsets will reach 36.7 million units, the shipments of AR headsets will reach 31.9 million units, and the total shipments will reach 68.6 million units. ▲Global VR/AR headset equipment shipments from 2017 to 2019 Facebook's Oculus performed well in 2019, and domestic VR headset brands Pico and 3Glasses also achieved double growth. In the past two years, VR has made great progress on the consumer side, and at the same time, the global VR market structure has undergone major changes. According to the global VR brand sales data released by IDC from 2018 to 2019Q3, Facebook's market share has increased from 18.8% in 2018Q3 to 39.2% in 2019Q3, becoming the leader in global VR headset brands. Although Facebook's market share was only 10.5% in Q1 2019, mainly because Oculus launched the new Rift S in the quarter and discontinued its old Rift. At the same time, we found that domestic brands Pico and 3Glasses also doubled during the period. Pico's market share increased from 2.6% in Q3 2018 to 6.4% in Q3 2019, surpassing HTC. 3Glasses' market share increased from 1.8% in Q3 2018 to 4.7% in Q3 2019, which was the same as HTC. ▲Global VR brand headset shipment market share The pursuit of strong interaction and immersion makes games the most common use of VR: According to the survey data of the US market, 73% of Americans use VR to play games, and the proportion of VR that has used VR for audio and video entertainment, virtual travel, social and remote learning is 65%, 60%, 59%, and 58%, respectively. About 13% of VR users play VR games 5 times or longer per week. This is mainly because VR technology has a revolutionary breakthrough in interactivity and immersion than previous hardware devices, and the key point of the breakthrough of game user experience happens to be the strengthening of interaction and further in-depth immersion, and it matches the core technical points of VR. According to ARM data, home scenarios are the most extensive application scenarios for VR, indicating that VR devices have been deeply involved in daily applications of American families. VR is highly popular, and the market size and development potential will be brought to the future. There are many ways for users to choose from when playing VR games. First of all, consumers can choose from a variety of VR wearable devices. Currently, mainstream VR wearable devices include Oculus Go and Rift, HTC's Vive and Vive Pro, Google's Daydream, Samsung's GearVR and Sony's PSVR. Depending on the choice, the price of the headset floats between $99 and $799. Generally speaking, expensive VR headsets need to match PC hardware with higher performance, and the overall hardware cost can easily exceed $1,000. After hardware selection, consumers need to look for VR content platforms and games to play. Some headset devices are bound to specific platforms, such as Oculus, Google's Daydream and PSVR, which are mainly exclusive VR games. Some other headsets are compatible with multiple stores. Cloud VR in the 5G era is expected to promote the large-scale application of the VR industry : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : ▲Coud VR innovation progress 1. Two development models: from equipment to content or from content to equipment VR hardware manufacturers and game manufacturers plan VR games from products to content and content to products, respectively, seeking a complete closed loop of platform, hardware and content. Hardware manufacturers such as Oculus have established their own VR game platform based on their own VR equipment, hoping to gain the right to speak for content, and increase the number of exclusive games on the platform through investment, strengthen the self-developed VR games by acquiring game developers, and ultimately boost hardware sales through high-quality exclusive games to boost hardware sales. And Valve, a company that has the world's largest gaming platform Steam, which integrates game distribution channels and game self-developed, relies on the platform's advantages to start from the content side, promotes the sales of the product side Valve index with high-quality games, and further strengthens the leading ability of game distribution on the Steam platform. ▲VR headset and VR content platform The content platforms of hardware manufacturers are moving towards hardware exclusive and non-hardware exclusive. Facebook has established independent Quest stores and Rift stores based on its all-in-one VR equipment and PCVR equipment. The content of the two platforms is exclusively owned by Oculus Quest and Oculus Rift series products. Sony's playstation only supports its own PSVR. The VIVEPORT store established by HTC is an open platform. In addition to the HTC series products using this platform, many non-HTC-produced VR devices are also equipped with this platform when they leave the factory. Steam, a subsidiary of game manufacturer Valve, is the largest VR content distribution platform, and the content is also non-exclusive. ▲Hardware vendor platform and hardware devices supported by Steam 2. Steam, which has platform advantages, is dominant and has the right to speak. Valve is a well-known gaming company in the industry, founded in 1996. Its representative works include the famous Half Life, Counter-Strike (CS), DOTA2, etc. The success of CS has enabled Valve to develop the Steam platform, allowing countless game publishers to publish and update games on this platform. Steam is the world's largest PC game distribution and running platform and is also the most mainstream community for game players around the world. In 2015, Steam and HTC jointly launched the HTC Vive, namely VR head-mounted display and controller system, opening a new era of VR games. As a platform, Steam also supports VR devices produced by other hardware manufacturers, such as Oculus and Samsung's Mr.+, etc. In addition, Valve has also launched its own VR device Valve Index, and plans to create SteamVR 2.0 on the Steam platform. The development drivers of major non-mainstream hardware manufacturers make their VR devices support SteamVR. Although the support devices officially promoted by SteamVR are only PCVR devices from four major manufacturers, Valve, HTC, Oculus, and Windows, in fact, major non-mainstream VR device manufacturers such as Hypereal have achieved the support of SteamVR products through development drivers, and use SteamVR content to expand the content of the device. SteamVR covers both mainstream and non-mainstream VR devices, and its VR users exceed those of Oculus and HTC. In terms of game platform layout, the number of users and content guarantees SteamVR's dominant position on the PC side. As of March 27, 2020, according to the official website of the four major platforms, the number of VR games and software in Steam reached 4,164, which far exceeded the PCVR content in VIVEPORT and Oculus RIft stores, and the smallest number is Sony PSVR. The number of users brought by Steam's own multi-hardware coverage has stimulated the development momentum of VR developers, making the number of VR content significantly exceeds other competitor platforms. The growth of VR content has further driven hardware manufacturers to adapt to SteamVR, and the number of SteamVR users has increased. The entire process has formed a virtuous cycle, ensuring the dominant position of SteamVR on the PC side. : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : ▲PCVR content platform share ratio : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : The acquisition improves the self-developed game capabilities, and Oculus maintains the stability of content-side production. Oculus Studio's investment model produced certain exclusive VR products in the early stage, but the quality of game products and the stability of product output is difficult to grasp. Oculus acquired Beat Games at the end of 19. The Beat Saber developed by the game developer estimated that the global total sales reached US$60 million. In February 2020, Oculus further acquired VR game manufacturer Sanzaru Games, which released "Asgard's Wrath" in 2019 achieved excellent results. After being acquired, these manufacturers merged into Oculus Studio, improving Oculus's self-developed capabilities. 3. Popular games are expected to promote the popularization of VR headset devices Currently, the two most popular games on the Steam platform are Beat Saber (Rhythm Space) and Half-Life: Alyx (Half-Life: Alex). Beat Saber (Rhythm Space) is a music-beating game. The game has exquisite game scenes, high-definition picture quality, and also combines innovative VR gameplay. In the game, players can use their fingertips to simulate lightsabers to cut the speeding blocks. Combined with the exquisite scene modeling and mutual changes in rhythm modes in the game, and with scene changes such as dodging walls and bombs, they will bring players a direct immersive environment game experience. Each move of the player can get corresponding feedback, and the fixed-point game avoids players' motion sickness. In China, the rhythm space is represented by NetEase. NetEase has bet on a lot of attention and resources for VR games. Not only will it be determined that localized content will be deeply customized for "Rhythm Space" and add Chinese songs to the game, it will also initiate full-game linkage, cross-border connection between the mobile and VR ends, building momentum for the Chinese server version. : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : Throw a bottle out of the window to draw the enemy's attention. Pull the headhunter crab on his face and throw it at the United Army soldiers. "Half-Life: Alyx" drives Valve Index sales, high-quality game IP storage is the stable foundation for Valve content creation, and popular VR games are expected to promote the popularization of VR devices. On March 24, 2020, "Half-Life: Alyx" was officially launched. The 10-point score given by IGN reflects Valve's strength in game research and development as a veteran game manufacturer. The game features of its own require Knuckles Controller to obtain better support, driving hardware sales. : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : Author: Wang Jianhui Cinda Securities |
