[Haofang Venture Capital Perspective]
In recent years, with the advancement of technology, the upgrade of consumer demand and the change of social media, the field of technology consumption can be said to be in full bloom, and dazzling unicorn companies continue to emerge. New tracks, new categories, and new brand opportunities emerge one after another, making technology Consumption trends have gradually become a topic that investors have to focus on.
Since 2015, Haofang Ventures has been deeply engaged in early investment in the field of technology consumption. Over the years, it has accumulated a set of unique investment logic and market perspectives. Next, I hope to exchange and discuss trends and opportunities in the field of technology consumption in the form of a series of articles. .
“Metaverse Hardware” Insights into Technology Consumption Trends
Since 2021, concepts related to the Metaverse have been popular in the capital market, and many leading companies have begun to deploy the Metaverse. If you want to swim in the Metaverse, immersive hardware devices are indispensable. At present, global capital is concentrated in the two industrial chain links of hardware and application. The concept of Metaverse in China is not only limited to replicating and displaying in the virtual world, but can also shape digital scenes of immersive experience offline. Therefore, hardware is the link between virtual and reality. The connection between them is particularly important . As the hardware side completes the technical foreshadowing and provides more mature business realization for content providers, people can have a better experience in the Metaverse. Since 2015, Haofang Ventures has been actively investing in the early investment of global intelligent hardware. In this issue, we mainly introduce the hardware industry of Metaverse.
1 Metaverse hardware industry background
1.1 Metaverse industry chain: hardware is the foundation
At present, the layout of the Metaverse industry chain is mainly divided into five sections: hardware (AR/VR, wearable devices), software (operating system, engine), scene content (such as games, distribution platform), application (industrial and consumer level), And back-end infrastructure (5G, cloudification). Hardware is the foundation of the Metaverse industry chain. The generally understood consumer-grade hardware in the Metaverse is mainly augmented reality glasses (AR), virtual reality headsets (VR), mixed augmented reality (MR), and brain-computer interfaces. The development of consumer-grade hardware benefits from energy efficiency ratios Better chips, better-performing sensors, longer battery life, and the development of richer screens and sharper cameras, all of which enhance the user’s immersive experience.
Source: Deloitte Research and Analysis
1.2 Market size and growth potential: 100 billion market size, with a growth rate of over 40%
The Metaverse is a constantly colliding and expanding digital universe of countless virtual worlds. Virtual reality equipment is currently the most representative hardware for presenting the Metaverse to consumers. During the five-year period from 2020 to 2024, the average annual growth rate of the global virtual reality industry scale is expected to be about 54%, and the market share in 2024 is expected to reach about 50%. 240 billion yuan. According to IDC statistics, from the perspective of VR and AR shipments, the global virtual reality terminal shipments in 2020 will be about 6.3 million units, and VR and AR terminal shipments will account for 90% and 10% respectively. Annual terminal shipments exceed VR, accounting for 55%.
With the entry of leading Internet companies in 2021, it is expected that China’s AR/VR market has great potential for development in the future . According to the latest data from IDC, the scale of IT-related spending in China’s AR/VR market in 2021 will be approximately US$2.13 billion, which will increase to US$13.08 billion in 2026, making it the second largest single country market in the world. Among them, VR technology is still the main area of attention of users in the five-year forecast period of 2022-2026, which will attract about 70% of AR/VR market-related investments. The hardware market will grow steadily at a compound growth rate of 47.8% during the five-year forecast period, and will continue to account for more than half of China’s AR/VR market spending share.
1.3 Industrial layout of Metaverse hardware: major manufacturers such as Apple, Meta, and Huawei are actively investing in hardware layout
Apple has laid out a complete industrial chain ecology very early, actively deployed chips, displays, optics, acoustics, sensors and other fields, and is still improving. According to Bloomberg, Apple could launch a headset that combines VR and AR in the second half of the year after the company showed a version of the headset to its board of directors in May 2022. The following is the ecology of Apple’s layout.
Source: Deloitte Research and Analysis
Meta (formerly Facebook) feeds back the content ecosystem with hardware. In May this year, it announced that it would open a physical store, Meta Store, to sell hardware products for the Metaverse. Since the completion of the acquisition of Oculus in 2014, Meta has occupied an absolute market share in AR/VR consumer hardware, with an annual growth of 276.2%, mainly due to the continued increase in Quest2 sales throughout 2021, Australia, Japan, South Korea Demand in mature markets such as this increases.
Meta M&A AR/VR Hardware List
Source: Thomson Reuters, CICC Research
Domestic companies Huawei, Goertek, and iQiyi have deployed their own application ecosystems. With the gradual maturity of the 5G ecosystem, Huawei has been actively deploying related fields since 2016. In August 2021, ByteDance acquired the VR hardware company Pico at a high price of 9 billion. Pico’s shipments in 2021 will remain second in the Asia-Pacific region, with a market share of 20% and an annual growth of 50.4%. The new VR all-in-one machine Pico Neo3 is in various hardware The parameters have reached a level comparable to that of Oculus Quest2.
Huawei Metaverse Hardware Layout
Source: Huawei, VR gyro, 100 million euros
2 Metaverse hardware core device introduction
There are many opportunities for investment layout and strategic positioning in each segment of Metaverse hardware. Dismantling the cost structure of the most representative VR/AR head-mounted display shows that the key core components mainly include optics, screen, processor, storage, battery, etc. Take Oculus Quest 2 as an example, Quest 2 uses Qualcomm Snapdragon XR2 chipset, Sharp LCD display, two Fresnel lenses, domestic lithium battery pack and 4 external cameras to achieve 6DOF head interaction.
According to the statistics of Essence Securities Research Center, the key core components of VR/AR, optics and screens, account for 34% of the hardware cost. Due to the high degree of overlap with smartphones, the hardware industry chain is relatively mature. Chips are the core components, with processors and storage accounting for 27% and 16% of the cost, respectively. Qualcomm has a larger share in this field. However, as a battleground for giants, Apple, Google, etc. are all developing related chips, and domestic manufacturers led by Huawei are also investing in chip research and development.
Source: Essence Securities Research Center
2.1 Optical and Display System
The optics and display systems of AR devices are mainly divided into image source devices and display optics. The two differ in how they work, i.e. the image source device produces an image and projects the image into the display optics, which reflects the image into the eye. At present, the more mature schemes are mainly prism scheme, birdbath scheme, free-form surface scheme and optical waveguide scheme. AR equipment basically adopts the optical waveguide scheme. The optical waveguide is a medium device that guides light waves to propagate in it. The material of the optical waveguide is light and thin, the thickness of the intermediate layer can reach 1-10 microns, and the penetration characteristics of external light are extremely high. Therefore, it is considered to be the necessary optical solution for consumer-grade AR glasses. However, due to the complexity of the process, its price is relatively high.
Analysis and comparison of display optics solutions:
Image source devices mainly include four display technologies: LCoS, OLED, DLP and LEDoS. The comparison of their respective technical indicators is as follows:
The construction of the Metaverse requires powerful computing power, and the chip plays a decisive role in the performance of the device.
AI chips can solve AR processing computing problems. According to different applications, AI chips can be divided into two categories: cloud (server) and terminal (mobile). The mobile terminal pays more attention to the low power consumption, low latency, and low cost of AI chips, while AI chips deployed in the cloud pay more attention to computing power, scalability, and its compatibility with existing infrastructure.
At present, Qualcomm is at the forefront of chip technology for VR/AR devices, and is a major supplier of Oculus and HoloLens all-in-one devices. Oculus Quest 2 is equipped with Qualcomm’s XR2 chip, and Microsoft also chose Qualcomm Snapdragon 850 as the main processor in the second-generation HoloLens all-in-one machine. Compared with the previous Intel chip, the device has better hand motion tracking and visual performance. . OEMs such as Pico, iQiyi, and HTC have all made extensive use of the Snapdragon XR2 chip.
Meta has also invested heavily in Metaverse chips, and JPMorgan analysts recently said that it will use Broadcom’s custom chips to build its Metaverse hardware, becoming the chipmaker’s next $1 billion (about 6.6 billion yuan) ASIC (application-specific integrated circuit) customers.
In the all-in-one Metaverse hardware, batteries play an important role. However, the breakthrough of battery technology has always been a difficult point for the industry. According to the estimates of the Monita research report, the HoloLens brand with a standby time of 2-3 hours still has room for improvement by about 4 times.
The technical capacity of lithium batteries is linked to the volume. In theory, large capacity means large volume. In order to better meet the market demand for high battery life and small volume, the industry has achieved a new breakthrough in technology, that is, the successful development of graphene batteries. Graphene battery is a kind of new energy battery developed by utilizing the characteristics of lithium ions rapidly and massively shuttle between graphene surface and electrodes. It has the characteristics of high strength, good toughness, light weight and excellent conductivity. Longevity and reduced battery weight go a long way. The weight of graphene polymer battery is only 50% of the traditional battery, and the cost is 77% lower than that of traditional lithium battery. From the performance point of view, it takes less than 10 minutes to charge the graphene lithium battery once. However, graphene has not yet reached the practical stage, and there is still a long way to go before mass production.
2.4 3D Sensing
3D Sensing is composed of multiple cameras and depth sensors. It can realize real-time three-dimensional information collection by interpreting three-dimensional position and size information. It has functions such as stereo imaging, face recognition, gesture recognition, and machine vision, which can increase consumption. Electronic terminal object perception and imaging capabilities. At present, there are three mainstream technologies for 3D sensing: binocular, structured light and TOF (Time of Flight). The more mature solutions are structured light and TOF. Among them, TOF has the characteristics of less environmental impact, high frame rate, long detection distance, and low difficulty in algorithm development. It is more suitable for AR glasses. According to the statistics and forecast of consulting agency Yole, the global 3D imaging and sensing market size will increase from US$1.3 billion in 2016 to US$9 billion in 2022, with a CAGR of 38%. Among them, the 3D imaging and sensing market for consumer electronics will grow from $20 million in 2016 to $6.058 billion in 2022, with a compound annual growth rate of 158%.
Three options for 3D vision:
2.5 Tactile Sensors
“Immersion” is a necessary condition for swimming in the Metaverse. In addition to smart glasses, in the Metaverse, if you want to make a wearable device like the X1 tactile suit in “Ready Player One”, you need to make the tactile sensor reach a very high level. level of intelligence.
Sensors, as the core basic components for simulating human perception functions, can generally be divided into visual, auditory, force, tactile, pressure, slip, heat and cold, pain sensors and other sensors. The core is to simulate human feeling.
At present, tactile sensors are mainly used in robotics, automotive industry, wearable devices, virtual remote collaboration, medical and other fields. Among them, wearable tactile sensors can imitate the tactile function of people in direct contact with the external environment, which can bring a more immersive experience to the public. With the integrated development of wearable electronic products, wearable platforms with good flexibility, space adaptability and functionality will usher in an explosive development period. At the same time, it will also promote the expansion of the application scope of tactile sensors to meet the needs of application scenarios such as human-computer interaction systems and remote collaborative interaction.
According to the RAM (Research And Markets) report, as of 2021, the total sales of the global tactile sensor market will be close to 29 billion yuan, and the current market compound annual growth rate is 12.9%. It is expected that by 2026, the global tactile sensor sales will exceed 533 billion RMB. The tactile sensor market in Europe, the United States and Japan is mature, accounting for nearly 80% of the share; in the future, emerging developing countries such as China, India and Southeast Asia will become the main driving force for the expansion of the global tactile sensor market.
Source: Industry ARC Analysis, Expert Insights
Source: Secondary Sources and QYReaserch, 2019
Taking Meta as an example, tactile perception is an important emerging research direction that it has developed in recent years. Meta’s latest demonstration of a robotic hand with tactile perception that can easily grab eggs is an advance in tactile perception thanks to DIGIT sensors and a touch-sensitive skin called ReSkin. Meta announced last year that it was partnering with MIT subsidiary GelSight to begin commercializing Digit. The principle of MIT’s Gelsight sensor is to use a camera module to illuminate the gelatinous surface, observe the degree of deformation, and use an image processing algorithm to convert the directionality of the external force and the appearance of the contact object.
At present, the world’s leading players in the tactile sensor market include ATI, Futek, etc. Compared with foreign countries, there is still a big gap in the development of domestic tactile sensors. At present, most of the tactile sensors consumed in the domestic market come from the United States, Japan and other regions.
The tactile sensor ranks No. 5 among the 35 key technologies of the neck. The reason for its slow development is the lack of product stability and consistency due to the lack of manufacturers’ manufacturing processes and the reliance on foreign imports for most key parts. At the same time, graphene, as an important material for the flexible development of tactile sensors in the future, currently only meets the production standards, and has not yet reached the standards for making sensors. Therefore, there are still many challenges to be overcome in the development and application of tactile sensors.
3 Investment Viewpoints
The downstream application scenarios are getting wider and wider, and the demand for hardware is increasing
With the advancement of demand and industrial chain, the virtual reality industry has entered a new round of growth period, covering more and more application scenarios. Most downstream applications are to C, accounting for more than half of the share, including VR/AR games, film and television, entertainment, etc., while to B applications are mainly industrial manufacturing, medical care, retail, tourism, and house viewing. Among them, the demand for VR/AR hardware has become more and more extensive with the continuous improvement and promotion of applications. Manufacturers’ research and development and upgrade of VR/AR may also replicate the iteration speed of smartphones and form a virtuous circle of demand acceleration, quality improvement and hardware upgrades.
The rapid development of 5G provides a more realistic virtual experience
The Metaverse focuses on the three elements of immersion, low latency, and anytime, anywhere. Among them, one of the biggest technical difficulties is to achieve low-latency connections. This connection puts forward higher requirements for wireless communication networks. With the help of high-performance communication networks, the experience of shopping, social interaction, and games in virtual space can be improved. 5G provides low-latency and large-bandwidth capabilities. At the same time, the computing power on the terminal side can be moved up to the edge cloud. Therefore, the terminal is lighter, more power-saving, and lower-cost. VR/AR hardware devices are re-recognized as the core business scenarios of 5G. and attention.
The game industry needs new content-bearing hardware to promote innovation
The Internet industry produces a major technological breakthrough every 15-20 years, and then companies use innovative technologies to upgrade to meet users’ experience needs. Today’s Web 3.0 boom is like the rise of the Internet 10-15 years ago, which will reshape the boundaries between economic and social activities in the real and digital spaces, and promote the integration and development of the physical and digital industries. As one of the important sectors, games have developed from stand-alone to online games, from arcades and consoles to PC and mobile games. VR/AR games represent the emergence of a new generation of content-bearing hardware, which is expected to gradually realize the transition from mobile to new carriers. A chicken-eating game can greatly promote the upgrading of mobile and PC graphics cards. We believe that with the continuous increase in the variety and quantity of VR/AR games, it will also greatly increase the demand and upgrade of the hardware required for it. .
For Metaverse hardware companies, the pressure of survival and its long industrial chain have made innovation investment inadequate.On the other hand, there is a significant gap between the actual effect and user expectations. The main challenges are reflected in the following three aspects:
1. The cost of optical display needs to be reduced
The optical waveguide solution has the advantages of clarity, viewing angle and volume, and has become the mainstream optical display solution in the current augmented reality glasses. However, although the existing optical waveguide technology has entered a mature stage, the price is too expensive to be implemented immediately.
2. The weight and volume need to be reduced
At present, the weight is mainly affected by the screen, battery and parts. First of all, if the screen is replaced with optical waveguide technology and the battery is changed to graphene battery, the weight will be reduced immediately. Not only graphene batteries, but also finding second-class materials such as graphene to fit with the skin is also the development trend of future sensing materials. In addition, to reduce the weight, you can also remove the function of the parts, but it is more difficult to choose between function and weight. The market has much higher requirements for To C than To B, and the requirements for content, hardware comfort, etc. will be very high, but the technology cannot be solved, resulting in poor user feedback, and at the same time, the design is too heavy and the price is expensive. , so the application scenarios are also limited, so there will be more orders from domestic headset companies to B.
3. Content ecology and application scenarios need to be further developed
In addition to hardware, high-quality content has always been an important part of the ecosystem, and it also affects the development of hardware. At this stage, the cost of content production is relatively high, and domestic practitioners are still exploring and accumulating experience in the design, development and production of virtual reality content. For cultural and entertainment, education and training, industrial production, medical and other application fields, most companies have limited understanding of existing business processes and real-life scenarios , and it is difficult to produce high-quality content in combination with the actual situation. For example, in medical treatment, the chief physician can live broadcast his operation to the interns when he is performing surgery, such as a live concert, a live basketball game to share with others, and when you are playing golf, you will want to remind you how to hit the ball; Related to glasses, for example, when you travel abroad and see English, you can directly translate it into Chinese. Content applications like this will be a good development direction in the future.
3.3 Investment Outlook
Metaverse hardware opportunities lie in smart devices that can bring good immersion and simulation effects. If new hardware functions can be embedded with new gameplay or accessories (such as eye tracking, gesture recognition, 3D imaging, facial expression recognition, etc.) or AI-assisted algorithms such as machine learning, etc., and can integrate speech semantics, video, and audio information, then It can reduce the time and labor cost of building the Metaverse, and better give users five senses of vision, hearing, touch, taste and smell to stimulate the sense of immersion. The introduction of new hardware will inevitably open a new round of software application explosion, but this explosion point also requires the penetration rate and cost of hardware to reach a critical value. We can expect that in the future, once the increase in the popularity of hardware drives the cost reduction of the industry chain to form a strong positive feedback, Metaverse hardware may not bring about the same rolling growth rate of existing imported equipment as new energy vehicles. Unlike concepts that rely entirely on artificial intelligence, such as unmanned driving, many AR/VR technologies are quasi-industrialized and already the finished product of an industrialized industrial chain, with a relatively definite five-year growth rate expected, and repeated investment from large factories and multiple parties. , There are certain application scenarios that can be seen in the future. We have reason to believe that VR and AR will respectively cross the “well of death” and become new traffic entrances that will rise for a long time. In terms of horizontal comparison, VR/AR is a clear investment direction that can be seen at this point in time.
In addition to risk factors such as the expansion and cost reduction of the VR/AR industry chain itself, Sino-US cooperation and competition is an unavoidable factor of uncertainty in the next 10-20 years. At present, China and the United States lead the development of the global Metaverse. The United States has obvious advantages in terms of hardware entry, underlying architecture, infrastructure, and even creative flexibility. In many underlying technologies, such as chip R&D, design and production, it also faces the risk of being stuck. However, China’s population base, consumers’ increased recognition of domestic equipment and certain late-mover advantages still have the opportunity to compete with the United States in this field. At the application level of the Metaverse, we also have reason to believe that there is a high probability that various major manufacturers will create and explore scenarios similar to the mobile Internet era to realize mobile payment, social entertainment, retail, and travel, and achieve world-class hardware and content innovation.
In a word, no matter what the overall economic future is, compared with other industries, the excessive growth of the Metaverse is expected, and human beings will not stop at the entrance of human-computer interaction and digitization.
Finally, borrow the words of venture capitalist Matthew Ball:
“The Metaverse is a persistent online world that blurs the lines between reality and virtual reality. The Metaverse is more than a Call of Duty game, it refers to a 24/7 online world inhabited by inspiring creators and foundations The economy of a new network of facility providers.”
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