WILL PICO SURVIVE?

In 2020, the rapid development of 5G has brought hope for profitable VR headset startups who have long burned money. However, the sudden outbreak of the Coronavirus epidemic accidentally poured a basin of cold water.

In an exclusive interview with 36kr, Pico founder Zhou Hongwei said that Pico originally planned to achieve profitability this year, but due to the epidemic, there is great uncertainty as to whether this goal can be achieved. The epidemic affected not only Pico's domestic market, but also overseas markets. If the June epidemic can be controlled globally, Pico will still have a chance in the second half of the year.

However, Zhou Hongwei believes that Pico has now stood at a better point in time. Even if it is not profitable this year, it will only lose a small part, and it will definitely be profitable next year.

Recently, Pico Neo 2 officially launched for sale. This is a VR headset that supports 6DoF tracking of the head, and benchmarks Oculus Quest. 6DoF refers to 6 degrees of freedom. Compared with 3DoF, there are more degrees of freedom in up, down, forward, and left and right. Therefore, in addition to turning the head in different directions, it can also detect the spatial displacement of the head. This way you can move freely in the virtual reality world. 3DoF VR devices are more suitable for watching videos, and 6DoF devices are more suitable for playing VR games.

The release of Oculus Quest last year brought the 6DoF VR all-in-one to the fast lane, driving the development of the VR game console ecosystem.

Zhou Hongwei believes that the Oculus Quest application experience will become a mainstream direction for VR users. Oculus sales will grow explosively, and 6 DoF VR game consoles will also have a rapid growth.

In the next three to five years, the domestic VR game console market will grow exponentially, from tens of thousands to hundreds of thousands, or even millions of units a year. The market volume climbing to 500,000 to 1 million units will be an inflectionpoint. "In fact, from 1 million to 3 million and 5 million is very fast, but climbing to 500,000 to 1 million in front will be a challenge. Depending on the product experience, brand, marketing, and content, traditional Internet or The involvement of some giants of the gaming platform, either investment or cooperation. "

But for now, the high price of more than 4,000 yuan is not close to the people, and the choice of first-generation content is relatively limited. Zhou Hongwei expects Noe 2 to have sales of 50,000 units this year.

Although early sales expectations were not high, Zhou Hongwei believes that this will not affect the enthusiasm of overseas developers for transplanting this headset into Chinese. Many high-quality VR games have already made money in Quest, and the cost of porting across platforms is not high. It only takes one or two engineers to work in three or five days to complete.

Most importantly, China is a very promising market. Quest users are growing at a high speed. SuperData data shows that Quest shipments reached 705,000 units in 2019. Zhou Hongwei predicts that Quest users may reach 10 million in three years. Correspondingto the Chinese market, it should be about 1/2 or 1/3 in the future. China will also have an ecosystem of millions of users, which is still attractive to developers.

The following is a conversation with Pico founder Zhou Hongwei in an interview with 36 kr, edited by 36kr:

New product

36kr: Recently we released the new product Neo 2. What is your expectation on the sales volume of this product, and how much will it reach in 2020?

Zhou Hongwei: I am very optimistic about the future big market, but for this year, I dare not expect the domestic market to be too high. The price of more than 4,000 is not an entry-level product, and it is a small circle in the entire user base. Players who are willing to spend 10,000 yuan or 20,000 yuan to buy a computer or game book, these people may spend more than 4,000 yuan to buy a VR is not a problem, but this circle will be relatively small. I personally think that there may be 50,000 units this year, and more than 50,000 users are already good.

36kr: In fact, the sales of 50,000 units is still a very niche market.

Zhou Hongwei: It is the first-generation product. In addition, the content of the first-generation product is relatively limited. There is no particularly good content for you to choose. From the perspective of this industry, Oculus Quest is the first year in 2019, and Pico Noe 2 is the first year in China in 2020. We think that such a high price in the early stage compared to the first-generation product has this amount (still okay) . If the price of this product quickly drops to around 3,000 yuan, and the content is extremely rich, I think it will soon be able to amount to 200,000 to 500,000 units.

36kr: If the price reaches 3000 yuan, can we still make money?

Zhou Hongwei: If it is definitely not profitable to 3000 yuan now, but in the future, I think with the increase in volume and cost optimization, even if we sell more than 3000 yuan, we still have a certain profit, which is possible.

36kr: Domestic 6 DoF headsets with annual sales of 1 million or 10 million units, what kind of conditions need to be met?

Zhou Hongwei: I personally think that the market for VR game consoles in the next 3 to 5 years will be an exponential curve of rapid growth, from tens of thousands of units to hundreds of thousands of units in a year to millions and millions of units. When is a turning point in quantity? I think it might be 500,000 to 1 million. In fact, from 1 million to 3 million and 5 million is very fast, but climbing to 500,000 to 1 million in front will be a challenge. Depending on the product experience, brand, marketing, and content, traditional Internet or games may be required. The involvement of some of the platform's giants, either investment or cooperation, we will look at this path, but we are relatively certain that this market demand is there.

For example, I predict that the Oculus Quest platform will reach 10 million users in three years. Corresponding to China, 10 million overseas, China should reach 2 to 3 million. There won't be any special ones in this market, maybe just one or two, and we certainly hope that Pico will be in it. At that time, did Pico introduce other large Internet companies from the perspective of capital or cooperation, and we are also working hard or thinking in this direction.

How can I get to 500,000? The first is to do a good job of the product and experience, so that the future can only be achieved by users. The second is to control the cost well. For example, in the future, if the cost is about 3000 yuan or about 3000 yuan, you will have the opportunity to reach 500,000 units. In addition, there must be a lot of good content, which is supported by word of mouth and marketing.

36kr: Do we now seek such cooperation with giants?

Zhou Hongwei: There are a lot of exchanges, but I think the focus of their entire strategy is not necessarily prioritizing VR so high. But as long as the overall entertainment trend (for the better), especially if overseas Quest can sell 5 million units, including the content of the game, forming a positive earning ecology. Some domestic game and Internet giants, I think they will definitely pay attention and invest. We hope that at that time Pico will be the best, whether it is a collaborator with them or an investment target.

Epidemic

36Kr: Under the influence of the epidemic, have the companies resumed work now?

Zhou Hongwei: Some people are working from home, some are in the office, not everyone can go to the office, and the Qingdao office has all resumed work. The return of the Chinese New Year in February was affected by some shortages. Some of the next batch of goods supplemented production in February. At present, China's impact is relatively small. Domestic OEMs, including our foundry companies, have basically resumed work.

36kr: How will the epidemic affect the promotion and sales of new products?

Zhou Hongwei: In terms of promotion, one is that it affects us offline, and the offline ones have basically stopped. Another one has a great impact on the pace of our entire product release. Before the Spring Festival holiday, we also planned to say that there will be a press conference in February, but we found that the situation was very bad at the end of January. The next press conference is also changed to this online media promotion, including some live broadcasts in e-commerce, similar to Tmall and JD.com, and of course, like games. In general, online promotion has been strengthened and offline promotion has been weakened.

From a sales perspective, offline must have been greatly affected. In addition, a large part of domestic To B, especially education-related, has been significantly negatively affected in February and March because schools are not open. Fortunately, most of Pico's sales are done through online To C. Online sales have never stopped. Online sales are better than when there is no epidemic. The data of user activity and duration of use are actually Better.

36kr: Has the epidemic brought some new demands and opportunities to the VR industry?

Zhou Hongwei: We are seeing some new requirements for VR's new gameplay. For example, can we take a class in a virtual classroom, with students at home and teachers at home? With VR, a virtual classroom can be realized. In the future, our product line in To B is also developing some new versions internally to support everyone to use VR to use virtual classrooms. This was originally a direction our To B was doing, but now it is speeding up.

In the next one to two years, I think that due to the epidemic situation, this kind of virtual and more immersive VR application on the line should be promoted, which will lead to many opportunities.

36kr: Has Pico made money since the company was founded? How much has the epidemic affected progress towards profitability?

Zhou Hongwei: We haven't made any money so far. We originally expected to make money this year, but this year's epidemic is really annoying. It not only affects the domestic market, but also greatly affects our overseas market, including the market of B and the market of operators. This year is generally not optimistic. We originally planned for this year at the end of last year, or we want to make a profit this year. Now we can say that there is a lot of uncertainty. If the entire epidemic is controlled worldwide in June, and then in the second half of the year, if you drive the economy or high investment, Pico will still have a chance. I said that there is still a chance.

36kr: What is the proportion of domestic and foreign markets for Pico VR headset shipments?

Zhou Hongwei: In terms of our G2 last year, domestic and foreign are almost the same, because overseas operators bought a lot of G2 things. From this year, there should be more domestic.

36kr: If the situation changes, do we have Plan B?

Zhou Hongwei: We have adjusted, we are still controlling costs, and we are also controlling costs for profit this year. At present, our adjustment is also fine-tuning. Even if we have not made a profit this year, the result may be a small loss of money, or it is basically close to supporting ourselves. In fact, in this industry, it is already very good in this special year. We don't want to lose such an opportunity. We think that even if it is affected this year, VR will grow at a high speed next year. I think we will definitely be profitable next year.

In such difficult times, the more difficult it is, the more we must adhere to the quality of our products and be sustainable. We do not want to lose such opportunities because of the epidemic, because we reduce our investment. We are now standing at a good point in time, just need to go to the market and give us a chance, give me a boost, we are a good company with positive cash flow in this industry.

VR content, developer ecology

36kr: How to solve the problem of too little VR content?

Zhou Hongwei: Many games with good experience have slowly come to VR, and many are already on the way. In the past year, many studios, including some very small ones, that have switched from traditional games to VR games, have made money quickly by developing VR games, and they have made good money, and they are not one. For example, Valve Software (the developer of the VR half-life game) has made tens of millions of dollars, and small ones have made hundreds of thousands of dollars and millions of dollars. We have already seen positive content for VR. A boost, many VR content developers are willing to invest in VR games, because he may foresee a good return.

36kr: For overseas developers, if our Neo 2 sales are about 50,000 units, plus the conversion rate, can this offset the cost of Chinese implantation?

Zhou Hongwei: In fact, all VR is better, the logic behind them is that they are optimistic about the future of VR games. These good games should have made money in the Quest platform. They actually have to make a choice here. I think the logic behind them is to be optimistic about Pico's entire product, not just from the perspective of 2020. The content should consider the next 2 to 3 years. There are users in China, and the growth of Quest users from tens of thousands to 700,000 to millions, if it falls to China, it should be about 1/2 or 1/3 in the future. China will also have an ecosystem of millions of users, which is still attractive to him. As far as this market is concerned, its investment in transplantation is still small.

In addition, the cross-platform migration of such content is actually a relatively small workload, basically one or two engineers work for three to five days. Of course, we have provided good support to reduce the cost of his transplant and improve the overall efficiency. Combining these two aspects, a developer who spends three or five days working as an engineer can be ported to a potential platform in China. I think it is still attractive.

36kr: What kind of payment model do we have with these overseas developers?

Zhou Hongwei: Generally speaking, it ultimately depends on sales.

What 5G means to VR

36kr: 5G's experience with this VR headset and what changes can the entire VR industry bring?

Zhou Hongwei: There are two kinds of relationships, one is the significance of 5G to VR, and the other is the significance of VR to 5G. In the past year or so, when global operators launched 5G, they were looking for things that could drive 5G trafficconsumption. VR is currently the most direct and fastest technology for 5G to land quickly and expand users. Whether it is from several major operators in South Korea to the three major operators in China, they have clearly proposed to bring VR into 5G applicationscenarios to expand more 5G users and also expand VR users.

On the other hand, will 5G help VR? In fact, the current S-class products are mainly WiFi, and 5G is not used directly. In the future, we think that VR with 5G connectivity is an inevitable trend, but it is not currently.

5G or Gigabit broadband still improves the VR experience, mainly in bandwidth. I am optimistic about a trend now. In fact, 5G mobile phones are used as a standard terminal and VR accessories are used. We think this is more related to 5G. We also seethat operators are fully pushing the integration of VR products in the form of Glass glasses with 5G mobile phones. We believe that the popularity of 5G users and the growth of 5G mobile phones will promote the rapid uptake of VR products in this form. From both perspectives, I think it's a mutually reinforcing situation.

36kr: The VR Glass released by Huawei is in line with the trend of VR accessories, but the response after this product was released was not very good. What do you think is the problem?

Zhou Hongwei: I think there are three aspects to the problem. One is that the experience itself is still lacking. After all, it is the first generation product and can have an understanding and tolerance. The second price is too expensive, such a price is not acceptable to the mass consumers. The third is the content of VR. Huawei is a very strong hardware or technology company, but the content of Huawei's entire VR is still relatively limited. Several factors have caused the first-generation products to sell poorly. But we should not deny this trend in the future.

36kr: How do you think Huawei, a mobile phone giant, has entered the VR market? How to meet their competition?

Zhou Hongwei: I think Huawei's VR has its inherent logic: Huawei itself is a communications company, a 5G company, and Huawei's first demand for VR is that it has so many 5G operator customers around the world, operators have a problem 5G base stations have been built, how can 5G bring benefits to operators?

Huawei has been recommending VR. In the early days of 5G, VR is a path that can help operators attract users, drive traffic, and increase sales. Therefore, it is not surprising that Huawei does VR. In terms of competition, I think Huawei's focus is still on the system and mobile phones. VR will not be a big strategy. This requires a dedicated team to do everything from technology, products, and content. And we see Huawei The product form is connected to the mobile phone in this way. I don't think Huawei will make products such as all-in-ones.

36kr: Is there a possibility of explosive growth of VR in the C-end market?

Zhou Hongwei: We have seen an explosive growth trend, driven by two factors, one is 5G, or a channel such as 5G operators is driving the growth of VR users. Another driving force is VR game consoles. In fact, behind a large game console ecosystem, the biggest driving force is Oculus. Everyone will soon discover that Oculus Quest application experience will become a mainstream direction for VR users, Oculus sales will grow explosively, and 6 DoF VR game consoles will also have a rapid growth.