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Android Headliner: Is HTC’s Focus On VR The Right Call?

January 14, 2016 - Written By Justin Diaz

HTC has had a tough go of it for a few years now, struggling to bring in profits and gain marketshare in the smartphone industry due to heavy competition from emerging Chinese OEMs and other big-name companies like Samsung and Apple. HTC have consistently been producing smartphones each year, but to no avail they can’t seem to come back from the brink so to speak, posting their lowest revenue in a decade as of last month’s posted numbers, which shows them at a decrease of 36.64 percent compared to November of 2015, and a decrease of 57.08 percent compared to their numbers in December of 2014. The last time they had revenues this low was in October of 2005, years before the iPhone and the first Android-powered device.

Despite HTC’s failing to succeed in the smartphone market though, the company, and CEO Cher Wang in particular, seem to be in rather good spirits, and it seems to have quite a lot to do with HTC’s recent unveiling of the wearable they manufactured in partnership with Under Armour, as well as and more so because of their development with the HTC Vive virtual reality headset they partnered with video game company Valve to create. Recently Cher Wang was quoted saying that she views virtual reality technology as more important than smartphones, as the future of technology is headed in that direction.

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With this being her stance on how HTC operates and what they will likely dump the most time into developing, it begs the question of whether or not this is the right call for the company. HTC is a manufacturer that has long been known for their stellar work in mobile devices, even if they’re glory days are well behind them. It’s precisely that reason though that it just might be the best idea HTC has had in awhile. Putting the majority of their focus and efforts into developing VR technology may be what helps them flourish once again and gain back positive revenues, as smartphones certainly aren’t getting the job done like they used to.

Is VR really the path toward profits for HTC, or are they just biding their time until the novelty of VR wears off and consumers lose interest? Either is a possibility, and there’s no way to know for sure right now, but HTC has few things going for it in the VR space that could tip the scales in their favor. Right now, the HTC Vive seems to be the VR headset which has garnered the most interest out of all the competing products. It’ll have a heavy focus on gaming, and gamers are passionate about their products and experiences, so HTC could be tapping into a gold mine here. Even if the HTC Vive was only focused on gaming (it’s not, and will be capable of far more than just game interaction) they would still be in for a possible boom in profits. According to a report from Newzoo in April of last year on the Top 100 countries by game revenue, the video game industry globally was estimated  to hit $91,252,478,000 for the year of 2015. That’s a lot of money that HTC had no part of, with Vive though that could all change, and games, by way of VR, could be a huge cash cow for the Taiwanese mobile device manufacturer.

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Aside from tapping into one of the fastest growing markets, HTC also has Valve behind them on the product, and this is where they’re going to capture the attention of many gamers. Valve is the company responsible for the wildly popular Steam gaming platform on PC which holds numerous sales on games every year. Sales so low that some of the game purchases are impossible to pass up if you’re a PC gamer. It’s these kinds of sales that have earned Steam and Valve such a huge following, and precisely why they make so much money. According to research put together by market data firm SuperData which they provided to “The Know,” (a channel on YouTube focused on all things gaming) Valve is estimated to have made around $400 Million on just three of their own game titles in 2014 which include DOTA 2, Team Fortress 2, and Counter-Strike: GO. On top of the money from those three games, Valve makes 30% of all third-party games sold through steam which collectively puts Valve’s 2014 total revenue at an estimated $1.5 Billion.

It’s important to note that these are just estimates as Valve doesn’t release exact revenue numbers for Steam, but even still that’s a whole boatload of cash, and those estimates are conservative so there is potential that their 2014 revenue could be even higher than that estimated number. That total revenue jumps to more than twice that amount for 2015, in which Valve has been estimated to make around $3.5 Billion from Steam purchases alone. Why does all this matter? Because Valve is a moneymaking behemoth with games, and Valve is who HTC is jumping into bed with to make their VR headset. The point is, Valve knows what they’re doing in the gaming industry, and everything they do, including helping HTC in developing VR technology, ties back to Steam, and if the Vive allows interaction with Steam content in some way, it stands to reason that there could be plenty of money to be made for both Valve and HTC.

VR may be in the early stages right now, but that could very easily change in the next few years. This isn’t the first time consumers have had the opportunity to experience VR, as attempts have been made before in the early 90’s. Compared to back then, though, the technology behind VR today is much more advanced and set up to deliver a far more compelling experience. This is likely only amplified by the content partners which HTC has already promised for the Vive headset including the likes of Google, Lionsgate, and HBO, and this is in addition to the SteamVR platform which Valve is handling. The same market data firm that estimated Valve’s 2014 revenues also calculated the potential success of virtual reality technology for this year, which they have estimated to reach $5.1 Billion in sales. Their estimates also point to a possible $12.3 Billion market for VR technology in 2018.

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Looking even further ahead, according to Business Insider, Goldman Sachs estimates that within ten years VR will be a larger market than TV. By all accounts, at least, by the estimated numbers, virtual reality looks to be a vastly lucrative industry and technology. Considering all of this, it begins to make a little more sense why HTC may be placing so much emphasis on VR and the HTC Vive headset. It’s not that HTC knows something the rest of the world does not, predictions simply point towards VR being huge in the next few years and only continuing to grow moving forward. Is HTC making the right call by deciding VR is more important than smartphones for them? Perhaps. It’s still too early to tell. One thing is highly likely though. The HTC Vive is slated to be an extremely popular VR product, and while its closest competitor – the Oculus Rift- is sure to do well also, the Oculus Rift doesn’t have Valve in their corner helping to develop an ecosystem and that could be a massive benefit for HTC. It might be a few years before HTC and Valve are sitting on mountains of cash from the VR gold rush, but based on the analytics so far and the continuing decline in HTC’s smartphone profits, VR looks to be the right move for them.