How VR Can Offset HTC’s Falling Phone Sales

By Paul Ridgewell

For an insight into the shifting priorities of major mobile phone makers – faced with slowing sales growth and cut-throat competition – consider the case of Taiwan’s HTC. While formerly a strong industry player, its handset volumes and profits are in long-term decline. And although reviews for the vendor’s latest flagship smartphone, the HTC 10, have been positive, it is surely destined to be yet another valiant but futile gesture that does little or nothing to improve the company’s market position.

By comparison, the reaction to HTC Vive, a virtual reality (VR) headset developed by HTC and Valve, a US video game developer and digital distribution company, has been little short of ecstatic. Reviewers have labelled Vive light years ahead of competitors’ offerings, such as Samsung’s Gear VR and Facebook’s Oculus Rift, and the product has garnered a host of awards. The headset offers market leading “room-scale” experiences enabled by 360˚ motion tracking, and HTC Vive wisely has an exclusive agreement with Steam, Valve’s digital distribution platform. Vive is expected to ship in June, with pre-orders priced at a hefty £689/$799 before taxes. However, according to a tweet from HTC’s VR Product Specialist, Shen Ye, 15,000 Vive units were sold in the first 10 minutes alone following the commencement of pre-orders.

HTC’s handset business could still be handed a lifeline of sorts by Google: there are persistent rumours HTC will be appointed to make Google’s flagship Nexus devices for the next few years, returning the company to its original design manufacturer (ODM) roots. Yet it is increasingly likely that, as with BlackBerry, the harsh economics of low production volumes and high costs will reach their inevitable conclusion. HTC surely is aware of such market dynamics, which would explain why its focus on the handset market is clearly reducing in line with a rapidly growing emphasis on wearables and VR.

HTC, of course, is not the only manufacturer seeking to reduce its reliance on a commoditised handset market. Chinese insurgent Huawei recently became the latest vendor to announce the launch of a VR headset, joining Samsung, LG and others, many of which made announcements at 2016’s Mobile World Congress. With the exception of Apple, the only large handset vendor yet to announce a VR strategy, all are looking to make the transition to what is perceived to be a new and growing market that benefits from industry-wide moves to monetise video-based services, with VR regarded as an important next step in that strategy.

Still, handset vendors could find that their pivot to this new industry is not all plain sailing. For one thing, despite its rapid growth, the size of the VR market is only a tiny fraction of that of the mammoth (circa 1.5 billion units annually) smartphone sector, stagnating or otherwise. In addition, handset manufacturers are likely to experience some difficulties competing against more established consumer electronics players. One – Sony – represents a particular threat to the challengers. The company’s PlayStation VR, which is expected to launch in October 2016, while technically less capable than Vive and others, is much more reasonably priced and should benefit from the ubiquity of existing PlayStation hardware and users.

Although PlayStation VR requires the purchase of a PS4 system and PlayStation Camera, it is available for pre-order at the relatively reasonable price of £349.99 ($400 or $500 in the US, depending on the bundle), a level of expenditure which pales financially in comparison to the requirement from certain VR systems, such as Vive, for high-end computer components that ensures a total PC expenditure of at least £1,000/$1,500. And yet for HTC, given the long-term potential of VR and the fact that its 2016 smartphone shipments look set to be below 10 million, achieving handset replacement-level VR sales within a few years is likely still to be somewhat more than a virtual reality.

By Paul Ridgewell

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