Thematic ● Global

November 2020

Chart 7C. What content did children Chart 8C. Entertainment accessed by
access on their devices during the children on their devices (2019)
pandemic

Games 70% Traditional TV 13%

School/Homework 58%
Social media 18%
Social Media 49% 40%
Video streaming
Movies 46%

Tv shows 43% Gaming (Minecraft,

18%
Fortnight, Roblox)
Chats/messaging
39%
incl. VC 0% 10% 20% 30% 40%
0% 50% 100%
Source: HSBC, Morning Consult Source: HSBC, Morning Consult

Over the course of pandemic parents said that there was an increase in screen device usage time
from their children (17 and under) and chart 7C highlights that 80% of their kids were spending time
in gaming activities on their electronic devices (it was even higher for the sub-group of 5-12 year
olds at 84%). Chart 8C compares the different types of entertainment for kids and teens: comparing
video streaming (40%), social media (18%), traditional TV (13%) and games (Minecraft 36% in
ages 5-12, Fornite 30% on average on all kids/teens and Roblox was 35% in ages 5-12).

Reed Hastings (Netflix CEO) once joked that their main competitor was sleep. Jokes aside, it’s
a valid question of what other activities digital content consumption like movies, games and
social media eat into. Chart 5C shows that watching sports might not be one of them; it shows
the percentage of esports fans who follow American sports franchises, and there is reasonable
overlap between video games as a sport and physical sport watching. Another good question to
ask is how does gaming look on a global level? The percentage of internet users who game is
high in all regions (80%+ in Latam, APAC, Middle East/Africa and 70%+ in North America and
Europe), as highlighted in chart 4C – it’s high in both DM and EM.

Chart 9C. Gaming traffic share % (2019) Chart 10C. Video streaming 60% of
internet traffic globally (2019)

70%
League of Legends (Riot Games) 14.5% 60.6%
Player Unknown (PUBG… 10.7% 60%
Fortnite (Epic Games) 9.5% 50%
Overwatch (Blizzard Entertainment) 7.8%
40%
Destiny (Bungie) 6.5%
Minecraft (Mojang Studios) 6.4% 30%
Respawnables (DLE) 6.3% 20% 13.1%
Warframe (Digital Extremes) 2.9% 8.0% 6.1%
10% 4.2%
Clash Royal/Clans (Supercell) 2.7%
0%
World of Warcraft (Blizzard… 2.6%
Video Web Gaming Social File
0% 4% 8% 12% 16% Streaming sharing
Source: HSBC, Sandvine Source: HSBC, Sandvine

Let’s look at digital content streaming traffic worldwide. In terms of games, it looks like League
Digital content traffic
analysis…
of Legends (15%) by Riot Games, Player Unknown (11%) by PUGB and Fortnite (10%) by Epic
Games took the top 3 spots in 2019 – see table 9C. In the same year, gaming was the third

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largest share of global internet traffic, where gaming took 8% of the traffic, which is comparable
to social media traffic, which is at 6%.

However, these numbers pale in comparison to video streaming on the internet, which is at 60%
of traffic. However, as more high end gaming begins the transition towards services like Google
Stadia and Amazon Luna, so cloud gaming traffic, we can envision cloud gaming traffic starting
to grow over the coming few years.

It can be argued that Napster started the audio downloading revolution at the turn of the
Different business models
millennium, but what does audio streaming traffic look like today, in the age of the cloud
subscription services? Chart 11C shows that Spotify took nearly a third of all audio steaming
traffic on the internet. The nearest all in one audio streaming company is Apple Music at 15%
share, and Google Music at about the 1% mark.

However, in terms of share of global internet traffic, the tech giants services (Google, Netflix,
Facebook, Microsoft, Apple, Amazon) are about 43% of all traffic (see chart 12C) However, we must
also note carefully, we must not think of all big tech players under the same bucket. For example,
even though they are all considered tech companies, they operate under different business models –
e.g. paying subscription for Netflix but using Google for free, through their ad model.

Chart 11C. Global audio traffic (%, 2019) Chart 12C. US tech giants dominate global
internet traffic (2019)
Spotify 28.0%
Google 12.00%
Shoutcast 22.8%
HTTP audio streaming 22.8% Netflix 11.44%
Apple music 15.6%
Soundcloud Facebook 7.79%
3.9%
Deezer 1.7%
Microsoft 5.03%
Pandora 1.3%
Google Play Music 1.1% Apple 3.97%
Tidal 1.1%
Amazon 2.87%
Netease Cloud Music 0.2%

0% 10% 20% 30% 0% 5% 10% 15%

Source: HSBC, Sandvine Source: HSBC, Sandvine

As we saw in chart 3C earlier on, education is also one of the key applications being used by
Online education… to level
the playing field? the internet users of today. Over 50% of people aged 16-35 use the internet for education and
study purposes.62 These days Massive Open Online Courses (MOOCs) are a popular way of
getting access to structured learning. Chart 14C highlights the popular MOOCs today, with
Coursera leading the way with 45m users. Chart 13C goes on to tell us that undergrads and
graduates both think the quality of education received online is better or about the same as in
the physical classroom. This bodes well for giving access to high quality education to students
wherever they are in the world, and increasing credentials worldwide, normally reserved for the
wealthier DM nations, as in the case of the Ivy league.

______________________________________
62 "2020 consumers: the story so far", Global Web Index, August 2020.

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Story and key trends for experiential infrastructure

1. Rise of digital content: gaming, music, movies, education


Every age has its storytelling form, and video games is a
huge part of our culture. People are enthralled with video
games in the same way other people love the cinema
or theatre
Andy Serkis, performance capture actor

Gaming a gateway into digital content…

Gaming is the new social Gaming has come a long way from the days of arcade systems like Atari’s Pong in the 1970s.
One could argue that the arcades of yesteryear were social interaction hotspots for the youth of
the time. Today that core premise is no different for modern gamers, where gaming is
increasingly seen as a social activity – a place to meet and hang out with friends virtually.

Chart 2C. Gaming viewed as a new social Chart 3C. The generation game: gaming
activity (2019) demographics 2020

35% 70% Baby

30% 60% Boomers
25% 50% (aged 56-64) 4%
20% 40% Gen Z
Gen X
15% 30% (aged 16-22)
10% 20%
(aged 37-55)
23%
5% 10% 25%
0% 0%
To progress my skills

To relieve boredom
It doesn't allow me to bond

The lack of actual human

Bullying, discriminatory or

To chat/keep up with friends

properly with my friends

hateful behaviour
connection

Millennials
(aged 23-
36)
Gaming Social Media 48%
Source: HSBC, Global Web Index Source: Global Web Indix

Charts 2C (grey bars) shows us that a key motivation of gaming is to have fun with people they
know and to chat with friends. Compare this with the red bars on the same chart which
highlights that with social media, people find it frustrating in terms of the bullying behaviour on
the platforms and the lack of human interaction. Knowing this context, it makes more sense that
in 2019, the global games market generated USD150bn. This is more than the global movie box
office (USD40bn) and global music industry (USD19bn) combined!60 Remember gaming is
interactive and social, whereas movies and music can be viewed a passive activity.

______________________________________
60 "Video game industry silently taking over entertainment world", Ejinsight, October 2019.

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7%
Of blockchain projects in industry have
gone from pilot to production so far…

Virtualisation:
 Virtual reality (VR) and augmented reality (AR): We believe that virtual and augmented
reality technology can become the next mass computing platform, like the PC and
smartphone before it. This technology enables people to share experiences with other
people virtually. Examples include: work in a shared immersive virtual space with
colleagues, attendance at conferences, attendance of “live” virtual concerts and sporting
events, education via virtual classrooms, virtual fitness programs and more with zero
physical travel. The price for the latest wireless VR headset has dropped to USD299 in
October 2020. We believe VR is in the “real applications” phase of our disruptive framework
– and will soon be ready for both the consumer and enterprise markets. However, the
outlook for AR is somewhat different; due to the technology form factor available today like
with Microsoft’s HoloLens, we believe it’s mostly for the enterprise the market, and we place
AR in the “backlash” window for now.

Some companies involved:

 Asia: HTC (VR/AR)

 EEMEA: STC, Etisalat (VR/AR)

 US: Unity, Autodesk (3D modelling). Facebook, Sony, Microsoft (VR/AR)

USD299
Cost of Oculus Quest 2 wireless 6
degrees of freedom VR headset from
October 2020

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Most things that can be virtualised and digitised have been, or are in the process of being
carried out. This transition has been massively disruptive for businesses all around the world.
This digitisation process has therefore naturally also forced companies to change their business
models to survive and enabled a new host of disruptors to thrive.

We believe that the next category ready for virtualisation might be experience itself, through virtual
and augmented reality. There’s still a lot of innovation iteration and business models to be figured
out for the success and growth of the technology but we believe we are on the edge of VR/AR
disruption today. It’s likely to be the most disruptive technology we’ve seen in a long time, potentially
having many unintended and unforeseen consequences on travel, energy, real estate, spending
habits, work, entertainment, health, privacy, re-defining the meaning of human interaction and the
perception of reality itself. There are significant implications for long-term investing.

Digital content:
 Entertainment, socialisation and education:
Gaming going to cloud
In the modern age, computer or video games are a substantial business, generating over
USD150m annually and are seen as a social activity among the younger generation, to hang out
virtually with their friends. This factor is prompting some companies like Tencent try to monetise
this trend. They are set to explore building esports cafes to cater to this demand, blending virtual
pastimes into physical businesses, perhaps finding more uses of physical retail space in the
digital content world. With the advent of platforms like Amazon Luna and Google Stadia, the next
frontier for gaming is cloud. Today we position gaming in the “new normal” part of our framework
but we place cloud gaming a little further being in the “real applications” phase.
Movies and music more
physical to digital Movies have been streaming back catalogue films for a number of years but the pandemic has
the potential to disrupt the movie making business model further. For example, due to cinemas
struggling to stay open during the current crisis, a number of Hollywood studios have started
trialling with various degrees of success PVOD (premium video on-demand) to monetise their
new releases, which normally would hit the cinema run first. Music streaming has been doing
very well for a number of years also, with the likes of Spotify and new entrants like Tidal.
However, as musicians are unable to sell out rock concert stadiums in the current pandemic
environment, they are exploring using music streaming sites to sell live-streamed concerts.
 Social media today is the digital playground, for friends and strangers to interact, share
Social media, the digital
playground
digital content from IMs, photos, videos and news – although we have to note that these
platforms face increasing regulatory risks from things like fake news and cyberbullying. We
place music, movie and social media digital content in the “new normal” part of the
framework. However, as we will explore later the future of the socialisation aspect of social
media, concerts, and movie-going could be in VR… which could enable them to change
business models to monetise further.
 The pandemic has forced many things online, and education is no exception. Today 50% of
Online education
those ages 16-35 use the internet for education and studying. Massive Open Online
Courses (MOOCs) are popular today. We place online education on the “real applications”
phase and the pandemic is likely to push this toward the “new normal”.

Here are some companies involved with this theme:

 Asia: NetEase, Tencent, Huya and Douyu - are exposed to streaming and video
games. IQiyi, Tencent Music – movies/music streaming. Tencent, Weibo – social
media. Tal Education, GSX Tech EDU, New Oriental Education (online exposure much
less, relative to TAL) – online education.ByteDance (social media)

 Europe: Keywords Studios (KWS), Team17, Ubisoft (game publishing)

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November 2020

Chart 4C. Gaming is global in 2020 Chart 5C. Gamers overlap with sports fans
in 2020

100%
86% 84% 83% NHL
76% 73%
80%
MLB
60%

40% MLS

20% NFL
0%
NBA

Europe

America
America

Asia Pacific

Middle East
and Africa

North
Latin

0% 20% 40% 60%

Source: Global Web Indix Source: HSBC, Global Web Indiex

Considering this significant market size and opportunity in games, we are also seeing the music
and movie industry moving their content into gaming platforms, to grab audience and demographic
attention. For example, Fortnite, the battle royal computer game, hosted a virtual concert by rapper
Travis Scot (attended by 12m people concurrently and 28m people overall) and they premiered
the Warner Brothers Tenet trailer (USD200m+ time bending movie) this year.61

Chart 6C. The app tax: what do different app and game stores charge the app developer?
PC STORES
CONSOLE STORES
STEAM EPIC GAMES HUMBLE STORE
STORE

30% 25% PLAYSTATION STORE XBOX GAMES STORE NINTENDO eSHOP

25% After
USDm10 earned 12% 15% to Humble

20% After 10% to Charity or

USDm50 earned Back as store credit

ITCH.IO GOG MICROSOFT STORE 30%

30% 30% (INCLUDES
(INCLUDES (INCLUDES LICENSING FEE)
DEVELOPER’S 30% 30% LICENSING FEE) LICENSING FEE) PREVIOUSLY 35%
CHOICE FOR WIIWARE

MOBILE STORES PHYSICAL STORES

APPLE APP STORE GOOGLE PLAY STORE GAMESTOP AMAZON BEST BUY WALMART

30%
(INCLUDING IN-APP PURCHASES)
30%

Source: HSBC, IGN

The distribution of gamers over different age groups is shown in chart 3C, where we see
Who is gaming more today?
unsurprisingly it’s the younger millennial cohort (aged 23-36) who make up nearly 50% of the
gamers. However, this survey only looks at people older than 16 years old.

______________________________________
61 "How much money did Travis Scott make from Fortnite?", Sports Skeeda, July 2020.

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November 2020

Experiential infrastructure

 Experiential infrastructure is trend of replacing physical consumption

with digital goods by businesses and consumers alike
 We look at key trends enabling growth in experiential technologies
through the rise of digital content, digital backbone infrastructure and
virtualisation sub-themes within our disruption framework and list 50
companies exposed to the themes
 We outline 20 1st tier, 2nd tier, and ESG implications from our themes

Welcome to the matrix…

Over the last couple of decades, things have been moving from physical to digital. Physical
Everything is moving from
physical to digital and
letters became emails and IMs, physical printed newspapers and books exist in
disrupting business models websites/ebooks formats, music and movies went from CDs/DVDs in HMV/Blockbusters to
streaming services like Spotify/Netflix, gaming from CDs/cartridges to downloads (soon to be
cloud gaming), sports like Premier League went from Sky satellite dishes to NowTV, BT Sports
and Amazon Prime online, interactions between friends and strangers moved to social media
and we are migrating from physical notes/coins to digital payments via the smartphone.
Everything is transitioning from atoms to bits and bytes.

Chart 1C. HSBC Disruption Framework: Experiential infrastructure

Gradient of estimated expectation vs. reality

Digital backbone Digital content

Blockchain, Gaming, eSports, movies, television,
cryptocurrencies, social media, music, education
fintech

Next gen Virtualisation

Quantum computing, Virtual reality, augmented reality,
brain-computer interface mixed reality

Early Hype Backlash Real New normal

disruption mania window application
Source: HSBC

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November 2020

 EEMEA: Naspers (via Tencent), Mail Ru (video gaming/social media).

 Japan: Nintendo, Sony (games company)

 LatAm: Arco Educacao, Yeducs, Cogna, Anima (online education)

 US: Activision, Electronic Arts, SciPlay, Take-Two Interactive (game publishing)

43%
Of all online global traffic digital content
is from Google, Netflix, Facebook,
Microsoft, Apple and Amazon

Digital backbone:
 Fintech: Society is slowly but surely shifting from physical cash payments to digital. Some
countries are further along this digitisation than others. The investments in this space keep
going and going, from experiments and trials in blockchain payments, central banks writing
whitepapers on CBDC (central bank digital currencies) to the giant tech firms building their
own payments apps. We place fintech apps in the “real applications” to “new normal” part of
our framework but blockchain payments in the “backlash” window, so for this to move into
the “real applications” window, we think it would need the support and execution from a
central bank.

Some companies involved:

 EEMEA: Safaricom, MTN, Vodacom, Kaspi (fintech)

 US: PayPal, Stripe, Square

 LatAm: MercadoLibre, Stone, Pagseguro, NuBank, Millicom, eBANX

160+
Fintech deals done by tech giants during
2014-2019 - Alphabet, Tencent, Alibaba,
Microsoft, Baidu, IBM and Apple

 Blockchain in industry: Blockchain is currently being trialled in a number of industries

from oil & gas, shipping, retail and more. The core idea is that this ledger technology will
enable companies to realise cost savings and process efficiencies by refreshing their digital
infrastructure with blockchain technologies. For example, 15-20% of shipping costs can be
saved from block chaining the paper trail between ports, authorities and carriers. We
believe currently blockchain is in the very early part of the “real applications” window of our
disruption framework.

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November 2020

Chart 13C. Online education quality vs Chart 14C. MOOC platforms #users
classroom (2018)

60%
52% Coursera
50%
50%
39% edX
38%
40%
Udacity
30%

20% Swayam
11% 10%
10%
FutureLearn
0%
Better About the same Not as good 0 10 20 30 40 50
Undergrad Grad In millions
Source: Statistica Source: Class Central

2. Digital backbone: blockchain, fintech to industry applications


Blockchain will do for transactions what the internet did
for information
Ginni Rometty , IBM CEO

Blockchain, the infrastructure for many things… but will it work?

The grandmother of
decentralised tech - bitcoin,
kick starts innovation
In December 2008, an entity signed “Satoshi Nakamoto” published a paper called “Bitcoin: a peer-
to-peer electronic cash system” on a cryptography mailing list. The algorithm essentially solved the
double spending problem, using a P2P computer network – a tough problem in computer science,
which has real life application potential for creating digital cash without a central issuer. Thus
began over a decade of hype around the notion of a decentralised ledger. The idealised and
purest notion of the blockchain is a permission-less ledger, where no entity is in control of the
system – bitcoin and other decentralised crypto currencies are examples of this. On the other
hand, one can have so called permissioned blockchain, where the ledger is owned by a group of
trusted participating players, for example a central bank decentralised currency (CBDC).
Chart 15C. Global private investments in Chart 16C. Global private investment in
blockchain and cryptocurrency payments

7.0 800 90 400

6.0 700 80 343 350
676 337
600 70 306 300
5.0 285 295
60
479 500 246 250
4.0 50
400 200
3.0 40
281 300 150
30
2.0 200 100
152 149
176 20
1.0 100 10 50
0.0 0 0 0
2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 2019
Deal Value (USDbn) Deal count Deal Value (USDbn) Deal count
Source:KPMG Source:KPMG

72

Investments into fintech
Blockchain can translate into
savings for sectors
Thematic ● Global
November 2020
As more people around the globe get connected to the internet through their smartphones, it
suddenly makes it possible for society to eliminate physical cash and go fully into digital
payments. Charts 15C and 16C illustrate the race to invest and refresh the global payments
infrastructure, via blockchain and crypto-currency technologies, funded by venture capitalists,
private equity firms and mergers & acquisitions.
Payments aren’t only the domain of blockchain and crypto-currencies (e.g. industry applications)
but there are a whole host of other payment apps and innovations being bought to the market from
the incumbent technology giants from the US and China. Examples include apps like Venmo,
Paypal, WeChat, AliPay and more; see chart 18C for countries with high mobile payment adoption.
Chart 17C and table 19C highlight the investments and deals in fintech initiated by the tech giants.
There are a number of blockchain trials going on within industry and 79% of these projects have
completed their pilot phase, however only 7% of them have been placed into production in
202063. The key reasons for touting blockchain in non-finance sectors include eliminating or
reducing paperwork and bringing a host of efficiencies, like associated cost and time savings.
Here are some recent examples:
 Oil & gas: A blockchain pilot was conducted by the OOC Oil & Gas Blockchain Consortium,
a 10 company group which includes the likes of Royal Dutch Shell, Exxon Mobil, Equinor
and more. They tested the blockchain technology from supplier Data Gumbo in order to
automate payments for oilfield water-handling. The pilot was in Equinor wells in North
Dakota’s Bakken shale field.
During the pilot, the technology reduced work flow processes from 90-120 days to 1-7 days,
removing nine steps. Additionally, they were able to automatically validate 85% of all
volume measurements.64
 Shipping: Maersk and IBM have been collaborating on a blockchain platform (TradeLens)
to improve efficiency and cut the paper trail for global shipping containers. Recently they
were joined by Mediterranean Shipping Co and CMA CGM (the second and fourth largest
shipping containing companies in the world) who carry half of all cargo shipped globally,
and 90% of traded goods worldwide, can be tracked using the technology. More than 100
ports/authorities and companies have signed up for the platform.65
Maersk and IBM tracked shipping of avocados from Mombassa and Rotterdam, and the
estimated cost of moving the shipping container was about USD2,000, with the paperwork
costing about USD300, so 15% savings (paperwork is about 20% of costs on average). IBM
estimate that by going digital, the shipping carriers can save USD38bn annually.66 Maersk
ship about 70 million containers annually, and they have set the target of tracking 10million
of them using blockchain technology by the end of the year.
 Retail: Walmart Canada is using a blockchain supply chain platform called DL Freight in
order to handle freight invoices and payment management, for its 60+ transportation
carriers. Their initial pilot in 2018 was to use a blockchain system to track deliveries, verify
transactions, and automate payments and carry out reconciliation between themselves and
their carriers.
By August this year, the blockchain system had processed 150,000+ invoices, with fewer
than 2% disputes. Over 500,000 loads also were processed over the past year using the
system, with again only 2% discrepancies and this was a 97% reduction from previous
______________________________________
63 Everest Group
64 "Blockchain group says pilot test shows promise for oil and gas operators", Reuters, June 2020.
65 "Two more shippers join Maersk's cost-cutting blockchain-base platform", Reuters, May 2020.
66 "Maersk and IBM are bringing blockchain tech to the shipping industry", Supply Chain Digital, May 2020.
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 Thematic ● Global
November 2020

levels. Walmart Canada said that due to supply chain complexities, usually 70% in all
deliveries and invoices can result in disputes. The process had previously 11 steps but now
the system reduced it to 5, removing third parties to give reconciliation and payment audit
services. The Hyperledger Fabric powered blockchain system takes data from Walmart
Canada, the carriers and IoT devices.67

Chart 17C. Global private investment in Chart 18C. Mobile payments adoption as %
fintech by tech giants (USDm) of smartphone users (2019)

10000.0 50 90%
9000.0 46 45 80%
8000.0 40 70%
7000.0 35 60%
33
6000.0 30 50%
28
5000.0 25 40%
4000.0 21 20
17
19 30%
3000.0 15 20%
2000.0 10
10%
1000.0 5
0%
0.0 0
2014 2015 2016 2017 2018 2019
Deal Value (USDm) Deal count
Source:KPMG Source: Merchant Savvy 2020

The elephant in the room with blockchain technology is the discussion around the energy used
within the Proof-of-Work or mining process, so that the transactions are not hackable. Chart
21C shows us how much energy various decentralised money systems consume.

Table 19C. Fintech deals by tech giants (2014-2019)

Firm # of deals
Alphabet 65
Tencent Holdings 49
Alibaba Group 22
Microsoft 14
Global Tech Giant 8
Baidu 7
IBM 3
Apple 1
Source: KPMG

Furthermore, chart 20C compares the energy consumption of different computer systems. It
basically shows us that public decentralised blockchain systems consume the most energy but
enterprise blockchain systems do consumer more energy than centralised databases.

______________________________________
67 "Walmart Canada's blockchain freight supply chain proving its value", Coin Telegraph, September 2020.

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November 2020

Chart 20C. Energy consumption of Chart 21C. Energy consumption of

decentralised blockchain money different systems

Annual energy consumption (TWh)

108

Approximate energy consumption

Market capitalisation (Bn USD)
100 100
106

per transaction (J)

104

10 10 102

100

10-2
1 1
Total Top 5 Bitcoin Ethereum Bitcoin Bitcoin Litecoin Simple Centralised Enterprise Public Public
PoW Cryptocurrency Cash SV server system Blockchain Blockchain Blockchain
Non-PoW PoW
Market capitalisation Annual energy consumption
(lower bound – upper bound)

Source: The Energy Consumption of Blockchain, Catchword, May 2020 Source: The Energy Consumption of Blockchain, Catchword, May 2020

3. Virtualisation: VR (virtual reality), AR (augmented reality) and

MR (mixed reality)


Roads? Where we’re going, we don’t need roads
Back to the Future Part 2 (1989)

Virtual reality is the next computing platform… but how long will it take to get there?
VR/AR needs 50-100m units The modern incarnation of virtual reality, it can be argued, began when Facebook bought Oculus
sold to hit tipping point VR, the initially crowd funded (Kickstarter) start up for USD2bn in 2014 – the second highest ever
M&A by the company, after its WhatsApp’s reported price tag USD19bn. At the time of the Oculus
purchase, Mark Zuckerberg, the Facebook CEO, suggested that VR “needs to reach a very large
audience – 50 to 100 million units – before it will really be a meaningful thing as a computer
platform” in about 10 years’ time. Six years has passed since the acquisition so far and since then
a swathe of technology players have thrown their hats into the ring and have been investing into
the VR/AR space, including Sony, Microsoft, HTC, Valve, Google, Apple, QUALCOMM, Xiaomi
and more with varying levels of success.

In 2014, the initial development kits of the Oculus VR headset sold about 100,000 units and with
the release of the latest Oculus Quest 2 headset this October, a totally wireless VR headset
priced at USD299 (with no need for a powerful PC), IDC expects there to be 2 million sales of
the headset this year, bringing total VR/AR headset sales to 5m units for 2020. See chart 23C
to see the price decline of 6 degrees of freedom (6DOF) VR headsets (e.g. proper VR headsets
where you can walk around in your real physical environment) from Facebook/Oculus since
2016. The total cost including the high-end computer required in 2016 was USD1,600. Compare
that to this year, when they have the Oculus Quest 2, a wireless standalone VR headset priced
at USD299 – an almost 80% price compression in 6DOF VR headset total ownership.

75

Has the pandemic
accelerated VR applications?
76
Thematic ● Global
November 2020
Chart 22C. Cumulative VR/AR headsets in Chart 23C. Cost of 6DOF VR headset
circulation to near 80m units by 2024 ownership is falling…
60 1,800 Oculus Rift (PC based)
1,600
50
1,400
40 1,200
1,000
30
800
Quest 2 - wireless
20 600
400
10 200
Quest 1 - wireless
0
0 2014 2016 2017 2019 2020
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: HSBC, IDC, SuperData, Statistica, Guardian Source: HSBC, Oculus/Facebook
We expect that by 2024, the 10-year mark since Zuckerberg stated the goal to get the
technology to a tipping point of 50-100m units, we estimate there will be just over 50m VR/AR
headset units in circulation cumulatively. So in that sense, Mark Zuckerberg’s decade lower end
of his target would have been hit collectively across all VR/AR headset vendors. We note that
his long-term goal is to get 1 billion users into VR, which is far away at this moment in time.
Chart 24C. VR games enters top 10 for Chart 25C. VR in top 10 PC grossing titles
traffic during pandemic for March 2020 earnings, worldwide
Ranking Game Ranking Game
1 Roblox 1 Dungeon Fighter Online (MMORPG)
2 Player Unknown 2 League of Legends (MOBA)
3 Fortnite 3 Crossfire (FPS)
4 League or Legends 4 Fantasy Westward Journey Online II (MMO)
5 Minecraft 5 Doom Eternal (FPS)
6 War Thunder 6 Counter-Strike: Global Offensive (FPS)
7 Geforce Now (Cloud Gaming Service) 7 Borderlands (FPS)
8 Mobile Legends 8 Half-Life: Alyx (VR only FPS)
9 Oculus Rift (VR Gaming Service) 9 World of Warcraft West (MMO)
10 Warframe 10 World of Tanks (MMO)
Source: Sandvine Source: Nielsen
NB. Massively multiplayer online role-playing game (MMPORG), Multiplayer online
battle arena (MOBA), First-person shooter FPS), Massively multiplayer online game
(MMO)
The pandemic has accelerated a lot of technology use and a good question is whether we’ve seen
any traction for VR during our current crisis. We were surprised to see that in the top 10 of online
games traffic, during that pandemic Oculus VR platform made the top 10 – see chart 24C. This is
shown in chart 25C also, which shows a VR game making the top 10 sold games at the start of the
crisis in March, a first for a VR game in our observation, Half-Life Alyx at number 8– a VR-only
version of the Half-Life franchise. Below are examples of VR before and during the pandemic:
 Conferences 2D to 3D: The pandemic saw conferences and festivals cancelled worldwide
(for example, the Mobile World Congress), while some organisers shifted to online through
streams (for example, SWSW). However, 2D ‘pancake’ streams can be limiting in terms of
interacting with others vs VR.
 Burning Man held a VR version of the festival in AltSpaceVR (owned by Microsoft)
 Microsoft hosted an education summit in VR, with 170 speakers participating and 2,000
people attending over six days.
 Thematic ● Global
November 2020

 Microsoft also said the VR conference took 9,000 cars off the road and saved 5 million
miles of travel, which is a positive for climate change.

 HTC also recently held its annual 2,000 participant conference in VR, in collaboration
with a company called VR Education (LON: VRE).68 VR Education signed a multi-year
licence pact with Tokyo Global Gateway recently to deliver lectures in VR for teaching
English to Japanese students. 69
 Live entertainment (concerts, theatre, and comedy): Live events have also moved online
during the pandemic. Musicians like Chris Martin from Coldplay have been using apps (e.g.
Instagram) to livestream their hits from their living rooms, using their smartphones directly to
viewers’ homes. Some musicians have taken their performances to VR, including John Legend,
David Guetta and Jean-Michel Jarre, in MelodyVR, Oculus venues and VRChat over the last
few months. Glastonbury, the UK music festival, embraces VR too, with Fatboy Slim heading,
Diplo performed at Burning Man VR and the Wireless London music festival was streamed in
VR my MelodyVR. Tidal (the music streaming company owned by Jay-Z) recently announced
plans to sell access to VR concerts too. Sony plans to experiment streaming concerts in VR
going forward through its current or its next generation PSVR headset.70 As a result, live
entertainment streaming technology may well progress to become fully immersive over the
coming decade, blending live-action capture and CGI imagery. Comedy nights with Reggie
Watts were a frequent event happening in AltSpaceVR before and during the pandemic.
 Immersive education: Online education for schools and universities had become the only
way to continue the term during the pandemic, often through online lessons. We are
beginning to see VR applications being designed for education too and VR could be the
next stage of remote or in-class education. Examples of VR applications include Titans of
Space to learn about the planets, The Body VR, House of Languages VR, MEL Chemistry
VR, Olympia in VR, and Anne Frank House VR. In addition, there are VR platforms that
hold lectures and talks, which could be useful for universities.
 Physical exercise and games: Although gyms will re-open post the pandemic globally with
new social distancing measures, VR might offer an alternative in terms of working out at
home. Currently, rhythm apps like Beat Saber or BoxVR get the body moving, and give
users a good workout. There are also VR apps to play sports at home – for example,
Premium Bowling, Eleven Table Tennis VR, Pro Putt and more.
 Live arena and stadium sports: NextVR, a company recently acquired by Apple (which also
appears to be developing AR/VR headsets71), has in the past used its technology to livestream
sports such as NBA games from courtside into VR. During the FIFA Men’s World Cup in 2018, a
number of broadcasters such as the BBC streamed it in VR, making viewers feel like they were
in the stadium. VR live sports has potential to gain in popularity in a post-pandemic world, we
think. Sky Sports and BT Sport also have streamed 360 footage for football also; one can
envision this moving to VR headsets in the future, to help increase revenue streams.
 Going to the movies: Streaming of video content is now normal. The COVID-19 pandemic
saw the closing of cinemas and the continued growth of streaming of movies and series.72
Some studios, such as Universal, have been experimenting with bypassing cinemas and
going straight to video-on-demand (VOD). One of its movies, Trolls 2, made about USD100m
on VOD. The studio hopes to continue a multi-model distribution for new movies after

______________________________________
68 “VR takes the stage as conferences cancel”, Forbes, March 2020.
69 “VR Education inks multi-year licence pact with Tokyo Global Gateway”, Morning Star, July 2020.
70 “Sony ramps up VR efforts as demand for virtual events surges”, FT, May 2020.
71 “What Apple's glass project can learn from Magic Leap's mistakes”, Wired, June 2020.
72 “Netflix gets 16 million new sign-ups thanks to lockdown”, BBC, April 2020.

77

China and US to be biggest
users of VR
Enterprise VR will be 40% of
the VR headset market…
78
Thematic ● Global
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lockdown.73 According to a survey by Morning Consult, 52% of moviegoers say cinemas
should change with the times and embrace digital premieres.74 This could bode well for the
future of movies premiering in VR. Netflix and Amazon Video already have VR apps, and
Paramount and Lionsgate have deals to show movies with VR companies. Content platform
owners, such as Apple, could also get involved, especially if they release a VR/AR headset.
Sony also has a movie catalogue and owns a PSVR (PlayStation VR) hardware ecosystem.
 Museums and culture: A key attraction of cities is that they are a hub of culture, including big-
budget museums. All of these had to shut during the pandemic but it looks like many have, like
movie studios, taken the opportunity to re-think their archives and recreate them in VR. Tokyo’s
National Museum of Nature and Science released VR versions of exhibits during the
lockdown.75 There are also some VR apps, for example, the Museum of Other Realities, which
allow users to be immersed in digital exhibits virtually, going beyond physical museum
experiences. If institutions embrace this technology post the pandemic, it would allow people to
experience this type of culture without travelling to the city. The V&A Museum in London
recently announced it is going to have a VR experience of Alice in Wonderland too.
What does the geographical breakdown of VR look like today and going forward? According to
IDC, at the moment the US has 40% market share of VR/AR headsets sold, China 25% and
Europe 15%. However, over the coming 5 years, they expect China to grow and overtake the
US and be 40% market share of VR/AR headsets and the US to be 25%. The rest of the world
is expected to be steady at about 15% of global share in VR/AR headsets. See chart 26C.
Chart 26C. China set to dominate in VR/AR headset ownership by 2025
(% global market share)
45%
40%
35%
30% US
25%
China
20%
Europe
15%
RoW
10%
5%
0%
2020 2021 2025
Source: HSBC, IDC
Although we have focused mostly on consumer applications of VR in our examples above, the
IDC expect that over the longer term enterprise will be 40% of the VR/AR headset market.
Below are some examples of enterprise and sector VR/AR:
 Finance: UBS has been testing Microsoft’s AR headset called the HoloLens for their
trading side of the markets businesses. They are trying to replicate the interactive nature of
the trading floor using AR technology, re-imagining the trading floor of the future. Citigroup
had also experimented with the AR headset a little while ago and said they said “further
development could achieve the ultimate state of tele-existence, in which there is little
difference to actual physical existence in the space”.76
______________________________________
73 “Trolls World Tour: Universal PVOD experiment racks up near estimated $100M to date”, Deadline, April 2020.
74 “Moviegoers split over theatre owners' feud with Universal”, Hollywood Reporter, May 2020.
75 “Escape lockdown with a VR tour of the National Museum of Nature and Science”, Japan Today, May 2020.
76 "Traders set to don virtual reality headsets in their home offices", FT, September 2020.
 Thematic ● Global
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 Oil & Gas: A number of O&G companies have been using VR/AR wearable technology for
a number of applications including: training in simulations and smart glasses to overlay
information to improve worker safety. Shell are using VR for deepwater training for
operational safety in their Malikai project, offshore Malaysia. Chevron are using VR to
simulate refinery equipment and sensor data, overlaid on 3D models to let technicians to
identify issues and get to solutions quickly.77
 Industrial: ABB have created a VR platform to help workers in maintenance and operation
of machinery to increase efficiencies and safety for various industrial sectors. They deploy
the “ABB Ability Augmented Field Procedures” app on HoloLens AR headset, which gives
the user an overlaid guide to how to operate the machinery they are standing beside. They
can also use the device to communicate with other team members and using it replaces
paper of filing reports. 78
 Knowledge economy WFH: The next step in the evolution of WFH might be using VR/AR
headsets. For example, Facebook’s latest Oculus Quest 2 headset is designed with a mode
called pass through, which allows it to become an AR headset. This will allow knowledge
economy workers to see the real world whilst using any number of shared virtual screens
with colleagues. For example, Facebook showed a demo of something they called “Infinite
Office” for Oculus Quest, which allows the user to see their physical keyboard whilst
working in VR, and due to the AR feature, they are also able to control the opacity of the
physical world around them. An app called Spatial on the Quest also showed how it will be
possible to bring avatars of colleagues into this Infinite Office kind of environment. This will
be ones step closer to replicating the physical office environment using AR/VR technology
stack. Facebook talked about the promise of next generation AR glasses, in the form factor
of sunglasses. They are partnering with Ray-Ban to create these AR glasses but we are
likely a number of years away from seeing a commercial product.

VR/AR headsets obviously need the highest bandwidth one can pipe to the headset, especially
Relationship between 5G and
VR/AR
as any latency can be jarring in VR. Here are some discussion points of Wifi vs 5G for VR/AR in
DM vs. EM:
 Indoor DM with Wifi: Most places in the DM are likely to have wired broadband. In this case,
the best option is to stream content into the VR headset using local wifi for best performance.
 Indoor DM with only wireless: Not all DM premises will have fixed-line internet. In these
situations, the faster the wireless one has, the better. So 5G is probably the best, if the VR
headset supports it. The next generation Qualcomm XR2 reference chips are supposed to
have 5G support.
 Outdoor DM with AR/VR: Technically today, 6DOF Oculus Quest headsets are not
supposed to be used outside, exposing it to natural sunlight, as it can damage the AR and
6DOF tracking cameras. But with next generation VR/AR headsets which will be designed
to be used outdoors, like Facebook AR glasses or others, then Wifi may not be accessible
so 5G will be the optimal solution.
 Indoor/outdoor EM with only wireless: In the EM, most of the internet connection will be
from wireless internet, so 5G will be crucial for good VR/AR connectivity and rendering.

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77 "How leading oil and gas companies are adopting virtual reality", Offshore Technology, January 2020.
78 "ABB virtual reality technology to improve efficiency and safety", Offshore Technology, April 2020.

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Thematic 1st, 2nd tier and ESG implications for experiential

Digital content:
 Achilles’ heel of content models: For digital content, one can mentally break up the big tech
Paid or free tech models
firms into how their primary business models operate and how they get the lion’s share of their
revenues. For example, we can think of these content makers and distributors as being
categorized into two buckets: 1) paid services and products, vs 2) advertisement support.
This has two implications, the first being that companies which rely on the ad model can
typically face increasing regulatory and social pressure on issues of privacy, as their model
predicates that users can access the service for free (e.g. Twitter, Facebook), but in return,
they will service you adverts and use AI to serve you content which might inspire you to click
and keep scrolling the infinite social feed. Many companies which operate this model have
been at the heart of the fake news controversy. It could be argued that they have roundabout
incentive to make articles, videos and images go viral within the network, to be seen by the
widest number of users.

The second content-making model is for users to pay for the product. These companies will
find it in their best interest to push the fact that they take privacy of user data to be paramount,
and in fact this becomes a selling point (e.g. recent Apple advert which communicates to the
viewer they don’t share your information79). These types of companies utilise user data to make
the service or hardware more useful, for example by improving the AI recommendation engine
(e.g. Netflix, Spotify or Amazon) or product which improves the life of the user (e.g. Apple
Watch for health alerts, if the user falls).

Why is it important to distinguish tech players like this? Although tech giants are all usually
lumped into the same category (e.g. acronyms like FAMA/GAFA etc.), it important to see the
difference because they will have varying weaknesses going forward that the investor should
appreciate.80 For example, paid products’ sensitivity of sales may be directly how the economy
is faring (and also social preferences – e.g. trends to ecommerce) and ad-supported products
could be at the mercy of regulation due to data privacy and virility of fake news issues.
 ESG: Cloud gaming impact in EM infrastructure: The number of internet users who play
EM cloud gaming impact
computer games is very high in the EM broadly, for example we highlighted it was 86% in
Latin America and 83% in Middle East/Africa. Gaming platforms may slowly migrate
towards cloud gaming, with platforms Google Stadia or Amazon’s Luna. Whilst this kind of
shift could present pressure on bandwidth infrastructure within the DM, it could place even
more in the EM, especially if it’s through wireless mobile traffic. This in turn creates even
more demand for power consumption from data centre infrastructure.
 Physical retail commerce for the esports generation: There are two trends which look
Esports cafes
unrelated on initial observation but could complement each other in the longer run. On one
hand you have computer gaming becoming a norm for the current generation, with it being
seen as a social activity. Additionally, gaming is being seen as big business, supported by the
fact that sales of computer games out-gross movie and music sales. Then to top it off, we have
the vibrant audience of esports from services like Twitch by Amazon. At the same time, you
have the high street struggling due to the growth of ecommerce and supporting warehouse
infrastructure. This could potentially put pressure on high street physical retail space.

We believe the intersection of computer gaming and the high street could be a good
combination going forward. For example, Tencent in partnership with Canadian brand Tim
______________________________________
79 "Apple's new iPhone ad puts privacy front and center again", CNN, September 2020.
80 "Facebook attacks Apple for curbing personalised ads", FT, August 2020.

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Hortons are reported to be planning to opening 1,500 esports cafes in China. It’s expected that
the esports cafes will have perks like fast Wi-fi, gaming chairs, fast charging ports, alongside
food and drink.81 This isn’t an isolated strategy. Waynoo, the biggest gaming café chain from
Asia, are planning to open esports cafes in London too, with dedicated spaces for gaming.82 So
the factor of gaming being seen to be a social activity by the younger generation may be one
way to boost physical retail space going forward, refreshing the high street for the 21st century,
bringing remote online gaming to a physical presence in the real world.
 ESG: Accredited MOOCs to boost EM education and access to DM knowledge
Can EM take DM higher-
paying jobs through MOOCs?
economy jobs: The rise of online education using MOOCs is positive for the general
population, to get access to education independent of where people live. However, the
access to certified credentials through these services is an even bigger boon to those in say
the EM, who would probably previously not have access to accredited educational
institutions from the West. For example, American Ivy League institutions now have courses
online, like MIT Open CourseWare (which is actually free).

 Might digital interaction displace physical interaction? The rise of the smartphone use
Driving is out of fashion for
the digital youth; will other
activities follow?
This in theory gives those living in the EM access to education that traditionally only those
living in the DM might be able to access. The implication of this might be in the longer term,
that knowledge economy jobs which usually reside with DM physically-based companies,
who hire say Ivy League-educated students, might widen the net for hiring to the EM also.
Whilst outsourcing of certain kinds of jobs has been going on for some time now from DM to
EM, this might enable another level of workers, which can also be outsourced too.
Moreover, the need for big educational institutions to migrate online due to COVID-19 could
support this trend in the longer term too.
for the younger generation is a given, consuming digital content from social media, gaming,
movies, music and more 24/7. One can argue that this trend has probably fuelled the on-
demand economy, who prefer to take an Uber or Lyft and use their time for digital
socialisation than physically driving themselves.

For example, according to the Federal Highway Administration in the US, the number of
teenagers hitting 16 and learning to drive has fallen from 46% in 2008 (a year after the
release of the first iPhone) to 25% in 2018. A good question is whether digital consumption
will further suppress these kinds of real-life activities in the longer run, like going to the
cinema, going to watch sports etc. This is an area to watch, in order to see which
experiences survive the smartphone era.

Moreover, there is increasing concern that there could be negative mental health impacts
from the use of digital platforms like Instagram, Facebook, TikTok and others. The worry is
that these platforms might cause issues of self-confidence, body image and psychological
wellbeing.83
 In-game transactions fuel online spending: The normalisation of in-game micro-
Normalisation of virtual and
digital goods
transactions for avatar clothes and other items, for example in games, could increase the
natural propensity for the digital native generation to spend online and VR in the future,
even if they are only virtual goods.

______________________________________
81 "Tencent reportedly opening esports themed cafes in China", Essentially sports, September 2020.
82 "Asia'a largest gaming cafe chain Wanyoo to open studio in London this month", ESI Sports Insider, January 2020.
83 "The social dilemma: is social media really affecting our mental health?", Vogue, October 2020.

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Digital backbone:
 Cashless transparency: There are a lot of positives in terms of moving to a cashless world
Easier tracing of payments
online
from a technological point of view, from either fintech refreshing the digital payments
system or blockchain technologies like CBDC (central bank digital currencies). The
technology will allow better traceability of transactions, better governance (e.g. tax) and
perhaps easier tracking of the economy in real-time.
 ESG: Might cashless tech leave poorer EM or certain demographics behind? This
Disadvantaged by online
payments
push to adopt digital technologies for in-person payments, more or less requires the end-
user to have a mobile phone, or indeed a smartphone. There is a risk that if this transition
happens too quickly, that people living in poorer areas (like EM) or those not able to use
technology in society (like the elderly or disabled) could potentially be in danger of being left
behind from taking part in everyday life and the economy.
 Technological risk mobile payments: The other risk which should be considered is
What if tech breaks?
technological risk – what happens if the technology breaks? There have been instances
around the world when consumers have got into trouble when their mobile phones have run
out of battery and they couldn’t pay for services – for example the FT reported last year
about a person who had to go to court, as an individual couldn’t pay for her bus journey
when her smartphone battery ran out in London.84
 ESG: Blockchain energy and climate change: If blockchain ledgers take off in scale
Energy issues for proof-of-
work blockchains within society going forward, there is a risk that due the technical process of mining
consuming energy, used as part of its proof-of-work (PoW) process, it could put a strain on
the power systems and add to climate change. As we highlighted earlier in this note, both
fully decentralised permission-less and permissioned enterprise blockchains consume more
energy than centralised databases.

Today, we find that bitcoin itself is estimated to consume 64Twh of power this year, which is
a similar magnitude of energy consumed by a number of countries: Venezuela (60Twh),
Columbia (64TWh) and Algeria (70Twh).85
 ESG: Blockchain on renewables: If blockchains are run on renewables going forward,
Renewables pop up again
then this presents a way out of the energy consumption dilemma. It’s estimated that 76%
(62% hydro, wind 17%, solar 15%) of so called ‘hashers’ who run bitcoin have used some
form of renewable energy for their mining process at some point. But only 39% of the total
hashing energy consumption comes from renewables. 86

 ESG: Technology can reduce privacy for payments: One of the advantages of going
Anonymous digital payments
cashless via technology is that it allows transactions be tracked more easily for governance
purposes. However, on the flip side, cashless transactions using mobiles can compromise
privacy for the users, when compared to the anonymity of physical cash transactions.
Concerns about privacy and data security are one of the reasons that there has been
pushback in Sweden where about half of bank branches no longer accept cash deposits. A
parliamentary committee is studying the impact of Sweden's falling cash use and the central
bank is examining the risks of going completely cashless. It is possible that certain types of
decentralised crypto currencies called “privacy coins” may offer better anonymity and
fungibility, if consumers demand it from companies at some point, but governments may not
enjoy this.

______________________________________
84 "How my iPhone landed me with a £476 fine and made me a criminal", FT, October 2019.
85 Cambridge Bitcoin Energy Consumption Index, October 2020. Global Energy Statistical Yearbook 2020.
86 "Renewable energy not as prominent in cryptocurrency mining as previously claimed", Finextra, October 2020.

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 ESG: Blockchain for industry gives real efficiency and cost savings: Whilst blockchain
Blockchain for industry more
exciting than for payments?
technology might help refresh global payments systems by having CBDCs, we believe
blockchains could also potentially be an even more interesting prospect for enterprise
systems, if blockchains like Hyperledger (a version of blockchain supported by IBM, Intel
and other parties) get adopted for enterprise systems. This is because we can already
quantify actual savings and efficiencies from deploying the technology, and see how
blockchain technology could provide provenance for products like food and thus safety. For
example, in shipping it has been shown that there can be savings of up to 20% from
eliminating paperwork between carriers and ports.

Virtualisation:
 ESG: Is privacy in VR dead, where everything is tracked? Earlier on we talked about the
Ads in VR with less privacy?
implications of paid vs free digital content business models. VR is currently sitting on the
border of both business models. For example, one pays to buy the VR headset, like you do
for your mobile phone or computer. Therefore you own it, in theory.87 Also, VR ecosystems
today are primarily driven by immersive games (although other applications are growing)
and so one usually pays for them on the app store (free experiences do also exist). On the
other hand, VR allows companies to track in exacting detail where the user is looking or
glancing and what they are doing in V, which raises some of the same privacy concerns we
see with ad-supported business models and potentially even more, as some studies have
shown movement in VR could be used to determine everything from age, gender to
physical and mental health.88

VR impact on the real world
 ESG: Virtualisation’s unknown impact on business travel, real estate and
It can in theory also track your physical environment with its external environmental tracking
cameras. There are already data points which suggest that companies involved in VR are
thinking about the potential of using this data for delivering advertisements. For example,
Sony have patented a way to display adverts in VR and Oculus users now have to use their
Facebook login user details to use its VR headset, therefore tying it closer to the Facebook
ad machine. 89 VR privacy could become a big issue for the platform going forward, and is
likely at risk from regulators much earlier on it its development cycle as society is much
more acutely aware of digital privacy issues. A US Senator already raised the issue of
tracking data from Facebook a number of years ago.90 The Electronic Frontier Foundation
have also been raising the issue of privacy in VR/AR – they published an article recently
titled “If privacy dies in VR, it dies in real life”.
entertainment venues: Just as the pandemic accelerated WFH though Zoom, which has in
part virtualised the office of the 21st century and at least in the short-term, reduced travel for
businesses, VR could be another technology around the corner which could place
additional question marks on certain kinds of travel. For example, the VR ecosystem is in
the process of demonstrating and building applications which can hold conferences, with
the likes of Microsoft owning a VR platform to enable this.

VR and other forms of virtualisation of meetings could also challenge non-intro business-as-
usual face-to-face meetings which require physical travel. This may have medium-to-longer-
term unknown implications for business travel, which was expected to be a USD1.6trn
industry annually by 2020.91 This potentially has a negative impact on supporting industries
______________________________________
87 "Facebook accounts using fake names, among other violations, risk losing access to oculus content", Road to VR,
September 2020.
88 "What does your gaze reveal about you? On tracking the privacy implications of eye tracking", Technische University
Berlin, 2020.
89 "PSVR patent filed for advertisements displayed within the headset", IGN, July 2020. "Facebook will target ads based on
your Oculus VR data", Naked Security, December 2019.
90 "Oculus issues detailed response to Senator Al Franken's privacy concerns", Upload VR, May 2016.
91 "Business travel statistics", TravelPerk, 2018 .

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like hotels, taxis, restaurants, credit cards and other amenities supporting business travel.
However, we don’t necessarily think VR will hit traveling for leisure, although it could be an
additional tool used by travellers to decide where to go, by experiencing virtual tours of
places they might like to visit.

The pandemic has had the potential to put pressure on commercial real estate, especially
shopping malls and office spaces. VR/AR and more immersive WFH technologies, will only
add to this pressure going forwards once they get going and become more widely adopted.
The transition to a possible VR economy, poses other unknown questions also, like the impact
on metals, oil & gas – from possibly requiring less physical transport for people and less
travel. We have also highlighted the VR alternatives to fitness, cinemas, sports and concerts.
Is, for example, the closing of cinemas (even if this is temporary during the pandemic), a good
time to pivot to DRM (digital rights management) protected VR cinemas? A number of studios
currently have deals with VR companies to screen movies in VR cinemas – will the pandemic
accelerate these partnerships? If people living in small spaces find “living” in the VR
metaverse fun, where they can be exploring almost any landscape, will this discourage people
from wanting to own and live in larger homes? What about if VR figures out how to re-create a
sense of touch too, further bridging the gap to reality?
 ESG: One VR/AR screen to rule them all? A lot of digital screens are sold every year. For
VR/AR to replace all screens?
example, this includes 360m+ smartphones (Samsung 75m, Huawei 58m, Apple 38m,
Xiaomi 33m, OPPO 28m) were sold in 2Q1992, 157m smart TVs (Android, Tizen, webOS,
RokuOS, FireTV) were sold in 201893 and 30m PC monitors (Dell 6.4m, HP 4.6m, TPV
4.3m, Lenovo 3m, LG 2.5m) sold in 2Q1994 worldwide.

Once AR headsets become widely available, and are used in an all-day comfortable form
factor, it is possible that they could replace smartphone, smart TV, monitor and other types
of digital screens one sees daily. Even before it hits the point of ubiquitous AR, the current
generation of VR with AR capability, as the resolutions improve, will bring into question the
need for large work screens and smart TVs, especially when text becomes more readable
within the VR/AR headsets. Think of the saving in materials and energy in not needing to
build millions of (larger) screens, which is naturally has overlap with ESG issues of energy
use. We estimate that by 2030, that manufacturing devices could consume 2.7% of global
power, up from an estimated 1.7% today.
 The VR economy: According to Apple, the iOS app economy has created 2.1m jobs in the
App economy to VR economy
US (still growing at double digit growth), and supports 450k manufacturing and supply chain
roles. The worldwide consumer spending on mobile apps was USD85bn and is expected to
reach USD171 by 2024. The Apple App store is expected grow from USD15bn to USD35bn
in China at 17% CAGR (note China is expected to be the largest VR market by 2024 too)
and higher than the next biggest of 15% CAGR in the US, to USD30bn.95 The reason to
highlight these numbers is that if VR/AR becomes the next computing platform after the PC
and the smartphones, it will go from the app-based economy to the VR economy.
Previously we have estimated the VR/AR economy to be 3% of US GDP this figure could
be higher as more things are virtualised. The VR economy will rely on 3D designing
applications, for example Unity and Unreal Engine 4. Currently VR platforms like Oculus
take a 30% cut from apps sold, similar to the app economy.

______________________________________
92 "Gartner says global smartphone sames continued to decline in second quarter of 2019", Garner, August 2019..
93 "157 million smart TVs sold last year - Samsung Tizen leads", Flatpanel HD, April 2019..
94 "Global PC monitor volume declines in the second quarter of 2019", IDC, October 2019.
95 "Mobile app spending to double by 2024, despite the economic impacts of COVID-19", Tech Crunch, April 2020.

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 VR tax issue: If the app economy migrates to the VR economy, it will slowly include
App store wars could be
important for VR future
everything from immersive gaming, entertainments like theatre/cinema/sports, virtual office
environment, virtual real estate, custom worlds, e-commerce, payments, in-app transactions
and more – so the outcome of the current app store battle could be crucial. For example, a
VR cinema app has complained about how the 30% fee (or VR tax as the start-up called it)
taken by Oculus store essentially makes their business unviable after giving 60-80% to the
studios.96 This kind of so called “VR tax” has the potential to slow VR development.
In 2020, Epic Games, the maker of Fortnite, drew a line in the sand, and has publically
confronted Apple on its app fee of 30% - see chart 6C for a summary of the different app
cut fees from different platforms. Imagine VR/AR platforms taking a 30% cut from the entire
virtual economy – which has the potential to become larger part of the global economy one
day. Amazon Luna, which is cloud based gaming, might point to an alternative way for apps
to by-pass app store rents using something called Progressive Web App (PWA), which is
basically a website that launches and works separately from the web browser – might VR
deploy a similar technique using OpenVR like standards combined with the browser in VR?

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96 "Bigscreen CEO: Facebook's 30% VR Tax hurts the industry", Upload VR, September 2020.

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 Thematic ● Global
November 2020

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