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    The next set of waves
    © The Economist Corporate Network 2016
    Asia Pacific’s Digital Disruption: The next set of waves is an Economist Corporate
    Network (ECN) report, sponsored by Dentsu Aegis Network. The ECN performed the
    research, conducted interviews and wrote the report independently. The views and
    findings expressed in this report are those of ECN alone and do not necessarily
    reflect the views of the sponsors.
    The report was written by Christopher Billich and Andrew Staples. Pamela Qiu
    contributed to the research and edited the report. The design and layout of the
    report was done by Wai Lam. The cover image is by ThinkStock.
    We would like to thank all interviewees for their time and insights.
    November 2016
    Interviewees, in alphabetical order:
    Prashant Agarwal, Director, EDGE (Group Innovation), AIA Group Limited
    Jonah Cacioppe, Director, Boundlss
    Steve Chambers, CEO, Jibo
    Tipatat Chennavasin, Co-founder and General Partner, The Venture Reality Fund
    Benjamin Joffe, General Partner, HAX
    Miho Kagei, Team Manager, Product Planning Department, Communication Robot Business Development
    Unit, Sharp
    Hasumi Kazutaka, Board Director, Product Division, SoftBank Robotics
    Haresh Khoobchandani, General Manager, Microsoft Business Solutions Asia Pacific, Microsoft
    Shigeru Kobayashi, Department General Manager, Innovation Planning Department, Cloud Service
    Development Unit, Sharp
    Dr Wen-Syan Li, Senior Vice president and Head of IoT SCM and Srategic Projects for Asia Pacific, Japan and
    Greater China, SAP
    Florian Miguet, CEO and Co-founder, Clim8
    Jay Onda, Venture Partner and Director of Strategic Investments, Yamaha Motor Ventures and Laboratory
    Silicon Valley
    Samba Natarajan, CEO, Group Digital Life, Singtel
    Adam Sheppard, CEO, 8Ninths
    Redg Snodgrass, CEO, Wearable IoT World
    Hubertus Wasmer, CSO and Co-founder, nexpaq
    © 2016 The Economist Corporate Network.
    All rights reserved. All information in this
    report is veried to the best of the authors’
    and the publisher’s ability. However, the
    Economist Corporate Network does not accept
    responsibility for any loss arising from reliance
    on it. Neither this publication nor any part of it
    may be reproduced, stored in a retrieval system,
    or transmitted in any form or by any means,
    electronic, mechanical, photocopying, recording
    or otherwise, without the prior permission of the
    Economist Corporate Network.
    © The Economist Corporate Network 2016
    1. Introduction
    Key advances in digital technology are radically redening the possibilities of
    2. Internet of Things
    Physical objects are becoming increasingly connected, transforming consumer
    behaviour and business models in the process
    3. Virtual and augmented reality
    VR and AR devices may turn out to become the next personal computing platform,
    enabling new forms of experience
    4.Articialintelligence,smart assistants and consumer robotics
    From virtual assistants to consumer robots, both the digital and the physical world
    are about to become dramatically smarter

    © The Economist Corporate Network 2016
    1. Introduction
    Key advances in digital technology are radically
    redening the possibilities of marketing
    Driven forward by digital disruption, the rise of mobile, social and e- (and m-)
    commerce represents a set of waves that are having a deep impact on consumers and the
    way that companies engage with them.
    Building behind these, however, the next set will be nothing short of revolutionary.
    The Internet of Things (IoT), Virtual and Augmented Reality (VR/AR), and Articial
    Intelligence (AI) all herald a new era where makers of products will look to use
    technology platforms to develop much closer, more direct and individualised
    relationships with their customers than ever before.
    The IoT, a network of connected physical objects that communicate with one
    another, promises to reshape not just consumption, but how we live our lives. From
    intelligent clothing to smart home infrastructure, the data generated by IoT-ready
    devices has profound implications for marketers. Deep insight into users’ behavioural
    patterns enable more efcient, tailored product development and better support and
    maintenance. Connected physical products establish a direct communications channel
    between manufacturer and consumer, instantly creating an ongoing after-sales
    relationship. And almost any product can be enhanced with a layer of ancillary digital
    services, increasing its usefulness.
    Advances in VR/AR, technologies, which today are largely driven by applications
    in entertainment and gaming, promise to dramatically increase the possibilities
    of experiential marketing, for instance by letting future home owners explore real
    estate projects that are yet to be built, or by offering travellers a rst-hand look at
    travel destinations halfway around the world. In e-commerce, VR is poised to radically
    transform the online shopping experience by allowing consumers to browse products
    and customise them to their needs in richly immersive 3D environments, without the
    need to visit a physical outlet. Brick and mortar retailers could employ AR to help
    increase convenience and efciency at the point of sale, using the technology to guide
    customers in-store and to provide detailed product information at a glance.
    AI is a rapidly developing set of technologies that aims to impart anything from
    smartphone apps to voice-controlled home devices, connected vehicles and personal
    robots with advanced cognitive abilities modelled on the human brain, allowing digital
    The data
    generated by IoT
    ready devices
    have profound
    implications for

    © The Economist Corporate Network 2016
    devices to perform complex tasks like understanding natural language, learning a
    user’s preferences over time, or recognising someone’s moods and adjusting their
    responses accordingly. For the marketing profession, this means that highly customised
    interactions with consumers and sophisticated predictive analytics will become the
    norm rather the exception.
    Similar to internet-enabled mobile phones ten years ago, these innovations today
    still suffer from the characteristic growing pains that frequently plague early stage
    technologies: high cost, platform fragmentation, unsolved usability problems,
    interoperability issues and a lack of compelling applications and content. Privacy and
    security concerns form an additional barrier for some consumers. All things considered,
    adoption levels are still low.
    But with both the major technology players in the US and the Asian technology
    industry heavyweights already deeply involved in IoT, VR/AR and AI, it looks as though
    the digital experience will soon play out across a kaleidoscope of smart visual, auditory
    and haptic interfaces, embedded in a wide variety of connected objects. Smartphones
    will likely continue to play an important part, serving as a universal remote control
    for a diverse array of IoT devices, to act as displays for entry-level VR headsets, and to
    provide the platform which brings AI and conversational interfaces to the masses.
    Asia is likely to play a crucial role in the development and adoption of these
    technologies. The region’s high population growth, rapid urbanisation and growing
    afuence are creating the conditions for fast adoption on a large scale. As many
    consumers are investing in big ticket items for the rst time, they are leapfrogging to
    smart, connected products, bypassing legacy technology.
    Many of the governments in the region have vested interests in the success of
    these technologies. Robotics, for instance, is of vital strategic importance to China’s
    manufacturing industry. Spillover effects from the industrial sector into the consumer
    domain are a well-established pattern. And after decades of honing their technological
    prowess and production know-how as suppliers to Western rms, Asian manufacturers
    are starting to churn out highly innovative products and services themselves, designed
    to the specic needs of their local markets.
    Asia is likely
    to play a crucial
    role in the
    of digital

    © The Economist Corporate Network 2016
    2. Internet of Things (IoT)
    Physical objects are becoming connected, transforming
    consumer behaviour and business models in the process
    An estimated 2.9bn people worldwide are using the internet to access information,
    communicate with others, conduct business and shop online. But increasingly, physical
    objects come equipped with sensors, embedded software and wirelessly network
    connectivity, which enable them to collect and exchange data.
    These devices, collectively known as the The Internet of Things (IoT) are fast adding
    a pervasive digital layer to the physical fabric of the world. They are becoming a part
    of everything around us: from clothing, homes, ofces, factories, vehicles, retail
    environments to public infrastructure.
    The number of connected objects has already far surpassed that of human users.
    Gartner, a research rm, estimates that 6.4bn of these devices will be in use worldwide
    in 2016, a 30% increase from the previous year. With an estimated 5.5m new “things”
    being connected every day, the number of IoT devices could exceed 20bn globally by
    Source: Gartner, November 2015
    Internet of Things units installed base, by category (millions of units)
    5.5m new things connected each day
    Business: Vertical-specic Business: Cross-industry Consumer

    © The Economist Corporate Network 2016
    Machine-to-machine communication is already common practice in industries such
    as manufacturing, logistics and energy. Applications range from remotely controlling
    equipment to tracking shipments to monitoring environmental conditions. A growing
    proportion of IoT devices, however, are being created for use outside the industrial
    context: Gartner predicts that by 2020 two in three pieces of IoT equipment will be
    consumer devices.
    Asian markets play an important role in the future of IoT: According to IDC, a market
    intelligence consultancy, by 2020 close to one-third of all connected devices in use
    worldwide will be located in the region.
    2 3
    Although consumer IoT products have not yet
    reached the mass market, they have certainly graduated from being used by only the
    earliest of adopters.
    Dr Wen-Syan Li, senior vice president and head of IoT SCM and strategic projects for
    Asia Pacic, Japan and Greater China at SAP, an enterprise software rm, sees a strong
    link between the smartphone boom and consumer acceptance of IoT products. “In
    China, the usage of O2O (online-to-ofine) apps, like ride-hailing with Didi Chuxing or
    ordering food for delivery with Ele.me and Meituan.com, has exploded. In that sense,
    people are now very familiar with the idea of services that seamlessly connect the
    physical with the digital world. As a result, it is now much easier for people to grasp the
    concept that any object imaginable—tness devices, cars, bicycles, anything—could be
    digitally connected, trackable and controllable. This has led to a signicant increase in
    acceptance of consumer IoT devices for personal and home use.”
    Chinese manufacturers are moving into consumer IoT with everyday products,
    updated for the digital age. Xiaomi, a smartphone provider, has partnered with
    more than 50 electronics manufacturers to create what it calls the “Mi Ecosystem”, a
    collection of connected devices for the home that can be controlled with a smartphone
    app. Apart from home surveillance cameras and smart light switches, the product
    portfolio includes an air purier, which was so successful it accounted for 20% of all new
    air-purier sales in China within seven months of launch, according to Xiaomi.
    is even a smart rice cooker that can adjust its methodology and temperature to suit the
    particular variety of rice and the user’s taste by scanning the barcode on the packaging
    of 200 different brands of rice.
    Other rms are developing consumer IoT products that are literally in constant
    touch with the user. For example, Clim8, a start-up based in France and Hong Kong,
    has developed an intelligent thermal undergarment that can adjust to changes in
    environmental temperature as well as physical activity, to help keep the body at a
    personalised and optimal temperature.
    The garment is equipped with a number of tiny
    sensors in the fabric that can measure additional biometric signals, potentially allowing
    detailed insight into the activity of the person wearing it. Florian Miguet, the rm’s
    Close to one
    third of all
    worldwide will
    be in Asia by

    © The Economist Corporate Network 2016
    “One Belt, One Road”: an economic roadmap
    CEO, explains: With the user’s permission, this data can be shared with the clothing
    manufacturer, which could then look at aggregated data from tens of thousands of
    runners in order to rethink product and improve user experience, as well as enable
    brands to provide individualised coaching advice to athletes.”
    This focus on sophisticated data analytics plays a key role in many consumer IoT
    products. MLC, the wealth management division of National Australia Bank, has
    launched the “MLC On Track” programme for its life insurance policies. Customers that
    agree to wear the Garmin Vivosmart HR smartwatch and share their activity data can
    receive discounts of up to 10% off their premiums for meeting tness-related goals,
    such as walking 10,000 steps or being physically active for one hour per day.
    Jonah Cacioppe, director of Boundlss, the 2016 Australian FinTech Awards Insure
    Tech Start Up of the Year, suggests that the convergence of IoT empowered devices, data
    analytics and soaring healthcare costs in Asia are creating a “compelling opportunity”
    for digital health. “Data analytics can really move the needle for insurers as they
    face rocketing costs,” he notes. Moving beyond “dumbots”, Boundlss combines data
    collected from IoT devices with input from a human tness and nutrition welfare team,
    and AI to engage individuals in a conversation around health. “That conversation is,
    for the moment, predominantly led by human input, but as AI ability advances and
    technology costs fall, it is set for rapid take-off.”
    Benjamin Joffe, general partner at HAX, an investment company based in Shenzhen
    in China that focuses on hardware start-ups, believes insurance is an example of
    an industry that consumer IoT devices will play an important role in. “For every big
    asset you have—your house, your car, your health—you generally have insurance.
    Connected devices that can help insurance customers stay healthy, or keep their home
    Source: Gartner, November 2015
    Internet of Things units endpoint spending, by category (billions of dollars)
    Business: Vertical-specic Business: Cross-industry Consumer

    © The Economist Corporate Network 2016
    safe by being monitored, are a highly attractive
    proposition for an insurance company, because
    they help maximise protability. These devices can
    provide unprecedented insight into somebody’s
    behavioural patterns, which makes it possible to
    price insurance policies in a much more precise
    way. There is no reason that you and I would pay
    the exact same premium if we have different
    lifestyles entirely,” he explains.
    Prashant Agarwal, director of EDGE (Group
    Innovation), AIA regards these developments
    as “transformational” for the insurance sector.
    “Connectivity means that we can move from
    risk-based pricing to actual improvement of
    health outcomes.” Established at the end of
    2015, the EDGE LAB brings together start-ups, Government agencies, university
    experts and private sector collaborators to foster just this type of innovation.
    The concept of underwriting is still very traditional” he notes “but these
    innovations can make the business more responsive - ‘plug and play’ and seamless
    - and new capabilities will emerge”.
    Vehicles are coming online too. For many of Asia’s technology giants, the connected
    car is the next frontier. Alibaba, the dominant ecommerce platform in China, recently
    unveiled its rst internet car, jointly developed with Shanghai Automotive Industry
    Corporation (SAIC), one of China’s largest automotive manufacturers. The Roewe
    X5 model is equipped with YunOS, an Android-based operating system developed by
    Alibaba, and will feature a range of digital services, including personalised greetings,
    music and preferred destinations based on settings that can be congured from a
    smartphone or wearable, as well as ability to use Alipay, Alibaba’s digital payments
    service to pay for parking spaces or ll up with petrol.
    “On-board car units will be a natural place for delivery of marketing messages
    to develop,” says Samba Natarajan, CEO Group Digital Life at Singtel, a
    telecommunications rm based in Singapore with operations across Asia. “Consumers
    spend lots of time behind the wheel, and it is a usage context with heavy consumer
    interaction. As opposed to many other situations, they cannot use the mobile while
    doing so. It’s scenarios like these that will drive business cases for IoT-enabled
    It may not be long before vehicles will not only be connected, but have the ability
    to move autonomously too, allowing passengers to spend their time aboard as they
    please. Baidu, China’s leading search engine, is working with automotive manufacturers
    to produce a driverless car by 2018, aiming to move into mass production by 2020.
    * Forecast
    Source: EIU Canback, The Economist Intelligence Unit.
    Total consumer
    spending in Asia

    © The Economist Corporate Network 2016
    recently announced plans to establish an autonomous driving unit in Silicon Valley in
    the US and hire 100 engineers by the end of 2016.
    There are several factors why Asian markets could play a central part in the adoption
    of consumer IoT. One is the rapid urbanisation and growing afuence in the region.
    Particularly in emerging economies, many households now have sufcient disposable
    income to be able to afford things like electric household appliances or even bigger-
    ticket items like cars. “What we see increasingly is that the price for the smart product
    is the same, and sometimes even lower, than the price of the non-smart product,”
    notes Mr Joffe at HAX, “so why would people even consider buying the one that is not
    The second is the proliferation of mobile phones in the region. In 2016, Asia will have
    3.4bn mobile phone subscriptions, and a growing percentage of these are smartphones,
    which double as a universal remote control for many consumer IoT devices. A 2016 study
    by Pew Research Center, a US non-prot organisation, showed smartphone penetration
    among the population had reached 88% in South Korea, 65% in Malaysia and 58% in
    Perhaps most important of all is the role the region plays as a supplier of connected
    things to the world. Manufacturing hubs such as Shenzhen and Taiwan have become the
    world’s global supply chain for electronics components. But whereas so far the focus for
    many rms has been to act as suppliers to Western rms like Apple, Asia is increasingly
    using its production know-how built up over decades to churn out sophisticated
    consumer IoT itself, as Xiaomi’s example illustrates.
    However, barriers to consumers purchasing and using IoT devices remain. The most
    important one is an apparent lack of a compelling value proposition: according to a
    2015 survey by Accenture, a consultancy, among people in 28 countries including seven
    major Asian markets, 62% of respondents stated IoT devices simply delivered too little
    value for money in order for them to be interested in buying them.
    Unsurprisingly, privacy and security concerns are also a signicant deterrent. Nearly
    one-half (47%) of all respondents in the survey by Accenture cited fears over privacy
    and security. Kazutaka Hasumi, board director of the product division at SoftBank
    Robotics, a subsidiary of Japanese technology rm SoftBank Holdings, comments:
    “Consumers are largely focused on surveillance, identity theft and unauthorised use
    of the data they generate. But the security issue is a far larger one: it involves the
    unauthorised remote manipulation of devices, and it applies across the whole spectrum
    of IoT products. Fears of someone hacking into smart home infrastructure and causing
    a gas leak or taking control of an autonomous vehicle may not yet be very relevant, but
    they could become very real concerns.”
    An additional problem for the IoT industry is a lack of widely shared technological
    and increasing
    Asia will drive
    IoT growth

    © The Economist Corporate Network 2016
    standards in the IoT world, and, as a result, the inability of many devices to
    communicate with one another. A report from McKinsey, a consultancy, estimates
    that interoperability between platforms would account for 40% of the total economic
    value that IoT can potentially create. Furthermore, the majority of data generated by
    IoT devices remains unexploited. Citing an example from the industrial IoT context,
    McKinsey states that only 1% of the data generated by 30,000 sensors on an oil rig was
    made use of.
    Lastly, some products such as vehicles, let alone entire homes and public
    infrastructure, have very long replacement cycles compared to devices like home
    appliances or smartphones, so it will take years for IoT blanket coverage to become
    a reality.
    Although it may take time, IoT is ultimately bound to have a signicant impact on the
    relationship between manufacturers and consumers.
    As an increasing number of physical products are equipped with sensors, processing
    power and network connectivity, they are becoming capable of delivering a stream of
    usage data in real time. Manufacturers are gaining unprecedented insight into when
    and where consumers are using their products, what other devices they are using them
    in conjunction with, and whether things are working properly. This awards them with
    the opportunity to develop products more quickly, better tailor products to buyers’
    needs, and x problems with remote software updates.
    Shigeru Kobayashi, department general manager of innovation planning at Sharp,
    a Japanese electronics manufacturer, compares this to the shift from less advanced
    mobile phones to smartphones. As he notes: “It opened up a direct channel of
    communications between manufacturers such as Apple and their customers. Things
    suddenly didn’t end with the purchase anymore, it established an actual, continuous
    after-sales relationship.”
    Manufacturers are gaining the ability to augment physical products with digital
    services, experiences and content. “Internet-enabled home appliances, similar to
    smartphones or connected TVs, enable us to provide customers with personalised
    services when they need them, based on their usage patterns,” explains Mr Kobayashi,
    “whether it’s a washing machine that can automatically reorder detergent because
    it knows it will run out in a few days, or a kitchen appliance that is able to provide a
    diabetes patient with dietary advice tailored to their medical condition.”
    But the usefulness of data provided by consumer IoT products is not limited to the
    usage context of the device itself. Mr Natarajan from Singtel notes the importance of
    behavioural and contextual data for the wider marketing and advertising ecosystem:
    “Sensors, for example in a vehicle, can provide a wide range of useful input for data
    management platforms, which can be used in audience creation and targeting via other
    Privacy and
    concerns must
    be addressed

    © The Economist Corporate Network 2016
    screens, such as desktop computers, smartphones and connected TVs.”
    Possibly the most far-reaching consequence of the proliferation of IoT is a shift
    from consumers purchasing and owning products to new offerings where the buyer
    may no longer own a physical thing, but rather be billed on a pay-per-use basis. In the
    aviation industry, Rolls-Royce, the UK maker of jet engines, has long operated on a
    model of billing its airline customers to pay a fee for every hour that an engine runs.
    Companies like Airbnb, a vacation homes rental platform, and Uber, a transportation
    network, have rmly established the “on-demand everything” mindset among
    consumers. The coming surge in connected, smart physical objects, and the digital
    services built around them, will force many company leaders to rethink their business
    models at a fundamental level.
    IoT ready devices are rapidly becoming part of everything around us—digital
    and physical
    Asia is playing a leading role in the development of the IoT and is forecast to
    account for one-third of all connected devices in the world by 2020
    The analysis of data generated by IoT ready devices offers unprecedented
    insight into behavioural patterns allowing for much more precise consumer
    The shift from ownership to pay-per-use has fundamental implications for
    existing business models

    © The Economist Corporate Network 2016
    3. Virtual and Augmented Reality (VR/AR)
    VR and AR devices may turn out to become the next
    personal computing platform, enabling new forms of
    If investor excitement is any indication, Virtual Reality (VR) and Augmented Reality
    (AR) may well be poised to become the next major consumer computing platform after
    PCs, the internet and smartphones. According to a July 2016 report by Digi-Capital,
    a US consultancy, total investment in VR and AR startups worldwide over the past 12
    months amounted to US$2bn, double the amount of the previous period.
    A number of technology heavyweights have made substantial investments in the
    space, including Facebook’s US$2bn acquisition of Oculus VR, a manufacturer of VR
    hardware, in 2014. Magic Leap, another AR/VR technology rm, has raised a total
    of US$1.4bn, its investors include Google, Qualcomm, a microchip manufacturer,
    and Alibaba, the Chinese e-commerce giant. Apple has acquired Metaio, a startup
    developing AR software, although it has yet to announce a VR or AR product.
    VR and AR are often lumped together as similar technologies, because they both
    generally require some sort of head-mounted display (HMD). But there is a fundamental
    difference: VR simulates a fully immersive physical presence in a real or imagined
    three-dimensional environment. AR, however, supplements the view of live, actual
    physical surroundings with an overlay of digital assets. The Pokemon Go craze is a good
    exemplier of this technology.
    The lower-end of the market consists of mobile VR devices that let users turn their
    smartphones into VR googles by strapping them into a head-mounted unit. The phone
    provides the processing power and the display, while the head-mounted unit acts as
    the controller, handling head and eye movement tracking. Devices generally sell for
    US$100 or less.
    Samsung, the South Korean technology firm, released a mobile VR headset called
    Gear VR in late 2015. It reportedly has sold more than 1m of them, making it one
    of the most widespread of these devices. Google has announced Daydream, its own
    VR ecosystem for Android phones, with a headset due to launch in November 2016.
    Xiaomi has released a cheap mobile VR headset for the domestic market as well, as
    have other Chinese manufacturers. CCS Insight, a UK research firm that specialises
    in mobile and wearable computing, estimates that mobile VR will account for 90% of

    © The Economist Corporate Network 2016
    all VR HMDs sold in 2018.
    The main focus of these devices is single
    viewpoint 360-degree video content, rather than
    fully immersive interactive experiences: seven
    of the top 10 most used apps on the Gear VR are
    videos, and nearly 80% of people who use Gear VR
    consume video content daily.
    There is a growing
    range of 360-degree video content available.
    YouTube introduced VR in early 2015 and offers
    video ads on the platform. Facebook added the
    ability for users to posts and view 360-degree
    videos later the same year. Youku Tudou, China’s
    leading video streaming website, which is owned
    by ecommerce giant Alibaba, has launched a
    dedicated VR channel.
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    fast-moving, interactive experiences, such as 3D gaming. These devices rely on
    the processing power of a high-spec PC or games console and require a tethered
    connection. Examples include the Oculus Rift and the Vive, jointly developed by
    HTC, a Taiwanese consumer electronics rm and Valve, a US video game developer.
    In October, Sony, a Japanese electronics manufacturer, released a VR headset
    compatible with its PlayStation 4 games console, which has sold than more 43 million
    units since its 2013 launch.
    At the annual Oculus developer conference in October, Mark Zuckerberg, CEO of
    parent company Facebook, announced the company’s plans to release a standalone,
    untethered VR headset with positional tracking, designed to ll the gap sit between
    current mobile and desktop VR headsets. Zuckerberg also demoed some of the
    related technologies Facebook is working on, outlining the potential of shared social
    experiences in virtual environments.
    Microsoft has started shipping a developer version of its Hololens AR headset, but
    consumer AR products may be slow to come to market. “For VR, it took three years from
    the  rst development kits to consumer products, and AR is technically more complex
    than VR. It is much more dif cult to create a compelling visual experience in a hybrid
    world than in a virtual one, and there are a variety of technical issues that are far from
    being solved,” says Tipatat Chennavasin, co-founder and general partner at The Venture
    Reality Fund, a venture capital  rm based in San Francisco.
    And yet in the long term, AR may hold the larger potential. Digi-Capital believes the
    total global market potential for 2020 to be US$30bn for VR and US$90bn for AR, with
    revenues split among software, hardware, advertising, and other categories.
    Potential market size, 2020
    Source: Digi Capital.
    VR versus AR
    VR US$30bn
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    fast-moving, interactive experiences, such as 3D gaming. These devices rely on
    that allows the user to move around in a virtual space and can deliver much more
    that allows the user to move around in a virtual space and can deliver much more
    that allows the user to move around in a virtual space and can deliver much more
    that allows the user to move around in a virtual space and can deliver much more
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    that allows the user to move around in a virtual space and can deliver much more
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    High-end headsets, which cost several hundred dollars, feature positional tracking
    fast-moving, interactive experiences, such as 3D gaming. These devices rely on
    AR US$90bn

    © The Economist Corporate Network 2016
    reason why AR may ultimately turn out to be the bigger opportunity of the two is the
    expected higher usage frequency and duration. AR devices could be used in a fashion
    similar to mobile phones, worn all day long and used while performing a variety of other
    activities. Conversely, being fully immersed in a VR environment will limit users from
    doing much else.
    Despite the fact that VR and AR are still nascent technologies, media companies and
    advertisers across Asia have already started experimenting with them.
    PropertyGuru, a real estate listings website active in Singapore and three other
    South-east Asian markets, recently launched a mobile VR showroom truck, which
    lets visitors explore 360-degree video for showflats in condominiums that that
    are still under construction.
    Shangri-La Hotels and Resorts, a luxury hotel group
    based in Hong Kong, has equipped its global sales offices with Samsung Gear VR
    headsets to let customers experience its 94 hotels and destinations in immersive
    360-degree videos.
    In October 2015, Audi, a German car manufacturer, ran the “Drive Back in Time”
    campaign in Singapore, creating VR videos that allowed people to drive around iconic
    areas of the city in 1965.
    Within two days, all of the slots for the on-site demonstration
    were booked, 84% of the people who signed up attended. Over a period of 10 days 6,000
    people experienced an Audi drive, which would have taken more than 2 years to achieve
    through regular showroom visits.
    Baidu, the leading search engine in China, has launched DuSee, an AR platform
    for smartphones that will be integrated into Baidu’s apps, which are used by several
    hundred million people in China. Rather than relying on a VR headset, the technology
    uses the smartphone camera to transform at images into three-dimensional objects
    on the display. One application recently shown at the 2016 Baidu Smart Marketing
    Solutions Conference was a collaboration with cosmetics manufacturer L’Oreal, which
    virtually enhanced printed greeting cards with three-dimensional representations of
    new products.
    With 40% of the 6.3m VR headsets shipped worldwide in 2016 headed for China, the
    country is shaping up to be one of the largest markets for VR, according to Canalys, a
    research rm.
    China may not yet be an innovation leader in VR, but what it lacks in
    technological sophistication, it makes up for in enthusiasm. “The quality of VR devices
    produced in China is six to twelve months behind,” says Mr Chennavasin at The Venture
    Reality Fund, “but the excitement for the technology and its applications is a year ahead
    of everywhere else.”
    Retailers are starting to take note. For instance, in March 2016, Alibaba announced
    the establishment of an in-house VR lab, named GnomeMagic Lab. The unit will be
    tasked with bringing the technology to the company’s 400m ecommerce users, in order
    reality may turn
    out to be bigger
    than virtual

    © The Economist Corporate Network 2016
    to let them virtually experience products before buying them. The lab
    will also explore further applications for the company’s businesses
    in gaming and video streaming. In July at the Taobao Maker Fair
    in Shanghai, Alibaba showed a demo of Buy+, a virtual store that
    allows consumers to browse products in a 360-degree environment,
    and to have virtual models showcase the products on a catwalk. The
    company has not yet announced an ofcial release date.
    The VR and AR technology sector is developing at a fast pace, and yet
    the total number of devices in the market is likely to remain small
    for several years. Price is a crucial barrier to adoption, particularly
    for consumers in less afuent markets. ABI Research anticipates
    the total number of mobile VR devices sold will reach 67m by 2020.
    Although 27m AR smart glasses will have shipped by the same year, much of the demand
    will be driven by the industrial, healthcare, and military domains.
    Mr Chennavasin thinks the industry will grow signicantly as applications broaden.
    At the moment, people are still focused on the entertainment and consumption
    aspects of VR. Similar to the developments we have seen in desktop and mobile internet
    adoption, usage will really take off once VR crosses over into contexts like work,
    communication and education,” he says.
    Another obstacle is the current limited availability of content to draw users into VR.
    Designing and producing rich, interactive experiences for high-end systems is cost-
    and time-intensive. During these early days of the industry, only the most successful
    blockbuster VR games or lms will be able to recoup such expenses.
    Usage of YouTube and similar platforms only started to soar once cameras on mobile
    phones become ubiquitous, resulting in an explosion of user-generated content. In
    order for this phenomenon to be replicated in the VR space, cheap cameras that can
    produce stereoscopic images or 360-degree video for viewing in VR have to become
    much more common. Samsung and GoPro, an American technology rm, for instance,
    have launched consumer VR cameras, but the devices still retail for hundreds of dollars.
    Compared to the mobile world, which has largely settled into a duopoly of Android
    and iOS, things look more complicated in VR at this point. At the operating system level,
    Oculus will compete with SteamVR, the operating system powering the HTC Vive, and
    Google’s Daydream platform. For AR, Microsoft is betting on the Windows Holographic
    platform, which supports the HoloLens and will be open to developers to build their
    own compatible augmented reality AR and VR headsets. The landscape of app stores and
    content distribution platforms is similarly fragmented. Media companies, agencies and
    advertisers will have think carefully about which platforms will deliver the best return
    for a given objective.
    Source: ABI research.
    Sales of mobile
    VR devices by 2020
    67 million
    China is
    shaping up to
    be one of the
    largest markets
    for VR

    © The Economist Corporate Network 2016
    New advertising formats enabled by VR and AR may drive higher user engagement
    than other forms of media. According to research from Google on 360-degree video
    advertising on YouTube from Columbia Sportswear, an outdoor apparel brand, not
    only was the click-through rate higher, but it also drove 41% more views, shares and
    subscribes than the standard advertisement.
    Indeed, VR is a highly persuasive medium. Many VR users report having actually
    experienced something, rather than just having watched it. This seems to translate
    directly into their behaviour. In a recent UNICEF fundraising campaign, which used a
    VR simulation to expose people to the situation of a 12-year old war refugee in Syria,
    people donated twice as much as they do for regular campaigns.
    According to research from Dartmouth College, a US university, people’s memories
    are inextricably linked to the place where they happened. Since VR is a spatial
    experience, this may mean content and advertising delivered in this context could be
    more memorable than other forms of media.
    A good starting point for brands to experiment with the technology is 360-degree
    video content. Mobile VR devices are becoming more widespread. Compared to content
    for more interactive experiences, production costs are low. And several of the largest
    video streaming websites already support the format.
    As demonstrated by Audi’s Singapore campaign, VR can be useful as a means to
    create campaigns that combine entertainment with the opportunity for consumers
    to experience products. And where products are locally inaccessible or in too short
    supply for people to see them firsthand, virtual showrooms can help bridge the
    gap. Virtual environments can also serve to help consumers customise products
    according to their own preferences, without the need for those products to be
    physically present.
    In fact, the ability to virtually explore items before buying them seems to be one
    of the applications of VR that consumers find most appealing. In a study conducted
    by the ConsumerLab at Ericsson, a Swedish telecommunications infrastructure
    provider, 64% of smartphone users from 13 countries, including four Asian markets,
    cited this as the most desirable VR application, ahead of maps, films, games or
    Another important advantage of VR and AR relates to big data, and the amount and
    quality of information that they can potentially provide. As Mr Chennavasin notes: “Not
    only will you know what people click on and interact with, but exactly what they are
    looking at, and for how long. The potential for customer insight through data analytics
    is unprecedented.
    Adam Sheppard is the CEO of 8Ninths, a VR and AR studio based in Seattle that has
    done pioneering work with Microsoft in developing an AR-based holographic trading
    system for Citibank. He is certain Asia will play a key role in the future of VR. “Mobile

    © The Economist Corporate Network 2016
    VR is the tip of the spear. Consoles and gaming will bring it into the home. Most
    innovation is currently driven by the large tech companies, but Asia is very good at
    incremental innovation. It will be the biggest market for VR and AR by far, because of its
    demographics and its technological savvy,” he believes.
    The major tech players in US and Asia are intensifying their efforts in VR and
    AR, investments in related startups over the past 12 months have doubled to
    US$2bn on the previous year
    Mobile VR devices and 360 degree-video are shaping up to be the entry points
    for mass market VR
    VR is poised to play a transformational role in e-commerce and retail

    © The Economist Corporate Network 2016
    From virtual assistants to consumer robots, both the
    digital and the physical world are about to become
    dramatically smarter
    The technology sector is in the midst of an articial intelligence (AI) boom. According
    to a report from Transparency Market Research, a consultancy, the global market for AI
    was valued at US$126bn in 2015, and it set to grow more than 36% per year from 2016
    to 2024, to reach revenues of more than US$3trn in 2024.
    The term AI describes a set of technologies which simulate processes that so far have
    been exclusive to human intelligence: perception, learning, knowledge representation
    and reasoning. Recent advances in machine learning and deep learning, two key areas
    of AI research, have vastly improved the ability of computers to glean insights from data
    and make predictions about the world.
    Jay Onda, venture partner and director of strategic investments at Yamaha Motors
    Ventures & Laboratory Silicon Valley, a corporate venture capital rm, comments on
    the role of AI for the connected world: “When AI leverages the contextual information
    from your surroundings, it is possible to create an augmented reality experience. AI for
    virtual reality on the other hand creates a deep and personal experience where you can
    * Forecast
    Source: Transparency Market Research.
    Global market for AI
    US$3trn +

    © The Economist Corporate Network 2016
    remove yourself from your surroundings and immerse yourself in the Metaverse. The use
    cases and value that customers are looking for between AR and VR are on the opposite
    side of the “experience” spectrum, but the AI that drives the experience is similar at its
    core. AI is a key enabling technology that will enhance and amplify the experience on
    pretty much any connected device, platform and application imaginable.”
    For instance, AI-based technologies like speech recognition and natural language
    processing are crucial building blocks for voice-controlled virtual assistants such as
    Apple’s Siri, Microsoft’s Cortana and Google Now, which have reached mainstream
    adoption by coming bundled with smartphones, tablets and other devices.
    Asian technology heavyweights are driving innovation in AI as well. Baidu has
    developed a speech recognition engine called Deep Speech 2 and combined it with
    intelligent search technology to create Duer, a robotic personal assistant. The rm is
    conducting trials with the technology in a KFC concept store named “KFC Original+” in
    Shanghai. Duer takes visitors’ orders, taking into account KFC’s customer data to better
    adapt its behaviour to users’ needs, as well as to improve transactional efciency. The AI
    software powering the robotics has been integrated into Baidu’s mobile app, which is
    being used by hundreds of millions of users in China.
    Chatbots, computer programs that simulate human conversation, is another
    application that makes use of AI, as well as the exploding popularity of mobile
    messaging apps like WeChat, WhatsApp and LINE. Users can communicate with chatbots
    through an exchange of text messages. Facebook, the social networking giant, has
    been conducting tests of M, an AI-powered virtual assistant that runs on its Messenger
    platform, which has more than 1bn.
    M can do things like suggest travel destinations,
    book transportation and make restaurant reservations.
    But the developments springing up from Asia are just as exciting. In China, chatbots
    are widely deployed on the popular WeChat messaging app, which boasts more than 700m
    WeChat offers much more than simple messaging. An ecosystem of ofcial
    accounts on the WeChat platform allows Chinese consumers use it for anything from ordering
    groceries and calling a taxi to making medical appointments. A substantial amount of real
    money is changing hands virtually: more than 200m WeChat users rely on WePay, a built-in
    payment platform, to pay for products and services. More than 12m businesses have set up
    shop to engage in direct, ongoing, one-to-one conversations with WeChat users in order to run
    promotions, sell products and manage customer relationships.
    Many of them employ chatbots
    to at least partly automate interaction with customers. Among these are a number of global
    brands, including Nike and Burberry, that have employed chatbots in WeChat campaigns.
    38 39
    But smart assistants are quickly starting to take physical shape and moving into the
    home. Amazon, a US ecommerce provider, has launched the Echo, a voice-controlled,
    connected Bluetooth speaker that can be summoned to perform hundreds of tasks, from
    reality is a
    deeply personal

    © The Economist Corporate Network 2016
    playing music to providing the latest sports scores. The device, which runs on Alexa,
    Amazon’s AI platform, offers integration with the company’s commerce services. Users
    can add items to a shopping list and order them directly from Amazon. Developers can
    enhance Echo’s capabilities by building voice-based apps called Alexa Skills”. More than
    1,000 third-party skills have been created.
    Companies that have done so to provide
    services via the Echo include Domino’s Pizza, 1-800-Flowers and Uber.
    Kleiner Perkins Cauleld Byers, a venture capital rm, estimates that 4m Echos have
    been sold since the device made its debut in 2014.
    Google has announced plans to
    launch a similar product later this year, called “Google Home”.
    Although both devices
    will for the time being only be available in the US and, in Echo’s case, selected European
    markets, it may not be long before similar machines appear in Asian living rooms.
    Jibo, a robotics startup based in Boston, is pursuing a more sophisticated approach.
    Its social robot, which will ship later this year, can turn towards someone who enters the
    room, or lower its head section in apology when it does not know the answer to a question.
    “Emotionality will be a key differentiator in consumer robots, both in terms of input and
    output. Users will develop a much closer relationship with devices that can tell how a user
    is feeling, for example by the tone of their voice, and adjust their behaviour accordingly,
    explains Steven Chambers, the rm’s CEO. “It is equally important to impart robots with
    emotional expressiveness. A lot of that hinges on their ability to display movement,
    he elaborates. The company has raised more than US$50m from investors, including
    several corporations in Asia, among them electronics rms Acer and LG, KDDI, a Japanese
    telecommunications operator, and Dentsu, a major advertising agency.
    44 45
    In Japan, manufacturers are taking things one step further with consumer robots
    that are equipped with locomotive abilities. SoftBank Robotics has developed Pepper,
    a mobile robot designed to interact socially with humans. More than 2,000 units have
    been deployed in Japan at stores of SoftBank Mobile, a telecommunications rm, to
    greet, inform and entertain customers. Other rms using Pepper in a retail context
    include Nestlé Japan, Mizuho Bank and SNCF, a French train operator.
    In Singapore, Pizza Hut Asia has teamed up with SoftBank Robotics and MasterCard to
    let Pepper make personalised recommendations, take orders and process payment. Pepper
    will help visitors make menu selections with personalised recommendations and special
    Several thousand Pepper units have also been sold to consumers for private use.
    In May 2016 Sharp released the RoBoHon, a 19.5cm-tall miniature robot that
    interacts with users via voice-based interface. Apart from its ability to walk, talk and
    dance, it is a fully functional smartphone that can make calls, take pictures and send
    emails. Miho Kagei, who heads the product planning department at Sharp’s consumer
    electronics unit, outlines the larger vision behind RoBoHon. “Today, robots are only
    able to perform fairly specialised tasks, but this will change. With improvements in AI,
    robots will develop a deep understanding of the habits and behavioural preferences of
    the people they interact with on a daily basis. This will enable them to recognise their

    © The Economist Corporate Network 2016
    current needs, even without users consciously noticing. Robots
    will play an active role as interfaces for consumers to make sense of
    their environment. People will become very close to them.
    Voice-controlled assistants and chatbots already reach hundreds of
    millions of users through established platforms like smartphones
    and messaging apps, and they are starting to appear on desktop
    computers and connected car interfaces as well. Smart robots, it
    seems, still have a much longer way to go.
    The International Federation of Robotics, an industry
    association, predicts that 35m units of robots for personal use will
    be sold between 2015 and 2018. But only 8,100 of these will be
    social companion robots, according to the association’s estimates.
    The vast majority will be units that are only able to perform simple
    tasks, like vacuuming oors or mowing lawns.
    Price is a key hurdle: Pepper and RoBoHon both retail for¥198,000 (approximately
    US$1,900). Key technologies that power robot mobility and object manipulation are still
    expensive, despite the fact that the smartphone boom has contributed to falling prices for
    some hardware components commonly used in robot production, like displays and sensors.
    Consumer robots face another major obstacle, at least in some markets. “Each
    culture has a specic view on robotics. In Japan, people tend to idealise robots and
    view them as companions and friends. China has strong garment emphasis on the
    technology, because it is strategically vital to the country’s manufacturing sector,”
    explains Mr Chambers at Jibo. “In the West, there tends to be more of a focus on privacy
    concerns, and pop culture’s message about robots seems more mixed: We have the
    ‘Hollywoodisation’ of robots as a threat to humans in lms like Terminator, as well as
    robots like Baymax and Iron Giant whose purpose is to serve humans.”
    Mr Hasumi at SoftBank Robotics thinks it will still take some time before robots play
    a substantial role in marketing. “The base technologies, such as face recognition, voice
    recognition, natural language processing, translation etc. are actually quite mature.
    The challenge is to make personal assistants and robots understand who is saying what,
    in which current situation, and what that means in terms of a potentially necessary
    action. That is the fundamental issue we need to solve.”
    Despite the fact that it will likely take years for AI to unfold its full potential for
    marketing, one principle is becoming clear, already manifesting itself in chatbots,
    voice-based smart assistants and early examples of social robots: Marketing will be
    increasingly conversational in nature. Consumers will often be the ones that initiate
    Source: The International Federation
    of Robotics.
    The march of the robots
    35 million
    “peronal use” robots
    forecast to be sold
    between 2015 and 2018
    Robots will
    play an
    active role as
    interfaces for
    to make
    sense of their

    © The Economist Corporate Network 2016
    contact with a brand. Each interaction between brand and consumer helps build the
    understanding of what that individual consumer wants and needs. The better brands
    can become at having meaningful conversations with consumers, the more relevant
    their marketing efforts will be to them.
    From helping improve targeting algorithms for digital campaigns to performing
    customer segmentation on large sets of customer relationship management (CRM) data,
    AI is starting to affect the business world in very concrete ways. Haresh Khoobchandani,
    general manager of business solutions at Microsoft Asia Pacic, considers the technology
    a key catalyst for marketing. “Just like cloud computing has democratised access to
    computing power and st orage, AI will democratise access to intelligence. AI capacity will
    be provisioned as a service from the cloud. This will allow even the smallest of companies
    to do things like predictive analytics, which so far have only been accessible to marketing
    departments at large enterprises,” he says.
    Mr Onda at Yamaha envisions that AI will help companies improve signicantly in
    anticipating individual consumers’ needs. “We will see a lot of predictive services based
    on complex behavioural proles and preferences, triggered by contextual information,
    delivered just in time. For example, if I’m on the train heading home for a special
    evening and it suddenly rains as I arrive at the station, would it be possible to have an
    autonomous vehicle waiting for me? It will be all about using context in order to create
    value in the moment.
    Eventually, AI could form a smart intermediary layer between consumers and
    marketers that will have an important say in purchase decisions. For marketers, this
    means they will have to invest in the technical capabilities to communicate effectively
    with intelligent systems that act as gatekeepers. In a July 2015 interview with Campaign
    India, Tim Berners-Lee, an English computer scientist who is known as the inventor of
    the Internet, noted: “You are essentially selling to the machine or my agent. Suddenly,
    that means you need to be good at data. It means that you need to make sure that you
    have all your products and all the scripts are described in the data that the machine
    AI is a key horizontal enabling technology for a wide range of applications,
    from voice-based interfaces to self-driving cars and consumer robotics
    Predictive services based on complex behavioural proles, triggered by
    contextual information will become more widespread
    Marketing will be increasingly conversational in nature, with brands
    continuously rening their understanding of what an individual customer
    wants and needs

    © The Economist Corporate Network 2016
    While every effort has been taken to verify the
    accuracy of this information, The Economist
    Corporate Network cannot accept any responsibility
    or liability for reliance by any person on this report
    or any of the information, opinions or conclusions
    set out in this report.

    © The Economist Corporate Network 2016
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