Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Acer's announcement that it will work with the Swedish games maker Starbreeze to produce a virtual-reality headset could be the ailing PC maker's most brilliant move in years. Or it could be a colossal failure.

According to their joint release on Sunday, the companies plan to form a joint venture to design, make and sell the StarVR headset.

StarVR was announced by Starbreeze a year ago and became the latest entrant in a busy headset scene that's led by Facebook's Oculus, Sony's PlayStation VR and HTC's Vive. By some accounts, Starbreeze's offering is one of the best around, thanks to its wider field of vision. But the Swedish company is relatively small, and with just $10 million in cash at the end of 2015 it doesn't have the deep pockets its rivals enjoy to cover the high cost of hardware development, and then have enough funds to market and sell the device.

Enter Acer. The Taiwan company is in freefall and hasn't posted annual sales growth since 2010. Yet it has $1.2 billion in cash, and the engineering capacity to help a small company like Starbreeze bring its headset to market in scale. More importantly, Acer knows computers. And computing power is key to any virtual-reality system because of the intense graphics processing required to deliver an immersive 3D video experience.

Computing Crunch
Acer hasn't posted annual sales growth since 2010 amid a continued slide in the PC market
Source: Bloomberg

According to Digi-Capital, an advisory firm, 40 percent of all virtual-reality and augmented-reality sales  by 2020 will be from hardware. The headset itself can retail for as much as $829 (HTC's Vive), and customer expenditure doesn't end there. The Vive and Oculus systems need a PC, while Sony's uses the PlayStation games console -- any of which can cost up to $2,000 apiece. 

Despite the prospect of the biggest share of any revenue windfall from virtual reality's uptake, PC makers have been almost absent from the business. At best, they've been offering VR-ready computers and publishing links to them on VR-maker websites, and even then they've been slow to embrace the category.

Real Growth
Gartner sees VR headset sales climbing 20X over the next five years, while average selling prices will fall
Source: Gartner, Bloomberg Intelligence
Note: Doesn't include smartphone-VR products.

It could be that Dell, HP and Lenovo perceive a trap that Acer doesn't. The Taiwanese company may be the fool to Dell and HP's angel. For example, while Digi-Capital sees 40 percent of revenue coming from hardware, that doesn't tell you where the profit will be. We know that prices for hardware move in only one direction, and profit margins follow. We also know that some sectors, like smartphones, have most of the profit captured by a few players with minority market shares (read: Apple). One certainty is that VR headset prices, and those for their connected PCs, will follow suit.

It's no accident that everyone from Alibaba to Amazon is investing in the software and platforms that will connect to VR, because being one of those few to capture the ecosystem means capturing a healthy portion of the profits. 

Nevertheless, if you want virtual reality you must have the hardware. Acer is betting that by being on both sides of that hardware equation, it will have a better shot at capturing share in one of the few PC categories showing any glimmer of hope.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Virtual reality creates a new environment for the user, while augmented reality adds elements to an existing environment.

  2. Lenovo's attempt at VR has been to slide a smartphone into a holder, similar to Samsung's approach.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net