WechatIMG424Editor’s note: This was produced in partnership with Start Alliance, a business network between the most vibrant startup hubs around the globe. Start Alliance supports startups to adapt business models to international requirements and accelerates corporate innovations. Partner cities are Berlin, New York, Paris, Tel Aviv, and Shanghai.

If you want to get a sense of what’s happening in Shanghai’s startup scene, you shouldn’t just go to co-working spaces. The most technology-driven spectacle is not the Oriental tower, it’s the booming VR arcades in Shanghai. Shanghai is home for more than 100 VR arcades. If you want to have fun in Shanghai, going to a VR arcade is a must.

So how do you visit VR arcades? Well, I’ve included the addresses of the ones I visited, but since we’re in the 21st century, I’ll give you the secret to finding anything in China. Using this method you can find the nearest VR arcade and book a timeslot VR arcade experience.

You first download an app called Dazhong Dianping (大众点评),  the best guide to restaurants, theater and massage shops in Shanghai. You type in Xunixianshi (虚拟现实), which means Virtual Reality, and you will get about 100 results in Shanghai. Choose the VR arcade that sits closest to where you are or choose the one with the best feedback. Then call the shop to make a reservation. Since some arcades can be really popular, and the experiences are at least 30 minutes per person, it’s probably best to book ahead.

I went to the VR arcade closet to my house, Wow VR arcade, in a commercial area in New Life Plaza in front of Changshou Road metro station.

Who goes to VR arcade?

9-year-old boy playing shooting game

9-year-old boy playing shooting game (Image credit: TechNode)

At 3 p.m., a 9-year-old boy drags his grandmother to the VR arcade. The boy screams with joy as he put on his VR helmet. The boy first plays a gun shooting game. He hides behind the wall, reloads his revolver, and boldly moves away from the wall to shoot the enemies. He looks like a 9-year-old gunfighter in a movie, with a futuristic helmet on. His grandmother tells me that he comes here every weekend to play this game.

“Doesn’t this look too violent for him?” I asked the grandmother. She looks at me suspiciously, and she says, at her age, she doesn’t understand all this stuff. Meanwhile, the boy asks the employee to change the game. He plays a spaceship game, where he glides around the skyscrapers, then after 10 minutes, he changes the game. This time, he rides on a giant swing, seeing the view of the mountains.

While he plays the VR, his grandmother watches him as she holds his backpack on her lap. After the boy takes off the VR headset, he seems very excited about the VR experience he had.

“It’s so fun!” he cries. I tried to talk to the boy, but his grandmother holds his hand and quickly walks away saying, “He has to go to the next lesson.”

Three high school girls in VR arcade

Three high school girls in VR arcade (Image credit: TechNode)

At 4 p.m. three high school girls wearing school uniform came to VR arcade holding ice cream in their hands and carrying huge backpacks on their backs.

It’s their 6th visit to this VR arcade. When they enter the VR arcade, they ask the employee if there is a new game. The employee shows the 30 inch PC monitor on top of their heads to show them a new game just downloaded from Steam.

Then the girls put down their bags, and tell the employee the size of their head. One girl says 400, the other girl says 600.The employee takes two other straps, and adjust the size of the VR headset for them. Three girls are all wearing glasses, and they take off their glasses to wear the VR headset.

“It’s the new amazing device, which gives me a whole new experience,” Qihui Wang, 17-year-old girl in a WOW VR arcade told me. The other two girls tease her and her face becomes red.

“I saw virtual reality in the news. Our high school is really close from here, and nowadays many students already know about this place. We often come to this mall after school to buy food and beverage, and as we passed here we thought we should experience this,” Zhenhui Xu, another girl told me. They are all Shanghainese girls born in the year 2000.

“I think I can consider buying one of the VR helmets and leave it at home. I think it will be quite useful. It can be part of my daily life. I can draw things, go traveling to other faraway places, and experience different things. It will be very useful I think,” she adds.

One VR experience is about 30 minutes long, and each of the girls take turns to play Arizona Sunshine, a zombie shooting game. “When we were crazy about VR, we played like 2 hours, one time. I didn’t think it was too much!” Zhenhui says.

Disabled people using wheelchair also come here to experience VR (Image credit: TechNode)

Disabled people using wheelchair also come here to experience VR (Image credit: TechNode)

She shows me about 7 different games downloaded on her phone. “I play games a lot. Cell phone and the computer screen is just 2D, this is high-technology showing scenes from real life. Some of the games are frightening for me, but my friends love them. It’s something we cannot experience in the daily life.”

An employee at Wow VR arcade says that the most of their customers all live close by. Young people visit the arcade several times, bringing different friends all the time.

“It includes all the types of people. About 45% are young people, and about 45% are little children and 10% are old people. The youngest kids are about 4 or 5 years old who come here with their parents,” Ruo Ming, the employee at Wow VR told me. “Disabled people using wheelchair also come here to experience VR.”

A son of a disabled mother had experienced the VR arcade and had brought his mom and the whole family to experience the VR and to encourage his mom.

“One Paralympic player sitting on wheelchair also came to experience it. He said the VR experience gives him courage and confidence since he is left alone in the VR space,” Ming says.

VR arcade business is now red ocean

“It’s the trend of the market, and it’s an attractive business, commercially,” Ming says. “The good thing about VR is that it’s a private space, and you can transfer time and space easily.”

Wow VR arcade sits in the heart of a mall (Image credit: TechNode)

Wow VR arcade sits in the heart of a mall (Image credit: TechNode)

Started in October 2016, the small offline shop arcade sits in the city center of Shanghai. He says the arcade charges RMB 35 to customers to experience VR for 30 minutes.

The rising house rent is the threshold for VR arcades to secure the ROI. Ming says that it is RMB 20,000 to rent this space in this mall. On the weekdays, about 10 people come here, 25 people on the weekend, and they earn about RMB 14,000 sales every month. Considering the number of visits slowing down in the weekdays, the VR arcade is seeing a loss. To bring in more new customers, Wow VR arcade had to set a temporary booth at Pudong for two months.

“If there are more people in the mall, then more chances of seeing our shop and more people come to experience VR,” Ming says.

A guest in Hive VR playing Google Earth (Image credit: TechNode)

A guest in Hive VR playing Google Earth (Image credit: TechNode)

Another VR arcade in Shanghai, Hive VR sits on the 20th floor of an ordinary downtown apartment. The VR arcade charges customers 50 RMB for 30 minutes use of any VR headset in their arcade. The cost of rent is about 15,000 yuan a month; the co-founders say that they are breaking even. Compared with other VR arcades, Hive VR is more popular among foreign customers as its two co-founders speak fluent English.

Hive VR arcade is one of the few VR arcades in Shanghai that has HTC Vive, Play Station VR, and Oculus Rift (bought from Netherlands since Oculus is not officially available in China). For that reason, their VR arcade often serves as an offline spot to try out different VR headsets for VR game gurus. Sometimes, customers copy their VR arcade to start one on their own.

“One customer tried our VR devices one time and opened his own VR arcade. He called us to inquire technology details of VR,” Nancy Yao, co-founder of Hive VR told me. 31-year-old Nancy quit her job at Bayer to start a new business with her boyfriend Nick. “We could clearly see they have no knowledge in VR. The competition is growing.”

Challenges for VR Arcades, and pivoting

Co-founders of Hive VR (Image credit:TechNode)

Co-founders of Hive VR (Image credit: TechNode)

“The challenge is that both the novelty and headset prices are going down. Later on, VR will be more accessible to more people. Then VR arcades need to consider if it’s a sustainable business. VR arcade business entry barrier is very low at the moment,” Nancy says.

When the co-founders first started Hive VR in June 2016, there were only 15 VR arcades searchable on Dianping. Now there are more than 300 VR arcades on Dianping in less than nine months. With rising rental cost and labor costs, and growing competition of VR arcades, it’s going to be hard for VR arcades to make a profit.

“The number of visitors has slowed down after Chinese New Year. When we started, we foresaw the novelty of VR will go down gradually, that’s why we are not purely targeting individual customers. To be a sustainable business, you should go deeper into the industry. We believe VR arcade is not only about gaming nor targeting individual customers,” Nancy says. “Education is a big trend that is going to lead VR this year. AR is already used a lot in education.”

art workshops for designers at Hive VR (Image credit: TechNode)

Art workshops for designers at Hive VR (Image credit: TechNode)

Some VR arcades are pivoting to the B2B sector. Hive VR is getting into VR education, introducing VR apps to schools and universities, opening art workshops for designers using VR application like Google Tilt brush and a 3D printer. FAMIKU, one of the biggest VR arcade in Shanghai, is positioning to be a VR game testbed for overseas game companies.

“People say the year 2016 was the first year of VR. For the year, 2017, I think it will see rather steady growth,” Wow VR arcade’s Ming says.

The challenge of VR arcades is that the cost of hardware is going down, lowering barriers to entry for individual users. As the competition gets fiercer, it will be hard for them to sustain their revenue stream. VR arcades have to pivot to a vertical they can specialize in.