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iQiyi Begins Diversification Early

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Jun. 17 2019, Updated 1:42 p.m. ET

iQiyi launches a new headset

Many companies wait until growth in their core industries slows down or runs out before they diversify their revenue sources by venturing into new markets. However, iQiyi (IQ), a streaming video company that operated under Baidu (BIDU) before it went public last March, has decided to begin its business diversification journey early. Of course, a stitch in time saves nine.

One opportunity iQiyi has identified outside its core video streaming business is selling VR (virtual reality) headsets. Last month, the company released a new VR device, the Qiyu 2S, for less than $300. The Qiyu 2S is at least $100 cheaper than the model the company launched last year, signaling it is seeking to broaden its VR hardware customer base.

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$27 billion opportunity

The revenue opportunity for iQiyi in VR is massive. The global VR market, which comprises hardware and software sales and was valued at $2.0 billion in 2016, is forecast to reach $26.9 billion by 2022.

Also pursuing VR dollars is Facebook (FB), which began selling VR devices under its Oculus brand last year. Facebook derives nearly all of its revenue from advertising. Google (GOOGL), Yandex (YNDX), and Baidu, other mostly ad-funded companies, have also diversified into new markets by selling a range of hardware products and providing cloud computing services to other companies.

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