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China Goes VR Cold as Tencent, ByteDance Shrink Metaverse Arms

Tencent and ByteDance's aggressive metaverse bets are not paying off

Image: Jimi Malmberg / Unsplash

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Following moves by Meta, China's big tech firms Tencent and ByteDance are downsizing their metaverse units despite earlier enthusiasm for VR.

As recently as February, Tencent was announcing ambitious web3 plans involving the metaverse, holding its first global web3 summit in Singapore.

Tencent unveiled a basket of web3-related solutions aimed to promote the web3 ecosystem. Among these solutions was Tencent Cloud's metaverse-in-a-box, which integrates Tencent Cloud's infrastructure with gaming, media and entertainment. The product was aimed to help businesses develop metaverse applications, offering acceleration, flexibility and immersion.

Read more: Tencent Cloud Unveils "Metaverse-in-a-Box," Web3 Partnerships

Since, Tencent has pedalled in the opposite direction, cutting down its metaverse unit, alongside fellow Chinese tech giant ByteDance.

ByteDance also bet large on the metaverse in China, acquiring VR gaming headset developer Pico Interactive for US$1.5 billion in August. Pico's headcount grew from 300 to 2,000 post-acquisition.

Despite China's firm stance against crypto, Tencent's and ByteDance's metaverse reversals were reportedly not regulation-related.

Insiders informed Caixin that the move comes from the two tech leaders "botching an expansion into a hardware-heavy business segment which remains buzzy and vaguely defined, with patchy overall demand."

The source described pointed towards the "disorganised ways" the firms handled investments in new businesses.

ByteDance VR bites the dust

On 16 March, ByteDance CEO Liang Rubo emphasised that its e-commerce platforms TikTok and Douyin are its main focus and that VR, gaming and education would take a back seat. The announcement followed layoffs at Pico affecting “hundreds of employees” the month prior.

Pico had invested in marketing its VR content to boost sales of its VR headsets, even offering refunds for half of what they paid for if they used it for under 30 minutes per day for 180 consecutive days.

The firm managed to capture 71% of the market in China but sold 300,000 VR headset units short of its 1 million targets for 2022. Furthermore, Pico reported lost money on each device due to its cash-burning strategy.

Its 71% China market share also accounted for just 9% of the global VR headset market, whilst Meta's Oculus took 73%.

Tencent

Tencent also reportedly cut its metaverse unit XR (extended reality) and downsized the team to focus on VR.

Senior vice president Steven Ma had projected that Tencent would launch industry-leading VR hardware by 2026 or 2027 after toying with its own VR headset TenVR in 2018, which has since failed to resurface.

In February, Tencent Cloud partnered with blockchain startup MultiverseX to help the company expand its metaverse offerings.

Tencent also announced in 2020 that it would be investing 500 billion yuan ( approximately US$70 billion) over the next five years in various emerging technologies including cloud computing and blockchain. It recently added a function to support the digital yuan - China's CBDC (central bank digital currency).

In 2021, Tencent launched NFT trading platform Huanhe and sold 300 NFTs of audio clips from the talk show Shisanyao. The company’s streaming platform QQ Music was the first music platform in China to issue music NFTs.

Read more: Tencent Apes into Web3 With MultiversX Partnership

However, sources familiar with the company said that “Tencent does not see the metaverse as a central development direction.”

Tencent has not acquired VR firms to expand its platform and has not yet integrated XR into its current products such as WeChat. ‌

Not just China

The metaverse problem is not unique to Chinese tech firms. In its Q1 earnings report on Wednesday, Meta announced a Reality Labs operating loss of $3.99 billion, generating just $399 million in revenue.

Reality Labs reported a whopping loss of US$13.7 billion in 2022, compared to a loss of US$10.2 billion in 2021. In Q4 alone, the segment's loss was over US$4.3 billion, marking its worst quarter since Q4 2020.

In its outlook for the unit, Meta stated, "We continue to expect Reality Labs operating losses to increase year-over-year in 2023."

However, unlike ByteDance and Tencent, CEO Mark Zuckerberg is not giving up so easily on the metaverse.

“A narrative has developed that we’re somehow moving away from focusing on the metaverse vision, so I just want to say up front that that’s not accurate,” Zuckerberg said on the earnings call. “We’ve been focusing on AI and the metaverse, and we will continue to.”

Read more: Meta's Reality Labs Reduces Losses, Zuckerberg Makes AI-VR Link

Nonetheless, Zuckerberg informed investors that Reality Labs' AR and VR work does involve AI.

“Our vision for AR glasses involves an AI-centric operating system that we think will be the basis for the next generation of computing,” he said.


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