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The virtual reality division of TikTok owner ByteDance has announced staff cuts and a sweeping restructuring plan because of a market downturn, according to three people familiar with the matter.
Henry Zhou, president of ByteDance’s VR arm Pico, said in an internal meeting on Tuesday that the division would retain its hardware and core technology teams while scaling back its marketing, studio, video and platform departments, according to two individuals who attended the gathering.
Zhou admitted the VR industry was still in “a very early stage” and Pico’s initial expectations for the market were overly optimistic, according to the two people.
ByteDance acquired Pico in 2021 at the peak of excitement in Silicon Valley about the potential for the “metaverse” — expansive virtual worlds accessed through VR headsets — to become the next big trend in consumer tech. However, enthusiasm for that idea has waned, as artificial intelligence seized the tech industry’s attention.
Details of the staff cuts at Pico were not disclosed in the meeting, but according to two people familiar with the situation, several hundred employees from the workforce of more than 1,000 will lose their jobs.
The reorganisation marks a shift in Pico’s strategy of research and development after its acquisition by ByteDance in the face of the waning market for VR gadgets. The company had hoped to leverage the strengths of ByteDance to provide content for VR users but with few results.
Since the acquisition, Pico has been expanding aggressively, establishing teams that create VR content such as videos and games. One person familiar with the situation said ByteDance had invested more than Rmb10bn ($1.37bn).
It would be these teams that would be mostly affected by the company’s reorganisation and subsequent job cuts, according to Zhou.
“Pico was originally a VR headset maker, and for two years they’ve been doing stuff they weren’t good at,” said a Pico employee, who asked not to be named.
Pico was viewed as Meta’s competitor in VR headsets and became a leading VR maker by volume in China, accounting for more than 50 per cent of the domestic market in the first half of this year, according to research company Counterpoint.
Meta launched the latest version of its Quest VR headset last month but the devices are not available in China. Many in the VR industry hope that Meta’s Quest 3, Sony’s new PlayStation VR 2 and Apple’s forthcoming Vision Pro together could trigger a return to growth for a product that has struggled for almost a decade to break into mainstream consumer adoption.
However, so far this year, both the global and Chinese VR markets have experienced significant declines. According to IDC, global augmented reality and VR headset shipments fell 44.6 per cent year on year during the second quarter of 2023, the fourth consecutive quarter of decline.
The decline in China was more severe than that in the global market. China’s VR market shipments declined 56 per cent in the first half of 2023 compared with the same period last year, according to Counterpoint, ending two years of growth in the Chinese market.
That drop came despite February’s launch of Sony’s PSVR 2, which quickly became the second biggest-selling headset in China behind Pico. Analysts say the VR market as a whole has suffered from a lack of compelling games or business software tools.
Pico said the company decided to restructure the business to focus more on hardware and core technologies.
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