Tencent terminates employees from Unit Metaverse; VR plan scrapped

The Chinese computing giant’s metaverse subsidiary is reportedly cutting costs.

Tencent Holdings might be giving up on its plans to enter the virtual reality hardware market.

Tencent, the maker of the WeChat social media network, is reconsidering how it will approach its metaverse offering. It will not be manufacturing virtual reality devices.

According to Reuters, the Chinese computing giant’s metaverse subsidiary is cutting costs in the face of worsening economic conditions and broader difficulties facing the bitcoin ecosystem.

In June, Tencent established its “extended reality” XR unit and hired 300 people to help it become a reality as part of its ambitious plans to build virtual reality software and hardware.

Why did Tencent Holdings drop plans to invest in VR?

Reportedly, according to three persons familiar with the situation, Tencent Holdings is giving up on its intentions to enter the virtual reality hardware market as a dim economic outlook forces it to reduce spending and staffing at its metaverse division.

The largest video game publisher in the world had grand aspirations for an “extended reality” XR unit that it launched in June last year and for which it hired nearly 300 people.

It had developed a prototype for a hand-held game controller that resembled a ring, but according to two of the individuals, challenges in reaching early profitability and the significant expenditure required to build a competitive product were among the issues that led to a change of direction.

“Under the company’s new strategy as a whole, it no longer quite fit in,” the source said.

Company to disband the XR unit

Tencent was also forced to abandon plans to acquire gaming phone manufacturer Black Shark, which was supposed to strengthen its hardware push and add 1,000 personnel to the operation, due to the change in strategy and increased regulatory scrutiny that would have required a drawn-out approval process.

The 300 employees of the XR division at Tencent were informed on Thursday that there would be some personnel changes and that they had two months to find new internal or external opportunities. The corporation responded to rumors that it was totally disbanding the XR unit by stating that some business teams were being altered since its goals for hardware development had changed.

With this step, Tencent enters the ranks of major companies that recently changed their metaverse strategy in response to economic challenges, including Microsoft and Facebook. Microsoft shut down a team that was created just four months ago to assist users in using the metaverse in an industrial setting, the company stated last Friday.

As part of a cost-cutting initiative, Facebook’s parent company Meta also had to reduce its workforce. Back in November, Meta announced that it would be letting go 13% of its workforce, or more than 11,000 workers. The layoffs will effect every division of the business, including Reality Labs, which is in charge of creating prototypes for cutting-edge technologies including mixed reality and brain-computer interfaces as well as augmented reality (AR) and virtual reality (VR).

One of Tencent’s most challenging years since its founding in 1998, the previous year saw its income adversely affected by regulatory restrictions and challenges brought on by efforts to contain the spread of COVID-19.

In a rare show of annoyance at a year-end meeting in December, its founder Pony Ma criticised senior management for not working hard enough and said the company needed to concentrate on short video for future growth.