Has the Virtual Reality Bubble Burst Amid the AI Boom?

ByteDance VR Division Restructuring
"Clearly Shows VR Market Slump"

Chinese company ByteDance is undertaking a major restructuring of its virtual reality (VR) division. While the generative artificial intelligence (AI) market ignited by ChatGPT has rapidly grown, VR and the metaverse (3D virtual worlds), once seen as next-generation hardware platforms, have lost market interest, analysts say.

On the 8th (local time), major foreign media outlets reported, citing sources, that ByteDance has started a high-intensity restructuring process including workforce reductions in its VR division in response to the market downturn.

Henry Zhou, president of ByteDance's VR division (Pico), announced at an internal meeting held that day that the marketing, studio, and video platform departments related to the VR business would be downsized. However, the core technical personnel related to VR hardware will be maintained at the current level for the time being.

The number of employees affected by this restructuring is known to be in the hundreds. ByteDance's VR division has about 1,000 employees. At the meeting, President Zhou reportedly said, "The VR industry is still at a very early stage," and "We acknowledge that our expectations for this market were overly optimistic."

[Image source=AFP Yonhap News]

ByteDance, the world's largest unicorn company that achieved global success with the short video sharing platform 'TikTok,' acquired the Chinese VR headset startup Pico in 2021 and began pioneering the Chinese VR market. Since acquiring Pico, ByteDance's investment in the VR business has reached at least 10 billion yuan (approximately 1.8 trillion KRW).

Foreign media analyzed that ByteDance's recent restructuring reflects a facet of the global VR market downturn. A British media outlet pointed out, "ByteDance's move reflects the VR market slump overshadowed by the AI boom." Pico, which once pursued a 'metaverse all-in' strategy alongside the American company Meta, has divided the Chinese VR market with Meta. Currently, Pico's market share in the Chinese VR market exceeds 50%.

This year, the global VR market size has significantly decreased. According to global market research firm IDC, as of the second quarter of this year, global VR headset shipments fell 44.6% year-on-year, marking the fourth consecutive quarter of decline. The decline in the Chinese market was even greater. According to market research firm Counterpoint Research, VR headset shipments in the Chinese market in the first half of this year plummeted 56% compared to the same period last year.

Global companies are also rapidly withdrawing from the VR market. Meta, which previously pursued a metaverse strategy and even changed its company name, has scaled back its metaverse business and expanded its AI business after failing to achieve results relative to investment and facing prolonged stagnation. Microsoft (MS) also ended the VR service of Altspace, a VR platform it acquired in 2017, and Walt Disney eliminated its metaverse development department.

In the past, the VR market attracted attention as a next-generation hardware platform following personal computers (PCs) and smartphones. With the entry of leading global big tech companies such as Meta and Apple, as well as major game companies, technology development accelerated, and the related industry seemed to expand. However, high hardware costs, performance limitations, and a shortage of VR content continue to hamper growth.

This content was produced with the assistance of AI translation services.