China’s Tencent Holdings is ditching plans to enter the VR market as the current economic situation forces the Chinese tech giant to cut costs and staff in the metaverse. Three independent sources «familiar with the matter» told Reuters.
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The world’s largest game publisher had ambitious plans for VR hardware and related software. Launched last June alone, the augmented reality (XR) division has hired about 300 people. In particular, the concept of creating a game controller in the form of a ring was put forward, but the inability of the project to provide a quick profit and the need for large investments to create a competitive product became one of the main factors that forced the strategy to be revised.
According to one source, the XR division did not provide for a profit until 2027, which does not fit into the company’s new strategy. Previously, Tencent also planned to acquire gaming smartphone maker Black Shark in order to expand its hardware development capabilities and add another 1,000 professionals to the division. However, with a change in Tencent’s strategy, due to tight control by regulators and lengthy bureaucratic procedures, the deal had to be abandoned. The company itself does not officially comment on the news about the purchase of Black Shark.
As for the status of the XR division, Tencent has already said it will streamline some of the teams as hardware plans have changed. However, the company said on Thursday that it does not intend to completely dissolve the XR department. According to sources, Tencent advised most employees in the unit to look for other career opportunities.
The formation of the XR division at one time took place against the backdrop of a general increase in interest in the metaverse in the world and forced Tencent to take measures unusual for the company. As you know, she specializes in software, incl. social services and games and does little iron work. The company had to compete with tech giants like Meta* and Microsoft not only in the field of software, but also in the segment of headsets for virtual reality systems.
Last year was the toughest year for Tencent since the company was founded in 1998. Revenues have been hit hard by regulators and the impact of China’s tough anti-COVID measures. Last December, founder Pony Ma showed rare pessimism when he criticized the company’s senior management for not working hard enough and said that Tencent should focus on short video services for future growth.
* It is included in the list of public associations and religious organizations in respect of which the court has made a decision that has entered into legal force to liquidate or ban activities on the grounds provided for by Federal Law No. 114-FZ of July 25, 2002 “On countering extremist activity”.
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