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Virtual reality's grim reality has finally sunk in for TikTok parent Bytedance.

The company invested heavily in virtual reality in 2021, back when Mark Zuckerberg's foray into the metaverse had everyone convinced VR was tech's Next Big Thing. It isn't. AI is. And now ByteDance is undergoing a sweeping restructuring and scaleback of its VR division, according to a Financial Times report on Tuesday.

Virtual Reality Check

ByteDance essentially bought its way into the VR game, acquiring headset-maker Pico in 2021 and immediately turning it into its primary in-house VR division. Pico had been the third-largest VR headset maker in the world in early 2021, according to IDC, but it was still a distant third: Meta owned a roughly 90% global market share. ByteDance has been able to elbow its way in since then -- securing a 15% market share to leapfrog Sony, as Meta's share fell to roughly just 75% near the end of 2022, according to IDC. Easy enough, given Meta has largely been blocked out of the Chinese market.

Still, market share only means so much with a market this small. With VR still mostly lacking killer apps for consumers or businesses, ByteDance's Pico investment has bombed:

  • Following two years of growth, shipments of VR devices in China dropped 56% in the first half of 2023, according to Counterpoint. Meanwhile, global shipments fell 44% year-over-year, according to IDC, marking a year straight of declines.
  • Pico's staff cuts will number several hundred out of just 1,000 employees, sources told the FT. ByteDance had poured roughly $1.4 billion into the unit, expanding aggressively from hardware into software and video content development.

Back to Basics: The reorganization brings Pico back to its roots: focusing on R&D for hardware development and leaving the rest of the VR experience to third-party developers. "Pico was originally a VR headset maker, and for two years they've been doing stuff they weren't good at," one anonymous Pico employee told the FT. It's proof that even in the metaverse, walking and chewing gum at the same time is easier said than done.