Tencent to discontinue metaverse VR hardware venture

Amidst the economic downturn, reports have emerged that Chinese tech giant Tencent Holdings is abandoning its plans to produce virtual reality (VR) gear and downsizing its recently established metaverse unit.
According to sources cited by Reuters, Tencent’s metaverse initiative, known as the extended reality (XR) unit, lacked the necessary applications to make it financially viable. The company initially projected that it would take approximately five years for the project to become profitable. However, concerns about a global economic recession and the significant investment required to develop a competitive product rendered the project unfeasible.
Facing regulatory challenges and the impact of efforts to combat the COVID-19 virus in China, Tencent endured one of its most challenging years since its inception. The company had also intended to enhance its VR hardware capabilities through the acquisition of Black Shark, a gaming phone manufacturer. Nevertheless, Tencent reportedly withdrew from the agreement due to changes in its strategic business direction, heightened regulatory scrutiny, and concerns about a prolonged review process.
Reports from Hong Kong on Feb. 6 indicated that Tencent had advised several members of the XR unit to explore alternative job opportunities since the unit is slated for dissolution. The world’s largest video game publisher has given these employees a two-month window to secure new positions, either within Tencent or elsewhere.
Established in June 2022, the XR unit was formed by Tencent to lead its entry into the emerging metaverse sector. The company had envisioned the unit as its initial venture into producing virtual reality hardware for gaming and social media applications. This move coincided with the increasing global interest in the metaverse, with major tech firms such as Meta and Microsoft unveiling plans to develop their metaverses and VR devices.
A source quoted by Reuters revealed that Tencent briefly explored VR technology in 2016 before reigniting its interest in the field in 2021 due to advances in pancake lenses and display technology. The source also mentioned that Meta’s success with its Quest headset served as further inspiration for Tencent’s renewed focus on VR.
Tencent’s decision to scale back its metaverse aspirations aligns with similar layoffs seen in other tech companies, including Meta and Google.