Chinese technology giant Tencent Holdings is reportedly culling staff at its extended reality (XR) unit and folding plans for virtual reality (VR) hardware. It joins a host of Big Tech to have cut, or abandoned, spending on the metaverse as focus shifts to the new AI chatbot craze.

Tencent took a bet on the metaverse concept of virtual worlds. In June last year, the world’s largest video game publisher announced the official launch of the XR unit to drive Tencent’s extended reality business including software and hardware development, Reuters reported.

The division has around 300 employees, said the report. Tencent intended to develop “a ring-like hand-held game controller” but the plans came unstuck after it failed to breakeven, forcing management to shift attention to more profitable areas.

Big Tech put brakes on metaverse

According to the report, Tencent’s XR project was not expected to become profitable until at least 2027. “Under the company’s new strategy as a whole, it no longer quite fit in,” Reuters said, quoting three sources with knowledge of the development.

Tencent becomes the latest big technology group to have either cut its metaverse ambitions by letting staff go, or completely suspended spending in the area. Both Meta and Microsoft have scaled back their metaverse plans in a big way.

The cut-backs coincide with the current hype surrounding artificially intelligent chatbots, which began with OpenAI’s breakout hit ChatGPT.

Microsoft is leading a spending spree in AI tech, with billions of dollars poured into acquiring ChatGPT-powers for its Bing search engine. Since the integration, daily visits to have climbed 15% and searches for “Bing AI” have soared around 700%, according to Similarweb.

Rival Google has Bard, which failed at launch last week – a failure that wiped off $100 billion from the company’s total market value.

“[Corporates] rushed into the new area [metaverse] as they had to,” Ilman Shazhaev, CEO and founder of metaverse platform Farcana, told MetaNews. “Can you imagine Meta or Microsoft lagging behind their competitors and not innovating?” he quipped, rhetorically.

“Staying way behind the latest technologies is as bad as stepping into a new niche that is not too profitable. They react on hype, driven by a desire to support their stocks. The metaverse is a hot topic, so companies make good PR by showing their presence in this tech niche.”

‘World not ready for metaverse’

The global tech giants’ exodus has raised questions about whether the metaverse as a practical idea is losing steam.

Speaking to MetaNews, Sebastian Menge, the cofounder of burn-to-earn fitness platform Fitburn, said big tech companies may be suspending investment in the metaverse because of a lack of clarity regarding the future of the industry.

“Artificial intelligence differs from metaverse: it has more real-life utility, making things easier, like ChatGPT, fulfilling simple tasks or retrieving information for us,” he detailed. “So I guess this will halt the development of the metaverse.”

Continuing, Menge said:

“In my opinion, the world is not ready for the metaverse – and the metaverse is not ready to be put out into the world, either. When the Covid lockdown was over, most of us would choose real interactions with people we got used to having virtual meetings with.”

In January, Microsoft announced it will be shutting down its virtual reality metaverse arm AltspaceVR on March 10. The unit will now “focus on the immersive experiences” at Mesh, a new VR division that Microsoft is launching for its video conferencing platform Teams.

The platform featured user-generated spaces called “Worlds” and allowed users to chat, hang out and host events. AltspaceVR could be thought of as Microsoft’s equal to Meta’s idea of a metaverse. In total, Microsoft cut 10,000 jobs as consumer spending declines.

Microsoft also sacked the entire staff at its popular extended reality projects HoloLens and Mixed Reality Tool Kit (MRTK). In contrast, the Washington-based firm invested a reported $10 billion in OpenAI, the private AI company that created ChatGPT.

‘AI frenzy will go down, too’

A slowing global economy has seen disposable incomes falling across regions, hitting businesses hard. To cut costs, several companies, including Amazon, Google and Meta (formerly Facebook), have all let go off thousands of workers in recent months.

Pico, a virtual reality headset manufacturer owned by ByteDance, Tik Tok’s parent company, revealed it fired employees in its metaverse unit last week..

Meta sacked staff at its Reality Labs, the unit in charge of its metaverse vision, following a $13.7 billion loss in 2022. The decision by Meta founder and CEO Mark Zuckerberg, who renamed Facebook in 2021 to reflect its metaverse focus,  may signal tough times ahead.

Ilman Shazhaev, the Farcana CEO, said, “we are now definitely at the peak of inflated expectations” for artificial intelligence, but “we will see the hype going down soon, especially with ChatGPT becoming a new trend.”

He adds that while the metaverse and AI spaces target different niches, companies want to merge the two. He pointed to his own project, Farcana metaverse, which uses AI to create art for games and GPT models to generate music and sounds based on players’ emotions.

“AI is great for generating content for metaverse,” Shazhaev stated. “With the great size of the virtual space in metaverse, content creation must automate.”

“Artificial intelligence can help with picture generation as well as music and text. ChatGPT can be essential to power life-like communication in Metaverse. So there is a great synergy between both,” he said.

Metaverse not dead

While global tech giants are opting out of the metaverse, not everyone is as pessimistic. Last week, Dubai launched what it is calling “Mall of the Metarvese”, a virtual shopping experience that’s meant to reflect and feel like real-life shopping.

Big brands such as Carrefour, VOX Cinemas, THAT Concept Store, Ghawali and Samsung Store will soon be joining the Mall. It is a big statement of intent from Dubai, the rich city and emirate in the United Arab Emirates famous for luxury shopping and ultra-modern buildings. The metaverse may not be dead, after all.

This article is originally from MetaNews.


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