BEIJING, October 27 (TMTPost)— ByteDance Ltd insisted long-term operation of its virtual reality (VR) subsidiary Pico amid speculation about phaseout or even shutdown.

Credit：Visual China

The news about winding down Pico is not true, the subsidiary is running normally, and ByteDance will invest in VR business for the long term, the relevant official at the TikTok owner told Beijing Business Today, a major economic newspaper based in Beijing. Recent news about either key leaders’ exits or massive layoff is untrue, and Pico is operating as normal, the company responded to Chinese digital news media outlet Sina Tech. It also vows to remain normal production operation and continue to increase investment in product technologies.

Earlier this week, Chinese research firm EqualOcean cited a report that ByteDance founder Zhang Yiming told Pico management that his company would gradually shut down the Pico business. Chinese digital media outlets Jiemian then reported Pico has been scaling down its operations this year: on the one hand, the startup lowered its sales targets for the year, changing its focus from expanding its market share to deepening its engagement with existing users; on the other hand, it has significantly reduced the team size through multiple rounds of layoffs so far this year. Pico laid off many employees in February, without offering the opportunities to transfer to other positions within ByteDance, and the number of its departing employees increased to nearly half of 2,000, which was the headcount at its prime time in 2022 after the acquisition, according to the report.

Ren Lifeng, head of Pico's content ecosystem business, was said to leave at the end of the year, with his status within ByteDance's internal system listed as "on leave." Ren's department is experiencing a significant number of employee departures, the Jiemian report said. Another Chinese online news outlet The Paper also learned that almost half of Pice’s employees had left, and about two third of workers at the marketing department had resigned. Multiple senior executives have quit and shifted out of Pico, The Paper cited several people familiar with matter, adding Ren LIfeng will officially resign at the end of the year.

"Theoretically, Ren Lifeng's departure means ByteDance has reached an internal conclusion that it failed in the VR battle," Beijing Business Today quoted an industry insider, who believes while the current trouble will not lead to Pico shutdown, the conclusion is obvious: ByteDance became a loser as its VR attempt was beaten by whether the industry cycle or the time.

Pico was acquired by ByteDance in September 2021. The takeover was deemed as TikTok parent’s first foray into VR. An internal letter of Pico disclosed the deal valued it at RMB9 billion, much bigger than RMB5 billion, the deal size that previously widespread news suggested. Pico was the world’s third-largest virtual reality headset producer in the first quarter of 2021, with shipments growing 44.7% year-on-year, according to IDC.

In September 2022, Pico made a high-profile release of its consumer VR product, PICO 4/Pro, not only in China but also in Europe, Japan, South Korea, and Southeast Asia. That is Pico’s first product launch since takeover a year earlier. To boost hardware sales, the prices of Pico 4 were drastically lowered, even incurring a loss of approximately RMB 500 for each device sold.

Pico's team size expanded significantly in 2022, leading to a surplus of personnel, and the integration of Pico’s old team with the new team was not smooth. There were rumors of internal conflicts within the company. The difficulties for Pico's expansion are directly related to a shrinking VR market. Other augmented reality (AR)/VR device companies in China are struggling.

According to IDC, in the first half of 2023, China's AR/VR headset shipments reached 328,000 units, a 44% year-on-year decline. Pico held a 58.7% share in this market, while other brands only had a small fraction of its share. Pico failed to make timely and effective strategic adjustments in response to the current environment. The VR industry depends on popular content, but its applications and content development have been poor. The number of applications in Pico’s app store is over 530, falling behind its overseas competitors.