BEIJING, November 10 (TMTPost)— Pico, TikTok parent ByteDance’s first attempt to explore the virtual reality (VR), has to scale back its business.

Credit：Visual China

Pico announced earlier this week about its plan of layoff and reorganization. “After a careful review of our business, the industry and the market condition, we had some basic judgments as follows: the VR industry is at very early stage, and we previously were relatively more optimistic about the outlook of the industry and market, but the actual development is not as fast as we expected,” the CEO Zhou Hongwei said at an internal meeting.

Based on these judgments, Pico plans to make the restructure and the main purpose is to better focus on long-term exploration and breakthrough on the hardware and core technologies, which means Pico will double down those can create value in the long run, and accordingly scale down other investments in the short term, Zhou said.

In terms of organization, Pico will merge its mobile OS team with ByteDance’s mid-end of development and research (R&D) and engineering architecture, targeting strengthening R&D investment and unified management of OS core technologies. As to personnel, Zhou said Pico will axe workforce in some of teams, mainly affecting marketing services, studios, video, and platform opeartion, since the company’s new business development will focus more on hardware and core technologies.

Zhou didn’t specify how many people will be affected or to what extend Pico wants to reduce the size of its individual teams. He said his company will make arrangements for laid-off employees, such as to offer opportunities of internal transfer and reasonable severance packages.

The overhaul is deemed as the biggest one since Pico was taken over by Bytedance. Pico is expected to cut “hundreds” of jobs globally, Reuters cited people with knowledge of the matter.  Prior to Zhou’s announcement, reports about Pico’s massive layoff and winding down have been swirling last month.

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 news outlet The Paper 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.

Pico was acquired by ByteDance in September 2021, when it was ranked as the world’s third-largest VR headset producer by shipments, according to IDC. 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. 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.