After the failure of ByteDance, Tencent, which is also not very good at hardware, will fight VR again, but with its best proxy mode. On November 10th, according to WSJ, Silicon Valley company Meta, which owns social media such as Facebook and Instagram, has reached an agreement with China's highest market value internet giant Tencent, which will become the exclusive seller of Meta's Quest series of headphones in China. This is also the return of Facebook's ToC business to the Chinese market 14 years later.
According to the report, Tencent will begin selling this headwear device by the end of 2024. The two companies have been negotiating for nearly a year, and the agreement is temporary, and details may change. In this transaction, Meta will take away the majority of device sales revenue, while Tencent will take away content and service revenue. Meta does not comment on this. Blue Whale Finance reporter has sought confirmation from Tencent, but as of press release, there has been no response.
Tencent's game agency business has rich and successful cases, and it has also accumulated some experience in hardware agency. Prior to Meta, Tencent had collaborated with Japanese gaming giant Nintendo on the game console Switch, where Tencent was responsible for the sales and operation of Switch China. However, due to the fact that all legitimate games in China require license plate approval, most of the games on Switch cannot be officially released on the Switch version of the National Bank. For a super company like Tencent today, it is also impossible to provide sales of unapproved Switch games. In terms of VR content corresponding to VR headwear devices, due to the early stage of the market, there is currently no mature review system and market sales practices for reference. In general, review or filing is necessary, but the only difference lies in the method used.
There have been rumors about Meta's collaboration with Tencent for a long time. In July of this year, according to WSJ, Meta was in talks with Tencent regarding the agency of Quest VR in China. However, based on previous comments by Meta CEO Zuckerberg, Tencent is relatively cautious about this cooperation. At that time, the report quoted sources familiar with the situation as saying that at the end of last year, there was a heated discussion within Tencent about whether to cooperate with Meta. Tencent Holdings Chairman and CEO Ma Huateng decided to negotiate first to see what agreement could be reached with the other party. In addition, Meta has also held discussions with several domestic technology companies, including Lenovo and some mobile phone manufacturers.
Although Tencent wants to reposition XR/VR, hardware is not its area of expertise. In order to appease its partners, Ma Huateng once stated that Tencent does not make smartphones or hardware, but rather focuses on ecology. But as it enters the late stage of mobile internet and traffic peaks, Tencent needs new growth points for its performance. Games are Tencent's old business and the biggest source of profit. If XR/VR hardware and content really reach maturity at a certain point in the future, Tencent will not easily miss it. According to Tencent's previously released financial report for the second quarter of 2023, the revenue of the gaming business segment was 45.5 billion yuan, a year-on-year increase of 5%, with international gaming revenue reaching 12.7 billion yuan, a year-on-year increase of 19%.
Tencent wants to try to find new opportunities on the VR track, and Meta wants to seek global demand for its niche devices, including in the Chinese market. However, the timing of Meta's choice to enter the Chinese market is not very suitable.
According to data from Couterpoint Research, a technology analysis firm, the Chinese VR market ended two consecutive years of growth in the first half of this year, with a 56% decrease in headworn device shipments. According to an IDC research report, the global shipment volume of AR/VR headworn devices in 2022 was only 8.8 million units, a year-on-year decrease of 20.9%.
VR, which once boasted two or three waves, can't even play with the ByteDance, which is good at making miracles. Not long ago, on November 7, ByteDance's VR business PICO announced layoffs and organizational restructuring. According to the official statement, it is to better focus on long-term exploration and breakthroughs in hardware and core technologies, and create long-term value with greater determination. Correspondingly, short-term investment and related team size will be reduced, involving over 300 employees, accounting for approximately 23% of the total. The total number of PICO employees exceeded 2000 during the peak period, but it has already experienced 20-30% layoffs this year. After this layoff and some team transfers, the number of employees will be in the hundreds. The investment was huge but the results were minimal. PICO CEO Zhou Hongwei admitted, "Previously, we estimated the development of the industry and market to be relatively optimistic, but in reality, it was not as fast as expected
Even though Meta is a global leader in headwear devices, its own performance is not optimistic. According to IDC data, Meta held approximately 50% of the global headwear device market in the second quarter of 2023. However, according to its latest financial report, Meta stated that its department that develops augmented reality and virtual reality products, Reality Labs, had an operating loss of $3.74 billion in the third quarter of this year. In the first nine months of 2023, Reality Labs had a cumulative operating loss of $11.47 billion. And the losses of this scale are far from over, and there is a possibility of significant increase in the future. Meta predicts that the operating losses of Reality Labs will significantly increase year-on-year in 2024.
Apple, which also wants to revive its performance with MR's Vision Pro, is still waiting for the maturity of its products and business. According to Apple's financial report data, the revenue of wearable, household products and accessories in the third quarter was only $9.322 billion, compared to $9.65 billion in the same period last year, a decrease of about 3.4%. During the financial report conference call, Apple CEO Tim Cook proposed the slow sales approach of Vision Pro, stating, "There has never been a product like Vision Pro before. Therefore, we specifically only launched it in our store, so we can truly focus a lot of attention on its last mile. We will provide a demonstration in the store, which will be a completely different process from the regular purchase and use process
As for the future market trend of VR, there is currently no clear conclusion. But it can be clearly stated that by representing Meta's products, Tencent can retain its position in the VR/AR industry; For Meta, new markets are needed to boost performance, improve products, and step by step move towards its dream Metaverse.