The Pico virtual reality project under ByteDance is currently undergoing the largest adjustment in its history.
On November 6, Henry Zhou, founder of Pico, took merely ten minutes to announce the fate of the company: the Pico OS team is to be integrated into ByteDance’s product development and engineering architecture platform, while the entity’s marketing, gaming, and video departments will undergo significant layoffs.
According to information gathered from various sources by 36Kr, Pico had around 1,600 employees. About 400 employees are being shifted from its OS department, while nearly 400 of the 1,000 employees from the marketing, gaming, and video sections are facing layoffs. Only around 200 employees remain in the hardware department. Overall, the proportion of layoffs and transfers stands at about half.
Prior to this development, employees had sensed an impending change, prompting some to organize small farewell gatherings toward the end of October. Pico was poignantly described as “a Titanic slowly sinking” during these gatherings, reflecting the somber mood among its workforce.
When ByteDance acquired Pico, there were high expectations that its success in the VR hardware business would pave the way for a groundbreaking content ecosystem, akin to finding the “next iPhone 4” from the ground up. While Meta’s VR business set the American standard, ByteDance’s acquisition of Pico was initially considered a beacon of hope for the Chinese VR industry.
However, the trajectory has taken an unexpected turn. According to a senior executive interviewed by 36Kr, ByteDance invested nearly RMB 9 billion (USD 1.27 billion) to acquire Pico when its valuation was around RMB 3 billion (USD 423.98 million). At its peak, ByteDance injected an additional RMB 10 billion (USD 1.41 billion) into Pico in 2022. Conservative estimates now value ByteDance’s total investment in Pico at just over RMB 20 billion (USD 2.82 billion), making it the most significant investment in the domestic VR industry.
As the saying goes, all good things come to an end. Persistent rumors within Pico speculated that “ByteDance’s patience with Pico will only last three years,” and now, this speculation has turned into reality. From the substantial investment to the current retreat, ByteDance’s enthusiasm for VR seems to have waned, lasting two years and two months.
Signs of ByteDance’s changing stance were evident towards the end of 2022. Pico proposed a RMB 40 billion (USD 5.65 billion) investment plan over the next three years, a proposal that was significantly scaled down by ByteDance’s top management. Although a Pico spokesperson refuted claims of the reduction, citing false information with no disclosure of specifics, the pressure from higher-ups had a cascading effect.
Yang Zhenyuan, a senior leader of Pico’s business and a vice president at ByteDance, had previously regarded Pico on par with the Volcano Engine in his objective and key results (OKRs). However, this year, Pico was notably absent from his OKRs, signaling a shift in priorities.
This change in top management attitude directly impacted product development, causing substantial delays in the launch of Pico 5 and 6. Internal sources revealed that Pico 5, a major VR product, was initially scheduled for release in the second quarter of this year but faced a complete overhaul after the launch of Meta Quest 3.
Chen Ting, a Pico employee, attributed the delays not only to Meta monopolizing Qualcomm Snapdragon chips for half a year but also to certain aspects of Pico 5’s hardware development falling short of ByteDance’s top management expectations. Consequently, the release of Pico 5 might be postponed until 2026, as confirmed by a Pico spokesperson.
The challenges extended to the preparation for Pico 6, with core components being rejected during the application process. ByteDance went to the extent of compensating millions of dollars to suppliers who had already begun manufacturing, opting to deviate from the original plan.
These setbacks were not isolated incidents, as revealed by another Pico employee who disclosed severe budget cuts across various projects within the company. Financial allocations, which were in the hundreds of millions of RMB last year, have dwindled to just a few million this year.
For a trailblazer that once pushed the industry’s boundaries, Pico’s withdrawal invokes more regret than satisfaction among other players in the VR industry. As Li Jie, vice president of VR startup Xiaopai, aptly puts it, “It’s not easy being a leading figure in the industry… If you don’t agree, try starting your own company before critiquing others.”
Note: Some employee names may have been changed to protect their identities.
This story is the first part of a four-part series that delves into the factors leading to ByteDance’s decision to scale back Pico, its virtual reality business. The second part discusses the ramifications of Pico deciding to emulate Meta’s strategy in the Chinese market. Read it here.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Qiu Xiaofen for 36Kr.