Tencent’s extended reality (XR) department underwent adjustment and started to focus on building software, but this does not mean that the Chinese tech giant has completely given up exploring XR. Local media outlet 36Kr reported that the department has only a small number of employees, and will introduce Quest 2, a VR device under Meta, in the future.
Similar cooperation has happened before. In 2019, Tencent and Nintendo, a Japanese multinational video game company, reached a working agreement. As an agent, Tencent sold the domestic version of the Nintendo Switch, and was responsible for setting up offline channels with both parties promoting the localized translation of games together. 36Kr said that the cooperation with Quest 2 will use this same model.
This plan started after Shen Li, the head of the XR department, left in November 2022, and will continue under Tencent‘s Interactive Entertainment Group in the future. What is more noteworthy is that after the XR business was suspended in January this year, the general manager who was temporarily in charge of it was Qian Geng. He is also the general manager of Tencent‘s department for cooperation with Nintendo.
Since its release in 2021, as of June 2022, the global sales volume of Quest 2 has reached 14.8 million units IDC data shows. But the penetration rate of this product in China is limited because there is no distribution channel in the country.
In the last two and a half years, Tencent‘s exploration in the XR hardware field has often been hampered. In August 2021, Tencent and ByteDance fought fiercely around the acquisition of PICO, a VR device producer. In the end, Tencent lost the bidding war to the radical price of 9 billion yuan ($1.31 billion) offered by ByteDance, while some insiders said that the valuation given by PICO at that time was only 2.5 billion yuan.
After the failure, Tencent targeted another AR company named Shadow Creator with a valuation of about 3 billion yuan, but gave up due to differing ideas between the two parties.
In January 2022, Tencent planned to acquire Black Shark, a maker of mobile game phones, with a valuation of 2.7 billion yuan, and then failed again. Part of the reason is that Black Shark didn’t understand the VR field, underestimated the difficulty of VR research and development, and showed signs of corruption amongst its ranks.
To introduce Oculus Quest 2, Tencent needs to localize game content, system, services, audio and video, AI, etc. In China, users’ willingness to pay for content is not very high, but they accept that game content is free and will pay extra money for value-added services. Therefore, Tencent needs to find a business model suitable for domestic users.