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June 22, 2022updated 09 Feb 2023 8:21am

Tencent joins metaverse race with ‘extended reality’ division

China's Tencent is the latest tech giant to stake a claim to the metaverse.

By Ryan Morrison

Chinese internet giant Tencent has created an ‘extended reality’ division that will develop hardware and services for the metaverse, according to news agency Reuters. The move is the latest Big Tech bid to stake a claim to the metaverse, with Meta, Microsoft, Apple and TikTok-developer ByteDance all making bets that virtual and extended reality will be the user interfaces of the future.

It comes as a number of organisations, including Microsoft, Meta and Unity launch a new metaverse standards forum to improve interoperability.

Tencent's metaverse push (Photo: alvarez/iStock)
Analysts expect most Big Tech giants to announce metaverse strategies this year. (Photo by alvarez/iStock)

Tencent’s extended reality division was set up last year, insiders told Reuters, but has so far been “shrouded in secrecy”. The unit will eventually have 300 staff, they said, despite an ongoing cost-cutting drive at the company.

Reuters reports that Tencent’s extended reality division is working on a headset, marking its first venture into hardware, as well as software. One source said the division is a “passion project” of Tencent founder Pony Ma, who has described the metaverse as an “all-real internet”.

The new division is led by Li Shen, chief technology officer of Tencent’s games division, and will sit in the company’s Interactive Entertainment group.

Tencent gave an indication of its metaverse plans last November, when CEO Martin Lau told investors there are “multiple pathways” into the market, including through interactive games and social networking. “We have a lot of tech and capability building blocks that will allow us to approach the metaverse opportunity,” Lau said.

The company has also registered more than 20 metaverse-related trademarks for its various apps inside China.

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Tencent’s metaverse strategy

Tencent’s investment in the metaverse is more than just a ‘me-too’ strategy, says Jared Klee, an analyst from Futurum Research. “Tencent has a robust track record for funding things at the early stages and seeing them through to fruition so I don’t think this is just a ‘fear of missing out’ but rather a serious investment appropriate to the scale the company operates in,” Klee told Tech Monitor.

Tencent is the world’s largest video games publisher, with hit titles including League of Legends and PUBG Underground. But it also provides enterprise IT services including cloud computing and AI, as well as financial services. Klee expects Tencent’s metaverse strategy to focus first on games, but then expand into other fields.

“They likely won’t see this is a standalone thing but a natural evolution from playing games, working in a hospital and other situations. The aim is likely to be how to extend existing work into the metaverse, although gaming is likely to be the first adopter.”

Tencent’s vast customer base – its WeChat social messaging app is the most widely used in the world – will bolster its metaverse ambitions, says Steven Dickens, another analyst at Futurum Research. “With WeChat and its pervasive deployment in China, the company is well-placed to take any XR technology to a huge user base.”

Both Klee and Dickens are surprised by the company’s venture into hardware. “I’m not convinced Tencent wants to be a hardware company,” says Dickens. “If I were in Tencent’s shoes, I’d experiment with the hardware to see what the requirements are but then become hardware agnostic.”

Big investments in the metaverse

Facebook’s parent company Meta has been most vocal in its commitment to the metaverse, with founder Mark Zuckerberg effectively betting the future of the company on it, but many other tech giants have made metaverse plays. Both Apple and ByteDance, for example, are developing virtual reality headsets.

So far, much of this investment relates to video games. When Microsoft acquired World of Warcraft publisher Activision Blizzard earlier this year, CEO Satya Nadella said that gaming “will play a key role in the development of metaverse platforms”.

A recent report by global consulting firm McKinsey predicted that global metaverse spending will reach $5trn by 2030. McKinsey surveyed consumers who are active in the metaverse, and found that 79% had made some kind of purchase in the past year. The most common form of payment was in-game purchases, with 47% of respondents.

Is cooperation the future of the metaverse?

Part of the promise of the metaverse is that users will be able to move their avatars, identities and other digital assets between virtual spaces. So far, however, companies have largely developed their metaverse strategies in isolation. But the prospect of interoperability in the metaverse took a step forward this week, with the founding of the Metaverse Standards Forum, which aims to develop interoperability standards for the new technology paradigm.

The project's backers include Adobe, Alibaba, Autodesk, Epic Games, Huawei, IKEA, Khronos, Meta, Microsoft, NVIDIA, Qualcomm Technologies, Sony and Unity. The Forum includes existing standards bodies such as the Web3D Consortium, the World Wide Web Consortium, and the XR Association (XRA).

“The metaverse will bring together diverse technologies, requiring a constellation of interoperability standards, created and maintained by many standards organisations,” said Neil Trevett, president of Khronos, a consortium that develops interoperability standards for 3D graphics which is 'hosting' the Forum. “The Metaverse Standards Forum is a unique venue for coordination between standards organisations and industry, with a mission to foster the pragmatic and timely standardisation that will be essential to an open and inclusive metaverse."

Klee expects most of the Big Tech companies to announce or start planning metaverse strategies in the coming months, due to the potential size of the market. But there is a long way to go before we are living and working in the metaverse, he adds.

“We need to be realistic on timelines," he says. "We are clearly on the upswing [and] we haven’t gone through the downswing where we are disappointed by version one. This is real, the ball is rolling and we are seeing material investment that will set this up for success. We won’t be living in the metaverse for a very long time to come.”

Read more: China's generative AI revolution is only just beginning

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