Alibaba downsizing its metaverse division, amid shifting focus and resource towards AI

Alibaba, the Chinese e-commerce giant, is reportedly scaling back its metaverse operations, aligning with a trend among tech giants reallocating resources away from this once-hyped sector.

According to South China Morning Post, the company recently laid off dozens of employees within its metaverse division as part of a broader restructuring aimed at improving operational efficiency.

During the metaverse bom in 2021, Alibaba Group Holding Limited established a wholly-owned subsidiary called YuanJingOS with a registered capital of 10 million RMB to focus on metaverse related business.

That year, many major Chinese companies- including Alibaba, Tencent Holdings, ByteDance, Kuaishou Technology and carmaker Li Auto- scrambled to register their metaverse-themed trademarks with the National intellectual Property Administration, as they rushed to explore opportunities in a virtual world referred to as the next iteration of the internet.

But as the initial excitement surrounding the metaverse is starting to cool, many companies are now focusing on artificial intelligence (AI) as the next major tech frontier. This shift has driven more resources and investment into AI, leaving metaverse development with fewer industry-wide commitments.

Three years later, the team that once invested several billion yuan and had hundreds of employees underwent large-scale layoffs. Many employees reported October 31 as their last day, affecting teams in HangZhou and Shanghai.

Baidu executive Ma Jie, who headed the firm's metaverse operations, left the company in May last year, as the Chinese internet search giant put greater focus on AI, several months after US start-up OpenAI introduced ChatGPT to the world.

Despite the workforce reduction, Yuanjing is expected to continue operations, providing metaverse applications, tools, and services, according to the report. Alibaba Cloud’s website still highlights several key areas of metaverse-related tech focus.

In March 2022, Alibaba led a $60 million funding round for Chinese AR glasses maker Nreal, underscoring its commitment to augmented reality (AR) as part of its metaverse vision.

The scaling down reflects an industry-wide pivot towards AI. In recent months, notable players have pulled back from the metaverse to focus on AI projects. Baidu’s head of metaverse operations left in May 2023 as the company refocused on generative AI.

Meta, Facebook’s parent company, also laid off staff from its Reality Labs division, which handles AR and VR technologies, incurring a $4.4 billion operating loss in the third quarter. Since 2020, Reality Labs has reported over $58 billion in losses.

Other major tech firms, including Microsoft and Disney, have also reduced metaverse commitments in favor of broader restructuring efforts, marking an industry shift towards AI as the new growth area.