Microsoft are among the major technology companies that are now undergoing a major round of layoffs. Having released around 11,000 employees, Microsoft has downsized staffing across its numerous business operations, including gaming units Xbox and Bethesda. This round of layoffs has also seen the disbanding of the development teams behind Altspace VR and the Mix Reality Tool Kit. The VR social media platform Altspace VR is scheduled to shut down on March 10th this year.

Is Microsoft Exiting the Market for Technologies Related to AR/VR and Metaverse?

Microsoft acquired AltspaceVR in 2017, and the Windows Mix Reality headset was released in the same year. The plan was to have the newly acquired social media platform generate the demand for the headset, thereby spurring other hardware brands to continue investing in similar products.

However, fast forward to the current year of 2023, the Windows Mix Reality headset possesses almost no market share as AltspaceVR fails to hold a notable number of active users for this device. TrendForce believes Microsoft has no choice but to stop maintaining the social media platform that is not bringing in any significant economic benefits.

However, TrendForce has to point out that “platform system” is still the core of Microsoft’s strategy for the development of AR/VR technologies. Going forward, Microsoft intends to have applications related to VR social media integrated into the Microsoft Mesh, which is its new VR/AR communication and collaboration platform that can work on multiple types of devices.

Microsoft can also encourage third-party developers to build VR social media platforms that are compatible with its technologies. Bottom line is this: there is no need for Microsoft to operate its own VR social media platform. All in all, AltspaceVR is a component that Microsoft has taken out because it no longer fits into its strategy. Terminating the platform does not mean that the company has decided to sit on the sideline in the formation of the Metaverse market, as speculated by some outsiders.

The Metaverse Is Only a Medium, and Maintaining User Engagement on a VR Social Media Platform Depends on the Capability to Offer a Variety of Functions

The shutdown of AltspaceVR reveals the current challenges in the development of Metaverse communities. In the case of social media services, simply adding AR/VR technologies or some elements related to the Metaverse will not lead to long-term engagement by users. To get users to stay, these platforms need to rely on their own special interfaces, functions, and features.

Take the relatively successful VR social media platforms such as Roblox, Rec Room and VRChat as examples. They first enable users to self-generate content and express their creativity in various ways, and then they provide the avenue for social interactions and trading of virtual goods. Hence, TrendForce believes fulfilling the creative aspiration is the key to keeping users. Offering some AR/VR technologies and gimmicks associated with the Metaverse is just not enough.

On the other hand, functions that allow creativity tend not to be the reason why the majority of users join a particular social media platform in the first place. Also, a platform that has to work with an AR/VR device will be relatively difficult to access and operate, and this further limits the size of its user base. Taking the aforementioned factors in account, it is clear as to why AltspaceVR failed to gain traction. Positioning itself only as a social media platform, it did not really stand out in the competition even with AR/VR functions.

TrendForce’s takeaway from the closure of Altspace is that rather than building a social media service from scratch, Microsoft’s interests would be best served by acquiring an existing social media app or platform that already has a huge following. With the support from the Microsoft Mesh, such app or platform would be able to strengthen Microsoft’s service offerings for Metaverse communities in the future.

（Image credit: Microsoft LinkedIn）

The arrival of the COVID-19 pandemic last year prompted enterprises to accelerate their digital transformation efforts. As such, the year 2020 marked the turning point for the AR/VR industry, with an increasing number of global enterprises now paying close attention to AR/VR headsets and applications. Two such applications which show the most significant short-term growth are “virtual collaboration platform” and “remote support”, particularly in the relatively small-scale AR headset markets.

TrendForce indicates that annual AR headset shipment is expected to increase from 580,000 units in 2020 to 1.3 million units in 2021; on the VR headset front, annual shipment is expected to increase from 4.43 million units in 2020 to 5.65 million units in 2021, with the key enablers of these shipment growths being entertainment applications from the consumer side and commercial applications from the enterprise side.

It should be noted that, however, as VR headsets have lower prices and technical barriers to entry compared to AR headsets, many companies are opting to purchase consumer VR headsets for use in commercial applications. Despite the growth of the AR/VR headset market in recent years, the ongoing shortage of semiconductor components is expected to put some downward pressure on these headsets’ shipments this year.

Enterprise demand is the primary driver of telecom companies’ efforts to combine 5G with AR/VR applications

With remote commercial applications generating an increasing demand for AR/VR headsets, use cases such as remote interaction and real-time sharing of 3D objects will require an enormous amount of network bandwidth. Likewise, the demand for low-latency and smooth user experiences will continue to drive 5G demand from the commercial sector, thereby compelling major telecom companies such as Ericsson, China Mobile, NTT DoCoMo, and Chunghwa Telecom to release dedicated 5G plans geared specifically for AR/VR applications in order to ensure the highest quality connections for these applications.

For telecom companies, building 5G infrastructure demands an enormous cost, but the current use of smartphones is unable to completely saturate the total 5G bandwidth. In other words, telecom companies are unable to recuperate their 5G investment costs, and this predicament is what led them to seek out other applications/products that can potentially make use of 5G connectivity, such as IoT, video streaming, and AR/VR.

What should suppliers that aim to enter the AR/VR markets pay attention to?

TrendForce believes that suppliers wishing to enter the AR/VR markets must take into consideration two factors, which are “cost” and “profit distribution”. First of all, both AR/VR headsets and dedicated 5G connections require enormous investment costs. Most companies involved in these applications are therefore still in the small-scale trial period at the moment.

Given the limited funding that these companies are allocating, real-life user experience has suffered as a result, leading to a reduced willingness by potential clients to continue adopting AR/VR solutions going forward. For instance, if network infrastructures do not provide sufficiently comprehensive coverage or sufficiently high bandwidth, the resultant latency or signal loss can lead to poor remote collaboration experiences on the user side.

The second issue that suppliers must confront has to do with profit distribution. Most AR/VR solutions are provided to users at a flat subscription fee which covers the costs of AR/VR headsets, 5G network connections, and software platforms. This type of flat fee structure is attractive for customers as it is relatively simple and straightforward.

However, on the supply side, the fair distribution of profits among AR/VR headset suppliers, telecom companies, and software platform vendors remains a critical issue. In particular, since AR/VR headsets and 5G networks are all extremely costly, along with the fact that the 5G rollout is still in its infancy, unfair distribution of profits can potentially lead to certain suppliers being unwilling to participate in the AR/VR market in the long run.

（Cover image source: Unsplash）