ByteDance, Meta battle for virtual-reality market

ByteDance Ltd., the China-based owner of TikTok, is starting to snare market share in the virtual-reality headset space that Meta Platforms Inc. META -2.12%decrease; red down pointing triangle has identified as critical to its future.

Two years ago, ByteDance bought Pico, a Chinese startup that makes VR headsets. That launched a new front in the Chinese company’s competition with Meta META -2.12%decrease; red down pointing triangle, whose Instagram and Facebook services have been battling for users and advertising dollars against TikTok as the short-video app soared in popularity.

Pico’s headset shipments have since jumped, turning it into a small but fast-rising No. 2 to Meta in the global market, according to industry data, even though Pico doesn’t sell its consumer headsets in the U.S.

Mark Zuckerberg in 2021 renamed Facebook to Meta in part to reflect his bet on the metaverse, a more immersive version of the internet to be experienced largely through virtual-reality headsets.

The company has been spending heavily on that concept. In its latest quarterly results, Meta said there were more than 200 apps on its VR devices that have generated over $1 million each in sales, although total revenue in Meta’s Reality Labs segment was down 17% in the quarter due to lower Quest 2 headset sales.

Meta held 90% of the market share about a year ago, according to research firm International Data Corp. By the third quarter of 2022—the latest period for which data is available—its market share had dropped to about 75%. Market share for Pico more than tripled over the same period to about 15%. No other VR headset maker held more than 3% of the market.

Meta’s headset shipments in the third quarter declined 48% from a year earlier, IDC’s data shows. ByteDance’s Pico was the only headset maker to increase shipments, in a market that was estimated to be worth $4 billion as of 2022.

“We’re glad consumers have more ways to experience VR, because when they do, it helps fuel the ecosystem, which in turn encourages developers to create more great content,” a spokeswoman for Meta said.

ByteDance declined to comment for this article.

ByteDance’s inroads in the virtual-reality headset market come at a tricky political time for the company. The Beijing-based business is in the crosshairs of officials and politicians who have voiced concerns the Chinese government could use TikTok data to spy on Americans. TikTok’s app has been banned on federal-government devices, while some Biden administration officials want to try to force TikTok to be sold to a U.S. company.

Pico offers headsets for personal use in Europe and Asia, markets that have been more open to devices from Chinese companies than the U.S. Consumers in those markets have gravitated to Pico partly in response to a $100 price increase Meta introduced to Quest last year, said Jitesh Ubrani, research manager at IDC. After the increase, Meta’s Quest 2 costs $399. Pico’s main consumer headset retails for roughly the equivalent of $450. Pico also has been available in some markets abroad where Meta’s device hasn’t in the past, he said.

The latest data doesn’t reflect sales of Pico’s newest consumer headset, the Pico 4, that was released to favorable reviews in October. “If anything, you’d see their momentum increase in the fourth quarter,” Mr. Ubrani added. Meta also released a new headset in October, the Quest Pro, aimed at professionals, which retails for $1,500.

The competition is also getting more heated. Apple Inc. is expected to launch an augmented-reality headset later this year, and Microsoft Corp. offers a mixed-reality headset for businesses called HoloLens. The headset market is expected to become a $16 billion industry by 2026, per IDC.

“The space is going to get crowded with competitors who have good arguments on their side. So it’s going to be tricky for Pico,” said Rolf Illenberger, chief executive of virtual-reality software company VRdirect.

A robust offering of apps is vital for making VR platforms attractive, and Pico is still in the early days of expanding its catalog. It has around 250 apps available—compared with more than 400 in the Quest app store—and teased a social hangout and world-building app called Pico Worlds, similar to Meta’s Horizon Worlds, during the announcement of the Pico 4 headset last fall. Wall Street Journal