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）

Microsoft announced in early November that it will release the preview of Mesh for Microsoft Teams (henceforth referred to as simply “Mesh”) in 1H22 as a chat and collaborative platform for the metaverse. By providing a virtual meeting space, in which Teams users can conduct meetings, chat, work collaboratively, and share documents, Mesh is set to become an entrance to the metaverse.

Community interactions will serve as a starting point for metaverse development

Microsoft first unveiled Microsoft Mesh during its Ignite 2021 event in March. This platform supports applications including HoloLens Mesh and Altspace VR, with more Microsoft Teams services to be released in the future. By announcing ahead of time that the preview version of Mesh will be released in 2022, Microsoft is hoping to leverage the recent emergence of topics related to the metaverse in order to increase its customers’ engagement with the new functionalities of Mesh. Hence, the company is positioning Mesh as an entrance into the metaverse by first attracting users through functions such as teleconferencing, collaboration, and chat. Microsoft will then gradually add to the number of applications and services in the virtual reality, thereby eventually constructing a complete virtual world.

Judging from the current progress of development, TrendForce believes that social communities, teleconferencing, and virtual meetings will become AR/VR applications most attractive to consumers. That is also why companies currently developing AR/VR solutions regard these applications as the starting point of metaverse development. These applications’ trending importance can primarily be attributed to the two reasons of demand and supply. Regarding the demand side, not only has the emergence of the COVID-19 pandemic brought about significant growths in teleconferencing and remote interaction usages, but there has also been a gradual change in how people interact in internet-based communities. More specifically, this change refers to a shift in interactions from texts, images, and videos to virtual avatars. As a result, the consumer market is expected to have a relatively high acceptance for AR/VR-driven community interactions and teleconferences. Regarding the supply side, on the other hand, service providers that operate social media and teleconference platforms drastically differ from the typical hardware brands in terms of product strategy, since these providers generally aim to first create a massive user base rather than deriving profits from a single product. As such, these providers are comparatively more willing to invest massive resources into expanding their presence in the market during the initial phase even though doing so may potentially incur financial losses.

R&D and release of device hardware will become the most significant challenge for platform service providers

For Microsoft, Mesh represents a starting point, not only towards the development of the metaverse, but also one that requires investment in more areas, since the metaverse requires the realization of a virtual world that is more immersive and lifelike. Apart from Microsoft’s existing competencies in cloud services and OS software, the company still needs to achieve a sense of realism in the virtual avatars and interactions that it creates, and these creations need to reflect changes made by the user. For instance, the mouth and facial expressions of virtual avatars need to be able to instantly adapt as their users speak, and this process involves not only software adjustments, but also the integration of sensors and other hardware devices. As long as hardware brands require that their individual products remain profitable, Microsoft will find it difficult to hand over the responsibility of hardware-related technological R&D and product releases to the hardware brands. Unless Microsoft is willing to provide sufficiently high subsidies and absorb all financial losses, it will inevitably release its self-designed consumer AR/VR devices – for the same reason that Meta (also known as Facebook) acquired Oculus, and ByteDance acquired Pico. On the other hand, crossing over to the hardware market represents entering an industry that is yet to mature and that requires investment into multiple technologies. Platform service providers will therefore need to invest more resources into hardware development, and this remains one of the challenges Microsoft faces after entering the metaverse.

（Image credit: Pixabay）