In line with a broader trend among major tech firms, Chinese e-commerce behemoth Alibaba is downsizing its metaverse operations.

The restructuring, which aims to improve efficiency, led to layoffs in Yuanjing, Alibabas metaverse unit, as the company recalibrates its focus in this sector.

Downsizing Metaverse Unit

According to the report by South China Morning Post, which is also owned by Alibaba, this move has affected dozens of employees. The layoffs reportedly impacted Yuanjings operations across Shanghai and Hangzhou, Zhejiang provinces capital.

The unit once had hundreds of employees and received significant investments in the billions of yuan. Despite the reduction in the employee count, the unit will still remain active and will shift its focus to metaverse applications, tools, and customer-oriented metaverse services.

As part of its metaverse efforts, Alibaba spearheaded a $60 million investment round in Nreal, a Chinese company specializing in augmented reality (AR) glasses.

Industry observers believed that AR, virtual reality, and mixed reality technologies would serve as the primary gateways for users to engage with metaverse platforms in the future. Furthermore, Yuanjing developed a cloud-based operating system that facilitated the use of the metaverse in video games and various industrial sectors.

Last year, Alibaba Cloud, a branch of the Chinese e-commerce company, teamed up with Avalanche to build a launchpad for companies looking to deploy their metaverse applications on the Layer 1 blockchain.

Focus on AI

Alibabas decision to reduce its metaverse workforce mirrors the trend among other leading tech firms that are scaling back their investments in the once-promising sector and reallocating resources toward artificial intelligence (AI).

In October of last year, Facebooks parent company, Meta Platforms, laid off employees from its Facebook Agile Silicon Team, part of its Reality Labs division dedicated to developing custom semiconductors. Additionally, Baidus metaverse head, Ma Jie, departed in May as the company shifted its focus more heavily toward AI following the launch of ChatGPT by US startup OpenAI.

Even as the initial hype behind the sector appears to have waned, data from Global Markets Insights suggest that the global industrial metaverse market was valued at $22.4 billion in 2023 and is expected to expand at a compound annual growth rate (CAGR) of 29.5% from 2024 to 2032.