After two ambitious years, ByteDance is embarking on a massive downsizing in gaming. After two years of lackluster results, the games division, Nuverse, significantly scaled back operations, surprising many employees.

“We regularly review our businesses and make adjustments to center on long-term strategic growth areas. Following a recent review, we’ve made the difficult decision to restructure our gaming business,” a ByteDance spokesperson told TechCrunch in a statement.

The round of mass layoffs began today and many Nuverse employees are awaiting a decision on their future. It is unclear how many employees will be affected by the restructuring. The unit employs about 3,000 people, according to Chinese tech news publication LatePost.

The value of ByteDance’s spending in recent years on acquisitions is in the billions of dollars. This includes a $4 billion purchase of a Shanghai studio called Moonton. Earlier this month, Reuters reported that the company wanted to sell the studio and had met for discussions with another Saudi Arabian company.

ByteDance’s struggles in the video game industry, as well as its foray into virtual reality with Pico, raise questions about the broad effectiveness of its data-driven A/B testing approach that propelled TikTok to worldwide prominence. While ByteDance has accumulated an unparalleled wealth of consumer insights through its short video apps, the success of video games requires a more protracted and patient creative process, presenting a challenge distinct from the immediate satisfaction provided by dopamine-infused video clips. In contrast, competitors Tencent and NetEase are investing heavily in games with lengthier development cycles.

The extensive layoffs at Nuverse contribute to the ongoing challenges faced by the Chinese internet industry, which has been grappling with a pervasive regulatory crackdown in recent years. This has resulted in diminished business activities and workforce reductions across the sector, TechCrunch writes. The video gaming industry, in particular, experienced significant setbacks due to a pause in license approvals. Despite the resumption of the approval process, the sector’s recovery has been constrained by broader macroeconomic challenges.

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