ByteDance, despite surpassing Tencent in revenue in the first half of the year, has entered a period of business consolidation and focus. At the beginning of the year, ByteDance CEO Liang Rubo set the development goals of "focus" and "pragmatism," indicating a shift from expansion to contraction in new ventures. Earlier this month, ByteDance began layoffs in its VR business PICO, and now the cuts have extended to its gaming division.

On November 27, it was learned that ByteDance's gaming business, Morningstar, is undergoing significant downsizing, with a future focus on a few innovative games and related technology. This marks a pause in ByteDance's gaming strategy.

ByteDance's belief in achieving miracles through significant efforts seems to falter outside of social media and e-commerce, suggesting that no giant can dominate every business sector.

Over time, the golden era of rapid internet growth has passed, and even ByteDance, the "new emperor," can no longer afford to burn cash recklessly.

Zhang Yiming, the founder of ByteDance, appears indifferent to this shift, focusing his attention on Douyin's e-commerce and the overseas TikTok.

In the first half of this year, ByteDance achieved a revenue of $54 billion, surpassing Tencent and nearing Meta. As China's most globally successful internet company, ByteDance is decisively moving towards a new future.

The rumored downsizing finally materialized on November 27. Morningstar publicly responded to the layoff rumors, confirming business direction and organizational adjustments, with significant downsizing in the gaming sector. An insider close to Morningstar's "Crystal Core" project revealed that the game is set to be sold, and teams for other ByteDance-developed games are also being disbanded.

ByteDance insiders mentioned that for games that have launched and performed well, the company will seek to divest while ensuring operations continue. For projects not yet launched, except for a few innovative and related technology projects, all will be shut down.

This means that even products already in the market are facing abandonment, indicating the extent of ByteDance's downsizing.

Industry insiders expressed surprise at ByteDance's complete withdrawal from gaming, considering it too radical a move.

A game planner from a major company told Wall Street that ByteDance had launched two decent games this year, "Crystal Core" and "Planet: Reboot," but their overall performance was mediocre, and their profit prospects were not optimistic. "ByteDance invested heavily in gaming, but the output was average."

In fact, signs of ByteDance's gaming contraction appeared earlier. In the third quarter of last year, Morningstar underwent extensive project cuts, including the dissolution of Shanghai 101 Studio and cuts in other studios. Last week, there were market rumors that ByteDance intended to sell its gaming company Mutong Technology.

People close to ByteDance revealed that the decision to downsize was discussed at length by Yan Shou, head of the gaming business, and Liang Rubo. Liang believed that although the gaming business had achieved some success, ByteDance's pursuit of being "big and all-encompassing" in gaming led to unfocused projects and dispersed resources. The company should instead invest energy and resources into more fundamental, innovative, and imaginative projects.

ByteDance's gaming setback contrasts with its previously aggressive expansion strategy, highlighting the volatile nature of business success and failure.

Four years ago, ByteDance established Morningstar, aggressively venturing into game development and publishing, and acquired over twenty gaming-related companies, including Shanghai Mokun, Mutong Technology, and Youai Interactive Entertainment. According to incomplete statistics, ByteDance invested about 30 billion yuan in the gaming field from 2019 to 2022.

ByteDance attracted a large number of talents in the gaming industry, including former Sina Games Vice President Yu Jia, former Perfect World Senior Director Wang Kuiwu, and former Pangu Studio Director Hu Tianlei. At its peak, Morningstar had up to 3,000 employees.

Zhang Yiming once showed unprecedented patience with the gaming business. At the end of 2020, he stated that although there were no major breakthroughs in gaming, patience was needed. Yan Shou also emphasized in an internal speech in 2021 that in the first few years of Morningstar's gaming venture, the OKR goal was not revenue but increasing talent density.

However, such investment did not lead to rapid business progress for ByteDance's gaming division. In the past few years, ByteDance has not produced a hit game comparable to "Honor of Kings" or "Genshin Impact." Now, ByteDance's gaming business is inevitably shrinking.

Another important context not to be overlooked is the gaming industry itself, which has moved from a high-growth phase to a phase of stock development. The user dividend period has ended, and future market growth is expected to slow. According to data from TouBao Research Institute, the Chinese online gaming industry is expected to reach a market size of 333.68 billion yuan by 2027, with an annual compound growth rate of only 4.0%.

Focusing on gaming is just one direction where internet giants, including ByteDance, have tried their hand, but most have ended in failure.

In recent years, besides Tencent and NetEase, companies like ByteDance, Bilibili, Kuaishou, Netflix, and Amazon have all targeted the gaming track, but few have found success. ByteDance, in particular, is believed to lack a gaming gene.

According to IPG's chief economist, although internet giants possess strong technical capabilities and abundant user resources, they often lack experience in game development and lack a content creation gene. Therefore, they need more money and time to build capabilities, facing fierce market competition, as has been the case with ByteDance.

Cutting the gaming business is just one aspect of ByteDance's broader strategy of consolidation and focus.

In 2021, ByteDance established six major business segments, including Douyin, Dali Education, Feishu, Volcano Engine, Morningstar, and TikTok. Currently, ByteDance has significantly downsized new ventures like education, PICO, and gaming, all of which are in early development stages and require substantial capital investment.

This indicates a strategic shift in ByteDance's approach to new ventures, moving from a phase of cash-burning expansion to a more pragmatic, focused phase.

This strategic pivot reflects the changing stages of development in China's internet industry, where the era of rapid growth has passed.

ByteDance is currently focusing on domestic Douyin e-commerce and TikTok Shop overseas. Zhang Yiming's focus is more on the latter.

Insiders revealed that in the first half of this year, ByteDance's revenue reached $54 billion, almost 89% of Meta's revenue for the same period. ByteDance's revenue mainly comes from domestic Douyin e-commerce. TikTok is seen as ByteDance's biggest growth opportunity in the future.

If TikTok's commercialization is successful, it could replicate the success of Douyin's domestic e-commerce and support the other half of ByteDance's empire. However, if it fails, the costs of burning cash and regulatory challenges could put TikTok in a more difficult position.

TikTok has become the most successful international internet company from China, but as a Chinese-owned company, it faces uncertainties from regulatory policies overseas, which is TikTok's biggest concern.

In this context, downsizing new ventures allows ByteDance to focus more on navigating the complex and volatile global market, a wise choice. Insiders indicate that continuing to downsize in 2024 is a clear direction for ByteDance.

Over the past decade, ByteDance, with its hit products Toutiao and Douyin, quickly rose in the internet world crowded with major players, becoming one of the most popular national applications. In that era of frequent opportunities and mass entrepreneurship, ByteDance also aggressively ventured into education, gaming, and many other sectors, attempting to rewrite the rules in more industries.

However, that window of opportunity has passed. From cost reduction and efficiency improvement to large-scale downsizing of new ventures, even ByteDance, the world's most valuable unicorn, has limited room for trial and error. The shift in focus reflects a change in the era's direction.