Meta’s big bet on virtual reality ended last week, with the company reportedly laying off about 1,500 employees in its Reality Lab division (about 10% of the division’s staff) and closing several VR game studios, according to the Wall Street Journal. It’s a huge reversal for a company that staked its entire identity on that concept just four years ago.
Few will miss it.
As industry watchers may remember, Facebook rebranded itself as Meta in 2021, promising a new era of technology led by VR devices.
The decision is partly a bet that Gen Z prefers to socialize in online games like Fortnite and Roblox rather than traditional social media apps. This change also helped Meta distance itself from the negativity surrounding the Facebook brand. For years, the brand has been marred by data privacy scandals like Cambridge Analytica. Report from Facebook whistleblower Frances Haugen. He shared documents showing he knew Facebook was having a negative impact on children and teens. Congressional hearing on Facebook’s digital surveillance. Its role in spreading misinformation. such as its exclusive practices.
Meta’s vision at the time was that the Metaverse would be the next big social platform, with users connecting to virtual worlds through Meta’s Horizon Worlds app and playing games on VR headsets.
Fast forward and the Metaverse is effectively abandoned in favor of AI.
Victims include studios that produce VR titles within Meta, including Armature Studio (Resident Evil 4 VR), Twisted Pixel (Marvel’s Deadpool VR), and Sanzaru (Wrath of Asgard), according to CNBC.Meanwhile, VR fitness app Supernatural, which Meta acquired for $400 million in 2023, will no longer produce new content and has been put on “maintenance.” The plan is to move to “Mode”. GeekWire reports that Camouflaj, the studio behind the VR game Batman: Arkham Shadow, has also been affected by the layoffs.
And last week, The Verge reported that Meta’s Workrooms program, which brings VR to the workplace, is also being shut down.
The news follows a December Bloomberg report that said Meta would cut its virtual reality division’s budget by up to 30%. Around the same time, Meta announced that it was suspending a program that shares the Meta Horizon operating system that runs on Quest-branded VR headsets with other third-party headset device manufacturers.
Despite the news of Meta’s rebranding, it’s no surprise that the company’s Metaverse efforts have been deprioritized. The division had suffered excessive losses, worrying investors, and had never turned a profit.
In total, the company has poured about $73 billion into Reality Labs. To put this into perspective, you would need to spend $1 million per day for 200 years to match this type of spending.
“Architecture in the open air” fails
In addition to being overhyped by investors and analysts alike, early versions of Metaverse were just a crappy product. Goofy, soulless avatars don’t even add up, and Meta CEO Mark Zuckerberg’s Metaverse selfie was so bad it even became a viral meme. In other words, Meta over-promised the future when the product was not yet fully delivered. This was a failure of the “open build” model of shipping early technology products to consumers in hopes of getting feedback that could be used to iterate.
This model works if the customer is actively interested in the technology. However, in the case of Metaverse, consumer demand was only moderate. Meta quickly captured a majority share of the VR market with its Oculus headset, but headset sales declined. Last spring, Counterpoint Research noted that global VR headset shipments would decline 12% year over year in 2024, the third consecutive year of decline. Meta accounted for 77% of headset shipments in 2024.
Meta was betting on a “build it and they will come” strategy, and was more interested in the profits it could make by running its own platform for apps and games than whether consumers wanted so-called face computers.
Specifically, Zuckerberg was looking for a way to circumvent Apple and Google’s ability to extract Meta’s revenue through their app stores.
“This period… has been a humbling time, because we’ve learned what it’s like to be a large company and also build for other platforms, and living by those rules has deeply shaped the way I view the tech industry,” Zuckerberg said in a keynote speech at the company’s Facebook Connect 2021 event, referring to the duopoly of Apple and Google. “I’ve come to believe that lack of choice and high prices stifle innovation, prevent people from creating new things, and hold back the Internet economy as a whole.”
He proposed that the Metaverse could grow to a population of 1 billion over the next decade and host “hundreds of billions” of dollars worth of digital commerce. Analysts such as McKinsey & Company and investment bank Citi back up this dubious prediction with their own dizzying estimates that the Metaverse will become a multi-trillion dollar platform by 2030.
Meta may have had dollar signs in its eyes, but the apps built for the Metaverse didn’t see mass adoption, at least not by companies of Meta’s size.
Although you can’t see Meta’s own VR app store from the outside, you can view Meta’s apps as a proxy for adoption with their iOS and Android counterparts. Since May 2018, the Meta Horizon app has been downloaded 60.4 million times worldwide and 39.8 million times in the United States, according to modeled estimates from app intelligence provider Apptopia. But a better estimate of adoption is that app’s activity.
From the US Commission, Apptopia shows the average number of sessions per daily active user in the US. This increased from 3.49 in January 2023 to 4.93 in January 2026. While this is still a high standard for an app, it may not have been enough for Meta.
For comparison, outside of VR, Meta currently has over 3.5 billion daily active users across social apps Facebook, Instagram, WhatsApp, and Messenger.
Of course, if this had all worked out, Meta would have built a new social empire based on VR gaming. It’s not unlike Facebook’s early days as a social network, when partners like Zynga developed games like Farmville and Words with Friends and generated double-digit revenue streams for Facebook. (Eventually, Facebook’s 30% cut in virtual goods sales, combined with restrictive platform policies, led Zynga to launch its own gaming portal and pivot to mobile.)
But this time, Zuckerberg telegraphed his desire to take advantage of developers’ profits too quickly. Meta might have been better able to attract developers building for VR if it had promised to lower Apple and Google’s standard 30% fees, or other gaming platforms. Instead, Meta did the opposite and charged more.
Even before VR became a big platform worth investing in, Meta announced plans to receive a whopping 47.5% of sales of digital assets within Horizon Worlds. This includes a 30% fee for the hardware platform and a 17.5% fee for Horizon Worlds itself. Naturally, the creators were not satisfied.
To make matters worse, Meta did not build the Metaverse with user safety as a top priority. As quickly as it has been expanding its social network, the company has tended to be reactive rather than proactive with its safety features. For example, the company rolled out a “personal boundaries” feature that creates a buffer between avatars in response to reports of users experiencing sexual harassment within the Metaverse. In some cases, users have even committed virtual rapes and gang rapes in Meta’s Horizon Worlds. Meta has since rolled back the safety feature a bit by tweaking personal boundaries to default to “on” only when users engage with “non-friends” in the Metaverse, and allow users to turn them off completely.
In May 2022, TechCrunch asked Meta representatives for details on how they are supporting Horizon Worlds. The company described several tools, including block and report features, a “safe zone” button that allows users to instantly block and mute other users, and the ability to temporarily remove disruptors from venues built in response to user feedback. Mehta outlined these tools, but declined to say what steps would be needed to address individual malicious acts.
Users told TechCrunch at the time that people who faced abuse within the Metaverse often reacted with obvious actions, such as taking off their headsets and taking a break from VR instead of recording the abuse. But when they returned, the harasser still appeared on their list of recent encounters, and it was too late to file a report of abuse with video and audio attached.
These types of scenarios didn’t seem to have been considered from the start, and there was no detailed policy on what constituted abuse. Later, when Metaverse’s code of conduct was published, it only said that Metaverse would “take action against users” but did not yet elaborate on the consequences.
Also around this time, Meta declined to share with TechCrunch the composition of the team building Metaverse. (But if I had to bet, I’d say there aren’t as many women on this project as there are men. This reflects the makeup of the meta as a whole, so it’s not a bad bet!)
AR, mixed reality, and AI prove to be more popular
Another nail in the proverbial Metaverse was the success of Meta’s Ray-Ban AR glasses, which have seen increased consumer interest in recent months. With features such as hands-free recording, music streaming, and the ability to chat with Meta AI, the glasses will begin to outsell traditional Ray-Bans at some retailers in 2024. The company is now considering doubling its production of glasses to meet consumer demand, Bloomberg reported this week.
With AI in mind, the company recently introduced Ray-Ban Display last year. These are similar smart glasses that also have a display on the right lens for apps, alerts, and directions. The company later suspended international plans for the product, citing “unprecedented demand.” (Rather, the inventory forecast is too conservative.)
As other companies, including OpenAI, Amazon, and various startups, look to hardware AI devices as the next potential computing platform, VR seems even more like an outdated relic of a vision of the web that never materialized.
These factors, especially the adoption of AI as a potential app platform, will make it difficult for Meta to continue to justify spending on VR. Instead, Meta will focus on products with potential such as Ray-Bans, AI glasses, growth in AI apps, and large-scale language models.
