Meta’s enormous bet on virtual reality ended last week, with the company reportedly laying offroughly 1,500 employeesfrom its Reality Labs division — about 10% of the unit’s staff — and shutting down several VR game studios, according to The Wall Street Journal. It’s a huge reversal for a company that, just four years ago, staked its entire identity on the concept.
As industry watchers might remember, Facebookrebrandeditself as Meta in 2021, promising to usher in a new era of technology led by VR devices.
In part, the decision was a bet on Gen Z’s preference to socialize in online games like Fortnite and Roblox as opposed to traditional social media apps. The change also helped Meta distance itself from the negativity surrounding its Facebook brand. Over the years, the brand had been damaged by data privacy scandals likeCambridge Analytica; reports from Facebook whistleblowerFrances Haugen, who shared documents indicating Facebook knew of its negative impacts on children and teens; Congressional hearings over Facebook’s digital surveillance; its role in thespread of misinformation; itsmonopolisticpractices, and more.
Meta’s vision at the time was that the metaverse would be the next big social platform, where users connected in a virtual world viaMeta’s Horizon Worldsapp and played games on their VR headsets.
Fast-forward, and the metaverse has effectively been abandoned in favor of AI.
According to CNBC, some of thecasualtiesinclude studios making VR titles inside Meta, like Armature Studio (“Resident Evil 4 VR“), Twisted Pixel (“Marvel’s Deadpool VR“), and Sanzaru (“Asgard’s Wrath). Meanwhile, the VR fitness app Supernatural, whichMeta acquiredin2023for$400 million, will no longer produce new content and will move into “maintenance mode.” Camouflaj, the studio behind the “Batman: Arkham Shadow” VR game, has also been impacted by layoffs, as reportedby GeekWire.
And last week,The Vergenoted that Meta’s program to bring VR to work, Workrooms,is shutting down, as well.
In total, the company had funneled some$73 billioninto Reality Labs. To put that into context, you’d have to spend $1 million per day for 200 years to match that kind of spending.
Besidesbeingoverhypedby investors andanalystsalike, initial versions of the metaverse were just bad products. The goofy, soulless avatars didn’t even have legs, and onemetaverse selfieof Meta CEO Mark Zuckerbergwas so bad it even became a viral meme. In short, Meta was overpromising a future while its product still under-delivered. It was a failure of the “build in the open” model, where early tech products are shipped to consumers in hopes of getting feedback that can be used to iterate.
That model works when customers are actively interested in a technology. But in the case of the metaverse, there was only middling consumer demand. Though Meta quickly gained amajority share of the VR marketwith its Oculus headsets, the headsets saw declining sales. Last spring,Counterpoint Research notedthat global VR headset shipments had fallen by 12% year-over-year in 2024, which was their third consecutive year of declines. Meta had accounted for 77% of those 2024 headset shipments.
Specifically, Zuckerberg was looking for a way to bypass the ability of Apple and Google to tap into Meta’s revenue through their app stores.
“This period has…been humbling, because as big of a company as we are, we’ve also learned what it is like to build for other platforms. And living under their rules has profoundly shaped my views on the tech industry,” Zuckerbergsaid in a keynote speechat the company’s Facebook Connect 2021 event, referencing the Apple-Google duopoly. “I’ve come to believe that the lack of choice and high fees are stifling innovation, stopping people from building new things, and holding back the entire internet economy.”
He proposed that the metaverse could grow to a billion people in the next decade, hosting “hundreds of billions” of dollars in digital commerce. Analysts likeMcKinsey & Co. and investment bankCitibacked up this questionable forecast with their own heady estimates of the metaverse becoming a multi-trillion-dollar platform by 2030.
Meta may have had dollar signs in its eyes, but the apps built for the metaverse weren’t being adopted in massive numbers, at least for a company of Meta’s size.
Though there’s no external visibility intoMeta’s own VR app store,you can look at Meta’s apps with iOS and Android counterparts as a proxy for adoption. According to modeled estimates from app intelligence providerApptopia, the Meta Horizon app has been downloaded 60.4 million times globally and 39.8 million times in the U.S. since May 2018. A better estimate for adoption, however, is its app activity.
From a U.S. panel, Apptopia has figures for the average sessions per daily active user in the U.S., which grew from 3.49 in January 2023 to 4.93 in January 2026. While that’s still a high-water mark for the app, it may not have been enough for Meta.
For comparison, outside of VR, Meta now hasover 3.5 billiondaily active users across its social apps Facebook, Instagram, WhatsApp, and Messenger.
Of course, had this all succeeded, Meta would have created a new social empire, built on the back of VR gaming — not unlike Facebook’s early days as a social network, whenpartnerslike Zynga — whose games included Farmville, and Words with Friends — drovedouble-digit revenue streamsfor Facebook. (Ultimately, Facebook’s 30% cut of virtual goods sales, combined with restrictive platform policies, drove Zynga to launch its own gaming portal and pivot to mobile.)
But this time, Zuckerberg telegraphed his desire to tap into developer revenue far too soon. Meta might have had a better shot at attracting developers to build for VR if it promised to undercut Apple or Google’s standard 30% fees, or those of other gaming platforms. Instead, Meta did the opposite: it charged more.
Even before VR became a sizable platform worth investing in, Meta announced its plans to takea whopping 47.5% of the sales of digital assetswithin Horizon Worlds, consisting of a 30% hardware platform fee and another 17.5% fee for Horizon Worlds itself. Creators, unsurprisingly,were not happy.
Metaverse virtual assaults and harassment make headlines
As bad, Meta wasn’t building the metaverse with user safety as a top priority. As with its rush to scale its social network, the company tended to be reactive rather than proactive about safety features. For instance, the company onlyrolled out its “Personal Boundary” feature, which put a buffer between avatars, after reports that users wereexperiencingsexual harassmentin the metaverse. In some cases, users had even engaged invirtual rapeandgang rapein Meta’s Horizon Worlds. Metalater dialed back the safety feature a bitby adjusting the Personal Boundary to only default to “on” when a user is engaging with “non-friends” in the metaverse and allowing users to switch it off entirely.
In May 2022, TechCrunch asked a Meta rep to detail its support measures for Horizon Worlds. The company described several tools, including blocking and reporting features, a “safe zone” button for users to instantly block and mute others, and a feature to temporarily remove disruptive people from venues that was built in response to user feedback. Despite outlining these tools, Meta declined to say what sort of actions it would take to address individual bad actors’ behavior.
At the time, users told TechCrunch that those who faced abuse in the metaverse would often react with an obvious move: instead of recording the abuse, they would take off their headset and take a break from VR. But when they returned, their harasser would still appear in their list of recent encounters, and it was too late to submit a report of the abuse with the video and audio attached.
These types of scenarios were seemingly not thought through from the start, and detailed policies around what constitutes abuse didn’t exist. Whena metaverse code of conductwas later published, it still didn’t detail any consequences beyond saying Meta would “take action on users.”
With an eye on AI, the company more recentlyintroduced Ray-Ban Display last year, which are similar smart glasses that also include a display for apps, alerts, and directions on the right lens. The company has since paused its international plans for this product, citing “unprecedented demand.” (Or rather, overly conservative inventory forecasting.)
With other companies, including OpenAI, Amazon, and various startups, looking to hardware AI devices as the next potential computing platform, VR seems even more of a dated relic of a vision for the web that never came to pass.
Combined, these factors, and particularly the adoption of AI asa possible app platform, make it hard for Meta to continue to justify spending on VR. Instead, Meta will focus on the products that have potential, like its Ray Ban and AI glasses,AI app’sgrowth, andlarge language models.
Source: Techcrunch
