Metaverse Vision Falters as Momentum Shifts

Meta's massive investment in virtual reality came to an abrupt halt last week, as the company reportedly laid off approximately 1,500 employees from its Reality Labs division—around 10% of the unit's workforce—and closed several VR game studios, according to The Wall Street Journal. This marks a dramatic shift for a company that, just four years ago, built its entire identity around this concept.

Few will mourn its passing.

As industry observers may recall, Facebook rebranded itself as Meta in 2021, pledging to lead a new technological era powered by VR devices.

The move was partly a bet on Generation Z’s growing preference for socializing in online games like Fortnite and Roblox over traditional social media apps. It also allowed Meta to distance itself from the negative reputation of the Facebook brand, which had been tarnished by data privacy scandals such as Cambridge Analytica, whistleblower Frances Haugen’s revelations about the platform's harmful effects on young users, congressional hearings on digital surveillance, its role in spreading misinformation, antitrust concerns, and more.

At the time, Meta envisioned the metaverse as the next major social platform—a virtual world where users could connect through Horizon Worlds and enjoy games on VR headsets.

Today, the metaverse has been largely abandoned in favor of artificial intelligence.

As reported by CNBC, affected studios include Armature Studio ("Resident Evil 4 VR"), Twisted Pixel ("Marvel’s Deadpool VR"), and Sanzaru ("Asgard’s Wrath"). Meanwhile, Supernatural, the VR fitness app Meta acquired in 2023 for $400 million, will stop producing new content and shift into "maintenance mode." GeekWire also reported layoffs at Camouflaj, the studio behind "Batman: Arkham Shadow."

Additionally, The Verge noted last week that Meta is shutting down Workrooms, its program for bringing VR into the workplace.

This follows a Bloomberg report from December indicating that Meta was cutting the VR department’s budget by up to 30%. Around the same time, Meta paused its program to share its Meta Horizon OS—the operating system for Quest VR headsets—with third-party device makers.

Unlike the surprise of Meta’s rebranding, the scaling back of its metaverse ambitions comes as no shock. The division consistently lost substantial amounts of money, alarming investors, and never turned a profit.

In total, the company invested approximately $73 billion into Reality Labs. To put that figure in perspective, you would need to spend $1 million every day for 200 years to match that level of investment.

The Failure of "Building in the Open"

Beyond being overhyped by investors and analysts, early versions of the metaverse were simply poor products. The awkward, lifeless avatars lacked legs, and a metaverse selfie of CEO Mark Zuckerberg became a viral meme due to its poor quality. In short, Meta was promoting a futuristic vision while its product fell short—a failure of the "build in the open" approach, where early-stage tech is released to gather user feedback for iteration.

This model works when customers are genuinely excited about a technology. However, consumer interest in the metaverse remained lukewarm. Although Meta quickly captured most of the VR market with its Oculus headsets, sales began to decline. Last spring, Counterpoint Research reported that global VR headset shipments dropped by 12% year-over-year in 2024—the third consecutive annual decline—with Meta accounting for 77% of those shipments.

Meta’s Premature Bet on an App Store Model

Relying on a "if you build it, they will come" strategy, Meta focused more on profiting from its own platform for apps and games than on whether consumers actually wanted these VR devices.

Specifically, Zuckerberg sought to bypass Apple and Google’s ability to take a cut of Meta’s revenue through their app stores.

"This period has been humbling. Despite our size, we’ve experienced what it’s like to build for other platforms—and living under their rules has shaped my perspective on the tech industry," Zuckerberg stated during his keynote at Facebook Connect 2021, referring to the Apple-Google duopoly. "I believe the lack of choice and high fees stifle innovation, hold back new creations, and slow the entire internet economy."

He projected that the metaverse could reach a billion users within a decade, facilitating "hundreds of billions" in digital commerce. Analysts like McKinsey & Co. and Citi supported this optimistic outlook, estimating the metaverse could become a multi-trillion-dollar market by 2030.

Only a Fraction of Meta’s Users Embraced VR

While Meta saw dollar signs, adoption of metaverse apps remained low—especially for a company of its scale.

Although Meta’s VR app store data isn’t public, we can look at mobile versions of its apps as a proxy. According to estimates from app intelligence firm Apptopia, 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 measure of engagement, however, is user activity.

Apptopia’s U.S. panel data shows the average number of sessions per daily active user grew from 3.49 in January 2023 to 4.93 in January 2026. While this represents a peak for the app, it may not have met Meta’s expectations.

For comparison, outside of VR, Meta’s social apps—Facebook, Instagram, WhatsApp, and Messenger—now boast over 3.5 billion daily active users combined.

Had it succeeded, Meta could have built a new social empire rooted in VR gaming—similar to Facebook’s early days when partners like Zynga (creator of FarmVille and Words with Friends) drove significant revenue. (Ultimately, Facebook’s 30% cut of virtual goods sales and restrictive policies pushed Zynga to launch its own portal and shift to mobile.)

This time, however, Zuckerberg signaled his intent to tap into developer revenue too early. Meta might have attracted more developers by offering lower fees than Apple or Google’s standard 30%. Instead, it went in the opposite direction—charging more.

Even before VR became a viable platform, Meta announced it would take 47.5% of digital asset sales in Horizon Worlds—a 30% hardware platform fee plus a 17.5% Horizon Worlds fee. Unsurprisingly, creators were displeased.

Virtual Assault and Harassment in the Metaverse

Compounding its problems, Meta did not prioritize user safety in the metaverse. As with its social network, the company often reacted to issues rather than preventing them. For example, it only introduced the "Personal Boundary" feature—creating space between avatars—after reports of sexual harassment, including virtual rape and gang rape, in Horizon Worlds. Meta later adjusted the feature so it defaults to "on" only with non-friends and allows users to disable it entirely.

In May 2022, TechCrunch asked Meta to detail its support measures for Horizon Worlds. The company listed several tools, including blocking and reporting functions, a "safe zone" button to quickly mute and block others, and a feature to temporarily remove disruptive users. However, Meta declined to specify what actions it would take against offenders.

At the time, users told TechCrunch that those who experienced abuse often responded by removing their headset and taking a break. By the time they returned, it was too late to report the incident with supporting video or audio evidence.

These scenarios were not adequately planned for, and detailed abuse policies were lacking. Even when a code of conduct was later published, it did not specify consequences beyond saying Meta would "take action on users."

Around the same time, Meta declined to share the composition of its metaverse development team with TechCrunch. (If we had to guess, the team likely had fewer women than men—reflecting the company’s overall gender imbalance.)

AR, Mixed Reality, and AI Gained More Traction

Another blow to the metaverse was the success of Meta’s Ray-Ban AR glasses, which have gained popularity in recent months. With features like hands-free recording, music streaming, and Meta AI integration, the glasses began outselling traditional Ray-Bans in some stores in 2024. Bloomberg recently reported that Meta is considering doubling production to meet demand.

With a growing focus on AI, the company introduced Ray-Ban Display last year—similar smart glasses with a display on the right lens for apps, alerts, and directions. Meta has since paused international rollout due to "unprecedented demand" (or possibly due to conservative inventory planning).

As other companies, including OpenAI, Amazon, and various startups, explore AI hardware as the next computing platform, VR appears increasingly outdated—a vision of the web that never materialized.

Together, these factors—especially the rise of AI as a potential app platform—make it difficult for Meta to continue justifying VR investments. Instead, Meta will focus on promising products like its Ray-Ban and AI glasses, growth in AI applications, and large language models.