Meta's Metaverse Meltdown 📉🤯 Reality Check

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META’S VR SHIFT: A COSTLY RECKONING
Meta’s ambitious investment in virtual reality concluded last week with the company reportedly laying off approximately 1,500 employees from its Reality Labs division – representing roughly 10% of the unit’s workforce – and shuttering several VR game studios, according to a report in *The Wall Street Journal*. This marks a significant reversal for a company that, just four years prior in 2021, rebranded itself as Meta and declared its entire strategy would be centered on the metaverse.

THE RISE AND FALL OF THE METAVERSE DREAM
Driven in part by observations that Gen Z preferred engaging in online games like Fortnite and Roblox, rather than traditional social media platforms, the shift also aimed to distance Meta from the considerable negative publicity surrounding its Facebook brand. This reputational damage stemmed from a series of issues, including data privacy scandals such as the Cambridge Analytica affair, revelations based on internal documents shared by whistleblower Frances Haugen detailing Facebook’s awareness of the detrimental impacts on children and teenagers, and Congressional hearings examining Facebook’s digital surveillance practices, its role in the dissemination of misinformation, and concerns regarding monopolistic behavior. Meta’s original vision was that the metaverse – accessible through the Horizon Worlds app and played on VR headsets – would evolve into the next dominant social platform.

A STRATEGIC SHIFT: AI TAKES CENTER STAGE
However, the company has since pivoted its focus towards artificial intelligence, and some of the affected entities, including the VR game studios, were impacted by this strategic shift. Studios developing VR titles within Meta, including Armature Studio’s “Resident Evil 4 VR,” Twisted Pixel’s “Marvel’s Deadpool VR,” and Sanzaru’s “Asgard’s Wrath,” are facing significant changes. Furthermore, the VR fitness app Supernatural, acquired by Meta in 2023 for $400 million, will transition to “maintenance mode” and cease producing new content. Camouflaj, the studio behind the “Batman: Arkham Shadow” VR game, has also been affected by layoffs, as reported by GeekWire. Last week, The Vergenoted that Meta’s program aimed at bringing VR to workplaces—the Workrooms—is being shut down.

THE COST OF HUBRIS
This news follows an earlier Bloomberg report from December, which revealed that Meta was reducing the virtual reality department’s budget by up to 30%. Simultaneously, Meta announced a pause in sharing its Meta Horizon operating system, used on its Quest-branded VR headsets, with other third-party headset device makers. Notably, this deprioritization of Meta’s metaverse efforts should not be viewed as unexpected; the Reality Labs division consistently lost money at a high rate, raising concerns among investors and failing to generate any profit. The company had invested a staggering $73 billion in this division – equating to approximately $1 million per day for 200 years. Beyond the overhyped nature of the metaverse and initial product quality, which included avatars lacking even basic functionality like legs, the situation reflects a broader strategic shift.

THE REALITY CHECK: ADOPTION RATES FALL SHORT
Zuckerberg’s missteps regarding the metaverse became the subject of a viral meme. In essence, Meta had repeatedly overstated the future capabilities of its product while failing to deliver on those promises. This represented a failure of the “build in the open” strategy, which involves releasing early tech products to consumers to gather feedback and inform iterative development—a model that relies on genuine customer interest. However, adoption rates of its metaverse apps remained limited, particularly for a company of its scale. Given the lack of direct visibility into Meta’s VR app store, analysts have used Meta’s existing iOS and Android applications as a proxy for gauging adoption.

QUANTIFYING THE FAILURE
According to modeled estimates from app intelligence provider 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 more indicative measure of adoption is app activity: Apptopia’s data reveals that the average sessions per daily active user in the U.S. grew from 3.49 in January 2023 to 4.93 in January 2026. While this represents a high level of engagement, it may not have been sufficient for Meta’s ambitions. For comparison, Meta currently boasts over 3.5 billion daily active users across its established social apps – Facebook, Instagram, WhatsApp, and Messenger – a social ecosystem initially driven by partners like Zynga, whose games such as Farmville and Words with Friends, fueled substantial revenue growth in its early days.

A HIGH COST, A LOW RETURN
Ultimately, Facebook’s 30% cut of virtual goods sales, coupled with restrictive platform policies, led Zynga to launch its own gaming portal and shift its focus to mobile. However, Meta’s approach proved problematic, as Zuckerberg signaled an intent to capture developer revenue prematurely. To attract developers, particularly for virtual reality, Meta could have considered offering lower fees, mirroring or undercutting the standard 30% charged by Apple, Google, or other gaming platforms. Instead, Meta increased its fees, announcing it would take a 47.5% share of digital asset sales within Horizon Worlds – a structure comprised of a 30% hardware platform fee and an additional 17.5% fee specifically for the Horizon Worlds platform itself. This approach frustrated creators, and further compounded concerns about Meta’s prioritization of user safety within the metaverse.

RESPONDING TO A DISASTROUS FAILURE
Reflecting its history of reactive rather than proactive development, the company initially lacked robust safety measures. For example, the “Personal Boundary” feature, designed to establish a buffer between avatars, was only implemented after reports surfaced detailing instances of sexual harassment and, alarmingly, virtual rape and gang rape within Horizon Worlds. Later, Meta adjusted the Personal Boundary, limiting its default activation to interactions with non-friends and providing users with the option to disable it.

LACK OF SUPPORT AND TRUST
Around this time, TechCrunch sought details from Meta regarding its support measures for Horizon Worlds. The company presented several tools, including blocking and reporting features, a “safe zone” button enabling users to instantly block and mute others, and a temporary removal function for disruptive individuals within virtual venues – a feature developed in response to user feedback. Despite outlining these tools, Meta remained hesitant to specify the actions it would take against individual instances of abusive behavior. At the time, users reported that a common reaction to abuse within the metaverse was to remove their headset and take a break from virtual reality. However, upon returning to Horizon Worlds, these users often found their harassers still present in their list of recent encounters, making it too late to file a report with accompanying video and audio evidence. These issues suggested a lack of thorough consideration during the initial development stages, as detailed policies defining abuse were conspicuously absent.

A FINAL, DISSAPOINTING CHAPTER
Later, when Meta published a metaverse code of conduct, it still offered only a general statement of action – “take action on users.” Notably, around this time, Meta declined to disclose the composition of the team responsible for building the metaverse. (Based on Meta’s overall demographics, it’s reasonable to speculate that the project team was predominantly male.) This reluctance, coupled with the ongoing challenges, represented a significant blow to the nascent metaverse concept.

RAY-BAN AR: A LASTING INFLUENCE
In May 2022, TechCrunch sought details from Meta regarding its support measures for Horizon Worlds. The company presented several tools, including blocking and reporting features, a “safe zone” button enabling users to instantly block and mute others, and a temporary removal function for disruptive individuals within virtual venues – a feature developed in response to user feedback. Despite outlining these tools, Meta remained hesitant to specify the actions it would take against individual instances of abusive behavior. At the time, users reported that a common reaction to abuse within the metaverse was to remove their headset and take a break from virtual reality. However, upon returning to Horizon Worlds, these users often found their harassers still present in their list of recent encounters, making it too late to file a report with accompanying video and audio evidence. These issues suggested a lack of thorough consideration during the initial development stages, as detailed policies defining abuse were conspicuously absent.

A NEW FOCUS: RAY-BAN AR
Success for Meta’s Ray-Ban AR glasses has been steadily increasing, fueled by heightened consumer interest in recent months. Beginning in 2024, these glasses began to outsell traditional Ray-Bans in select retail locations, boasting features such as hands-free recording, music streaming, and integration with Meta AI. Bloomberg reported this week that Meta is now evaluating the possibility of doubling its Ray-Ban AR glasses output to satisfy growing consumer demand. Notably, Meta recently launched Ray-Ban Display last year – similar smart glasses incorporating a display for apps, alerts, and directions on the right lens. However, the company has since paused its international plans for Ray-Ban Display, attributing this decision to “unprecedented demand” – or, more accurately, overly conservative inventory forecasting. Amidst these developments, numerous startups are exploring hardware AI devices as the next potential computing platform, suggesting that virtual reality appears increasingly dated compared to the current focus on AI. Combined with the burgeoning adoption of AI as a possible application platform, it presents a significant challenge for Meta to continue justifying substantial investment in virtual reality. Instead, the company is prioritizing products with demonstrated potential, including the Ray-Ban AR glasses, the growth of AI apps, and the development of large language models.

This article is AI-synthesized from public sources and may not reflect original reporting.