Metaverse Over? What Happened & What’s NextThe metaverse, once touted as the future of social interaction and digital life, appears to be facing a harsh reality check. Meta, the company formerly known as Facebook, recently announced significant layoffs – approximately 1,500 employees – within its Reality Labs division, alongside the closure of several VR game studios. This marks a dramatic reversal for a company that just four years ago staked its entire identity on this virtual frontier. The question now is: is the metaverse over, and what does the future hold?
The Rise and Fall of Meta’s Metaverse Ambition
In 2021, Facebook’s rebranding to Meta signaled a bold commitment to virtual reality (VR) and the metaverse. This decision was partly driven by observing Gen Z’s preference for immersive online experiences like Fortnite and Roblox over traditional social media platforms. It also served as a strategic move to distance the company from the growing negativity surrounding the Facebook brand, stemming from data privacy scandals like Cambridge Analytica, whistleblower revelations from Frances Haugen, and concerns over misinformation and monopolistic practices. Meta envisioned the metaverse as the next evolution of social connection, accessible through its Horizon Worlds app and powered by VR headsets.
However, the metaverse has largely been abandoned in favor of Artificial Intelligence (AI). The shift highlights a significant reassessment of priorities and a recognition of the challenges in achieving widespread metaverse adoption.
Reality Labs Restructuring: Studios Shut Down and Budgets Cut
The recent restructuring at Meta’s Reality Labs has resulted in the closure of several prominent VR game studios. Among those affected are Armature Studio (“Resident Evil 4 VR”), Twisted Pixel (“Marvel’s Deadpool VR”), and Sanzaru (“Asgard’s Wrath”). Furthermore, the VR fitness app Supernatural, acquired by Meta in 2023 for a hefty $400 million, will no longer receive new content and will transition into “maintenance mode.” Camouflaj, the studio behind “Batman: Arkham Shadow” VR, has also experienced layoffs, as reported by GearTech.
Adding to these cuts, Meta’s Workrooms program, designed to bring VR into the workplace, is also being shut down. This follows a December report from Bloomberg revealing plans to slash the virtual reality department’s budget by up to 30%. Meta also paused its program to share its Meta Horizon operating system with third-party headset manufacturers.
A Costly Bet: $73 Billion and No Profit
The deprioritization of the metaverse shouldn’t come as a surprise. The Reality Labs division consistently operated at a significant loss, raising concerns among investors. In total, Meta has invested approximately $73 billion into Reality Labs. To put that into perspective, that equates to spending $1 million per day for 200 years. Despite the massive investment, the division has yet to turn a profit.
The “Build in the Open” Model Fails to Ignite
Beyond investor concerns, the initial iterations of the metaverse were simply underwhelming. The avatars were often described as “goofy” and “soulless,” lacking even basic features like legs. A particularly infamous selfie of Meta CEO Mark Zuckerberg in the metaverse went viral for all the wrong reasons. Meta overpromised a future that its product couldn’t yet deliver, resulting in a failure of the “build in the open” model.
This model relies on early consumer feedback to iterate and improve products, but it requires genuine consumer interest. While Meta gained a majority share of the VR headset market with its Oculus headsets, sales began to decline. Counterpoint Research noted a 12% year-over-year decline in global VR headset shipments in 2024, marking the third consecutive year of decreases. Meta accounted for 77% of those shipments.
The App Store Strategy and Developer Discontent
Meta’s strategy focused on creating a platform for apps and games, aiming to replicate the success of app stores like Apple’s and Google’s. Zuckerberg expressed a desire to bypass the revenue-sharing models of these platforms, believing they stifled innovation. He predicted the metaverse could reach one billion users within a decade, generating hundreds of billions of dollars in digital commerce. Analysts from McKinsey & Co. and Citi initially supported these optimistic forecasts, projecting a multi-trillion-dollar metaverse by 2030.
However, adoption rates remained low. While precise figures for Meta’s VR app store are unavailable, data from Apptopia provides a proxy. The Meta Horizon app has been downloaded 60.4 million times globally and 39.8 million times in the U.S. since May 2018. More importantly, average daily active users in the U.S. grew from 3.49 in January 2023 to 4.93 in January 2026. This, however, proved insufficient for a company of Meta’s scale.
In comparison, Meta’s core social apps – Facebook, Instagram, WhatsApp, and Messenger – collectively boast over 3.5 billion daily active users.
Safety Concerns and Virtual Harassment
The rush to scale the metaverse also led to significant safety concerns. Similar to its early approach to Facebook, Meta was often reactive rather than proactive in addressing user safety. The introduction of the “Personal Boundary” feature, designed to prevent unwanted proximity between avatars, came only after reports of sexual harassment in Horizon Worlds, including instances of virtual rape and gang rape. Meta later adjusted the feature, making it default to “on” only for interactions with non-friends and allowing users to disable it entirely.
In May 2022, GearTech inquired about Meta’s support measures for Horizon Worlds. The company outlined tools like blocking, reporting, a “safe zone” button, and the ability to temporarily remove disruptive users. However, Meta declined to specify the actions it would take against perpetrators of abuse. Users reported that reporting abuse was difficult, as capturing evidence often required removing the headset, and reports submitted after the fact were often ineffective.
Initial policies regarding abuse were vague, lacking clear consequences for violations. The eventual publication of a metaverse code of conduct offered little more than a promise to “take action on users.”
The Rise of AR, Mixed Reality, and AI
The success of Meta’s Ray-Ban AR glasses has provided a glimmer of hope. Featuring hands-free recording, music streaming, and Meta AI integration, the glasses have begun to outsell traditional Ray-Bans in some retail locations in 2024. Bloomberg reports that Meta is considering doubling production to meet growing demand.
The introduction of Ray-Ban Display, smart glasses with a built-in display for apps, alerts, and directions, further demonstrates Meta’s shift towards augmented reality. While international plans for this product were temporarily paused due to “unprecedented demand” (likely stemming from inventory forecasting issues), it signals a growing consumer interest in AR technology.
With companies like OpenAI, Amazon, and numerous startups exploring hardware AI devices as the next computing platform, VR appears increasingly outdated. The focus is shifting towards technologies that seamlessly integrate with the real world, rather than isolating users in a virtual environment.
What’s Next for Meta?
The metaverse’s struggles, combined with the growing momentum of AI, have forced Meta to reassess its priorities. The company will now focus on products with greater potential, including its Ray-Ban and AI glasses, the growth of AI applications, and large language models. The era of the metaverse, as initially envisioned by Meta, may be over, but the company is pivoting towards new opportunities in the evolving landscape of technology. The future will likely see a blend of augmented reality, artificial intelligence, and more practical applications of virtual reality, rather than a fully immersive, all-encompassing metaverse.