Meta’s Reality Labs Layoffs Spark ‘VR Winter’ Fears

Meta’s Strategic Pivot: AI and Smart Glasses Take Center Stage as VR Faces Headwinds

The once-hyped virtual reality sector is experiencing a significant chill, with industry insiders and developers expressing concern over its future trajectory. This sentiment has intensified following Meta Platforms’ recent workforce reductions and a discernible shift in strategic focus away from VR towards artificial intelligence and internet-connected smart glasses.

“It certainly feels like a VR winter,” commented Jessica Young, an independent VR content creator who has focused on Meta’s social virtual network, Horizon Worlds. The social media giant recently laid off approximately 10% of its workforce within its Reality Labs division. The cuts disproportionately affected VR-centric initiatives, including the development of its Quest VR headsets, and led to the closure of some internal studios. Teams dedicated to Horizon Worlds were also significantly impacted.

This strategic reallocation of resources, confirmed by a Meta spokesperson, aims to redirect Reality Labs’ investments from virtual reality toward artificial intelligence and wearable technology, such as the Ray-Ban Meta smart glasses co-developed with EssilorLuxottica. While Meta declined to elaborate further beyond its previous statement, the move is particularly noteworthy given the company’s pivotal role in shaping the VR landscape since its $2 billion acquisition of Oculus in 2014. Meta’s rebranding from Facebook to Meta underscored CEO Mark Zuckerberg’s ambitious vision for a metaverse-driven future. However, Reality Labs has accumulated over $70 billion in losses since late 2020, prompting this strategic recalibration.

Zuckerberg’s apparent reversal has cast a shadow of uncertainty over VR developers. While most do not anticipate Meta abandoning VR entirely, the significant shift in investment priorities is undeniable. At its annual Connect conference, traditionally a showcase for new Quest VR hardware, Meta this year emphasized its $799 Meta Ray-Ban Display glasses, featuring an integrated digital screen. This deviation from the usual hardware release cycle has led to concerns about the pace of innovation in the VR space.

“If Meta doesn’t release a new headset for another year or two, it’s going to feel stale. It already kind of does,” Young observed.

Despite the layoffs, Meta’s Chief Technology Officer and head of Reality Labs, Andrew Bosworth, has maintained that the company remains committed to VR. “We’re still continuing to invest heavily in this space, but obviously, VR is growing less quickly than we hoped,” Bosworth stated in an interview with the tech newsletter Sources. He emphasized the need for “right-sized” investments. Echoing this sentiment, Oculus co-founder Palmer Luckey noted on social media that Meta still employs “the largest team working on VR by about an order of magnitude,” suggesting that the recent changes, while difficult for those impacted, could be beneficial for the long-term health of the industry.

**The Market’s Verdict: A Shift Beyond VR**

Market research firm IDC reports a significant transformation within the Extended Reality (XR) device sector, which encompasses VR, mixed-reality headsets, and AI-powered smart glasses. While the overall XR device market is projected to grow by 41.6% year-over-year to 14.5 million units shipped in 2025, this growth is not driven by VR and mixed-reality headsets. Shipments for these devices are expected to decline by 42.8% to 3.9 million units. In contrast, AI glasses, with or without displays, are anticipated to surge by 211.2% to 10.6 million units.

Jitesh Ubrani, research manager at IDC, characterizes the VR headset market as increasingly niche, appealing primarily to a segment of video gamers. He suggests that the average consumer’s interest in wearing “big, bulky headsets” for extended periods has waned, a stark contrast to the industry’s earlier expectations. “The market has spoken,” Ubrani commented. “There are certain niche audiences that will continue to use these headsets, but it’s not going to be broadly appealing.”

Andrew Eiche, CEO of Google-owned VR gaming studio Owlchemy Labs, believes the initial comparison of VR headsets to the smartphone’s revolutionary impact was a strategic misstep. He likens the current VR market to the early days of Atari consoles before the 1983 market crash, suggesting a period of consolidation and eventual resurgence, much like the revival brought by Nintendo in the late 1980s. “Lot of tech people thought [VR] was going to be instantly amazing, and the same thing’s happening with AI,” Eiche said, referring to the current industry enthusiasm for artificial intelligence. He remains optimistic about VR’s long-term potential, stating, “When you’re looking at long-term technologies, VR is not going anywhere.”

However, the challenges extend beyond Meta’s internal shifts. Several other VR studios have also undergone downsizing amidst a broader slump in the video game industry. Given Quest’s dominant market share, its app store is a crucial distribution channel for third-party VR content. Compounding these issues, Eiche notes that Meta’s focus on Horizon Worlds may have inadvertently sidelined third-party developers seeking visibility. “We’re at the mercy of Meta,” he stated, adding that “if Meta pulls back, we all pull back.”

Despite these headwinds, Eiche anticipates potential market revitalization from upcoming devices such as Valve’s Steam Frame wireless VR headset, alongside recent entries like the Samsung Galaxy XR and Apple’s Vision Pro. However, Apple’s foray into VR with the Vision Pro, launched in February 2024, has not yet significantly altered the market landscape. Reports indicate a slowdown in production by Apple’s manufacturing partner, suggesting a lack of widespread consumer demand, though Ubrani notes that the $3,499 spatial computing headset has found traction in business applications. “Apple did do well in selling to a lot of developers, but they also sold into some very big companies,” Ubrani concluded.

**Enterprise VR: A Niche with Growth Potential**

While the consumer VR market faces uncertainty, the enterprise sector is showing signs of slow but steady growth. IDC has observed “slow but upwards movement” as businesses recognize the return on investment in deploying VR headsets for various applications. Despite Meta’s internal restructuring, the company has stated it will discontinue its Horizon managed services program for businesses utilizing Quest headsets for internal training and other tasks.

Sean Mann, CEO of RP1, a startup developing a “metaverse browser,” believes Meta may have underestimated VR’s broader potential beyond gaming. As Meta pivots Horizon Worlds towards a mobile-focused online gaming platform akin to Roblox, creators like Jessica Young intend to continue developing experiences on the platform. Young has found ways to monetize her skills by creating promotional trailers for Horizon experiences and winning Meta-sponsored competitions.

However, Young expresses nostalgia for Horizon’s earlier VR-centric years, particularly during the Covid-19 pandemic. “Horizon became a lifeline for people isolated by the pandemic, disability, age or geography,” she recalled. “Many users who never imagined themselves as creators, who had no background in art or programming, were inspired by their friends to try.” She laments that the platform’s current direction is perceived by some as a decline without acknowledging its past significance. “what’s frustrating now is watching people declare it dead without ever having experienced or understanding what it was,” Young concluded.