Missing link: Crisis in the VR industry? What German developers are saying

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On October 15, 2024, VR developers around the world gazed spellbound at their screens. On this day, VR goggles were launched on the market and the hopes of an entire industry rested on them. Developers were eager to see whether sales of their games would skyrocket: an important indicator of Christmas sales and the eagerly awaited upturn.

Missing Link

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The past two years have been characterized by waning interest in VR, despite the release of three major VR goggles from major manufacturers - Playstation VR 2, Meta Quest 3 and Apple Vision Pro. None of these devices managed to get the market going or at least match the success of Meta Quest 2, which heralded a heyday for virtual reality in 2020.

One of the main reasons for this was the significantly higher price of these devices. Hopes were now pinned on a more affordable VR headset, which Meta launched as a direct successor and replacement for the Quest 2: the Meta Quest 3S. On paper, it had everything it needed to be a hit: a significant leap in performance, mixed reality and an extensive game library. All this at a price that, adjusted for inflation, was even lower than the launch price of the Quest 2.

But what many VR studios observed at launch and in the days that followed surprised them: "We didn't feel any impact. It was as if no hardware had been released," says a studio that does not wish to be named. "We didn't see any growth in users," another studio told us. The launch of the device was in no way comparable to that of previous Quest devices, they said. Other developers that heise online spoke to reported similar things.

Even Meta admitted months later that the launch of the Quest 3S had not followed the usual success pattern of earlier devices. Quarterly reports confirm this: In the first half of 2025, Meta sold fewer Quest devices than in the previous year, i.e. before the Quest 3S was launched. A clear indication that the hopeful device has fallen far short of the industry's expectations.

If you ask German VR developers about the reasons for this, some are reluctant to say so openly because they would rather not jeopardize their relationships with Meta and thus their economic basis. After all, Meta is still the largest investor in VR content and the majority of software sales are still generated via Meta's platform. Hardly any studio can survive on Sony, Valve or Apple's ecosystems.

German VR studios on the current situation

There are many indications that the situation has worsened for numerous VR developers since 2023. Meta's own figures indicate that software revenue is stagnating at best, with this revenue also being spread across many more games than a few years ago. For many studios, this means smaller pieces of the pie. Success stories from studios or metas have become rarer; instead, reports of redundancies and studio closures are on the rise. 2024 proved to be a particularly difficult year: according to a report by industry blog UploadVR, which documents the concerns and criticism of international VR developers, the revenue of some studios fell by 50 to 80 percent year-on-year. The German VR studios we spoke to were not hit quite as hard. But the trend is the same.

The Munich-based studio Salmi Games, developer of the VR shooter "Sweet Surrender", has seen a decline in revenue since 2023 despite regular game updates. The studio had to lay off staff at the beginning of 2024. "The current situation is definitely difficult. We are keeping our heads above water," says studio founder Yacine Salmi.

Eric Thullen, creator of the dungeon crawler "Ancient Dungeon", also sees a prolonged downward trend in sales and describes 2024 as his game's weakest year to date. However, the financial basis of his studio remains stable, partly because expenditure is relatively low.

The Berlin-based studio Realities.io, which created the puzzle hit "Puzzling Places" and provides new content every month, has seven full-time employees and is financed from current income. "We haven't had to cut any jobs yet, so I'm very happy about that," says studio boss Daniel Sproll. The revenue comes from the sale of games, paid DLCs and a subscription that provides fans with new puzzles on an ongoing basis. "Puzzling Places" is also part of the Horizon+ game catalog, the Quest counterpart to the Xbox Game Pass and PlayStation Plus Extra game subscriptions. This opens up an additional source of income for the studio, without which the situation would be much more difficult, according to Sproll.

The Swiss VR studio Holonautic, which has one of the 50 most successful Quest games in its portfolio with "Hand Physics Lab", is also continuing to hold its own on the market. "Holonautic benefited greatly from what could be described as the golden era of standalone VR and the growing demand for hand tracking during this time. The studio is currently doing well and the team size has remained stable over the past few years," explains Holonautic.

Meta Quest: From game console to metaverse platform

The difficult situation faced by many VR studios is partly due to the crisis in the video games market as a whole, whose growth has slowed since 2022. On the other hand, according to some VR developers, it also has homemade reasons. They accuse Meta of having contributed to the current situation. The criticism is primarily directed at Meta's increased focus on its Metaverse platform "Horizon Worlds", which is at the expense of the ecosystem and many third-party developers.

"Horizon Worlds" is the centerpiece of Meta's metaverse bet: a social platform for VR, mobile devices and the browser, where users can meet as avatars, play with each other, attend virtual events and create their own worlds. Access to the worlds is free of charge. Revenue is generated through the sale of virtual items and consumables, with almost half of the revenue generated by users with their worlds flowing into Meta's coffers. "Horizon Worlds" is tiny compared to other metaverse platforms such as Roblox or Fortnite. In the long term, however, Meta hopes that it will grow into a central hub of the metaverse: a virtual economy and advertising space under Meta's control, free of physical boundaries.

As this vision depends on the success of "Horizon Worlds", Meta has been increasingly promoting its own metaverse platform in the Horizon Store, Meta's marketplace for VR games, in recent years. Users are encouraged to visit worlds from "Horizon Worlds" there. The prominent placement of this free content in the Horizon Store is increasingly crowding out the offerings of third-party developers and reducing their visibility, according to the accusation made by some German VR developers. At the same time, users are being tempted to consume the free, but often inferior, content from Horizon Worlds instead of spending money on high-quality premium games. "Ultimately, they have their own app that we are competing with," says a German VR developer.

The situation was exacerbated by the fact that Meta opened the Horizon Store last year. While the marketplace was previously curated similarly to Xbox, Playstation and Nintendo Switch, VR games now only have to meet minimal conditions for approval. The result is that the Horizon Store is now dominated by quantity rather than quality. For some VR developers, the changeover has resulted in a noticeable slump in sales. "Opening up the store to a flood of applications has made it much harder to gain visibility. What was once a high-quality, console-like offering has become a more mobile-oriented store, making it far less attractive for smaller studios with limited marketing budgets," says VR studio Holonautic.

Competition has also increased significantly among high-quality premium games. Around the launch of Meta Quest 3S, an unprecedented flood of VR games appeared as studios sought to capitalize on this pivotal moment. As a result, many high-quality titles were lost in the crowd. While the successful years of Quest 2 were still characterized by the fact that there were many users willing to buy, but an undersupply of games, the successor struggles with the opposite problem: there is an abundance of high-quality games, but too few users willing to pay to support the offer economically.

Meta's game subscription, Horizon+, is seen by many developers as the last effective form of curation and chance to be noticed in the Horizon Store. Competition for a place in it is correspondingly high. "Horizon+ has definitely given us a boost, as our regular sales are declining. It also gives us a lot more visibility because it's advertised everywhere," says studio founder Yacine Salmi. But not everyone is convinced of the benefits of the VR game subscription: some studios criticize that Meta's subsidization distorts demand and takes away the incentive for new buyers to purchase games. After all, they get three months' free access to the catalog when they purchase a Quest 3 or 3S.

New audience, new opportunities

Meta responded to criticism from developer circles in the spring. The company presented figures that contradicted the narrative of declining development: 2024 saw a slight increase in software sales, significantly higher user activity and more Quest sales than in the previous year, with the majority of buyers being new to the platform. According to Meta, the VR ecosystem is growing, but in a direction from which many long-established VR developers are benefiting little. How so?

A growing number of users, Meta explained, are teenagers and young adults who prefer free-to-play social games and free hangout apps to the previously dominant premium titles. Earlier this year, it was reported that more than around 70 percent of time spent on Meta Quest is now spent on free apps that generate revenue through microtransactions rather than larger one-off payments. A business model that is becoming increasingly important on the platform and was responsible for the higher revenue last year.

The changing audience and its preferences explain why the launch of Meta Quest 3S had little impact on sales of premium apps. "A lot of new users came into the ecosystem with Quest 3S, but they just didn't end up playing premium games," says Sproll. Instead, they play free-to-play titles with names like "Gorilla Tag", "Animal Company" and "Yeeps", which attract hundreds of thousands of young players. Horizon Worlds is also free and is one of the most used quest apps, which indicates its growing popularity with the young audience.

According to Meta, the majority of sales in the Horizon Store continue to come from premium games, but the willingness to pay has declined in recent years. New users are spending less money on games than regular users and even the latter have become more cautious. According to Meta, this trend was apparent long before the store opened.

According to Meta's analyses, the prominence of Horizon Worlds on Meta Quest and the opening of the store only had a minor impact on purchasing behavior. Far more serious for the ecosystem is the increasing proportion of teenagers, who now form the most active user group, as well as changing consumer habits, which are presumably economically driven and not limited to Meta's VR platform.

The company's statements indicate that the change in the ecosystem also opens up opportunities. One exemplary success story is the German obstacle course game "Grab", which fits the profile of the titles that are currently particularly successful on Meta Quest: It relies on virtual locomotion through the use of arms and hands, focuses on multiplayer and is free to play. Unlike many premium games, it does not have a storyline or elaborate graphics. A special feature of "Grab" is the level editor, which allows players to intuitively design their own obstacle courses directly in virtual reality. According to solo developer Nils Daumann, 1.2 million such levels have been created by users to date. "Grab" can also boast impressive figures in other respects: the game has a similar number of user ratings to "Horizon Worlds" and around 16,000 players a day. Figures that many other titles can only dream of.

Daumann can make a good living from his VR game. The developer earns more with "Grab" than in his previous job and, as he says, has achieved "what almost everyone wants". The game was originally planned as a premium title, which is why microtransactions were only added later. A change that has paid off and still holds considerable potential: the developer admits that he has so far monetized his player base less than other VR hits of this kind and still sees room for improvement here."

Meta follows the trend, are developers following suit?

How are the other German VR studios reacting to the changing ecosystem? Switching to a free-to-play model is out of the question for many of them. Eric Thullen is critical of the business model, as it often relies on psychological mechanisms to persuade younger players in particular to spend money. In addition, Thullen currently feels no pressure to adapt to the new market conditions. However, he would rather not invest in a new project or hire additional employees under the current circumstances. "You don't know what will happen in the next few years," says Thullen.

One strategy that is becoming increasingly common among VR developers is porting VR games for classic gaming formats in order to create an additional mainstay. Realities.io, for example, is currently working on a screen version of "Puzzling Places" for the PC. The Swiss studio Holonautic is even considering developing a pure screen game for PC and consoles to secure its own investments more broadly. However, the studio is showing less interest in following the trend towards social free-to-play games.

Salmi Games, on the other hand, will follow suit in the VR sector: The Munich-based studio is working on a spiritual successor to its shooter "Sweet Surrender". The team has not yet made a final decision, but is considering alternative payment models such as free-to-play. As with "Sweet Surrender", the development is being financed partly by federal funds, partly by Meta, as well as by previous revenues.

Meanwhile, Meta continues to invest in classic VR games and is also working to improve their visibility in the Horizon Store. "We do not expect free-to-play to replace paid apps. Both models will probably coexist," Meta explained in the spring. However, the strategic focus on "Horizon Worlds" is likely to remain.

This raises fears among traditional VR developers that Meta Quest will increasingly move away from the classic game console with curated content and become a metaverse platform with virtual worlds without entry fees and quality control. A change that is already underway.

At the end of the day, Meta can only influence buying behavior, not dictate it, and must bow to market trends. The question is how traditional VR studios and regular users will react if there is no longer enough revenue for new projects and the supply of premium games thins out in the coming years. After all, it is these groups that have made Meta Quest great and still largely support the ecosystem today. Against this backdrop, the current upheaval could mark the beginning of a deeper crisis.

"Many studios will disappear from the market, a lot of knowledge will be lost, and many people will turn away from VR and not return. We, too, have thought about whether we want to continue in VR," says Yacine Salmi. "At the same time, Meta is a very valuable partner for us. We wouldn't have come this far without them. I am grateful for what they have done for the industry as a whole and for us in particular."

(nen)