After the VR earthquake at Meta: End of an era and a new beginning

Contents

This week, virtual reality was caught up by reality.

The full extent of Meta's strategic U-turn is not yet known. What is certain is that this represents the biggest turning point for the young industry to date.

The VR industry has always been an artificial construct, largely sustained by Meta's investments. After ten years and billions in losses, the company made it unmistakably clear this week for the first time that these expenditures are not unconditional and can come to an abrupt end.

The latest events mean neither the end for Meta's VR division nor for virtual reality itself. But for an industry heavily reliant on Mark Zuckerberg's goodwill, the new signals could trigger a dangerous chain reaction.

If developers lose faith in the platform's future, their willingness to invest further resources in the marketplace will also decrease. Consequently, if new applications and content are lacking, the hardware loses its most important selling point – with serious consequences for the entire ecosystem.

An Unprecedented Shrinkage

After drastic cost-cutting measures in Meta's VR division had already become apparent at the end of last year, they hit with full force on Tuesday.

The company laid off around 1,500 employees from Reality Labs, responsible for future technologies, and closed the majority of its VR game studios. Confirmed are Armature Studio ("Resident Evil 4"), Sanzaru Games ("Asgard's Wrath 2"), and Twisted Pixel ("Marvel's Deadpool VR"). Camouflaj, the team behind the award-winning "Batman: Arkham Shadow," has been reduced to a skeleton crew and will no longer develop new VR games. Furthermore, Meta has discontinued the development of the fitness app "Supernatural," raising questions about the future of the responsible studio Within. Meta had already closed Ready at Dawn ("Lone Echo") and Downpour Interactive ("Onward") in 2024 and 2025.

This leaves barely more than a small remnant of Meta's nine VR studios. Titles in development, including a sequel to "Batman: Arkham Shadow," have been scrapped. The funding and incubator programs for external studios, an important lifeline of the ecosystem, have also reportedly been cut. This makes it clear that Meta is withdrawing from VR game development.

Meta's often-mocked metaverse platform "Horizon Worlds" will primarily focus on mobile devices rather than VR headsets in the future, in the hope of capturing market share from "Roblox" and "Fortnite." A venture that seems doomed to fail given the overwhelming competition.

The cost-cutting measures also affected other areas of the VR division: Meta has discontinued its in-house VR meeting app and the enterprise business with Quest devices. As reports of new cuts have been circulating almost daily since Tuesday, it would not be surprising if further projects and programs that have fallen victim to the budget cuts become known in the coming days.

Meta's VR Subsidies: Blessing and Curse

A few years ago, the situation looked very different. Meta Quest 2 sold millions of units. Many developers and studios were able to build an economic existence on the Quest platform and invest in projects for the next generation of hardware.

However, since the end of the pandemic, interest in VR headsets has continuously declined. Playstation VR2, Meta Quest 3, and even Apple Vision Pro have been unable to counteract this trend. A large part of the industry still relies on the Quest platform and game sales. But this sector in particular has undergone a profound transformation in recent years.

Many VR users who contributed to the success of Meta Quest 2 have migrated away from the platform. They have been replaced by children and teenagers who prefer new types of games with free-to-play business models. Declining interest, changing consumer habits, and Meta's own platform policies have led the VR industry into a crisis, which has resulted in layoffs and studio closures by independent studios. The piracy tacitly tolerated by Meta has likely also contributed to this creeping misery.

At the same time, many VR studios were only able to stay afloat for so long thanks to Meta's years of support: the company contributed to the financing of new projects and guaranteed studios regular income through their participation in the "Horizon+" game subscription service. This precarious situation points to a deeper problem: Meta's unbridled VR subsidization, which affects other areas besides developer support.

With bargain prices for Quest devices, Meta quickly gained a leading position in the VR market, but also accustomed consumers to unrealistically low prices and distorted actual demand. Competitors who could have ensured healthy competition were pushed out of the market. At the same time, Meta invested billions in acquiring VR studios to accelerate hardware sales with exclusive VR games. However, even high-quality licensed titles produced with great effort, such as "Batman: Arkham Shadow“ (2024) and "Marvel’s Deadpool VR“ (2025), could not change the declining sales in 2025. It was therefore only a matter of time before Meta would pull the plug.

"This year will likely decide whether all our work will go down in history as a visionary breakthrough or a legendary mishap," wrote Reality Labs head Andrew Bosworth to his employees at the end of 2024. A year later, the preliminary verdict has been delivered.

A Look into the Future

Among VR developers, Meta is notorious for frequent strategy changes and a tendency to chase trends. In light of the recent cutbacks, the question arises whether the company is not prematurely and definitively burning bridges here. More moderate support and more realistic expectations from Meta could have cushioned the impact of this week, which will now lead to an irrecoverable loss of trust, knowledge, and talent.

However, the current development also has positive aspects: the VR industry has bid farewell to the metaverse hype fueled by Meta itself during the pandemic years. It is intended to develop more slowly and organically in the future, but with more grounding and sustainability. At Meta, the valuable insight has now grown that hardware and software are simply not yet mature enough to significantly expand the VR market.

In any case, it would be premature to speak of a complete abandonment of virtual reality by Meta. More than 10,000 employees still work for Reality Labs, many of them on VR hardware. According to reports, a new type of VR headset with the telling codename "Phoenix" is also in development.

After neither wireless VR and affordable devices nor high-quality content have been able to open up a broader market for VR headsets, Meta is tackling another hurdle: the form factor and weight. The new device is said to be many times more compact and lighter than current VR headsets. In line with Meta's goal of establishing a more sustainable VR business, subsidies will be forgone in the future, and the device will likely be significantly more expensive than previous Quest models. Marketing is likely to shift away from gaming towards work and media consumption. The target release date is 2027.

Should this attempt also fall short of Meta's expectations, things could get tight for the company's VR ambitions. An reallocation of investments into the smart glasses business is already underway. An area in which Meta sees significantly greater market potential.

(nie)