Meta’s Reality Labs cuts sparked fears of a ‘VR winter’

Meta‘s deprioritizing virtual reality in favor of artificial intelligence and Internet-connected smart glasses has chilled the industry, leading to concerns about its future.

“I can see how it feels like a VR winter,” said Jessica Young, an independent VR content creator specializing in Horizon Worlds, Meta’s virtual social network.

The social media giant last week laid off 10% of employees who work within its Reality Labs unit, with the cuts centering on VR-related initiatives like the Quest VR headsets, CNBC reported. Teams working on Horizon Worlds were hit hard and some in-house studios were shuttered. Approximately 1,000 jobs were cut, CNBC reported.

The move was part of the company’s effort to redirect Reality Labs investments from VR to AI and wearable devices like the Ray-Ban Meta smart glasses that are co-produced with EssilorLuxottica, a spokesperson for the social media company said in a statement last week. Meta declined to comment further beyond its previous statement.

Meta’s reduced investment in VR is notable considering how much the company has helped grow the industry since its $2 billion acquisition of Oculus in 2014. The company became synonymous with VR when CEO Mark Zuckerberg changed its name from Facebook to Meta, representing the founder’s obsession with a future of digital worlds referred to as the metaverse. Since late 2020, Meta’s Reality Labs division has logged over $70 billion in cumulative losses.

Zuckerberg’s sudden reversal has some VR developers worried about their future prospects. While they said they don’t see Meta killing its VR efforts, a major shift appears to be underway.

Meta traditionally announces new Quest VR headsets during its annual Connect conference in the fall, but in 2025, the company skimped on VR hardware. Instead, Meta introduced its $799 Meta Ray-Ban Display glasses that contain a single, built-in digital screen.

“If Meta’s not putting out a new headset for another year or two, it’s going to feel stale,” Young said. “It already kind of does.”

Since the layoffs, Meta tech chief Andrew Bosworth has been vocal that the social media giant is not abandoning VR.

“We’re still continuing to invest heavily in this space, but obviously, VR is growing less quickly than we hoped,” Bosworth told tech newsletter Sources. “And so you want to make sure that your investment is right-sized.”

Bosworth this week also circulated a post by Oculus co-founder Palmer Luckey, who on Sunday wrote on X that Meta still employs the “largest team working on VR by about an order of magnitude.”

Although Luckey said that he feels “really bad for the people impacted” by the layoffs, the Reality Labs changes represent “a good thing thing for the long-term health of the industry, especially the ongoing incentives.”

Market research firm IDC said in a December report that a major transition is occurring in the so-called Extended Reality, or XR, device segment. This category includes VR and so-called mixed-reality headsets that allow users to switch between virtual environments and see their surroundings outside the helmet. The category also counts AI-powered smart glasses and more powerful versions with digital displays.

IDC projects the XR device category to have grown 41.6% year-over-year to 14.5 million units shipped for 2025. But that growth has nothing to do with VR and mixed-reality headsets — those shipments are expected to drop 42.8% to 3.9 million in 2025. The rest of this XR category, which includes AI glasses with and without displays, is projected to grow 211.2% year-over-year to 10.6 million units shipped for 2025.

Jitesh Ubrani, a research manager for market analyst firm IDC, characterized the VR headset market as niche and appealing to only a small segment of video gamers. Average consumers seem uninterested in wearing “big, bulky headsets” for lengthy VR sessions like much of the tech industry hoped for roughly a decade ago, he said.

“The market has spoken,” Ubrani said. “There are certain niche audiences that will continue to use these headsets, but it’s not going to be broadly appealing.”

Andrew Eiche, the CEO of the Google-owned VR gaming studio Owlchemy Labs, said it was always misguided to think VR was on the cusp of having its breakthrough smartphone moment. He called it a “strategic mistake” to compare VR headsets to iPhones

The VR market, Eiche said, more closely resembles old-school Atari video game consoles that were popular before sales crashed during an infamous 1983 gaming market meltdown. It wasn’t until the late 1980s that Nintendo consoles helped revive the market, laying the groundwork for the overall industry to balloon to the massive sector it is today.

“Lot of tech people thought [VR] was going to be instantly amazing, and the same thing’s happening with AI,” Eiche said about the tech industry’s pivot to the latest craze. “When you’re looking at long-term technologies, VR is not going anywhere.”

Still, Eiche said that beyond Meta’s layoffs, other VR studios have also recently downsized as part of a broader video game industry slump. Because Quest is the dominant VR headset on the market, its app store is a key distribution channel for third-party VR.

Making matters worse, Eiche said that Meta’s Horizon Worlds push came at the expense of third-party developers who were trying to find visibility among Quest users.

“We’re at the mercy of Meta,” Eiche said, adding that it “creates a situation where if Meta pulls back, we all pull back.”

Eiche said he’s optimistic that the upcoming Steam Frame wireless VR headset from gaming company Valve will help the market, as well as the recent entries of other devices like the Samsung Galaxy XR, which debuted in October, and Apple’s Vision Pro.

But Apple’s entry into the VR space in February 2024 hasn’t done much to move the needle, and in January, IDC said that Apple’s Chinese manufacturing partner Luxshare stopped producing new Vision Pro headsets, signaling a lack of widespread consumer demand. Still, Ubrani said that Apple’s $3,499 spatial computing headset has found some footing as a business tool.

“Apple did do well in selling to a lot of developers, but they also sold into some very big companies,” Ubrani said.

“There were certain quarters where Apple beat Meta in enterprise,” Ubrani said, due in part to the iPhone-maker’s experience selling devices to businesses.

The enterprise VR market may not be as glamorous as its consumer counterpart, but it represents an area where IDC has “seen slow but upwards movement, because companies are realizing that there is great ROI attached with deploying these headsets.”

As part of Meta’s Reality Labs cuts, the company said in a support page that it would end its Horizon managed services program that was for businesses that used Quest headsets for internal tasks like virtual employee trainings.

Meta failed to realize “how big VR could be if they adopted the bigger picture outside of gaming,” said Sean Mann, CEO of the startup RP1, which develops a “metaverse browser” for people to access virtual and augmented reality environments.

As Meta downsizes its VR ambitions and steers Horizon Worlds to be a mobile-focused online gaming platform like Roblox, Young said she plans to keep creating experiences on the platform.

Young has been able to make a living by getting paid by other Horizon developers to create trailers to promote experiences available to users on the service. She’s also earned money from Meta by winning Horizon-related competitions intended to help improve the overall platform.

But Young said she’s less enthusiastic about Horizon’s mobile push, because there was something special about the platform during its earlier, VR-centric years, particularly during the Covid era.

“Horizon became a lifeline for people isolated by the pandemic, disability, age or geography,” she said. “Many users who never imagined themselves as creators, who had no background in art or programming, were inspired by their friends to try.”

But Horizon lost is way, and “what’s frustrating now is watching people declare it dead without ever having experienced or understanding what it was,” Young said.

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