The Meta layoffs, the VR Winter, the XR outlook

I took some time after the recent news to reflect on what happened and what the consequences may be for all of us. This article is the result of this thought process, and I hope it may offer you some food for thought to reflect on the current situation.

The news

In case you lived under a rock in the past week, this is a summary of what happened:

• Meta laid off around 10% of its Reality Labs staff
• Budgets have been moved from the VR & Horizon Worlds divisions to smartglasses
• Meta shut down its internal game studios like Armature Games, Twisted Pixels, and Sanzaru Games
• Meta canceled the sequel to Batman: Arkham Shadow, an unannounced Harry Potter game, and stopped all updates to Supernatural
• Meta put its enterprise program on life support and discontinued Horizon Workrooms
• The 3rd party headsets that should have been made with ASUS and Lenovo have been canceled
• It is also rumored that a big chunk of the third-party developer funding to develop VR games has been cut out

Long story short: Meta disinvested in VR and in its metaverse platform Horizon Worlds. It’s incredibly sad news, and even before thinking about the business consequences, I feel very sorry for the 1500 people who have been fired. Among them, there were also friends of mine… I hope these people can find new employment soon.

The reactions of the community have been a combination of:

• People saying that VR is dead
• People saying that VR gaming is dead, or that the Quest is dead
• People rejoicing that Meta is kinda abandoning the field, because this will bring more equality to the VR space
• People saying that nothing changed, and the outlook for XR is still positive

I agree a bit with everything, but not completely with any of these views.

VR took a huge hit

I think we shouldn’t put our heads in the sand: we must bluntly say that this has been a bloodbath. Meta is disinvesting in virtual reality and in gaming in a way I’ve never seen over these years.

It reminds me of when it decided to disinvest in PCVR and dedicate itself to Quest. Until that moment, the PCVR was a niche but growing field, with also cool exclusive games funded by Meta. Then, Meta just stopped investing in it, and what we have now is a Quest Link runtime on life support, and a PCVR ecosystem where the community is very passionate, but there is no longer a continuous flow of truly good content.

Here, I fear similar consequences: Meta disinvesting in first-party and third-party games means we will see fewer and fewer big games coming to Quest. The hardware situation is unclear, with no VR/MR hardware expected for 2026. Then, there are the ripple effects on all the companies that were receiving or were expecting to receive money from Meta in 2026: we have already seen Cloudhead Games laying off 70% of its staff, but there are other people I know in other companies who have lost their jobs. This is not to mention the fact that this news will spread like wildfire, and people in other sectors will just read that “Meta is abandoning VR”, and this will create a lot of negativity about VR.

This is hugely bad, and we have to sugarcoat it. In my opinion, we are entering a winter of VR now, like back in 2017-2018, after the failure of PCVR.

No one knows what is going to happen

We are all playing the speculation game, but I think that, honestly, no one knows what is going to happen in the next 12 months in VR. No one. Not even at Meta, where the people who have not been fired are being moved between departments. The company is still reorganizing itself, so the situation is unclear. For instance, we don’t know if third-party budgets for VR games have been fully canceled or are still there in reduced quantities. We don’t know how much they’ll invest in the Quest runtime; we don’t know anything. And probably they don’t know either.

And we don’t know the consequences of all the ripple effects of this news, either. What I’ve learned across these years is that the market is very “emotional”: if Facebook acquires Oculus, then all investors invest in VR; if Apple releases the Vision Pro, many companies get back to the VR/MR train again; if Meta fires a lot of people after Covid, then the metaverse is dead, and no investors want to invest in VR startups anymore; and so on. So, apart from the direct consequences of this news, we don’t know where the negative ripples will take us.

I think we need at least a couple of months for the situation to settle and to have a clear outlook on how this year is going to be. Before, it is just a guessing game. I won’t personally trust any prediction made now.

The XR outlook is still positive

Many people in the XR community went to social media to say that they still believe in XR and that the XR outlook is still positive. I agree with them, and for some good reasons:

• Reality Labs still has thousands of people working on XR every day
• Meta is not abandoning XR; in fact, it is doubling down on smartglasses
• Google is back in the field, Apple is still committed to Vision Pro, and many companies like Asus, Amazon, and Lenovo just announced or teased smartglasses
• Valve is launching its Steam Frame this year, after a long wait
• Snap is launching the first consumer AR glasses this year
• There are still huge budgets being invested in XR by many companies
• Lots of kids growing up with VR will be adults who are used to living in immersive realities
• We all know how XR technologies are disruptive, we all know how powerful they can be, so we know we’ll get there

I still think that by 2035, glasses will reach some form of mainstream adoption. We’re getting there, XR won’t be stopped by this bad news.

The problem of the “outlook” mindset is that it doesn’t look at the present situation. I mean, I have to pay my bills today, I can’t say my landlord “sorry, I don’t pay the rent this month, but the outlook of my payments for the next 10 years is positive”. If the VR ecosystem enters winter again, many of us will have big problems earning money this year. The crisis is going to be big for us XR professionals. The same holds for VR games: people want to play games now, not in 10 years…

VR and XR are two different things

A letter can make a huge difference in a statement. The moment of “XR” and of “VR” is very different now. The technology that is entering a crisis is virtual reality, not immersive realities in general.

Meta itself is moving budgets from VR to smartglasses. I know some purists do not love smartglasses and say that they are not really XR, but the truth is that they are one of the paths to augmented reality glasses. Meta is starting from regular glasses and is trying to cram as much technology as it can into them while not disrupting the form factor, until it reaches the point where they become AR glasses. So we are still talking about AR. And Meta (together with Apple, Google, and others) is still hugely committed to that. Meta is even doubling down on smartglasses, and recent news talks about Meta in talks with Luxottica to increase the production of glasses to 20-30M units per year.

As I’ve said above, this year we will also see the first consumer-oriented AR glasses: the Snap Spectacles. This is a huge moment, and honestly, I’m pretty excited to see them. I spoke with some people at Snap, and they were all very confident about this upcoming product.

So, things for XR in general are moving well. The question we are wondering now is what is going to happen to VR. And the outlook of VR for the medium and long term is much more uncertain…

What will happen to VR?

Many people are wondering what will happen to VR and what will happen to Quest. As I’ve said above, I think no one really knows. Meta says it is still committed to VR, and this is something that the company reiterated in the message about abandoning the B2B sector, for instance. Rumors also still talk about a potential Quest 4 coming in 2027-2028. And outside of Meta, Valve is going to release its headset this year, so VR is still there for now.

The question is about how big of a hit this will be. The Meta Store was already ruined by Meta when it opened it up to all shovelware software without a decent suggestion and search system. Plus, it became even worse when it was kinda merged with Horizon Worlds, making it very hard for developers to have their games found in the middle of dozens of low-effort Horizon Worlds worlds. Now that Meta is cutting funds, many new games won’t see the light of day, so the content ecosystem will be even more impoverished than before.

I think many people don’t understand the size of the investments that Meta was making. While traveling around, I was able to speak with many indie devs, and a good number of them were able to make some VR content because Meta was actively funding it. If Meta cuts this money, many studios won’t be able to make VR games anymore, and less content will be published on the Store.

So, with hardware not being updated, and content becoming less… how much will the Quest headsets be used? Again, we don’t know because there are too many variables on the table. For instance, kids are still playing a lot with UG, Gorilla Tag, and Animal Company. Gorilla Tag just had its record of concurrent players a few days ago. So maybe these young generations will keep the market afloat. Or maybe not.

Again, I think we need to wait and see. Meta’s disinvestment in first-party games may be a signal that it verified that spending millions on big productions made no sense, if, at the end of the day, the “cheap” Gorilla Tag is one of the most played games. The market has changed a lot since Meta acquired Oculus, and the new generations coming to Quest have literally disrupted everything. Big productions were more interesting for us millennials, but the interest seems to have shifted away from us.

I think it is also a signal of Meta trying to disinvest in gaming to focus on more general-purpose XR. If rumors are true, besides the Quest 4, Meta is working on a lightweight headset with an external computational unit codenamed Phoenix/Loma/Puffin. This looks like a Vision Pro clone to me, and Vision Pro is not a gaming device. So Meta may start to be more focused on “spatial computing”… still welcoming games, but being more focused on general computing.

If I had to make a bet, I think that medium-term, Meta will still produce VR/MR headsets, but with less focus on games, and more on social, media consumption, and utilities. I’m not 100% sure there will be a Quest 4, but I’m much more confident there will be the Puffin thing. And I’m very, very dubious on a Quest 5, and much more confident on a Puffin 2. The endgame is creating the next computing platform: smartphones have many games on them, but they are not “gaming devices” like consoles are. I think this is where Meta is headed, too. Meta bet on games just because that seemed to be the Trojan Horse to have mainstream adoption of XR, but the bet didn’t pay off as they expected.

What will happen to Horizon Worlds?

I think Meta will disinvest in Horizon Worlds, but it will keep it there for now, because it is becoming the social layer of the whole Quest ecosystem. Horizon Worlds is already in the process of being merged with the Horizon OS runtime, so it can’t be “killed” from one day to the next. Most probably for now, it will just cut most of the contracts to fund third-party studios to make content for it.

Some people say that Meta will focus on the mobile part of Horizon Worlds. This may be true, but I’ve always been puzzled about it. Horizon Worlds on mobile is basically a competitor of Roblox… but I hardly see kids abandoning Roblox for Horizon Worlds. In the current state of things, I don’t see how it can become successful, unless Meta adds a unique special feature to it.

It’s even harder to make predictions when Meta keeps changing its strategy every 6 months. I was there, at Meta Connect, four months ago, when the company was betting everything on its Horizon Worlds metaverse. Now, Horizon Worlds is getting cuts, layoffs, and so on. It’s a totally abrupt change of direction.

So now the rumors talk about some headsets for 2027, but things may change in a few months from now. As I’ve said in the beginning, no one knows what is going to happen.

Will there be more equality in VR?

Many people say that it is good that Meta disinvested in VR because this will bring more equality in the VR field. I think this way of thinking is a bit shortsighted. Meta was indeed doing practices that made it impossible for other companies to compete (e.g. selling headsets under cost), but it is also true that doing so brought the ecosystem forward at a speed that wouldn’t have happened otherwise. I’m not sure Apple would have entered the market if Meta weren’t there, and so all the others. If standalone headsets cost $800-1200, just a niche of enthusiasts would have bought them. The Quest 2 at $299 was instead a blast.

With Meta slowing down and increasing the price of future headsets, more equality is coming, but together with it, also lower speeds and smaller volumes. This may be an advantage for the other hardware manufacturers, but it is a disadvantage for people wanting to buy a headset and for people creating content for them. So I don’t think it is a net win for the ecosystem, at least in the short term. In the long term, it may be, with more companies that can organically grow.

The niche truth

Meta invested so much in the ecosystem that made us think that VR was so much ahead than it actually was, and this disinvestment has made us realize that, actually, in 2026, we are still working in a niche. If many studios creating VR games were doing that because of Meta’s money, it means that the truth is that the VR market is not profitable enough to make games for it.

I’m not saying there are no success stories, because we had a few, like Gorilla Tag or Beat Saber. I’m saying that there is no room for a small game studio to risk and make a big VR game, because if it doesn’t become a hit, the studio may go bankrupt. Making VR games is very expensive (a decent game is hundreds of thousands of dollars, a big one is millions), but the market is small, so becoming profitable is complicated. And with all this new free-to-play frenzy, it is almost mission impossible, unless you make a huge hit with millions of players.

As I’ve said, I think at least in the short term, fewer studios will risk making VR content now.

The enterprise failure

With Meta putting B2B in life support again, for the third time, I think we can safely say that Meta is not a reliable company to work with in the XR enterprise sector. It is better to work with other companies like Pico, HTC, Varjo, which are more stable in their enterprise offerings.

Times are slowing down

For sure, times are getting slower. Meta was the only company trying to do things fast in VR. Apple waited ages before unveiling the Vision Pro, and Valve worked many years on the Steam Frame. I think Meta’s executives realized that the market is still niche, and pouring billions into it is not moving the needle forward that much. The huge sales of Quest 2 have deceived us all, but they were influenced by COVID. Quest 3 and 3S never replicated the same success.

VR has some objective problems and limits that need time to be overcome: think about the size of the headsets, which is just shrinking now for PCVR devices. Or motion sickness, or the comfort, or all the other problems we know. Companies realized there is no big time to rush, because all these problems need time to be solved. Releasing in 2026 a headset that is similar to the ones of 2025 but just a bit better is not going to change anything in our space. So it’s better to wait for a generational change before releasing a new device. This is what all big companies are doing now.

This, again, doesn’t change the outlook for the tech long term, but may impact our lives in the short term. We all have to work thinking that everything will take more time than expected to evolve and become successful. The time between device versions may get longer, at least for now.

Brace yourself, winter is coming

In the short term, this news is just a disaster. If you are an XR professional like me, this will likely mean less work to do, because it will be harder to get money from platform holders like Meta, and even from external investors, who will be scared by what happened. All the talented people fired will be competitors if you’re trying to land a job in XR, or even if you’re looking to provide consultancies. And if you want to create content for the Meta Store, I think it’s better to wait for the situation to settle, to understand how the Meta Store will be in the future.

These first months of 2026 will be a Winter for VR. And if you are a VR professional, you had better enter survival mode. Be frugal in your expenses, keep your team small, and try to earn money however you can. Be more active in finding opportunities. And especially, try to expand your horizons, and don’t focus only on virtual reality. Smartglasses are on the rise, and they may be a super interesting sector to explore this year. Snap AR glasses are another thing to keep an eye on. And even besides XR, there are some technologies to explore, like AI, or just plain 2D and 3D experiences development. This is not an invitation to abandon VR, just to not focus only on that, if it doesn’t give you enough money to survive.

And remember that, after the Winter, it comes the Spring.

(Header image by Meta)

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