Meta is exploring a potential 30% reduction in its budget for the Metaverse, according to a report from Bloomberg that cites people familiar with internal discussions. The potential cuts would be aimed at Reality Labs and other virtual reality efforts, and might include a headcount reduction. The shares climbed on the report, a sign that investors were optimistic Meta would hold in check one of its most expensive bets.
What a 30% Cut Could Look Like for Reality Labs
A cut on this scale would indicate an even greater prioritization of projects with more concrete user traction and closer-term monetization.
- Slow the cadence of hardware announcements and new features that wouldn’t add substantial lifetime value.
- Tighten subsidies for developers and creators who want to experiment with content but are not committed to mixed reality.
- Restrict Horizon Worlds and mixed reality software experiences around a smaller set of higher-retention use cases.
It could also rewire the operating structure of Reality Labs, the division that houses VR headsets, AR research and social VR. Layoffs, if they materialize, would follow measures adopted across the industry as platform owners recalibrate investment with consumer interest in extended reality lagging expectations.
Reality Labs by the Numbers and Recent Performance
Company filings show that the Reality Labs unit has amassed more than $45 billion in operating losses since 2019, with annual losses in the mid-to-high teens in recent years. Neither headsets nor software have kept up, even after Meta established category leadership with its Quest lineup.
Carolyn Corman is a freelance writer based in New York.
The wider market has been choppy. According to IDC, AR/VR headset shipments worldwide are estimated to have dropped by about 23% in 2023, to less than 9 million units before seeing a slight recovery with new devices. Consumer demand is still more about gaming and fitness while social use cases for everyday are niche versus apps.
Investor Pressure and the Trade-off for AI
Investors have been pressing Meta to match its spending with easily understood payoffs from its push into AI including the Llama models, recommendation systems behind its suite of apps and surging use of the Ray-Ban smart glasses assistant. Already, the company has guided to much higher capital spending levels to support its investment in AI infrastructure and custom silicon; any Metaverse cuts would free up more room on the operating line supporting those priorities.
The trade-off there is simple: AI-driven enhancements drive engagement and ad performance across Facebook, Instagram and Reels today while immersive computing is more of a longer-horizon bet. A cut of 30% wouldn’t necessarily kill the vision of next-generation computing, but it would admit the need to pace itself against AI’s nearer-term payoff.
Mixed demand signals across hardware and software
Meta’s Horizon Worlds has failed to transcend hobbyist communities, despite improving onboarding. Hardware uptake is cyclical and price sensitive, enjoying sharp spikes around new Quest launches but more gradual repeat engagement among non-gamers. Content and ease of experience are still challenges for full market adoption.
Mass demand has not yet been unlocked by competition, either. Apple’s high-end entry highlighted technical ambition but scarce day-to-day use for average users, and other players have either retrenched or refocused toward enterprise. The overall result is a market that has yet to identify the must-have, everyday use case beyond gaming.
Developers and ecosystem impact from possible cuts
Any budget cut is likely to cascade through grants, funded experiences and first-party publishing support on which many VR-focused studios depend. Meta has been the ecosystem’s chief patron, seeding titles to keep the flywheel spinning. As it tightens its purse strings, developers will probably focus on more established genres with a clearer path to monetization like exercise games, rhythm games and co-op experiences, instead of experimental social spaces.
Hardware roadmaps could also stretch. Advancements like improved passthrough, lighter optics and longer battery life could happen more slowly if Meta values software retention and platform services over aggressive hardware iteration.
What to watch next if Meta reduces Metaverse spend
- Updated operating expense guidance from Meta.
- Any restructuring charges related to layoffs.
- Details on focus areas for the Reality Labs group.
- Whether Meta focuses Horizon Worlds on fewer, higher-engagement formats.
- If first-party titles continue to be a key means of selling headsets.
Just as important is how it positions the balance between AI and immersive computing. If the rumored cuts come to pass, it would be more of an adjustment than a repudiation of the Metaverse thesis, with Meta betting that cutbacks there will fund a long-enough runway for the next computing platform to hit its stride.