The $80 Billion Retreat: Why Meta is Finally Giving Up on VR
News spread quickly this week that Meta was finally calling time on its namesake: the Metaverse. In reality, they were just pulling Horizon Worlds from VR headsets. And even then, true to form, the company followed the announcement with a confusing clarification, suggesting the app will technically remain on VR but in a stripped-back form.
In previous episodes of the podcast, we’ve dived into the mechanics and economics of the metaverse, coming up with a fairly small list of reasons it will be a success and a long list of reasons why it’s screwed. For the former, there are a group of die-hard fans; one of our analysts being one of them. But in practice, even the enthusiasts are struggling to wave a flag for continuing billions in investments to create a platform that almost nobody uses.
The $80 billion black hole
Meta’s latest decision to pivot their energies toward smartphones rather than headsets taps into one of our biggest red flags about the company’s strategy: most people don’t want to strap a smartphone to their face.
Since 2020, Meta’s Reality Labs has posted a staggering $80 billion in cumulative losses. To put that in perspective, that is almost double the market cap of Ford, spent on a new digital world order that struggled to maintain even a few hundred thousand monthly active users. For the brits out there, that would get you almost 150 billion Freddo chocolate bars, based on today’s exchange rates.
The original vision, the one that supposedly justified this economic black hole, was for entire workdays to be spent in virtual offices and for tourists to spend days on virtual holidays. None of that came to pass. If Meta couldn’t shift human behavior during a global pandemic when we were literally trapped in our homes, it was never going to happen in the sunlight of the real world.
But perhaps the most telling sign that this version of the metaverse is screwed is the underlying dynamic in the tech sector that’s seeing anything that’s not screwed down being sold or liquidated to fund AI.
Meta is projected to spend upwards of $135 billion on AI infrastructure in 2026 alone. The resources once earmarked for virtual avatars are being cannibalized to fund the race for superintelligence and AI-powered smart glasses. Zuckerberg has found a new North Star that investors actually like, and it doesn’t require a bulky plastic mask.
Meeting the Consumer at Last
Most consumers don’t want to fork out hundreds of dollars for a specialized headset when they have a smartphone just sitting in their pocket. This is where Meta’s pivot finally makes sense. The most successful examples of a metaverse today, Roblox and Minecraft, are primarily phone, console, and PC-based. They use kit that consumers already own and mediums they are comfortable with.
By moving Horizon to the smartphone, Meta is finally admitting that the metaverse isn’t a destination we go to, but an app we open. They are finally meeting the consumer where they are, rather than where they wished they would be.