Meta Platforms Inc., the parent company of Facebook, is preparing to significantly reduce its investment in the futuristic metaverse project, a vision championed by founder Mark Zuckerberg. This strategic pivot signals a major retreat from an ambition that once defined the company's rebranding.
Deep Budget Cuts and Potential Layoffs
According to sources familiar with internal discussions, Meta executives are evaluating budget reductions for the metaverse group that could reach as high as 30% for the next year. This division encompasses the virtual reality unit responsible for Quest headsets and the social virtual world platform, Meta Horizon Worlds. The significant scale of these cuts makes it highly probable that they will involve employee layoffs, potentially starting as early as January 2026, though final decisions are still pending.
The proposed cuts are part of Meta's annual budget planning cycle for 2026. High-level meetings to discuss these plans were held last month at Mark Zuckerberg's compound in Hawaii. While Zuckerberg has asked company leaders to find 10% cuts across the board—a standard request in recent years—the metaverse group has been instructed to cut deeper.
Why Meta is Backing Away from the Metaverse
The primary reason for the sharper focus on the metaverse unit is the lack of anticipated industry-wide competition. Meta expected a rush of rivals into the virtual reality and metaverse space, but that surge has not materialized as predicted. Consequently, the bulk of the proposed reductions are expected to impact the virtual reality hardware group, which accounts for most of the metaverse-related expenditure. Horizon Worlds is also a target for cutbacks.
This retreat follows immense pressure from investors who have long viewed the metaverse effort, housed within the Reality Labs division, as a massive financial drain. Since the beginning of 2021, Reality Labs has reported staggering losses exceeding $70 billion. The initiative has also faced scrutiny from watchdogs and regulators concerned about user safety and privacy, especially for children, within its virtual environments.
Investor reaction to the news of potential cuts was immediately positive. Following the report, Meta's shares surged by 5.5% in premarket trading in New York, highlighting shareholder relief at the prospect of reining in costly experiments.
The Strategic Pivot to Artificial Intelligence
Mark Zuckerberg's public narrative has noticeably shifted. He has largely stopped promoting the metaverse in public forums and on earnings calls. Instead, the company's focus is now squarely on developing the large language models that power AI chatbots and other generative AI products, such as its Llama models and Meta AI assistant.
Hardware development is also being realigned towards products that support this AI vision, like the recently launched Meta Ray-Ban smart glasses, which feature an AI assistant. The company remains committed to consumer hardware, underscored by its recent hire of a top design executive from Apple Inc.
Analysts have welcomed this strategic shift. Mike Proulx, a Vice President at Forrester, had predicted Meta would shut down projects like Horizon Worlds, calling Reality Labs a "leaky bucket." He argued that closing metaverse efforts would allow Meta to concentrate resources on its more promising AI projects. While not completely abandoned, the metaverse is clearly being deprioritized as Meta bets its future on artificial intelligence.
