Meta's Reality Labs Layoffs and The Future of XR
CONTEXT
Meta laid off 10 percent of its Reality Labs division this week TheVerge confirmed (TheVerge gift link). That includes closing three of its game publishers, including the most popular subscription exercise app, Supernatural, which is now left in maintenance mode. Programs that funded AAA title conversions and accelerated indie developers have been shut down. Meta is also deemphasizing social VR app Horizon Worlds, though the service remains available in VR and on mobile. The news has generated enormous consternation online as the full extent of the layoffs emerged.
Meta will also no longer sell its headsets and software as a service for businesses, stopping sales of Meta Horizon managed services and commercial SKUs of Meta Quest in February, and shutting down Horizons Workrooms, its business VR software. Nobody was surprised at this news, but it is a major shift for Meta and opens up questions about the future of enterprise XR.
MetaVERSE
Meta was investing in “the Metaverse” to create a platform it could control so that it could generate higher ad rates. (See my analysis at the time Meta changed its name). Now that it is clear that VR is not that platform, Meta’s investment is shifting elsewhere. Quest sales pop over the holidays when units are on sale, but have never grown on anything like an exponential curve. Usage rates are also less than ideal; a lot of Quests end up in drawers. Meta was subsidizing both Quest app development and consumer hardware prices, so it's not even clear how big the natural consumer market is for VR gaming and exercise. Sony's experience is probably most informative: the PSVR and PSVR2 have small attach rates to the premium game console market.
There will certainly continue to be games targeting the Quest, but it is not economical for AAA publishers to target a 20-million total installed base on a platform where game pricing expectations are lower and not all of that installed base number is still in use. Apple's Vision Pro and Samsung's Galaxy XR are not exactly flooded with content, even though the experience those devices offer is extraordinary. PC VR is niche today and will remain so; the added cost of adding VR modes to sim games is certainly likely to continue because buyers of these games are willing to pay for immersion.
Meta isn't abandoning the Quest and isn't getting out of XR broadly, it is just choosing to invest more in glasses rather than headsets. The market for AI-enabled glasses is growing rapidly -- Meta is widely reported to be expanding production for Ray-Ban Meta Smart Glasses above ten million units. Meta has first mover advantage with the Ray-Ban Meta Smart Glasses and Meta Ray-Ban Display. Being first isn't always defensible in the long run, but Meta’s secret weapon is that by getting to market early it was able to establish a partnership with Essilor-Luxottica. Essilor-Luxottica’s value goes far beyond its leading brands and style expertise; the company brings the largest global distribution channel set up to sell things that go on your face that might include prescriptions.
Enterprise XR
There are still huge enterprise opportunities in XR -- including VR with passthrough -- but Meta was never going to be the company that delivered on that. Meta's corporate incentives and ecosystem are not remotely aligned. Microsoft was best positioned to deliver but it abandoned the project for technical and management reasons. Perhaps Google and partners (Lenovo?) will pick up the mantle, and Microsoft could still play a crucial software enablement role but it will require a lot of sustained investment, as the challenges for enterprise XR are significant:
1. Software - even the most standardized use cases for VR like training lack tools to create the unique environments being trained. Perhaps AI will solve this. Beyond training, almost everything else needs to be fully custom per use case, though Microsoft had built frameworks for things like see-what-I-see for HoloLens and that could be rebuilt on other platforms.
2. Mass customization -- IT managers can buy a generic laptop and hand it out to nearly any employee, but that's not the case for headsets that need to fit different workers, working environments, and individual prescriptions.
3. Small initial TAM/Long sales cycle -- In the aggregate, the market for headsets should be huge because the ROI is high, but the customized nature of solutions built for XR mean that initial sales are to R&D departments buying single units with long development cycles before getting to deployment. Even at that stage, sales might be in the dozens of units for projects or departments rather than thousands across an entire organization.
Meta's layoffs are tragic for the people directly affected and disappointing for consumer VR enthusiasts, but Meta was never going to make Horizon an effective business tool or deliver solutions to healthcare, industrial, or aerospace customers. That market is still nascent, waiting on software and more effective go-to-market strategies, not technology or pricing. Even for consumers, headset technology is now sufficiently developed that the main roadblocks are finding a killer app — Apple’s latest bet is live sports — and if one is identified, that market will grow as pricing and weight come down.
Smart Glasses
Smart glasses will not replace smartphones; an infinitely configurable handheld device with a display and touch interface is too useful to displace. However, the promise of smart glasses to add to the smartphone and become a platform on its own is tantalizing. Unfortunately, it’s still very early. The core technology needs significant improvement. Pricing needs to come down, too, and, as always, software needs to be developed. But there are other personal and cultural issues to solve as well. Getting microprojectors and waveguides to coexist with prescription lenses is hard. Getting people who don’t require vision correction to wear glasses may be harder. Many smart glasses use cases also require a more flexible approach to privacy than consumers are ready for today — and not just for others around you. One of the most disturbing aspects of the Looki life-logging pendant I tested at CES was its penchant to nag me (incorrectly!) about my food choices.*
If you can get past privacy, technology, and personalization hurdles, the use cases for smart glasses are obvious and endless, starting with transcribing, translating, and summarizing conversations, showing notifications, and taking pictures while remaining present. These capabilities are available today with Meta Ray-Ban Display if you’re in the U.S. and you can find one to buy. However, so much more is possible: identify the person I’m talking to and remember their name, log where I put my keys, provide a HUD (Heads-Up Display) while I walk or drive, overlay timers on dishes I’m cooking, show me interesting things about my environment, and likely entirely new use cases no one has thought of yet.
Some of the software is just waiting on the hardware. Google Labs has shown off Gemini that can log and analyze everything you see, effectively mean you’ll never lose your keys again because your glasses will remember where you put them. Of course, there are no glasses on the market that could reasonably pull off this feat today.** Meta is going to try.
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*If Looki turns this off and focuses instead on just summarizing experiences, the Looki could be a hit for vacations. Disney should rent them for its parks.
**Perhaps the pendant Motorola showed off at CES or OpenAI’s Jony Ive creation will get there first. Pendants can have larger batteries and more processing powere/higher heat creation than devices that live on your face, and don’t potentially need to correct your vision while doing so.