Meta Pulling Back From VR Was Inevitable
Last week, Meta announced it was laying off 10% of employees in its Reality Labs division, which is home to the company’s VR/AR/MR/HW pursuits. The layoffs were aimed at VR: Quest headsets, Horizon Worlds / metaverse experiences, and first-party VR game studios. Not surprisingly, the news did not go over well within the VR community, which framed the layoffs as a doomsday scenario for the VR industry. When it came to a VR pullback, the writing had been on the wall for some time. Although expected, the pullback still provides some interesting observations as to where Meta stands when it comes to Reality Labs.
We knew that Meta was struggling with Quest sales. The company discloses Reality Labs revenue in its quarterly financials. Between 2022 and 2025, Reality Labs annual revenue has fallen by approximately 15%. The data pointed to Quest headsets not selling well in addition to overall weakness across Meta’s VR ecosystem. For a company that has sold approximately 20 million Quest VR headsets to date (a helpful data point for determining the ceiling for the Quest installed base), it was far too early on the adoption curve to be registering flat Quest headset revenue. For context, while Apple Watch revenue has been tending flat for the past four years, the installed base is 225 million people. With Quest, new user growth should still be strong enough to offset any headwind associated with declining sales to existing users.
In describing the Quest business, gaming and young people come to mind. Meta bought into this trend by investing in its own gaming studios to ensure more (gaming) content was available for the devices. The hope was
Become an Inside Orchard subscriber today to continue reading. Already a subscriber? Sign in and read the full essay here.
An audio version of this essay is also available to subscribers. Sign in for instructions on getting the private podcast up and running in your favorite podcast player.
Choose either a monthly or annual subscription. Payment is processed by Memberful and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special bundle pricing is available when subscribing to the Above Avalon Daily newsletter.
Subscriber Privileges and Benefits
Receive Exclusive Essays. The cornerstone of an Inside Orchard subscription is access to Neil’s essays on the latest developments in the technology industry. Weekly essays are ~1,000 words and sent via email. Essays revolve around the following topics: technology industry analysis, business model analysis, technology’s impact on societal and consumer trends. Create a free profile to read a few sample essays.
Access Exclusive Private Podcast. Listen to Inside Orchard essays via an exclusive private podcast. After becoming a subscriber, all previously-published podcast episodes become available in your favorite podcast player. Podcast episodes never become available to the public.
Inside Orchard Support. Play an active role in supporting Inside Orchard as an independent source of analysis and perspective. Inside Orchard is 100% supported by its subscribers.
The Next AI Phase Is Taking Shape
We are a full two-and-a-half years into current AI mania, and signs point to us entering a new stage. There is a greater focus on product and competition as the most formidable AI start-ups go after branding and users. In addition, Big Tech companies are looking to keep existing users by integrating AI into current offerings.
AI mania could be grouped into three segments or eras:
ChatGPT chatbot comes on the scene. Late 2022. Several factors came together to produce something of an ideal storm including post-pandemic desire for something new and big (with growth in mind). Internal power struggles at OpenAI contributed to the mania by taking over the news cycle. The turmoil was partly driven by the growing fascination that was flowing to ChatGPT.
AI-related capex boom (the NVIDIA surge). 2023-2024. Every Big Tech company except Apple experienced a rethink of their capital expenditures trajectory with AI-driven data centers, cloud infrastructure, and related assets in mind.
Become a member today to continue reading. Already a member? Sign in and read the full essay here.
An audio version of this essay is also available to members. Sign in for instructions on getting the private podcast up and running in your favorite podcast player.
Inside Orchard Membership
Choose either a monthly or annual membership. Payment is processed by Memberful and secured by Stripe. Apple Pay and other mobile payment options are accepted. Special bundle pricing is available for Above Avalon members.
Member Privileges and Benefits
Receive Exclusive Essays. The cornerstone of an Inside Orchard subscription is access to Neil’s weekly essays on the latest developments in the technology industry. Weekly essays are ~1,000 words and sent via email. Essays revolve around the following topics: technology industry analysis, business model analysis, technology’s impact on societal and consumer trends. Create a free profile to read a few sample essays.
Access Exclusive Private Podcast. Listen to Inside Orchard essays via an exclusive private podcast. After becoming a member, all previously-published podcast episodes become available in your favorite podcast player. Podcast episodes never become available to the public.
Inside Orchard Support. Play an active role in supporting Inside Orchard as an independent source of analysis and perspective. Inside Orchard is 100% supported by its subscribers.