Mass Layoffs in Silicon Valley Spell Doom for the Metaverse

• Silicon Valley firms have coalesced around augmented- and virtual-reality tech as computing’s next big thing.
• But “the metaverse” is loosely defined, technically complex, and there’s little evidence of demand.
• That makes the metaverse a prime target for cost-cutting.

Silicon Valley’s next big idea is getting a reality check.

Last week saw both Apple and Microsoft pause on speculative projects involving augmented reality and virtual reality, per reports. 

Apple has postponed its much-rumored augmented reality glasses because of technical challenges, Bloomberg’s Mark Gurman reported. Microsoft is taking the ax to its HoloLens unit as part of a wider layoffs plan that will affect 10,000 people.

And even Meta, which renamed itself in honor of CEO Mark Zuckerberg’s absolute conviction in the metaverse, earlier laid off staff from its loss-making Reality Labs division as part of wider layoffs.

The metaverse was already a loose concept, a catch-all term for a vague theory that augmented reality and virtual reality is the future of computing, despite little evidence to back this up.

Big Tech had free rein to dabble in these poorly defined, blue-sky concepts while times were good, hiring expensive engineering talent to build out augmented and virtual-reality technologies. But a shaky stock performance through 2022; technological hurdles; semiconductor geopolitics; and mass layoffs all spell doom for this inchoate computing concept.

A technical nightmare

The principal challenge of building an augmented/virtual reality headset or wearable is that it’s really expensive and difficult.

Apple, the most seasoned and consistent hardware player of the major tech firms, is still reportedly shying from the challenge of producing augmented-reality glasses, which would involve shrinking everything an iPhone can do into an even more challenging, aesthetically-pleasing format.

The firm is still reportedly on course to debut a mixed-reality headset this year that involves both augmented and virtual reality elements, so it hasn’t given up the dream entirely.

Other early-stage offerings from rivals already out in the market have drawn criticism for technical issues. 

Microsoft, reasonably early to the market with its HoloLens headset, has run into issues with one of its biggest customers: the US military. After striking a five-year deal in 2021 with a five-year extension option – worth $21.88 billion – the tech giant agreed to produce over 120,000 headsets based on HoloLens tech for soldiers.

However the devices, which Microsoft said would help soldiers “see through smoke and around corners,” with holographs of 3D terrains generated for training, have struggled to meet the standards expected by the military. 

Insider previously reported that the device was suffering from visibility issues in low light – conditions that soldiers will need to feel comfortable in. Other issues reported include limited peripheral vision while the headset is worn and a glow from the device that makes it easily visible. 

Magic Leap — a startup backed by Google and Alibaba that has sucked up hundreds of millions of dollars in funding — is onto its second headset, but again has yet to see mainstream adoption even after layoffs and a change in CEO.

And Meta, whose stock has plummeted over the past year, has invested more than $36 billion into Reality Labs since 2019 and has yet to produce anything that can be described as a mainstream success. 

Demand is wobbling

The other big challenge with the metaverse and the early-stage technologies associated with it is…it’s not that clear anyone wants it. 

A minority of consumers are ready to buy expensive devices that don’t offer much beyond novelty. Prototype images of Meta’s Zuckerberg as a cartoonish figure in the metaverse haven’t done much to sell consumers on the idea that buying a clunky headset is worth the money.

In sum: The metaverse is an inchoate, even incoherent, technical concept, there’s little evidence anyone wants it, and it’s expensive to make. It seems a bad thing to focus on when your shareholders or investors are clamoring for you to cut costs and focus on stuff that may be less sexy but sells, like ads or subscription-based software. To that end, it isn’t surprising that firms laying off staff are chopping these expensive, experimental units back.

We also already know few people want it. Remember the $1,500 Google Glass?

Magic Leap is now focusing on enterprise applications, and will only “circle back to consumer” once it has found ways to make the headset smaller and more acceptable for consumer use, CEO Peggy Johnson told Insider at Davos last week.

For Paolo Pescatore, an analyst at PP Foresight, it’s clear that “there really isn’t the demand” at the moment, particularly during a “cost of living crisis.”

A forecast from market analyst firm CCS Insight in December suggested a 12.7% year-on-year drop in AR and VR shipments from 2021 to 2022 to 9.6 million. Projections for 2023 suggest a very modest increase to 11.4 million shipments.

It raises the question of whether this is “the right time to be launching a new premium device,” Pescatore added.

“Providers are trying to create demand in what is proving to be an extremely challenging segment,” he said, adding it isn’t clear how these platforms would make money on an ongoing basis. “We haven’t suddenly seen brands and advertisers jumping ship.”

It’s possible augmented reality and virtual reality devices do become popular among certain types of consumer, such as enthusiasts or gamers. Don’t expect the metaverse to replace your phone any time soon though.