Meta (NASDAQ: META) plans to slash the budget for its metaverse division, Reality Labs, by 20% over the next two years, a new report has revealed.
Once seen as the company’s future, Reality Labs has lost favor with the leadership as the company’s metaverse ambition waned and its focus increasingly turned to other areas led by artificial intelligence (AI).
According to The Information, the Facebook owner is rescinding the blank check freedom that Reality Labs has enjoyed since its launch.
The outlet cited a former manager at the metaverse division who revealed that Meta’s leadership wants the budget cut by up to 20%, and it wants the bulk of the cuts to come this year.
Meta could save at least $3 billion with its intended spending cuts, analysts at the Bank of America say.
The cuts came just weeks after the division was reorganized and some of its staff laid off. Reality Labs now houses Wearables, where products like the Ray-Ban AI glasses fall, and Metaverse, which focuses on the Quest headset line and other related hardware and software.
Reality Labs has been a money pit for Meta, but CEO Mark Zuckerberg has unwaveringly supported it. He has justified the spending by claiming that it’s a long-term bet and that if Meta emerges as the pioneer, the upside could be massive. He has previously pledged to “increase meaningfully” the company’s metaverse spending.
“I can’t guarantee you that I’m going to be right about this bet. I do think that this is the direction that the world is going in,” he said.
Since 2019, Reality Labs has lost the company nearly $50 billion. In the first quarter of this year, it lost $3.84 billion, just slightly lower than its combined revenue for the past two years.
‘Employee bingo’ at Reality Labs
While Meta blamed the losses and outsized spending on the novelty of the technology, employees said most of the blame lies with the leadership.
A Yahoo Finance exposé on July 23 revealed that the company has failed to place the right experts in leadership positions at Reality Labs, resulting in mayhem.
“It was pretty chaotic. In software you can get away with that because you make mistakes and change things all the time. In hardware, you’re stuck with your mistakes for a long time,” one former employee told the outlet.
Several other employees corroborated the accusations.
“They play employee bingo. They move people into AR that don’t really understand it. It’s hardware and experience, not a news feed in your hand,” said another employee who works in the AR/VR content team.
This ’employee bingo’ has created an environment where “the people in the trenches doing the work don’t have respect for the senior leaders, and the senior leaders don’t really speak the language of the technology they’re building.”
These haphazard employee placements were part of the reason why the company divided Reality Labs into two factions and laid off some managers. Those who were let go were the head of AR glasses hardware, the vice president of supply chain organization, the head of hardware partnerships, and the vice president of technology engineering.
Then there’s the target market. While the metaverse has great potential when used to offer solutions that people actually need, as Transmira and Zetly do, AR and VR products have yet to gain mainstream popularity.
Last year, AR and VR devices recorded $1 billion in U.S. sales. In the same year, Meta invested $18 billion in Reality Labs. It could be worse this year, with data from IDC showing that headset sales dipped 67% year-on-year in the first quarter.
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