A Rocky Start to Big XR in 2023: CES, Layoffs, Paused Plans, and Unclear Roadmaps

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By Eric Abbruzzese | 1Q 2023 | IN-6839

The beginning of 2023 has been interesting, to say the least, for Extended Reality (XR). CES 2023 touted XR and the metaverse as a major show theme, but XR fell short of that promise in terms of actual show scale. Layoffs and changing plans for major tech companies have expectedly shifted focuses and intentions for these companies in the XR space, even if cutbacks were not directly within XR.

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A Lot Is Happening, but Not All Is Progressive


The past few years in the Augmented Reality (AR) and Virtual Reality (VR) markets have been filled with false starts, product delays, unsure roadmaps, and a general sense of “figuring things out” for everyone involved. Today, as some of that activity has matured into actual products and go-to-markets, the same tumultuousness can be far more disruptive and newsworthy, despite no greater actual market impact than before. We saw that in January 2023, with a handful of market activity culminating in a general negative sentiment on the entire Extended Reality (XR) market.

  • CES 2023 took place in early January, and much of the marketing around the show was XR and metaverse focused. On the ground, however, XR was not necessarily substantial. There were a number of interesting companies and new tech showcases far from market ready (as expected at CES), but major names in tech and associated markets that show strongly at CES (like automotive and the Internet of Things (IoT)) did not latch on to XR in any notable way this year.
  • Microsoft laid off 10,000 employees across segments. This included a shutdown of AltspaceVR and MRTK, a development effort for the Unity platform for XR development.
  • Meta laid off 11,000 employees in late 2022, after a tumultuous rebrand toward the metaverse and a significant share price decline.
  • Apple has avoided notable layoffs (so far), but has shown interest in shifting future XR efforts away from smart glasses in favor of VR devices with passthrough, like its expected high-end VR headset coming in the next year. Apple’s AR efforts were anticipated to be a major part of consumer AR glasses adoption, so this shifted focus alters the AR market outlook.
  • For some positive news, recent VR headset advancements have been well received. Pancake optics is a notable improvement in visual clarity and form factor, while improving camera passthrough opens up some viable mixed/merged reality opportunities.

Grounding the News in Reality


Some of this market negativity is warranted, and some is not. Many tech companies are enacting substantial layoffs, and it happens that these tech companies are also in the XR market, or planned to be very soon, so those layoffs are immediately tied to XR.

In the case of Microsoft, the shuttering of AltspaceVR is not a positive market indicator; however, it is not immediately a negative one either. Consumer uptake on pure VR platforms is still limited, as the hardware installed base is still limited, so a consumer social/collaboration VR network is a very difficult product to make profitable. At the same time, Microsoft is maintaining efforts with its Mesh platform, which can be seen as a broader enterprise XR and metaverse play, and one that more closely aligns with the company’s strengths. Not enough is known of the potential HoloLens impact with recent layoffs, but the changing market dynamics around AR and VR devices (more in the next section) indicates that a shift away from high-end mixed reality may be warranted.

Meta is more intrinsically tied to XR nowadays, but again, not entirely. While there are valid concerns around if and when metaverse efforts will be profitable, much of the financial concern for the company is around falling advertising revenue and potential going forward. Without that core market, the long-term vision for Meta likely does not have the runway to succeed, especially as shareholders lose patience. Within the XR realm, the company needs to release the eventual Quest 3 to gauge VR potential, as the Quest Pro is too expensive and enterprise-focused to identify mass market consumer potential—the company temporarily cut the price of the Pro to US$1,100, potentially indicating low demand. The company also must reveal more around its planned smart glasses, because the bulk of the company’s Reality Labs spending has been in AR, without anything to show for it yet.

Apple is still positioned very well in the XR market, even with a potential shift away from smart glasses. The company is in a very comfortable financial position, with strengths that are both profitable today and can benefit any XR efforts going forward—iOS installed base, growing service breadth and revenue, etc. It also has a very strong retail presence and brand reputation, which is not often talked about from an XR exposure standpoint. Any XR device, whether AR or VR, really needs to be tried in person to understand the strengths and weaknesses, valuable applications, and overall user experience. For Apple, having a strong brick and mortar presence makes XR marketing and demos an obvious advantage; the brand reputation also plays a role here, not only in any potential social marketing/sway that comes with Apple devices, but that also reaches into the store.

Reevaluating AR versus VR and Likely Adoption


From a top-down view, the scale of these layoffs point more to over hiring and shifting outlook conservatively, rather than outright failure or lack of future success in XR. It just so happens that these companies have been in the midst of XR marketing and eventual go-to-market efforts, and even if layoffs were not focused on or caused by XR efforts, there is, of course, still impact on those efforts.

If Apple does shift away from smart glasses to VR, the consumer market dynamic in both AR and VR looks very different than was expected before that shift. Apple was set to make up a majority of consumer smart glasses shipments over the next 5 years, even if a device did not hit the market until 2025. The only other real smart glasses competition known that could compete with Apple is Google and Meta, with some other wild cards like Snap and hardware Original Equipment Manufacturers (OEMs) (e.g., Samsung) potentially competitive.

Apple’s alignment with VR also follows other companies’ recent efforts in the VR space, namely Meta and Pico with their latest devices focusing on passthrough. While smart glasses, with true see-through displays, cannot be replaced for some use cases, there are many others where camera passthrough may be good enough, having previously expected not to be.

Apple shifting away from AR is also a bellwether for the broader AR market. Apple does have higher standards than most companies when it comes to new device launches—especially entirely new form factors like XR—but if Apple is unable to put together a smart glasses package it is happy with, there could be deep-seated hardware or end user value doubts. If this refocus is borne out of hardware worries, that indicates a delay in AR release and adoption as the hardware matures; however, if there are more fundamental doubts around actually delivering a valuable user experience to buyers, that is not something that can be sorted with maturation. Marketing and trends can go a long way—look at TikTok influencers and their rapidly growing role in product launches and coverage. Entirely shifting market sentiment on a new product category is an immense challenge, but it is also something Apple has done (arguably) multiple times before with refined iPhone, iPad, and Apple Watch products perfecting existing tech in an attractive package. That brand power is the main reason Apple has stayed in the XR spotlight, despite lacking a Head-Mounted Display (HMD) product; it’s one of the only companies that can genuinely drive a new product category, and it is expected to do so with XR.