How Did the Metaverse Fail So Badly?

0:00In October 2021, Mark Zuckerberg stood in front of the world and announced that he was renaming Facebook. Meta, the future of the company, and indeed the future of human interaction itself, would be something called the metaverse. Our hope is that within the next decade, the metaverse will reach a billion people. He said that it would host hundreds of billions of dollars of digital commerce. People would work there, socialize there, attend concerts there, and presumably never wonder why they were doing all of these things while wearing a television strap to their face.

0:37Teleporting around the metaverse, Zuckerberg explained, would be like clicking a link on the Internet. Which is, of course, how everyone already teleports around the Internet by clicking links on it. The timing of this announcement was entirely coincidental. It had absolutely nothing to do with the fact that Facebook was experiencing one of its worst ever press cycles, that a whistle blower had just testified before the US Senate a few weeks earlier about how the company put profits over safety, or that regulators on both sides of the Atlantic were circling.

1:15The decision to rename a 3 billion user company after a concept from a science fiction novel in which the main character delivers pizza for the mafia was purely strategic. Facebook was not the most original idea to begin with. Social networks like Friendster and Myspace existed long before Facebook launched, and Zuckerberg famously lost a lawsuit to the Winklevoss twins for stealing their idea, which they hadn't really come up with either. What Zuckerberg did really well was execution.

1:50He launched Facebook through elite universities, making it a status symbol, before slowly opening it to the rest of the world. After that, Zuckerberg grew through acquisition, buying Instagram in 2012 for a billion dollars and WhatsApp in 2014 for $19 billion. Instagram now has almost as many users as Facebook itself, making that billion dollar deal possibly one of the best in American business history. The problem is that Zuckerberg Berg's best ideas have usually been other people's ideas.

2:26Instagram was someone elses company. What's up with someone elses company? And more recently, Threads is, well, it's Twitter. So here we had a man who has built one of the most successful companies in the world, primarily by copying things that already existed, announcing that he finally had a big idea and that he was going to lead humanity into a bold new virtual frontier. He was so confident that he renamed the entire company after this big idea.

2:56This was a man who once went surfing in Hawaii, wearing so much sunscreen on his face that he looked like a mime. He later explained that he he had spotted a paparazzi photographer and thought that the sunscreen would act as a disguise. It didn't. It instead became one of the most viral photographs on the Internet. This is the man who decided that he knew so much about how humans interact that the future of human socialization would be designed by him.

3:27To sell this vision, Zuckerberg produced a 75 minute presentation video that really has to be seen to be believed. The first thing you notice about the presentation is what isn't in it. This is a 75 minute video about virtual reality in which almost nobody is shown wearing AVR headset. Not once do you see Zuckerberg himself put a headset on. And the reason for this is obvious. A person wearing AVR headset looks ridiculous and unnatural, and so the creative team apparently decided to just not show it.

4:03Instead, Zuckerberg walks around his home in carefully staged morning light with a bicycle in the background to remind you that despite his dystopian vision of the future, this man still goes outside. And then he sort of seamlessly transitions into the metaverse. In reality, this transition would involve strapping a large plastic device onto your face and bumping into your furniture. But this is not the version of events presented. What we are shown instead is a fully animated Pixar quality cartoon of what the metaverse might look like. It was not a demo or footage from an actual existing product. It was instead a cartoon in which Zuckerberg's avatar, which looked like something from a Nintendo Wii game, hangs out on a space station playing cards with the friends that we're supposed to believe he has.

4:59This was the future, a low resolution space station where people play cards, which is something you can also do at home without spending any money at all. Now a noticeable issue in Zuckerberg's presentation was that the avatars did not have any legs. They were floating torsos, which is weird. The people of the metaverse just hovered from the waist up. This became such a problem for Meta that a year later, in October 2022, Zuckerberg held a special event to proudly announce that avatars would now have legs.

5:36The Internet reacted as you would expect to a multi billion dollar company celebrating the invention of virtual legs. It later emerged that even this demonstration had been faked. The legs in the video were generated using a motion capture suit, not actual VR technology. So to be clear, they had spent roughly $10 billion at that point. They couldn't render legs and they faked a video showing that humans have legs. There were other strange moments too. In one scene, a woman in Kyoto sees on Instagram that her friend is at a concert in Los Angeles. She presses a button and instantly appears next to her friend as a photo realistic hologram. If you think about the technology required for this, you're thinking about it a bit more carefully than the people who made this video.

6:30It's not a demonstration of existing technology, or even plausible near future technology. It's a cartoon about wishes. The woman is not at a concert and she's not with her friend. She's at an off brand, low resolution version of the Matrix. There was another scene in which two people played virtual ping pong. A scene in which someone teleports street art into a space station, at which point the art begins to disappear unless you pay for it, which really captures the spirit of public art.

7:03But we have to remember that the man presenting this vision, when asked if he liked coffee on the Theo Von podcast laughed like a madman and then went on a rambling explanation about how he knows what coffee is but doesn't drink it as he prefers to get up in the morning and fight people, going on to claim that he raw dogs reality. You drink coffee, man or no? Nah. Really. Yeah. I mean, you've, you've had it. I have sometimes on vacation I'll drink it recreationally.

7:38It's like every once in a while. Just like a yeah, it's like a like a celebration. Yeah. No, really. Yeah, no. So you when you get up in the morning, that's not your thing. Like, is there something you do? No. No, no, yeah. I mean, I wake up and I, I fight people. Yeah. Oh really? So you'd like to keep everything the equilibrium. Yeah, my sister gives me such a hard time about that. She's like, you're just sitting there raw dogging reality. Wow. I'm not sure Mark Zuckerberg has any real link to reality whatsoever. According to Jack Dorsey, the founder of Twitter, Zuckerberg once invited him for dinner and presented him with cold goat meat that he said he had shot with a laser gun and then finished off with a hunting knife. Dorsey told Rolling Stone.

8:25I just ate my salad. It's worth keeping in mind the kind of interactions the man designing the future of human interactions has with other people. I'm not sure what he's raw dogging, but it's not reality, and hopefully it wasn't that gold. Despite all of this, a lot of serious people took the metaverse very seriously. In November 2021, The Economist argued that it was a logical extension of computing text, then images, then video, then 3 dimensions.

9:00They pointed out that mockery was an unreliable guide to the future, and that smartphones had once been mocked as cross data symbols. It turns out that this time around, mockery was the correct approach. The hype in late 2021 was really something Wall Street threw itself into the project with the enthusiasm of a man who's just been handed a laser gun and a gold. Bernstein reported that the word metaverse appeared 449 times in third quarter earnings calls that year, up from 100 the prior quarter. McKinsey published a report declaring that the metaverse could generate up to $5 trillion in value by 20-30 and that it was too big for companies to ignore. Citi predicted 5 billion metaverse users, meaning more than half of the world's population. Jeffrey said that the metaverse had the potential to disrupt almost everything in human life, which is the kind of thing an investment bank analyst says when they want to be on the right side of whatever is happening without thinking too carefully about what it actually means. Big corporations piled in two Disney appointed a head of metaverse strategy. 3/4 of CEO's

10:21surveyed in 2022 said that they were hiring dedicated metaverse talent. McKinsey helpfully predicted that 15% of corporate revenue would be derived from the metaverse by 2027. That is next year, so we'll have to wait and see how that goes. As silly as some of this corporate involvement might have seemed, most of these firms won't have spent much money on this stuff. You could just give the social media intern a big title and set them loose on analyzing the metaverse.

10:55And if it all comes to nothing, you've wasted a year or two of a single salary. The CEO of a company called Improbable wrote an article for The Economist comparing the metaverse to an 11,000 year old temple in southern Turkey. He argued that throughout human history we've been influenced by worlds that we imagine beyond this one, and that the metaverse was the next stage in human culture. He suggested virtual clothes could be better for the environment than real ones and that the metaverse may allow the developing world to participate in new forms of economic opportunity, pointing to gamers in the Philippines who were wasting their lives trying to make money in a crypto based game that looked a lot like a Ponzi scheme at the time.

11:45It's always reassuring when Aceo, who would directly benefit from a trend, explains that the trend is inevitable and will somehow save humanity. Then there was the virtual real estate. In early 2022, someone paid $450,000 to become Snoop Dogg's neighbor in the sandbox and metaverse platform. Despite all of the rumours, it wasn't me. To be clear, this person did not become Snoop Dogg's actual neighbor with a fence and awkward conversations about who's bins are who's.

12:21They became his virtual neighbor in some sort of video game. That plot of virtual land is now reportedly worth around $100. I'm guessing that Snoop has moved on in something called Decentral Land. A group called Metaverse Group purchased a 116 parcel virtual estate on November 2021 for approximately $2.4 million. That estate is now worth around $9000, representing a decline of 99.6%. A Coin Gecko study found that average metaverse land prices were down 95% in The Sandbox and even more in Decentraland.

13:06In the real world, when property prices decline that much, it's usually due to a natural disaster. In the metaverse, nothing happened, people just stopped showing up, which is probably be better than a natural disaster, but also somehow worse. Near the peak, Gucci managed to sell a virtual handbag on roadblocks for over $4000, which was more than the physical bag would have cost in an actual shop. That transaction stands as the purest distillation of 2021 as a financial era, a virtual handbag that cost more than the real 1 and cannot be used to hold anything. So what was it actually like?

13:52Zuckerberg's presentation showed a Pixar quality cartoon, but the actual product, Horizon Worlds, looked a lot worse, like a low quality video game from the early 2000's. The graphics were basic, the world's were empty, and the avatars, as discussed, did not have legs. On the positive side, though, Zuckerberg's metaverse avatar showed more facial expressions than the man in itself. Reports of what it was like to use Horizon Worlds were not very encouraging. In February 2022, a psychotherapist reported being verbally and sexually harassed within 60 seconds of joining. All of the toxicity from social media platforms followed users into virtual reality, except now it was happening to a floating torso rather than to a profile picture. That's progress for you.

14:47It wasn't just outside users who struggled with the product. Meta's own employees hated it too. According to internal memos reported by The Verge, the company was pushing staff to spend more time in the metaverse, but VR meetings were described as exhausting and borderline unusable. The VP of Horizon World sent an internal memo that was leaked acknowledging the problems, he wrote. For many of us, we don't spend that much time in Horizon and our dog fooding dashboard shows this pretty clearly. Why is that?

15:23He asked. Why don't we love the product we've built? He went on to ask if we don't love it, how can we expect our users to love it? Now I don't know what he means by Dog fooding dashboard and I refuse to look that up. It probably involves that unfortunate goat from earlier on, but this is still a devastating question. Why don't even the engineers like the product that they've designed? You might think that the next step would be improving the product. Instead, the VP followed up by telling staff to make it their mission to fall in love with Horizon Worlds. Which is the kind of thing you say when the product is far beyond saving and you're hoping that enthusiasm can substitute for quality.

16:09John Carmack, the legendary engineer behind the games Doom and Quake, had been working at Meta since the Oculus acquisition. He left in 2022, describing Meta's VR efforts as inefficient and bloated. Reports suggested that employees couldn't even agree on what the metaverse was supposed to be. Was it YouTube, a casual World of Warcraft, a platform, a social space, or a game? Nobody was quite sure. This is worrying when you've renamed the entire company after an undefined concept.

16:46The user numbers tell the real story. While Zuckerberg had predicted a billion people, Horizon World peaked at a few 100,000 monthly active users. By some estimates, daily active users eventually fell to around 900 people. That's roughly the population of a small village. For context, Second Life, a virtual world that launched 23 years ago, still attracts around 200,000 people per day. They even manage legs on day one. Decentraland once reported just 38 active users. Later, they disputed this figure, saying that the real number was closer to 8000, which is a lot more than 38. But it is still fewer people than would pass through a moderately busy supermarket on a weekday. So let's look at the financial history. Meta reports the metaverse business under a division called Reality Labs.

17:46And the reported losses at Reality Labs have increased every single year. In 2019, they lost $4.5 billion. In 2026 point 6 billion. In 2021, the year Zuckerberg renamed the company 10.2 billion 2020 two, 13.7 billion in 2020 three 16.1 billion in 2020 four 17.7 billion. Last year they lost 19.2 billion. That is a total of approximately $88 billion in operating losses over 7 years. To put that number in context, it's more than NASA's entire annual budget several times over. It's roughly what it cost to build the International Space Station, which unlike the metaverse, is a real place that people occasionally visit.

18:41You could fund the entire Apollo program in inflation adjusted dollars for less than Meta spent on a virtual world with 900 users and no legs. Meta stock fell 64% in 2022 as investors started panicking about the metaverse spending. But then in 2023 and 2024, the stock recovered dramatically and the recovery had nothing to do with the metaverse. Metas core advertising business continued to be enormously profitable, generating over $200 billion in total revenue in 2025. The family of apps Facebook, Instagram, WhatsApp and Messenger is simply a machine that prints money. The problem was never that Meta couldn't make money as a broader business.

19:33The problem was that it decided to set $88 billion of the money that they were making on fire in a virtual world that fewer people visited than a village post office. Late last year, Bloomberg reported that Meta was planning to cut the metaverse budget by 30%. Meta stock went up on the news, adding about $60 billion in market value in a single day. When your stock price rises because you announced that you're going to stop doing something, it's a clear signal that investors would have preferred you hadn't started doing it.

20:11This January, Meta laid off more than 1000 Reality Labs employees and shuttered several VR game studios. Zuckerberg told investors on the most recent earnings call that he expects Reality Labs losses in 2026 to be similar to last year, but that this will likely be the peak. So after spending 88 billion, the peak of the losses is almost behind them, which is probably good. Last month, Meta delivered what many described as a near death blow to the metaverse. On March 17th, the company announced that starting this summer, users would no longer be able to access Horizon Worlds through VR headsets.

20:56The metaverse, the thing the company was named after, was being downgraded to a phone app. Then, two days later, Mehta reversed a decision. The chief technology officer confirmed that the VR app would stay available after all, presumably because all 900 of the daily users had complained. Meta's vice president Samantha Ryan framed the situation as Meta doubling down on the VR developer ecosystem while shifting the focus of worlds to be almost exclusively mobile.

21:32When a company describes shrinking something as doubling down, it's usually not a sign that things are going well. I imagine Zuckerberg probably said that he was doubling down on the gold when he drew his hunting knife, Ryan wrote in a blog post. Sometimes we knock it out at the park, other times we get things wrong. This is a diplomatic way of saying we spent 88 billion and almost nobody used it, so we're doing something else now. The something else is, of course, artificial intelligence.

22:05Mehta has pivoted aggressively towards AI, and the shift is visible in everything the company does. At the September 2025 Connect conference, the same annual event where Zuckerberg had announced the Meta rebrand in 2021, he used the word metaverse just twice. While he mentioned AI 23 times. The company's focus is now on AI powered smart glasses, a product that exists in reality and appears to be selling. It turns out that making a product that people want to buy can be quite important when running a tech company. Meadow was not alone in this.

22:46The metaverse had attracted an extraordinary collection of fellow travellers who managed to exit before anyone could ask too many questions. Disney eliminated its entire division in 2023. Walmart built metaverse experiences on Roblox and then quietly ended them. Microsoft shut down its mixed reality feature in Teams. The chief metaverse officers have all vanished from corporate org charts, presumably to pursue other opportunities and things that don't exist. Apple characteristically waited until everyone else had already embarrassed themselves before entering the market. In 2024, they released the Vision Pro headset, a piece of hardware that cost $3500.

23:35A huge number of buyers ended up returning it within the 14 day returns window. Apple had made the best possible version of a product that almost nobody wanted. Now I wanted to return briefly to the consultants and analysts. McKinsey told us in 2022 that the metaverse was too big for companies to ignore. They predicted that 15% of corporate revenue would come from the metaverse by 2027, so that should be happening anytime soon. City predicted 5 billion metaverse users, and Jeffrey said that it would disrupt almost everything in human life.

24:15Sometimes the thing that everyone is laughing at deserves to be laughed at. The broader question is why so many intelligent people got this so wrong. Part of the answer is that the metaverse hype coincided with an unusual moment in financial history. Late 2021 was the peak of near 0 interest rates and free capital. NFTS were selling for millions, crypto was booming, and in that environment, the idea that people would pay to live inside a video game didn't seem obviously more insane than anything else that was going on at the time.

24:53It was only when interest rates rose that people started asking whether any of this made sense. The answer, as it turned out, was no. Now, while all of this was happening, Meadow was also running an entirely different business, one that people actually used. And that business is now the subject of what analysts are calling social media's tobacco moment. Last week, a jury in Los Angeles found that metas platforms, Instagram in particular and Googles YouTube have been designed to be addictive to children and that these companies had failed to warn users of the dangers.

25:32The jury awarded $6 million in damages, with Meda liable for 70%. Separately, a jury in New Mexico found Meda liable for failing to protect children from explicit content and ordered the company to pay $375,000,000 in civil penalties. Meta's stock lost 280 billion in market capitalization in March 2026 alone, which is more than three times the total amount Meta lost on the metaverse over seven years. Let's be serious here. Mark Zuckerberg created Facebook not for social connection, but as a form of revenge against humanity.

26:15He created it because he was rejected by a girl in 2004 and decided that the only logical response was to dismantle the concept of human privacy forever. Instagram isn't a social network or a photo sharing website. It's a forensic archive of your aunt's descent into Q Anon and every haircut you've ever had that made you look like a medieval peasant. What Mark Zuckerberg calls social media is better described as being a digital Victorian workhouse where the inmates are forced to mind their own self esteem for likes. The details that came out of the trial are worth dwelling on. Zuckerberg testified that he had personally overruled A proposed ban on Instagram beauty filters, filters that make users look more attractive, despite warnings from 18 separate experts that they were contributing to body dysmorphia in teenage girls.

27:13The reason he gave was free expression. Internal emails included one from a researcher who wrote that Instagram is a drug. We're basically pushers and noted that Instagram chief Adam Masari freaked out when this was raised. Internal documents showed that boosting time spent on the platform, including amongst teenage users, was an explicit goal. Zuckerberg told the court that Mehta no longer set such targets, but the jury was then shown the documents in which he had said exactly those targets. One of the FT journalists present when Zuckerberg testified observed that he's not a sympathetic character. The man who decided that the future of human interaction should be a virtual world designed by him was now in a courtroom explaining why he had overruled medical advice about the harm his products were doing to children. The irony here is so perfectly constructed it almost seems planned.

28:18Meta spent $88 billion trying and failing to get people addicted to virtual reality. The products people are actually addicted to, the ones that generate $200 billion a year, may now potentially be destroying the company through litigation. They built an experience machine that nobody got in, and the machine that they left running in the corner was the 1 causing all of the damage. Tobacco's problem was that it's product was too popular, too addictive, and too harmful. The metaverse's problem was that it wasn't popular at all. Meta in 2026 had managed to have both problems at the same time. One division spent $88 billion building something nobody wanted.

29:05The other built something that almost everyone used and was now being sued for how well it works. This is, in its own way, an extraordinary business achievement. Free cash flow at Mehta is expected to shrink by 83% this year, even as revenues grow. The company is laying off hundreds of workers to fund its AI ambitions. The company will likely be called Meta for the foreseeable future. Permanently branded after a product that lasted about four years, this company has now changed its name twice.

29:41From a website built in a Harvard dorm room to rate the attractiveness of students to one of the most powerful media companies in history, to the name of a virtual world that couldn't render legs, each name has represented a version of what Mark Zuckerberg believed the future would look like. Each time, he's been very confident. Two out of three times, he's been right. The question nobody can answer is whether $88 billion was a reasonable price to pay to find out that people didn't want to live in a cartoon space station. They were speculating with the kind of confidence usually reserved for people spending other people's money, and the result was a failure that was only a surprise to those who were being paid to believe believe in it. Thanks for tuning into this week's podcast. The podcast is entirely supported by viewers like you on Patreon.

30:36If you'd like to support it, you can sign up using the link in the video description. Have a great week and talk to you again soon. Bye.