A strategic repositioning of the metaverse causes it to exist in AI’s shadow.

getty

The Great Pivot: Meta’s Metaverse Retreat Signals Broader Industry Transformation

When Facebook CEO Mark Zuckerberg announced he would rename the company Meta to reflect his $10 billion investment in the Metaverse, I went on record saying it was a big mistake.

At the time, I had been doing a lot of research on the concept of the metaverse, especially XR and AR, and had tested a few VR headsets. While I understood that the concept of VR could be groundbreaking, I saw it as more of a niche, impacting games and certain enterprise apps like field service and industrial design, and not worth renaming a company around the metaverse.

Although I still believe in the concepts of XR, VR, and AR, and that they will impact businesses and consumers over time, AI has become the dominant umbrella technology that will impact all things digital now and in the future.

So it was no surprise to me when Meta reported plans to slash its metaverse division’s budget by up to 30%. It’s a clear signal of the tectonic shift happening across the technology landscape as companies realign their strategies around artificial intelligence.

The market’s response was telling—Meta’s stock jumped nearly 3.5% on the news. Investors are essentially applauding the company’s willingness to redirect resources away from a speculative long-term bet toward what they perceive as the defining technology battleground of the next decade.

It’s worth noting the dramatic arc here. Just a few years ago, Mark Zuckerberg was so convinced of the metaverse’s potential that he renamed his entire company around the concept. During Meta’s latest earnings call, however, the word “metaverse” didn’t appear even once. That’s not an oversight—it’s strategic repositioning.

The calculus is straightforward, if brutal: when you’re burning billions on a project that generates minimal direct revenue, and you need those billions for AI initiatives that are equally expensive but strategically essential, something has to give.

The AI Resource Crunch

What we’re witnessing is the practical reality of AI economics hitting corporate balance sheets. Building competitive AI capabilities requires massive investments across the board—from specialized hardware and top-tier talent to the enormous power consumption these systems demand. There’s simply no cost-effective path to staying competitive in this space.

This resource pressure is forcing a hard-nosed evaluation of every corporate initiative through an AI lens. Projects that don’t contribute directly to AI capabilities or generate revenue to fund them are increasingly vulnerable, regardless of their previous strategic importance.

Even OpenAI, the current AI frontrunner, is narrowing its focus to concentrate resources on strengthening ChatGPT. When the leader feels compelled to consolidate, it suggests the intensity of competition and the resource requirements.

The Advantaged Players

Companies with existing business lines that benefit from AI hold a significant edge in this environment. Amazon Web Services, Google Cloud, and Microsoft Azure are all seeing growth driven by enterprise AI adoption. These cloud revenues help fund continued AI development, creating a virtuous cycle that pure-play AI companies or diversified tech firms without strong AI-adjacent businesses can’t easily replicate.

Yet even these well-positioned players aren’t coasting. Microsoft CEO Satya Nadella’s appointment of a new advisor to “rethink the new economics of AI” suggests that even the strongest competitors recognize that the current approach may not be sustainable in the long term.

What Comes Next

The coming months will be revealing. Annual planning cycles and traditional January workforce reductions will provide cover for strategic repositioning. But the real question isn’t just what gets cut—it’s how companies balance present profitability against future AI competitiveness.

Will companies eliminate only the obvious money-losers, or will they also sacrifice profitable legacy businesses that don’t fit their AI vision? How much of today’s revenue will leadership teams risk for tomorrow’s AI capabilities?

These decisions will separate the companies that successfully navigate this transition from those that get left behind. In technology, timing your strategic pivots is everything. Meta’s metaverse retreat may look like a failure, but redirecting those resources before the cost becomes truly prohibitive could prove to be exactly the right move at exactly the right time.

The metaverse isn’t dead—it’s just been bumped down the priority list by something that demands immediate attention and massive investment. In tech, that’s not failure. It’s adaptation.

Disclosure: Microsoft, Amazon and Google subscribe to Creative Strategies research reports along with many other high tech companies around the world.