Zuckerberg's metaverse is finally showing signs of life, but it's not from VR

When Facebook changed its name to Meta in October 2021, CEO Mark Zuckerberg used the occasion to show the world his vision of a digital future of work and recreation accessible through a virtual reality headset. The company soon opened its play universe called Horizon Worlds, featuring floating personalized avatars.

As the rebranding to Meta approaches its third anniversary, none of that stuff has gone mainstream. 

But the company appears to have found its footing in virtual and augmented reality through a different medium.

After achieving surprise early success in the smart glasses market through a partnership with Ray-Ban, Meta is ginning up excitement for the prototype of a much more advanced pair of glasses called Orion, a project nearly a decade in the making. Zuckerberg's reveal of Orion late last month has triggered a level of enthusiasm that's unfamiliar in the metaverse.

The triumphant demo, at Meta's annual Connect event, was a relief to many employees and represented an internal shift in sentiment toward Zuckerberg's costly hardware ambitions, according to people close to the company who asked not to be named because they weren't authorized to speak to the press on the matter. 

At the start of the demo, Zuckerberg pulled the device out of a locked metal briefcase. He showed off the gadget — a pair of black, thick-framed AR glasses — to the live audience before placing it on his face. Orion comes with a wireless puck that allows it to run holographic virtual images on top of what users see in real life. It also relies on a wristband that picks up on a user's neural signals to let them control the device. 

The demo was seamless. The crowd oohed and aahed. Rave product reviews followed from the few who got to test it. CNBC's Julia Boorstin described a call she had with her producer, saying, "It was like I was FaceTiming with him but he was in my glasses." The Verge's Alex Heath played Zuckerberg in a game of Pong and wrote that he "noticed little to no lag in the game."

"The right way to look at Orion is as a time machine," Zuckerberg said at Connect. "These glasses exist, they are awesome and they are a glimpse of a future that I think is going to be pretty exciting."

Following the Orion showcase, Meta is preparing to strengthen its relationship with software developers as it works toward building a consumer version of the device, and to pushing its current generation of Ray-Ban Meta smart glasses to more consumers for the 2024 holiday shopping season. 

The company is also looking at ways to bring the technology developed for the Orion wristband to its other consumer devices, notably the Quest VR headsets and the Ray-Ban Meta smart glasses, according to a person familiar with the matter. 

For Meta, the uptick in excitement among employees and users comes well after Wall Street jumped back into the stock. After the company lost almost two-thirds of its value in 2022 and then slashed about a quarter of its workforce, or 21,000 jobs, Meta's stock price almost tripled last year and is up more than 60% in 2024, reaching a fresh high this month. 

Meta proved the resilience of its dominant online advertising business, rebuilding the underlying technology after Apple's iOS privacy change made it harder to target users, and adding generative artificial intelligence tools to make it easier for brands to run campaigns. 

But proving that it can mimic its digital ad success in a totally different market has been a persistent challenge. 

Facebook's initial foray into VR came in 2014 with the $2 billion purchase of Oculus. Since then, the company has poured more than $63 billion into what's now called Reality Labs, its AR and VR hardware and software division, and it's recording operating losses in the billions of dollars per quarter.  

In the second quarter, Reality Labs generated just $353 million in revenue, accounting for less than 1% of the company's total sales. Industrywide, global shipments of VR and AR headsets in the period sank roughly 28% from a year earlier to 1.1 million units, according to market researcher IDC.

"This is a very long-term bet," Zuckerberg said in July 2023. "At a deep level, I understand the discomfort that a lot of investors have with it because it's just outside of the model of I think even most long-term investors."

Orion provides a tangible example of the company's strategy and a logical and compelling next step following smart glasses, people familiar with Reality Labs told CNBC.

Meta declined to comment.

Meta is planning to start courting developers next year, as it tries to get them excited about building apps for Orion so the company can learn what might resonate with consumers, according to people familiar with the company's road map. 

The push into the developer community would coincide with Meta's expected debut of the fourth generation of its Llama family of AI models. By releasing a more powerful Llama, Meta is hoping that developers would be able to incorporate the software in their future AR apps to help power tasks like recognizing real-world objects and more accurately reacting to voice commands, the people said. 

Ultimately, Meta is working toward building a consumer version of Orion, something that could happen within two years, they said. 

That timeline may be overly ambitious considering how long it took to get Orion this far.

Facebook began working on the device as far back as 2016 under the leadership of Oculus' then chief scientist, Michael Abrash, according to people familiar with the matter. Abrash is now chief scientist at Reality Labs.

In 2018, the project was moved out of research and development and was put on the product path under the guidance of Andrew "Boz" Bosworth, who was Facebook's head of hardware at the time and is now Meta's technology chief.

At one point, the company had a version of the device that offered AR visuals but it had to be in extremely controlled settings to work, the people said. For example, visuals didn't work outdoors, they said.

Meta has been testing functioning versions of Orion glasses for well over two years, the people said, getting the product to a point where it could finally be unveiled to the broader company and to outsiders. The company finished the prototype in March. Engineers put a lot of work into getting the device to weigh less than 100 grams (3.5 ounces), about twice the weight of a heavy pair of glasses, and to have a 70-degree field of view, sources said.

Zuckerberg, who's been the driving force behind the company's advances in AR and VR, made the ultimate decision to go public with Orion, the people said.

Meta is likely years away from being able to deliver a consumer version of Orion and has numerous challenges to overcome to reach mass production.

"One could criticize Orion as vaporware," Joseph Bonner, an analyst at Argus Research, wrote in a report to clients on Oct. 4, referring to "technology that may not end up in an actual product." Bonner, who recommends buying the stock, said the product demonstrates "Meta's continued commitment to virtual and mixed reality applications."

Meta will need to develop a global manufacturing supply chain that can account for some of the rare materials used in the device. One particular hurdle will be figuring out how to get mass quantities of silicon carbide, which is used for the displays in the Orion lenses. 

Meta recently hired someone from semiconductor contract manufacturing company GlobalFoundries to help develop and oversee the supply chain for Orion and related AR and VR devices, people with knowledge of the matter said.

In the meantime, Meta is looking to build on the success of its second-generation Ray-Ban Meta smart glasses.

Released in partnership with EssilorLuxottica in September of last year, the product featured a number of upgrades, including better camera quality, improved battery life and an AI voice assistant.

The smart glasses went viral on TikTok during the holiday shopping season, and sales exceeded both companies' expectations. More than 730,000 units have been sold in their first three quarters since release, according to IDC. Zuckerberg told investors in July that they were "a bigger hit sooner than expected."

Last month, Meta and Luxottica agreed to extend their partnership, with plans to release a bulkier, third generation of their glasses in time for the coming holiday season. The new device is expected to include a small display in one of the lenses, people familiar with the matter said. 

A Luxottica representative didn't respond to a request for comment.

Meta is also opening a pop-up shop to showcase the smart glasses and to get them in front of more consumers. 

The pop-up shop will be at a retail space in Los Angeles. A job post by BDS Connected Solutions says the company is looking for retail staffers in the West Hollywood neighborhood.

"We're staffing up for the ultimate Meta pop-up experience in the heart of Los Angeles," BDS says in a post on X. "With lowriders, street vibes, and everything that makes LA iconic, this pop-up is a true celebration of Southern California culture."