Yes, of course they saw it. Marxism lost ground in Germany to the Catholic Centre Party and later National Socialism. At the Institute of Social Research in Frankfurt Max Horkheimer lead group of researcher known later as Frankfurt School whose aim was to keep Marxist goal, but define a new way to achieve them.
The new Marxists focused on Marx's early writings such as Paris Manuscript which was discovered in 1932. They borrowed idea of Sexual Revolution from Wilhelm Reich arguing to suppression of sexual desire leads to authoritarian personality. Herbert Marcuse in his book Eros and Civilization attempted to synthesize Marxist and psychoanalytic theory by Wilhelm Reich.
The new Marxists ignored the class struggle and argued that soon the automation will liberate people from the need of work. Everyone could go back and live close to human nature. In the Origin of family, private property and the state published after Marx dies, but based on his notes to Lewis Morgan book on primitive societies, Engels proposed that capitalism enslaved women and created family through the bourgeois marriage.
In general the new marxism is anticultural and sees culture as source of oppression.
