Software giant Microsoft once pre-empted the meta-universe competition with the launch of a futuristic HoloLens headset. However, seven years later, the company’s big push into the augmented reality (AR) field has been hampered by technical limitations and a lack of management patience.
Figure 1: Microsoft demonstrating the HoloLens headset in 2016
HoloLens, a ring-shaped computer worn like a crown on the head that displays digital information on the included goggles, did not become a hot product. Microsoft shelved a planned new version and has been unable to meet the technical requirements of its biggest buyer, the U.S. Army.
More than 100 employees have left the HoloLens team in the past two years, including its longtime chief, according to information provided by former Microsoft employees and information from Collage. Microsoft has restructured the 1,000-strong team developing the headset and cut its budget to reduce expenses and staff size at a time of slowing profit growth.
Lost opportunity to capture market
“We had a chance to own the market,” said Tim Osborne, a former director of the HoloLens team who retired earlier this year, “and we were way ahead in a lot of ways.” But he said Microsoft has not put enough people and money into the effort.
For years, Microsoft has struggled to make HoloLens a success. According to current and former employees, developing the headset and the software it runs on has proven to be much more difficult than anyone expected. Some of them say Microsoft’s product strategy is unclear and inconsistent.
Figure 2: HoloLens
Microsoft says the company still has ambitious plans to build on HoloLens. In a written statement, Frank Shaw, Microsoft’s corporate vice president for media communications, said Microsoft remains “committed to all aspects of the mixed reality and metaverse” and that the latest HoloLens products “are helping customers collaborate and engage in new ways “Collaboration and engagement” in a variety of industries.
Always up early, always up late
Microsoft’s struggles with AR hardware are reminiscent of the company’s previous problems with hardware development.
For decades, Microsoft was ahead of the curve in devices like portable media players, tablets and smartphones, but eventually ceded those huge new markets to Apple and others. At the same time, it has had considerable success in many areas in recent years, including cloud computing and video games.
On Tuesday, Microsoft released its new quarterly earnings report. Microsoft’s profit fell and revenue growth slowed last quarter as declining PC sales eroded demand for Windows systems.
Microsoft to give up?
AR is able to superimpose digital content such as 3D images or visual instructions onto a user’s real-world perspective. Some in the tech industry believe AR has a bigger market opportunity than virtual reality (VR), which enables users to be fully immersed in virtual worlds, such as video games. Both are elements of a broad metaverse.
So far, Facebook’s parent company Meta has relied heavily on VR technology to focus on the metaverse, selling Quest headsets equipped with VR technology so that users can access their virtual worlds.
Figure 3: Meta’s Quest headset is more likely to succeed
However, Meta and other major tech companies are investing billions of dollars in AR. Apple, Google and Meta will all launch their own AR headsets in the next few years.
Earlier this month, Microsoft announced that it was making its own software products available for Meta’s Quest headset. Some industry insiders believe Microsoft’s move is a bet that Meta will have a better chance of building hardware for the metaverse. Microsoft is committed to all aspects of mixed reality and the Meta universe, including third-party hardware, said Frank Shaw, Microsoft’s vice president of communications.
The downward spiral of HoloLens
In January 2015, Microsoft CEO Satya Nadella unveiled HoloLens at a company event, calling it “the next big thing. With HoloLens, users will be able to interact with virtual dogs and collaborate on design projects in the future. At a video game show later that year, Microsoft showed how HoloLens could immerse players in a hybrid virtual world.
However, the $3,000 price tag was too expensive for most consumers. Moreover, little was known about the headset’s uses. Therefore, Microsoft first shifted its focus to selling it to enterprises.
Microsoft set up several groups to study new uses for HoloLens, including a partnership with NASA to allow users to view the surface of Mars. Microsoft marketed the technology to potential corporate and government customers by demonstrating its potential application scenarios.
The Microsoft team then began developing a new version of HoloLens 2 to expand its field of view and improve the overall experience. The development team was created in the video game division, then moved to the Windows operating system division, and then to the cloud computing division. Former Microsoft employees say Microsoft executives are starting to lose patience with the effort.
Difficult to meet the military’s requirements
In 2018, Microsoft struck a deal with the U.S. Army that could end up being worth as much as $21.88 billion. The U.S. Army selected Microsoft to develop an integrated visual augmentation system for AR headsets to help soldiers train and interact in the field. Microsoft was awarded a $480 million contract for the development of the prototype.
To do so, Microsoft had to include more technology than ever before in its headset: cameras, military-grade sensors, radios and night vision goggles, while also being waterproof and shockproof.
Figure 4: Microsoft Developing Integrated Visual Enhancement System for the U.S. Army
Early tests revealed problems. During combat exercises, the headset would disconnect from the local wireless network, disabling the built-in weapon tracker and making it impossible for soldiers to use it for training, according to former Microsoft employees. The devices make it difficult to track the movement of a soldier’s head, making it difficult to project digital objects on the display, the former employees said.
Some former Microsoft employees said the head-up displays were heavy and uncomfortable, and the screens also caused eye strain. Sometimes they can become overheated after a few hours of use.
In October 2021, the U.S. Army announced it would delay testing of the headset for nearly a year. This year, the Pentagon’s inspector general released a report saying the contract “could waste up to $21.88 billion in taxpayer funds on a device that soldiers may not want to use. In August, the Army unfreezed some of its early spending, saying the headset showed promise but would further delay a broader rollout to correct deficiencies.
Plans canceled
Late last year, Microsoft CFO Amy Hood (Amy Hood) began meeting with company executives to prepare for a possible economic downturn. Participants revealed that Microsoft decided to invest in growth areas while cutting back on more speculative projects. As a result, the mixed reality team’s budget was cut and plans for a consumer headset were scrapped.
Former Microsoft employees said that Microsoft shelved the development plan of HoloLens 3 and the cooperation with Samsung. IDC’s data shows that the total sales of HoloLens since the launch is about 300,000 units. By comparison, analysts estimate that Meta’s Quest 2 VR headset, which launched in late 2020, has sold about 17 million units. According to previous media reports, Microsoft has canceled development plans for HoloLens 3.
Meanwhile, Microsoft CEO Nadella has begun to take a greater interest in the company’s overall metaverse strategy. He meets with executives every two weeks to discuss the issue, according to people who have attended the meetings.
In June, Microsoft announced that Alex Kipman, who has led the HoloLens team from the beginning, would be leaving. For years, Microsoft has been investigating his behavior in the workplace, including his management style.
Kipman responded that his departure was mutually agreed upon “primarily because of our business and plans going forward, and is not related to the alleged investigation into my behavior or management style.”
AR division split up
With his departure, Microsoft’s AR division was split into hardware and software parts, leading some employees to question the future of HoloLens and Microsoft’s hardware strategy.
HoloLens, military projects and other hardware initiatives are now being overseen by Microsoft’s chief product officer Panos Panay. The software business has been handed over to Jeff Teper, the Microsoft executive in charge of Teams, the office collaboration product.
We’re taking a software-led approach to the metaverse,” Nadella said at a company meeting in July.
It’s not clear which hardware, technologies and companies, if any, will dominate the metaverse. Bar-Zeev, a former Microsoft HoloLens employee, said the difficulties Microsoft encountered in early iterations of AR hardware show that would-be industry pioneers need to stay highly focused to succeed.
“Microsoft’s whole development process was mostly about getting people excited about how it was going to change the world,” he said, “and what they really should have focused on was how to make this product better than a smartphone.”
