Virtual Reality is a gimmick that will never catch on in mainstream society. But Microsoft just announced a new Augmented Reality headset that could actually bring a change in the way we interact with technology.

In the world of innovation, you can never rest on the idea that your products and research are ahead of everyone else. Because every now and again, you’ll get a piece of news that can undercut not only whatever advantage you had over your competition, but in some cases remove an entire revenue stream in one go.

This is what it must have felt like in the office of Cisco, Polycom, Google, Samsung, and Facebook this morning.

On the 21st of Jan 2015, Microsoft held a media event to announce new details of its new Operating System, Windows 10, due out later this year. Everyone was expecting that, and along with a couple of new features and pricing being announced, nobody in the media was particularly shocked.

But there were two other announcements which nobody saw coming, and which set the internet alight.

The first was a large-format Ultra-HD TV with touchscreen and videoconferencing facilities, called Surface Hub. You can imagine this as a 84 inch TV screen in a conference room or classroom which doubles as a digital whiteboard (thanks to its touch sensitive display which can be used by multiple people) and videoconferencing facility (thanks to its use of Skype / Lync for corporate clients). Bearing in mind most corporations have multiple rooms with large-format screens or projectors which aren’t interactive, as well as conference call phones, this system could quickly replace several disparate systems.

While no pricing or release date were announced, this will have come as a massive blow to Cisco and Polycom, who have spent years trying to get large corporations to install their proprietary multi-monitor and microphone conferencing facilities in dedicated conference rooms across the world. Even at a price point of $10,000+ for a Surface Hub screen, this would be much cheaper than either option from Polycom or Cisco’s full system, and significantly more functional, useful and extendable.

Make no mistake, Cisco and Polycom have just been disrupted and will quickly need to reflect and adjust.

But it was the second announcement which really took people by surprise. Except maybe the guys at WIRED magazine, who were granted early access and have written a brilliant and in-depth preview article for this coming month’s edition, detailing how this fits in with CEO Satya Nadella’s vision for the company.

Seemingly out of nowhere, Microsoft announced HoloLens, a headset which can provide Augmented Reality, essentially displaying holograms on top of whatever you are looking at in the real world. And then allowing you to interact with those holograms using voice commands and finger gestures, like in futuristic films like Minority Report.

The technology behind can essentially be thought of as the 3rd Generation of Microsoft’s Kinect sensor, and while it’s definitely still in a prototype stage, several media representatives have had a chance to experience it behind closed doors, including WIRED. And the response so far has been very much on the positive side. Not just about the functionality of the technology at this early stage (apparently it works much better than expected, looks great and feels natural and intuitive), but they actually see that usefulness of the technology.

One example which the media were allowed to try was someone being asked to fix (real) faulty electric wiring in a wall. Wearing the headset, you could call up an engineer who would appear in a skype window in your field of vision. This engineer could then see what you were looking at, and could draw instructions right into your field of vision, such as circling the right tool to pick up so that it had a circle when you looked at it, and then drawing instructions around the wiring. All the media experts managed to fix the problem this way.

Take a step back for a moment and pause. That is pretty futuristic stuff. And more importantly, it’s actually useful and valuable functionality, since it will enable people to work on collaborative tasks in real time, without them having to be pre-programmed in advance. This is how humans collaborate with each other, rather than a computer system.

Just as importantly, Microsoft announced that the API for this holographic functionality would be open for anyone to develop for, and will work with all Windows 10 devices (along with the headset). So it will soon be possible for all developers to think of uses for this technology which Microsoft hadn’t even imagined.

This could be as big a change in the way we interact with technology as the iPhone’s proliferation of the multi-touch touchscreen was for smartphones.

So this could be great news for Microsoft, but only time will tell. But yet again, it will be a disruptive event for several companies who have been working on something similar: Virtual Reality.

Facebook has this with their $2bn+ acquisition of Oculus Rift, Google has it with Google Glass and Magic Leap (who they invested $542m into), and even Samsung is trying it with their Gear VR system (which is essentially strapping a smartphone in front of your eyes).

These companies have invested a LOT of money into their vision of VR.

They are in trouble.

Just like Microsoft’s prototype, a lot of the technology of for Virtual Reality in these systems is at a very early stage, often needing to be connected directly to a computer, with issues of image resolution, interactivity and even making people want to vomit due to motion sickness after a few minutes.

Now I have been able to use both the Google Glass system (see below) and Oculus Rift, and I have to admit that they are very impressive in immersing you in a new way.

But the problem is that VR in its current form is essentially just a new way to look at a screen. Yes, it may be in three dimensions for VR, or like a mini-smartphone screen for Google Glass, but it is still just you watching what could be on a smartphone, laptop or TV screen.

And the fact of the matter is that beyond a small number of early technology adopters, people don’t see much additional value beyond the way they already interact with their current technology. In fact, after an extremely underwhelming response to Google Glass, Google recently shut down the Google Glass Explorer programme, took it out of its X-Labs division and put it under the same supervision as it’s other physical products like Nest. For all intents and purposes, Google Glass is no more.

Similarly, Virtual Reality has been around since the 1990s. I remember using it in an arcade as a kid and being underwhelmed. And that’s been the general consensus of people for the past 20 years. As screen resolutions have increased, if there had been demand for a product like this, one of the several companies working on it would have made it by now. People apparently don’t want to be fixed into one position, removed from their surrounding environment and being made passengers in a new environment. There may be a market for a few million hardcore gamers who are early adopters, but it is not a mainstream proposition.

VR has been shown to be a gimmick. And with the billions which multiple companies have invested into it, a very expensive gimmick.

This is again a perfect example of technology companies investing heavily into a technology which is “cool” and “advanced”, but not figuring out what sort of value it is adding to a customer. It’s a solution in search of a problem, something I wrote about extensively when looking at Tech companies in London. solutionproblem While we’ve only seen one preview of Microsoft’s HoloLens system, it is apparent that it is already approaching things in a different way. Firstly, the technology itself is meant to act as a facilitator of new experiences and ways of interacting, not the end result itself. And secondly, it’s the way that Satya Nadella wants to roll out the system, which according to his interview in WIRED will be to first release development kits to early adopters, makers and developers, to see how they envision it being used. Then when they have a view on where the value actually lies, they might release it to the public at large.

Microsoft doesn’t know if the device will become a massive hit, but has been willing to invest in developing breakthrough, untested technologies like this because it benefits the company as a whole, with research and customer input feeding into improving its other products too. It’s this long-term view and ability to work between divisions which has been the fundamental change in the way Microsoft is operating, and it shows that the CEO is on the right track (which I questioned several months ago).

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What do you think of the future of VR and AR? What do you think of HoloLens? Let me know in the comments below.