HoloLens Was Just the Beginning. Microsoft Wants to Own AR and VR.

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The Acer VR bundle with motion controllers, available for $399 this holiday season, will be the most affordable full-featured VR set out there.

Microsoft’s Build conference had a major theme when you walked the show floor: the HoloLens, or what Redmond is calling its “Windows Mixed Reality” platform. There were long lines on the try-out demos that did things like use a HoloLens to flip through holographic hood options on a real-world semi-truck, to see how it changed its aerodynamic profile, or take a holographic tour of a massive new commercial development going up in Warsaw, Poland. It was an impressive look at what augmented reality can do.

But the big news out of the conference wasn’t about HoloLens at all: It was about Microsoft making an interesting end run into the pure virtual-reality market — or what Microsoft calls “occluded reality.” Working with Acer, Microsoft will have a VR headset with motion controls available for $399 this holiday season. (For those paying attention, that’s $100 less than the current cheapest model on the market, the PSVR, and a ton cheaper than the Oculus Rift or HTC Vive). And the specs required are low-end enough that there’s a fair number of PC users out there who should be able to run it. Perhaps most appealing to developers, an app that works on a cheaper VR headset also works on a HoloLens.

What’s more, the new VR headsets will use what’s known as “inside-out” tech to help track head movement. The big advantage of inside-out is that it tracks head movement using the headset itself — not sensors placed in the room. The Oculus Rift or PSVR uses tracking stations to keep up with where your head it at, and the HTC Vive, while technically using inside-out, requires you to put “lighthouse” stations high up in the room that you’ll be using VR in. Microsoft is promising inside-out tech that allows for “world-scale” VR — meaning you can walk around easily anywhere you can plug into a laptop, no pre-built sensors required. It also allows for six degrees of free movement, avoiding the “head on a stick” feeling you can get with mobile-phone VR headsets like the Samsung Gear VR or Google Daydream.

I sat down with Greg Sullivan, director of marketing for the Windows and Devices Group, about what Microsoft hopes to do with mixed reality.

There’s a lot of HoloLens out there on the floor today. Has HoloLens become a platform for Microsoft?
Windows Mixed Reality is the platform for us; HoloLens is just the first place it showed up. We made an announcement a year ago, where we invited the PC-and-device ecosystem to build headsets and PCs capable of mixed reality. We said, “Hey, everyone, the software that lights up HoloLens is really just Windows — and we want you to make your own devices that participate in this ecosystem.” It’s funny, I’ve been asked a few times, “When did you guys change your strategy from just first-person stand-alone devices [like the HoloLens]?” And my answer is, this was always part of the plan — to have Windows be a platform that enables people to interact with digital information in three dimensions.

And you’re seeing the continuation of that, first with HoloLens and then the Acer head-mounted VR displays, to what we’ve shown — where even if you don’t have a headset, creation and consumption of three-dimensional content is something that we’re gonna enable on your phone, on your PC, on your tablet. The notion that mixed reality, broadly, is a core part of Windows is starting to become more and more evident. It wasn’t a shift in strategy; it was the plan all along.

It seems like this is the year where I’m starting to hear a lot more talk about AR. Obviously, Facebook made that front and center at its own conference. Microsoft has been working in this space for five years now. How has the perception changed on augmented reality?
It’s funny, I don’t know if it’s Casey Stengel or Yogi Berra who gets credited with it, but the line is, “Prediction is hard, especially about the future.” We’ve been investing significantly, obviously, for a long time. But it was because we had a core belief in the evolution in how humans interact with digital information. It comes at a fundamental level to our mission statement, to the bold ambition that Satya organized the company around. The Windows and Devices group is chartered with creating more personal computing. To me, the time is right. This year is a watershed moment. Of course, we’ve the hypo-o-meter go into the red zone, and then maybe back off a little bit.

It’s called virtual reality and the year was 2016.
Exactly. But there are a couple of things. First of all, the core charter of the Windows group is to create more personal computing. So let’s evolve the way that humans interact with digital information from on the terms of the computer to the terms of the human. The ability to manipulate 3-D objects in space — we get that as humans.

It’s a more intuitive way of working.
And it provides deeper insights. One of my favorite examples was one of the doctors that we worked with at the Case Western Reserve University for the holographic anatomy class that they’re now teaching. There was the neurosurgeon who had been looking at radiograms, CAT scans of the brain. Fifteen years he’s been looking at these images.

Now, they’re quote, unquote “3-D images” on a flat-screen, which means you have 2-D representations that trick your brain into thinking there’s depth. But he put on HoloLens, and he said it was a profound epiphany — after 15 years of looking at radiograms and X-rays — that he gained a new understanding by interacting with the volumetric, real 3-D representation. You can walk around and see the interrelation between structures in a way that you can only appreciate in three dimensions. That’s a pretty profound sea change.

This is one of those things — it’s a bit of a reach, but compare it to the punctuated-equilibrium metaphor in evolution; the idea that evolution is not this continuous process. Instead, every once in a while, you make these jumps. I would say the move from character interface to graphic interface was one of the jumps. Touch is a another very natural thing — as human beings, we want to interact with something by touching it. Voice — these are all more human ways of interacting. To me, presenting information in real three dimensions, and enabling you to interact as if it were a real object, is on par with those other big leaps in the way we interact with digital information.

Right now, it does seem like HoloLens is very much meant for businesses. Why focus on enterprise at first, as opposed to other organizations that would maybe think more of it as a consumer or entertainment device?
One of the things that became really clear, even before we started shipping the development edition, is that we began working with customers and partners to build some of the initial content solution for HoloLens. It became very, very clear that there was some profound efficiencies that could be gained in enterprise and commercial use cases. It made it very, very obvious for companies like ThyssenKrupp to buy HoloLens to equip their elevator-repair technicians, because they could dramatically improve the scale of their expertise, lower the response times, and get back up and running. These things pay for themselves very quickly. The ability for HoloLens to enable commercial enterprise solutions that were literally impossible is the primary reason that we’re focusing on these commercial use cases, because there’s just such a profound return on investment.

I think one of the prime examples is Japan Airlines. It used to be, to teach me how to become a jet-engine mechanic, Japan Airlines had to previously rip the engine off a plane, put it somewhere, rig it so that it could be operational in a way that was safe, and then fly me to that location, put me up, and then have me work on it, try to understand those systems, and get a sense of how it was running — but I can’t get too close because it’s a jet engine, and there’s a little bit of combustion going on. You can see all the impracticalities associated with doing something like that.

When they went to HoloLens to train jet-aircraft mechanics — there were profound improvements because all of those requirements I just mentioned went away. You don’t need to pull a real jet off the aircraft. You don’t need to fly me there. You just need to put a HoloLens on my head wherever I may be. I can learn the systems of that jet engine in a deeper way because I see fuel; I can see propulsion; I can look at those systems independently and also see how they interact. I can literally stand inside the jet engine while it’s running.

Tough to do in real life.
You can only do that once. So those kinds of powerful efficiencies, literally doing things that were not possible. And the HoloLens also costs $3,000, so that’s why we’re focusing on enterprise now.

But we see this space as a spectrum. HoloLens is primarily being used in enterprise use cases, and immersive VR headset is mainly being used for gaming and 360 video.

But you’ll see a couple of things. You’ll see the spectrum get filled in with more devices, as this burgeoning ecosystem of mixed reality matures. You’ll also see HoloLens do more consumer-y, or more immersive, experiences. And you’ll see more of these VR headsets do more productivity, remote learning, collaboration, and more historically commercial scenarios. To me, that’s the testament to the soundness of our overall approach. We think of the whole thing holistically. We have a platform that’s consistent — consistent user interfaces, identical developer platforms.

So the same platform I was using that runs the Acer is the same thing that’s running HoloLens?
Exactly. That means, over time, the $299 Acer headset that you just tried out — if I want to play games and do immersive experiences, I don’t have to spend $3,000. In fact, to reference your comment about the year of VR in 2016 — we’re data nerds. We know a whole lot about the data of why things happen. One of the things that we’ve learned from doing a whole lot of demos from existing VR headsets in Microsoft stores, and talking to a bunch of customers, is there are several things that have inhibited the broad adoption of those solutions. And the primary reason is complexity of setup.

It’s, “I didn’t realize I had to drill holes in my wall, or put these cameras up.” Or, “I didn’t know I can only use it in this one room.” Or, “I had to download all this software, and I just couldn’t get this working.” The complexity of setup is the No. 1 reason VR headsets get returned today.

There’s also the barrier that these things are pretty darn expensive. The whole kit can run you upwards of $800 or $900. And we looked at some of the devices that don’t allow for six degrees of motion, which results in nausea, so that’s not a good thing.

So we looked at this space and said, “Okay, we have a setup with that Acer device that’s about a minute, literally.”

That’s just a USB and HDMI?
Yeah, that’s USB and HDMI into your laptop, click through this wizard, and in about a minute, you’re up and running. Done. You didn’t have to drill any holes into the wall; you didn’t have to put any lighthouse beacons and infrared stuff up. I believe we’ve addressed the complexity-of-setup issue. The cost issue: When you start at $299, you’re starting to get closer to an impulse buy.

I had a good month, maybe I’ll get a VR headset.
We really feel like we’ve addressed a lot of the barriers and the friction that prevented more broad adoption of existing solutions. We expect 2017 really could be the year we see mass adoption. [Pause.] Now … eh. Maybe late 2017, or maybe holiday 2017. So realistically, from the market writ large, it’s a 2018 thing. But certainly by the end of 2017, I’ll be able to spend a few hundred dollars, or realistically, less than a thousand dollars for a laptop with integrated graphics and a head-mounted display that is going to give me that immersive experience.

(This interview has been edited and condensed.)

HoloLens Was Just the Start. Microsoft Wants to Own VR Too.