Microsoft is scaling back the mixed reality group that manufactures its five-year old headset, the HoloLens 2, in the latest sign that the technology is failing to live up to its promise.
The untethered device that retails starting at $3,500 first hit the market inĀ 2019, a full five years before the similarly priced Apple Vision Pro. Facebook founder Mark Zuckerberg was so convinced devices like it would be the future of the social media giant that he renamed his company Meta inĀ late 2021Ā and since sunk $45 billion into its Reality Labs division.Ā
Yet neither his Meta Quest 3 headset, nor Microsoftās more enterprise-focused HoloLens 2 before it, have moved the needle. The heavily-hyped Apple Vision Pro is already meeting with less than sterling demand in the U.S., according toĀ recent analyst estimates.Ā
āEarlier today, we announced a restructuring of Microsoftās Mixed Reality organization,ā a spokesman said in aĀ statementĀ toĀ The Verge.
While the company elected to continue selling the HoloLens 2, it left its development path unclear, saying only that it would continue to invest in Windows365 āto reach the broader Mixed Reality hardware ecosystemā.
When the HoloLens 2 first debuted, MicrosoftĀ predictedĀ āthereās no competition for the next two or three years that can come close to this level of fidelity.ā But the very ecosystem it sought to seed has proven more shallow than broad as weak demand for the actual devices themselves acts as an effective deterrent against greater developer interest.Ā Ā
By late 2022, the Wall Street Journal was reporting of deep-seated problems for Microsoftās mixed reality headset, which blends the physical and digital world. Only some 300,000 units had been sold cumulatively in the seven years since the first generation launched, according to estimates from market researcher International Data Corporation, and more than 100 employees left the team.
āWe had the opportunity to own this market,ā Tim Osborne, a former director on the HoloLens team at the time, told the newspaper. But Microsoft didnāt put enough people or money behind the effort, he said.Ā
FortuneĀ contacted the company for a comment on the precise number of jobs affected and the rationale for the cost cuts, but officials have not yet responded.
Steep decline in demand in the AR/VR headset market last year
Global shipments for augmented reality and virtual reality headsets across the industry dropped by nearly a quarter last year, IDCĀ figures showedĀ in March.Ā
ā2023 began in much the same way that 2022 ended: with a series of significant year-over-year declines,ā said Ramon Llamas, research director with IDCās Augmented and Virtual Reality program. (Thanks to the arrival of the Apple Vision Pro, IDCĀ forecastsĀ a 44% recovery this year to 9.7 million units.)
MR headsets have suffered from the perceptions that they are too heavy and aesthetically unappealing to justify their premium prices in a world that already has a vast array of useful smartphone apps to help with our daily tasks. Moreover, older VR headsets that offer no camera-enabled passthrough have earned a reputation forĀ provoking motion sickness.
The Microsoft restructuring comes just as the U.S. Army, its largest customer, entersĀ final testingĀ this year of its Integrated Visual Augmentation System (or IVAS) mixed reality headset, which is based on the HoloLens 2.Ā
In September, Brigadier General Christopher SchneiderĀ toldĀ theĀ Army TimesĀ that phase II development of the device had been approved after initial problems related to cumbersome cabling, image distortion and moisture control had been rectified.
āWe remain fully committed to the Department of Defenseās IVAS program,ā Microsoft added in its statement.
The software company founded by Bill Gates and Paul Allen hasnāt had the most successful record when it comes to devices. Products like the Zune MP3 player and Lumia smartphoneĀ floppedĀ while even the more successful Xbox gaming console isĀ trailing its two main competitors.Ā