It’s Decision Time for HoloLens (Premium)

With the U.S. Congress nixing a U.S. Army plan to waste another $400 million on HoloLens headsets, it’s time for Microsoft to figure out what’s next. Indeed, it may have already figured out a way forward, if this week’s layoffs memo this week from CEO Satya Nadella is any indication.

Microsoft, he wrote, was now “allocating both [its] capital and talent to areas of secular growth and long-term competitiveness for the company, while divesting in other areas.” This will include “changes to [Microsoft’s] hardware portfolio.

I initially wondered whether this was bad news for Surface. But Dina Bass, a well-connected Bloomberg reporter put me straight.

“Some of the changes [the Microsoft memo mentioned] relate to the HoloLens goggle and the Integrated Visual Augmentation System, or IVAS, being designed for the Army, said the people, who asked not to be identified because the plans are confidential,” she reported. “Workforce reductions began Wednesday in Microsoft’s mixed-reality group, which makes HoloLens and IVAS, said one of the people. The company declined to comment on the actions affecting the HoloLens group.”

As Ms. Bass added on Twitter, “The troubled HoloLens business … is kind of still in search of a business model that attracts enough customers, and [Microsoft] is running shorter and shorter on time to find it.”

Troubled is putting it mildly. After a rough initial start, Microsoft issued a HoloLens 2 in 2019 that solved the biggest problems with the initial model, most notably by dramatically improving its field of view. But even a well-designed HoloLens needs to find its niche, and HoloLens has rarely done so: the product makes sense in a handful of vertical markets only---I’m a fan of the vehicle designing possibilities, in particular, but there are killer remote help scenarios too---and that’s the problem. There’s no broad, widespread use case for HoloLens.

This explains, I think, why Microsoft betrayed its moral and ethical high ground---you will recall that this is the firm that withheld facial recognition capabilities from law enforcement---and latched onto the U.S. Army in a last-ditch effort to save the platform. But that effort was doomed from the beginning. And when the first hints arrived that this bulky, view-occluding headset might not be the best solution for people holding weapons and being shot at, it should have come as no surprise. Focusing on the Army probably set back HoloLens as a more general platform by years.

The timing of the Army deal is also interesting: Microsoft announced the contract, which might have been worth up to almost $22 billion over 10 years, just as its mammoth $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract was collapsing after renewed scrutiny by The U.S. Department of Defense. By the time the JEDI contract was canceled, HoloLens was there to pick up the slack. Or would have been, had it made any sense at all.

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