Microsoft Struggles to Succeed in the Metaverse With HoloLens – Tech News Briefing

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Zoe Thomas: This is your Tech News Briefing for Monday, October 31st. I’m Zoe Thomas for the Wall Street Journal. Years before the metaverse became the buzzy future tech that everyone was talking about, Microsoft was making an early play in the space. The company introduced its augmented reality headset HoloLens seven years ago. But despite what might seem like a head start, HoloLens hasn’t really taken off, and the unit working on it is bumping up against the limits of the technology and the patience of company management. On today’s show our tech reporter Aaron Tilley joins us to discuss the problems that are holding HoloLens back, and what it means for Microsoft and other company’s ambitions in the Metaverse. That’s after these headlines. Elon Musk is moving quickly to put his mark on Twitter after completing his purchase of the social media company last week. According to people familiar with the matter, Twitter is drafting plans for broad layoffs. One source says those cuts will affect engineering positions, as well as other areas of the company. Twitter had announced plans to reduce staff earlier this year due to economic conditions and a slowdown in advertising. The loss of ad revenue could become an even bigger issue for Twitter. Some advertisers expressed concerns about Musk’s stance on content moderation. General Motors said last week that it was pausing its paid advertising on Twitter in the wake of the purchase, saying it wants more information about the site’s direction under its new ownership. Musk has said he wants to move away from advertising, which is currently Twitter’s main source of revenue. He’s floated the idea of expanding Twitter’s subscription business, but as our global tech editor Jason Dean points out, that comes with its own challenges.

Jason Dean: There isn’t really a good precedent for a successful subscription model in social media, the way social media has been done doesn’t lend itself in an obvious fashion to a subscription model, and Twitter has its own, which we haven’t heard clear numbers about, Twitter Blue, but there’s no indication that that’s taken off in a big way. That said, he’s a creative guy, he’s an outside the box thinker, and it’s possible he’ll come up with ways of doing this that are more effective than those that have been tried before.

Zoe Thomas: Russia says it could target US commercial satellites if they’re used to help Ukraine. A senior official from Russia’s foreign ministry told state TV last week that if US satellites were used to aid Kyiv, they may be a, “Legitimate target for a retaliation strike.” The threat could affect companies that have pledged to help Ukraine, like Elon Musk’s SpaceX, or satellite businesses that contract with US national security agencies. Musk recently pledged that SpaceX would continue to fund the Ukrainian government’s access to its Starlink satellite internet system. And advertisers are turning to deep fake technology using digitally altered videos to make it look like Hollywood celebrities and other A-listers are promoting their goods earlier this month real estate investment startup reAlpha released a promotional video that featured a simulated Elon Musk tied to a chair, and in a marketing video from September, machine learning company Paperspace showed talking semblances of actors Tom Cruise and Leonard DiCaprio. The issue is that none of the men have spent time filming the campaigns, or even agreed to endorse the companies in question. Patrick Coffee, a reporter for the Wall Street Journal CMO Today says the companies behind these ads are pushing the boundaries of how a person’s image can be legally used.

Patrick Coffee: And their argument is that in these cases the material is satirical or educational so it can’t be treated legally in the same way as an ad. On the other hand, the lawyer that I interviewed said that in the case where a company is using the name and a visual approximation of a celebrity’s face in a very obviously promotional context, that person could the theoretically bring a case against the company and have a good claim, whether they will actually do so is another matter.

Zoe Thomas: Okay, coming up, HoloLens launched Microsoft into the metaverse years ahead of competition, so why isn’t it a bigger deal now? We’ll discuss after the break. Both virtual and augmented reality are elements of the metaverse, but some people think AR is the bigger business opportunity. One company that entered the AR space pretty early on is Microsoft. It unveiled its HoloLens headset in 2015 and put it on sale the next year. The device sits on a user’s head like a crown and a screen over their eyes overlays digital images onto their view of the real world. But in its efforts to make HoloLens a profitable product, Microsoft has run up against a number of stumbling blocks. Joining us to discuss what those are and what it means for Microsoft’s prospects in the metaverse is our tech reporter, Aaron Tilley. Hi Aaron, thanks for joining me.

Aaron Tilley: Hey, thanks for having me.

Zoe Thomas: So Aaron, can you just start by explaining what HoloLens was originally built for?

Aaron Tilley: So it started out as this idea around the future of gaming consoles, and it morphed as the company shifted and was placed under the Windows division, so it became both a idea around productivity as well as gaming, it was anything developers could dream of it as. So they brought it out for developers, and over time consumer adoption they realized was not going to happen, it was way too expensive, and so they kind of shifted towards the enterprise, selling to companies, and how workers can use these devices.

Zoe Thomas: Okay, so let’s talk a little bit about the situation now then, who is buying HoloLens?

Aaron Tilley: There are quite a number of large corporations using them. For example, Mercedes-Benz, at US service centers there are technicians wearing them to help repair cars, the cars of their customers. I talk to them, it’s considerably helped them, it’s helped them speed up repair times. And then their single biggest customer here is the military. The US military has this ambitious plan to put these smart goggles on soldier’s face so they can be more effective on the battleground, and assist with training scenarios, and Microsoft won this contract that could be worth nearly $22 billion over the next 10 years.

Zoe Thomas: All right, so how are things going with that military contract?

Aaron Tilley: There’s been a lot of back and forth in terms of usability for soldiers. I spoke with the employees that worked on the project that said it was very difficult for the soldiers to use this device, it was very heavy on their head, it created a lot of eye strain, they could only wear it for short periods of time when they’re supposed to be wearing it for hours, 12, 20 hours out in the field, and it just is not a practical device in situations that are quite life and death.

Zoe Thomas: So there are some challenges to using it, what are things like internally within the HoloLens unit?

Aaron Tilley: Despite some large corporate customers it’s very small volumes, very low volumes, around 300,000 have been sold since it came out in 2016. So in terms of a business, for a company the size of Microsoft, this is minuscule. So it’s really been a challenge for them to figure out the use cases and potentially tap into big markets, and also just advancing the technology is very challenging. Each generation, maybe you’ll get a wider field of view that you can see this augmented reality stuff, but it is not a graceful consumer device, it’s not getting there seemingly anytime soon, and it’s just a huge, huge cost for the company without a ton of return.

Zoe Thomas: I mean, given those struggles, what is it like for the people who work in the unit?

Aaron Tilley: Employees feel quite frustrated for a number of reasons. I’ve spoken to many employees, current, former over the past year, and there’s been a lot of feeling of lack of direction, being overworked, management at times has been troubling. And this is a company that was very early on in this trend, and they have had a considerable amount of talent that has left for places like Apple and Meta trying to do their own smart goggles.

Zoe Thomas: What has Microsoft said about all of this?

Aaron Tilley: Microsoft, they’ve said a lot. Externally you can see them shift towards this idea that their approach to what everyone is calling the metaverse is software defined, it is software based, rather than a hardware based approach, which is their HoloLens products, so they’ve certainly externally backed away. As far as what they’ve told me, they certainly have not said that they’re dropping out of hardware or HoloLens, just that their approach to the metaverse that they call more broadly is a variety of approaches, they have hardware, they have software, they have gaming, which it touches on metaverse as well, so they say they’re committed to it and certainly not backing away.

Zoe Thomas: So where does Microsoft go with the HoloLens now?

Aaron Tilley: Well, they still have enterprise customers they’re serving here, they still have this US military contract, but there was a much more ambitious plan to address the consumer to try to create this mass market product. And the company, it needs to focus in this time, everybody’s preparing for recession, so they cut away a lot of that ambition over the past year. I think it gets to the question of priorities, the company is very focused on its cloud business, how much are they going to prioritize a still very speculative market, and one thing about Microsoft and its history is that they’ve always been pretty good at seeing where technology is going with new types of hardware, but they never managed to execute on that as well as a company like Apple. So I think speaking with many folks reflected that reality, that this is just not in their DNA.

Zoe Thomas: Are there lessons then that other companies that are making a push into the metaverse should be taking away from Microsoft’s experience?

Aaron Tilley: For this to work there needs to be a broad market, there needs to be a mass market, and how are customers going to be motivated to put a headset on? That is a huge lift, it has to be so good, it has to be better than the iPhone, better than a smartphone, and so far no one’s cracked it.

Zoe Thomas: All right, that was our reporter Aaron Tilley. Aaron, thanks so much for joining us.

Aaron Tilley: Yeah, thanks for having me.

Zoe Thomas: And that’s it for today’s Tech News Briefing. If you want more tech stories, check out our website, wsj.com. And if you like our show, please rate and review it. You can do that wherever you get your podcasts. I’m Zoe Thomas for the Wall Street Journal, thanks for listening.

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