A slew of new product introductions indicate virtual reality technology is coming into its own — but it’s a sector that is still waiting for a breakthrough product to win over consumers.

Following several product entries into the emerging field of virtual reality from companies like Samsung, Sony, Canon and Facebook’s Oculus Rift project, Microsoft recently launched the HoloLens, an augmented reality headset, and HoloStudio, a software development kit for the product, in hopes of jump-starting a market that could impact areas from gaming and entertainment to collaboration and business.

Microsoft’s move to make augmented reality applications a part of a ubiquitous software platform like the company’s Windows 10 operating system could prove to be a big validation of the technology. Broadly defined, virtual reality (VR) encompasses a set of technologies that places the user in a computer-generated, three-dimensional environment. Augmented reality mixes the physical with the virtual, layering computer-generated objects and information onto the real world.

“When the leading investors and companies in Silicon Valley all make bets on something as ‘the next big thing,’ it has one of two implications: They are very right, or very wrong,” says Kevin Werbach, a Wharton legal studies and business ethics professor. “The basic idea that VR and augmented reality will eventually catch on because they add richness to our interactions with computers seems sound. The key questions are when, and how broadly, adoption spreads.”

“When the leading investors and companies in Silicon Valley all make bets on something as ‘the next big thing,’ it has one of two implications: They are very right, or very wrong.” –Kevin Werbach

For its part, Microsoft is betting that the time for augmented reality is now. At its Windows 10 preview event in Seattle on January 21, the company demonstrated a variety of uses for HoloLens, including a virtual plumber guiding a do-it-yourself project and an augmented reality version of the open-ended world-building environment Minecraft, which came into the Microsoft fold with its September purchase of video game developer Mojang. HoloLens can create the illusion of an interactive hologram-like figure similar to the image of Princess Leia beamed out of R2D2 in the first Star Wars movie.

At the Windows 10 event, Microsoft CEO Satya Nadella said the HoloLens effort is a part of higher aspirations for Windows. “We want to move from people needing Windows to choosing Windows to loving Windows,” said Nadella, who also highlighted how Microsoft and NASA were collaborating with the HoloLens technology to control Mars rovers in July.

“These are going to be mind-blowing experiences,” said Nadella. “It’s about our innovation going forward: New categories, new experiences and new opportunities.”

Microsoft’s event came just a few weeks after Facebook’s Oculus Rift held demonstrations at the Consumer Electronics Show in Las Vegas for spatial 3-D audio, games and movies. Oculus Rift was also the centerpiece of several entertainment marketing events at last year’s San Diego Comic-Con. In addition, Oculus Rift has an effort called Story Studio, which creates virtual reality enhanced movies. When Facebook bought Oculus for $2 billion in 2014, CEO Mark Zuckerberg said immersive gaming would be the focus of the company’s initial efforts, but added virtual reality will be a platform for many other experiences.

“Imagine enjoying a court-side seat at a game, studying in a classroom of students and teachers all over the world or consulting with a doctor face-to-face — just by putting on goggles in your home,” Zuckerberg said in a Facebook post announcing the deal. “This is really a new communication platform. By feeling truly present, you can share unbounded spaces and experiences with the people in your life. Imagine sharing not just moments with your friends online, but entire experiences and adventures.” Zuckerberg’s bet, like Microsoft’s, is that augmented and virtual reality will simply become part of daily life.

Of course, virtual reality has a way to go to be an integral part of daily life. And it’s unclear whether virtual reality will first become a business tool or a consumer-facing product. And then there’s the hardware issue; virtual reality headsets are large and bulky. There’s also a question of who will develop the software and applications for virtual reality. In addition, there are concerns that the virtual reality push may fall in the dustbin of overhyped products that includes 3-D television and Google Glass, which has been decommissioned for now by Google.

“We will see how this plays out,” says Peter Fader, a Wharton marketing professor. “HoloLens and Oculus Rift are products with incredible potential and could be transformational. But if they launch the wrong way, they could turn into a joke. We could have Google Glass all over again.”

Business First?

Aside from the Minecraft demonstration, Microsoft’s presentation of HoloLens involved a series of business-focused applications. For instance, HoloLens was shown as a way to educate and collaborate, or to refine engineering designs.

That business-first focus is the best approach, says Fader, who notes that Google Glass would have done better if it started as an industry-specific product. Segway would have also fared better if it was used primarily for security and police uses instead of being billed as a game changing invention for the masses, he adds.

“The nice thing about the HoloLens is that it can work in a broader array of sectors,” says Fader. “But it may be better off being quietly introduced to sectors. The fact we’re talking about it means there’s risk that expectations will be too high.”

Though plenty of consumers are using personal devices at work, Fader’s theory is that so-called “consumerization,” or the emergence of the individual customer as the primary driver of a product, is an anomaly. Products that are rolled out as business tools first usually prove they can scale. Often companies will slowly roll out a product to smaller markets and then expand its reach. Thus, Canon’s strategy, which revolves around targeting its augmented reality software and hardware at specific industries such as health care, makes more sense, says Fader.

Wharton operations and information management professor Kartik Hosanagar agrees that HoloLens is likely to be embraced by businesses and entertainment products first. “The first markets will be in entertainment (movies, gaming), medical (training doctors and surgeons) and military applications,” Hosanagar notes. “It will eventually reach social applications, but again I feel the first applications will be in business.”

“HoloLens and Oculus Rift are products with incredible potential and could be transformational. But if they launch the wrong way they could turn into a joke.” –Peter Fader

According to Wharton management professor David Hsu, there is an interactive element to HoloLens that will be good for business collaboration. “Three dimensional rendering could be powerful,” Hsu says. “But to me, HoloLens is clearly a gaming and entertainment application first.” Hsu’s take isn’t a huge stretch, given that Microsoft also owns the Xbox gaming system. It’s possible that HoloLens could become an add-on to the Xbox much like the Kinect motion sensor did. “Microsoft’s use cases feature business, but things like complex engineering aren’t going to be something we all encounter a lot.”

Gaming and movies could be an easy way to highlight the technology and then move into business, says Hsu.

“I think we’ll see adoption of VR in entertainment first because it’s much easier for people to accept wearing a headset and stepping beyond the ‘real’ world for the coolness factor,” says Werbach. “There will also be business situations where immersive visualization is particularly valuable, such as an architect designing a building, or distributed meetings in which high-fidelity human interaction is important. Those are both huge markets, even if they [account for] a sliver of the time that we use computers.”

In the long run, Werbach says that the collaboration enabled by VR will be significant. “Facebook buying Oculus was a bet that VR will have a place in social networking, but there is an even stronger case for business networking,” Werbach notes. “One day, people will wake up and realize that conference calls are an awful way to conduct globalized business.”

Wild Cards

How long will it take for VR to hit its stride and become a mainstream technology? Hsu acknowledges that product cycles have become compressed, and that there are many wild cards that could come into play as VR products are developed. One killer app, for example, could quickly garner wider public acceptance for the technology. “Instead of technologies taking five to 10 years to be developed, it could now be two to three years,” says Hsu.

Hsu says there are multiple technologies that may better enable VR technology. For instance, 3-D printing has become increasingly common as a way to manufacture some products. Consumer applications for 3-D printing have also gathered momentum. Companies like Hewlett-Packard are projecting a day where physical and virtual realities work together, Hsu notes.

The future of virtual reality will likely depend on the quality of the content created for these new devices. Companies like Microsoft and Oculus need software developers to create new applications and entertainment firms to generate compelling content. VR will need a killer application that brings a mass audience to the technology. “It’s a chicken and egg problem,” says Hsu.

“Instead of technologies taking five to 10 years to be developed, it could now be two to three years.” –David Hsu

That chicken and egg conundrum is one reason why Microsoft launched HoloStudio, a software developer kit that is tied into Windows 10. Microsoft hopes to make developing VR applications as easy as building software for Windows.

Forrester analyst James McQuivey said in a research note that Microsoft’s developer strategy could give VR adoption a boost. “By building [holographic computing] into Windows 10 and demonstrating these kinds of applications, Microsoft is creating something more like an open web browser — and all that this implies about the power that it would give Microsoft — than a closed Xbox-like ecosystem,” said McQuivey. “Any company can use Windows 10 to add holography to existing applications or services. And anyone can build a headset that exploits Windows 10’s holographic computing capabilities.”

McQuivey also said that Forrester expects Google and Apple, two companies with their own armies of software developers, to enter the VR fray.

According to Fader, however, Microsoft is likely to push HoloLens to market too soon — possibly for the 2015 holiday shopping season — as part of Xbox. Microsoft, which has its own game titles, can also create the content for HoloLens. “The risk is that Microsoft will blast this out too fast even though there’s no compelling reason to get the technology out there,” says Fader.

Werbach notes that augmented reality may become the norm before VR because it is easier to find value added information and the content can be delivered on current smartphone and tablet screens. Google Goggles, which allow someone to take a cellphone picture and get additional information, and Google Translate, which translates languages, are examples of augmented reality applications.

“One of the interesting land mines for VR is that some people find it disorienting and nausea-inducing,” says Werbach. “I don’t know how fixable or widespread that problem is, but it should give us pause in envisioning VR becoming ubiquitous.”

Lessons from Google Glass

The lessons of the Google Glass experiment color views of VR’s potential. Google said on January 15 that it would halt public sales of Google Glass Explorer edition products. The glasses, which went for $1,500, captured a lot of tech buzz, but failed to define a compelling need for the product.

In a blog post, Google said that the Glass program would be shut down “so we can focus on what’s coming next.” Various reports indicated that Tony Fadell, a former Apple executive who joined Google via the Nest acquisition, would take over design.

Fader says that Google Glass became a mainstream topic too fast. Fortunately, HoloLens and Oculus Rift won’t be worn in public during people’s daily travels — the way Google Glass was meant to be — given that they’re too bulky, notes Fader.

Social acceptance aside, Fader says HoloLens should stay small and focus on business. “If you look at success stories like the personal computer, they trickled down,” says Fader. “If you go too big too soon, you’re Segway or Google Glass.”