UPDATED 20:15 EDT / MARCH 31 2021

EMERGING TECH

Microsoft wins potential $22B contract to supply HoloLens AR headsets to US Army

Microsoft Corp. has won a multibillion-dollar contract to supply customized HoloLens augmented reality headsets to the U.S. Army.

The contract, announced by the Army today, could be worth as much as $21.88 billion and will see Microsoft supply more than 120,000 headsets over the next 10 years.

Microsoft has reportedly been developing the Integrated Visual Augmented System since 2015. It’s based on the consumer HoloLens VR headset and augmented with Microsoft Azure cloud services. With the HoloLens, users can see holograms that overlay the actual environment they’re in, and they can interact with the virtual world it creates using hand and voice gestures.

The IVAS headsets also display a map and compass and add thermal imaging capabilities that help soldiers to identify people in the dark too. In addition, the devices combine a weapons targeting system to help soldiers aim, according to a CNBC reporter who tested a prototype device in 2019.

In a 2015 blog post, Microsoft technical fellow Alex Kipman wrote that the IVAS headset is designed to keep soldiers safer and make them more effective. “The program delivers enhanced situational awareness, enabling information sharing and decision-making in a variety of scenarios,” he said.

The Army began testing the IVAS headsets in 2018 after handing Microsoft a $480 million contract to build prototypes. CNBC said today’s contract is to supply production versions of the IVAS. The Army said IVAS system will be used by soldiers in training, rehearsals and fighting situations.

The contract reportedly has a base period of five years, with a second five-year option if the Army wants to renew.

“This is a major win for Microsoft, which never gave up on the HoloLens,” said Constellation Research Inc. analyst Holger Mueller. “Its main competitors, Google and Facebook, ran out of steam and investment a long time ago so the DoD didn’t have too many options where to go. Hopefully this will move the HoloLens and augmented reality tech forward to its next generation, with a larger mixed-reality field of view and better battery life.”

For Microsoft, the contract is another big government contract win that will only help to strengthen its ties with the U.S. military. It follows a key contract the company won in 2019 to provide the U.S. Department of Defense with key cloud computing services. That contract, known as the Joint Enterprise Defense Initiative, could be worth up $10 billion, though the award has proven to be controversial. Amazon Web Services Inc. has challenged the decision in the federal courts, preventing Microsoft from delivering any services so far.

Today’s deal is also a significant vote of confidence in Microsoft’s decision to focus its attention and investments on augmented reality as opposed to conventional virtual reality, like Facebook Inc. has done with its Oculus VR headsets, said analyst Charles King of Pund-IT Inc. “The U.S. Army’s substantial investment in Microsoft HoloLens also offers additional proof of the value AR solutions can offer to technical and professional training processes,” he added.

Analyst Rob Enderle of the Enderle Group told SiliconANGLE that Microsoft was smart to realize that AR and VR technology is better suited to the scientific and industrial markets than the consumer markets that other companies have focused on. “This professional focus has resulted in Microsoft becoming the company to beat in AR and it shows why its solution, which includes both hardware and software, is arguably the most mature of them all.”

The deal shows that Microsoft is the only company that’s able to deliver an end-to-end, commercial AR platform. Patrick Moorhead of Moor Insights & Strategy noted that the IVAS devices include not only the HoloLens headset, but also integrate an operating system, core AR apps, a development environment, compute edge and public cloud capabilities.

Investors liked the deal too, as Microsoft’s stock rose 1.7% after the deal was announced.

The IVAS headsets deal will likely attract its own controversy, though. A number of Microsoft’s own employees protested the original contract to supply prototypes to the Army on ethical grounds, and in a letter to the company they asked it to cancel the contract. “We did not sign up to develop weapons, and we demand a say in how our work is used,” the employees wrote.

Microsoft Chief Executive Satya Nadella chose to ignore those demands, though, telling CNN in a 2019 interview that the company made a “principled decision” that it will not withhold technology from institutions in elected democracies that can help to protect the freedoms their citizens enjoy.

King told SiliconANGLE that he understood some employees may have concerns about the HoloLens tech being weaponized, but he said such contracts are a fact of life for just about every major tech company, and Microsoft’s executives ultimately have to go with the business deals that provide the best opportunities for it.

“If those decisions offend or clash with the beliefs of workers, those individuals and groups will have to decide whether they want to continue as Microsoft employees,” King said.

Moorhead pointed out that a lot of technology ends up in the hands of the military anyway. “High-performance computing systems are purchased by every large country to simulate nuclear explosions, design the latest missiles and fighter jets,” he said. “Off-the-shelf, high-performance chips like FPGAs and CPUS are used in cruise missiles.”

In any case, Microsoft may be able to satisfy those employees simply by moving them to other projects. “Microsoft has weathered this storm far better than Google so far, and its employees are relatively mobile,” said Enderle. “They can move to less upsetting projects if they want to.”

For its part, the Army has suggested that the headsets could actually prevent the killing of citizens by helping soldiers better identify their enemies.

Photo: Microsoft

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