by Chris Paggioli | 04/06/2021

Microsoft has won a substantial contract to provide its augmented reality (AR) headsets, the HoloLens, to the U.S. Army. This contract awards Microsoft $21.9B over the course of ten years to provide the U.S. Army with more than 120,000 HoloLens units. The standard HoloLens costs $3,500 MSRP and overlays digital holograms within a user’s environment and view. A user can then interact with the digital elements through hand gestures and voice commands. The HoloLens, among other capabilities, can display a map, a compass, thermal imaging that reveals people in the dark, and even the aim and trajectory of weapons. The AR units are not only useful in action, but also enable valuable training applications. The HoloLens contract has a five-year base period and then a five-year option after that.

This deal makes Microsoft a significant technology supplier for the U.S. military. In 2019, Microsoft beat out Amazon for a $10B contract to provide cloud services to the U.S. Department of Defense. However, these contracts have been met within internal pushback from Microsoft employees, who have asked the company to hold off on the cloud contract and to pull out of the HoloLens bid. These employees claim that they did not sign up to create weapons for the government and demand a say in how their work is used. Microsoft CEO Satya Nadella has defended the contracts saying that the company has “made a principled decision that we’re not going to withhold technology from institutions that we have elected in democracies to protect the freedoms we enjoy.” Many players in the AR industry have also been reluctant to accept government contracts of this nature. Microsoft’s employee’s objections reflect a larger “Tech Won’t Build It” movement; Google employees have also previously pressured their company to drop deals that they determined to be morally questionable. Externally, Microsoft’s $10B government cloud contract also faces barriers of litigation from Amazon.

Regardless of Microsoft’s obstacles, the smart glasses segment has been and is expected to continue experiencing massive growth. This is in part due to COVID-19 pressuring enterprise operations to accelerate their investments in mobile technologies; it is also a consequence of improvements in the technology itself and greater enterprise familiarity with and acceptance of smart glasses. In its recent Enterprise-Grade Wearablesreport, VDC Research estimated that the smart glasses market grew at a 40% compound annual growth rate (CAGR) from 2019 to 2020 and expects that this aggressive pace of growth will continue through 2021. Within the public sector, which includes deals such as the U.S. Army’s HoloLens rollout, growth rate expectations are in the low double-digits.

Microsoft’s HoloLens contract with the U.S. Army is a massive opportunity for the smart glasses category as a whole, as these devices rarely see such a large deployment (120,000 units). This deal will be a huge test for the technology, and will give the smart glasses category the chance prove its performance reliability and efficacy in critical environments at scale. Microsoft’s success with this contract may drastically change technology decision makers’ perceptions of smart glasses for the better, promoting even greater growth and adoption. To learn more about smart glasses, augmented reality, and the growth of these technologies, please look more into VDC Research’s Enterprise-Grade Wearablesreport or reach out to info@vdcresearch.com.