Microsoft – single vision.

The end for HoloLens?

• Part of Microsoft’s 5% workforce reduction includes “changes to our hardware portfolio” which probably does not mean Xbox or Surface meaning that it is almost certainly HoloLens that is taking the hit throwing Microsoft’s Metaverse ambitions into even more uncertainty.
• HoloLens was once a trailblazer launched in 2015 demonstrated by Joe Belfiore shooting aliens behind a sofa.
• At the time it was the best in its class and was followed up by version 2 in 2019 by which time the focus had wisely shifted to the enterprise.
• However, since 2019, HoloLens has languished as there has been no HoloLens 3 (I think cancelled) meaning that far cheaper competitors like nReal and Magic Leap now have a better product in a smaller form factor.
• Microsoft has a wide selection of assets such as HoloLens, Minecraft, Xbox and Activision (maybe) that could together provide the foundation of a strong Metaverse offering.
• Furthermore, Microsoft and Meta have been creeping closer and closer together over the last 5 years or so and there is scope for a wide collaboration between the two to offer a single Metaverse for both consumers and the enterprise.
• However, the layoffs support RFM research’s conclusion (see here) that Microsoft’s Metaverse strategy is in disarray with all of the components in pieces on the table and its executives standing around wondering what to do next.
• That being said, Microsoft did win a significant contract with the US Army for AR equipment which Congress then declined to fund meaning that some of the layoffs may be due to the curtailment of this product.
• Despite this, I doubt it is all of the layoffs as it would be unwise to commit a large amount of resources to a government product that has not been funded.
• Hence, I think we are seeing cuts being made to the core HoloLens product which in the absence of a new product looks increasingly like it will soon be no more.
• This is a strange move for a company that just a year ago announced the $69bn acquisition of Activision that was meant to “provide building blocks for the Metaverse” in addition to building its presence in games.
• This leads me to believe that this was just marketing spiel aimed at selling the acquisition to investors using the buzzword of the moment.
• The reality is that Microsoft seems to be deliberately falling behind in the race to the Metaverse which I find surprising because it is the enterprise metaverse that is likely to emerge many years before the consumer version (see here).
• As an enterprise-focused company, this would imply that the real opportunity for Microsoft in the Metaverse will occur long before many other players meaning that it should be investing now rather than waiting.
• Microsoft made a total mess of the smartphone transition and at this rate, it seems to be repeating that feat in the Metaverse.
• I continue to think that Microsoft looks expensive in a value-oriented market and would look elsewhere.