Microsoft's $22 billion AR headset deal with the U.S. Army could be in serious trouble

Hololens Us Army 2021 Microsoft Press
Hololens Us Army 2021 Microsoft Press (Image credit: Microsoft)

What you need to know

  • In March 2021, Microsoft announced it'd secured a deal to produce HoloLens-esque augmented reality headsets for the U.S. Army.
  • Since then, the project has seen hurdles and obstacles.
  • Now, according to a new report, Microsoft's $22 billion contract could be in jeopardy.

In March 2021, Microsoft announced it'd secured a contract to produce augmented reality headsets for the U.S. Army. The deal was valued at approximately $22 billion.

Since then, a lot has changed. The Integrated Audio Visual System (IVAS) project (the codename for the military-attuned HoloLens variant being developed) has seen delays, and the division within Microsoft responsible for the device is reportedly not in a good place, what with HoloLens 3 being canceled and teams unsure of their company's overall augmented reality strategy. All this has been happening against a backdrop of augmented reality experts hopping ship from Microsoft to Meta and other competitors, no less.

Now, in a new Insider report, it's detailed that delays were just the tip of the iceberg. Microsoft's IVAS ambitions apparently aren't going well, with some people "close to the project" fearing that the Army will ditch the deal altogether due to its current state.

The report indicates that Microsoft expects negative feedback on its submissions to the Army, knowing its IVAS units aren't where they need to be to please the customer. Congress also recently cut the contract's procurement funding, putting almost half of it "on hold," further impacting the stability of an already troubled deal. The amount left available to Microsoft, $405 million, is not enough for the company to recover its costs on what's being produced.

IVAS is due for field testing in May, so a negative outlook ahead of smaller testing events is less than ideal.

At the end of the report, it's noted that Alex Kipman, the creator of HoloLens, hasn't been happy with Insider's articles exposing internal dynamics at Microsoft, even though he publicly said "don't believe what you read on the internet" in response to those very same articles.

Robert Carnevale

Robert Carnevale is the News Editor for Windows Central. He's a big fan of Kinect (it lives on in his heart), Sonic the Hedgehog, and the legendary intersection of those two titans, Sonic Free Riders. He is the author of Cold War 2395. Have a useful tip? Send it to

  • If this fsils and it seems likely to happen, if Microsoft can't pull a rabbit their hat, I wonder how it will affect future AR technology. I would love to see this contract to become successful, because military testing and application of this technology could mean better advancement in the consumer market in the future.
  • "I wonder how it will affect future AR technology" I doubt it will matter to AR technology at all, there are plenty of other players. Now, as for Microsoft AR technology, this would likely be a heavy blow.
  • I would be surprised if the government doesn't just cut its losses and cancels the rest of the contract giving an unceremonious end to Holo Lens.
  • So Augmented Reality with the military is alternative reality? Or just not reality?
  • The fact that Microsoft doesn't seem to be aware of is these technologies would benefit tremendously from a consumer led approach rather than an enterprise led approach. Enterprises are risk adverse which leads to a challenging and reluctant environment that needs a constant feedback loop and iteration. Same with the Surface Duo. It is fine if MS wants to embrace Android, but they should have developed some in-house competency and general Android expertise by releasing various traditional Android phones ahead of something crazy like the Duo.
  • I disagree with the Duo side. As a user myself this is the best device on the market for business. I own a surface pro 7 and a duo. Before I had my duo I had a note 8 but when on site I would often use my surface over my phone due to the single screen and functions that were better o a laptop. Now I have the duo I use my laptop less and less each day. Even editing videos it's soo easy on my due making it span across 2 screens. Editing my website where I need to copy info from one page to another again hits this on the head. Even uploading to YouTube and ripping videos at the same time. The other day I was in Partner portal on one screen and our Bitwarden systems on the other screen to get info I needed. Granted the duo is not for everyone but business it is. Issue Microsoft has is selling it. Issue the so called tec reviwers have is they compare to a iPhone and it's not like that at all and designed to work for productivity. As for a normal Microsoft phone I don't want to see that they have bad image for public hence windows phone not doing to well and marketing is poor. Only xbox really dose well for public side and that is due to not having Microsoft plastered all over it.
  • I agree 100 % I also find the Duo 2 the best device for actually getting work done on the Go. By the way what app are you using for video editing?
  • Duo is compared to iPhone as a normal phone and also to Samsung’s Fold. The Fold is just as productive, if not more productive as you have the choice of using a single large screen without a seam.
  • The fold and duo have their pros and cons. Productivity is not solely device dependent. It also depends on the user.
  • except that the Fold is not as productive or convenient as the Surface Duo 2...
  • How's the Fold less productive? It can do two or even three apps as well as one large one. Duo can only do two apps, and spanning. If anything, Folder is much more productive.
  • Nah, a consumer version won't help this in any way. I'd argue what may have hurt them is trying to do both together rather than focusing on the contract at hand. Too many opposing forces and directions led to chaos and failure.
  • What the Army wants and what Microsoft can deliver in 2022 are two different things. Microsoft could likely get close to delivering it in 2032, but I just don't think the technology is completely there yet. The Army wants a precision tool that can be drug through the mud, thrown against the wall, and then put on the head and provide useful information. HoloLens needs another decade of R&D to work that out.
  • Companies used to dealing in "1 & 0", never do well in real world "dirt under the fingernail" applications. You see this everywhere when AI, big data, and digital twins..... are used in blue collar applications. These are always well funded ideas of high brow liberal arts degree people, or book smart technical people that have never done real dirty work, or solved a life savings problem with duct tape. In order for this to ever work, you needed the guys with dirt under their fingernails, to lead the effort....all the others provide support roles, and LISTINEN to the wisdom of real world experience. Until then.... I agree give AVR to consumers and gamers..... useless in the real world.
  • Could it be because HL is useless utter sh*te? hmm
  • HoloLens is clearly not in the same caliber as F35, so, they are not as immuned to cancelation as F35. But, saying HoloLens is in trouble with just a few hickups? I mean lol, we are talking about government speed here, as long as they are faster than DMV, they are fine.
  • Until they have a breakthrough in input methods, all these AR devices will fail. This technology hasn't been figured out yet. Even though it seems like Hololens has been the best so far, it is still far from "there".