Microsoft's contract with the US Army to produce a combat-ready AR headset could be worth as much as $22 billion if the company can deliver the goods at a “significantly lower” price than the projected $80,000 per unit, the military said Bloomberg. The requirements include absolutely positive field tests, planned for early next year.
Microsoft's custom-built Integrated Visual Augmentation System (IVAS), based on HoloLens 2, has faced many challenges since receiving the Army contract in 2019, including poor field test results due to reliability and ruggedness issues. Despite recent improvements in version 1.2, such as better reliability, screen clarity, and pop-up design, the Army has yet to increase orders.
Although the contract stipulates that the Army may order up to 121,000 Microsoft IVAS, this is pending further field testing from April to June 2025. Army acquisition chief Doug Bush says price is also a “key factor.”
At last week's annual Association of the United States Army (AUSA) conference in Washington, D.C., Bush said the tests “went much better than the first time” and that “a lot of the problems have been fixed.” But the military still needs “something affordable” to get into full production.
Bush said unit cost was “an important factor when senior leaders are deciding next year about moving into production.” The pricing target should be “substantially less than $80,000,” according to the Army statement. Bloomberg protects.
About half the cost bill can be chalked up to the system itself, which includes an AR headset modified with sensors and thermal imaging, a battery, and a chest unit to display information like the location of overhead drones. The remainder includes incremental spending from Army program management to Microsoft engineering and software support. Bloomberg report.
“We're going through the program to identify where we can reduce costs,” Robin Seiler, Microsoft's Mixed Reality and HoloLens chief, told reporters last week. “It's a pretty complex system, so when you look at reducing costs you have to look at it from the component level, the workforce level, and your supply chain.”
Despite all efforts, Microsoft's contract may actually be at risk. The Army is reportedly preparing to hold a new open competition, 'IVAS Next', towards the end of this year, which could completely replace Microsoft as the prime contractor for IVAS.
Meanwhile, to improve Microsoft's chances of keeping the contract, Oculus founder Palmer Luckey's defense startup Anduril has partnered with Microsoft to improve battlefield awareness and deliver battle-ready headsets with its Lattice platform, which integrates real-time threat detection. Survivability by receiving data from unmanned aerial vehicles, ground vehicles and air defense systems.