Virtual reality headsets are almost universally viewed as the next big thing. The best known VR company, Oculus VR, which was acquired by Facebook last year, will finally launch its Oculus Rift headset in 2016. Competitors like Sony's Project Morpheus won't be far behind.

Despite the promise of VR, I'm far more excited about Microsoft's (NASDAQ:MSFT) HoloLens, an augmented reality headset that projects holograms into the world by tricking the eye. Microsoft has made a big deal about the gaming applications of the HoloLens, showing off Minecraft during the E3 conference, but the device has potential applications far beyond the world of gaming, both for consumers and for businesses.

While the first iteration of the HoloLens will almost certainly be both limited and expensive, the technology could very well redefine personal computing.

What is it and how does it work?
You can see objects in the world because light that bounces off those objects eventually reaches your eye. Your brain does a bunch of complicated things with this incoming light, ultimately constructing the image that you see in front of you. The HoloLens essentially tricks your brain, sending light into your eye in such a way that the holograms that the device produces appear to exist in the physical world.

Hololens

Photo: Microsoft

Like in the image above, the HoloLens can project a screen onto a wall, for example. As the user walks around, the screen remains in the same place, just as though it were a real, physical monitor. The HoloLens sends light into your eye in just the right way that the screen appears to actually be on the wall.

The HoloLens itself is a stand-alone computer. Unlike VR headsets like the Oculus Rift, which require a high-end PC in order to function, the HoloLens has its own CPU, GPU, and what Microsoft calls a holographic processing unit, which is likely responsible for all of the calculations necessary to create the holograms. No firm launch date has been announced for the device, but based on the demos shown at E3, the HoloLens appears to be nearly ready to go.

Unlimited potential
The first version of the HoloLens is very likely going to be expensive. I wouldn't be surprised to see a price tag approaching $1,000 for the consumer version. This means that it certainly won't be a mass-market device in its first iteration. VR headsets won't be either, because the Oculus Rift requires a $1,000 gaming PC in order to function.

The HoloLens is also bulky -- it's not something you would walk around wearing in public. This limits its usefulness, but it's a problem that will likely be solved with future iterations. You could imagine a future version of the HoloLens being closer in size to a typical pair of glasses, and costing just a few hundred dollars.

On the consumer side, there are plenty of possible applications for the HoloLens, although the first iteration of the device will likely be limited in what it can do. Instead of buying a 60" TV, for example, the HoloLens could allow a user to simply project a TV screen onto the wall, resizing it at will.

If a future version of the HoloLens is compact enough, you could imagine someone driving a car receiving directions not from a screen, but through holograms projected onto the road itself. And of course, gaming will likely be a major selling point.

On the business side, the obvious application of the HoloLens is visualizing 3D models or designs. But the HoloLens could also be used for things like videoconferencing and meetings. Another possible application could be online retailers allowing HoloLens users to visualize its products as holograms. Imagine being able to visualize a piece of furniture in your home before buying it. The possibilities are endless.

Since the HoloLens runs Windows 10, universal applications should run on the device without issue, projected in front of the user, and able to be manipulated. Getting developers on board is going to be the key for Microsoft, as the most compelling applications for the device probably have yet to be dreamed up. Despite the impressiveness of the HoloLens hardware, it will take compelling applications in order to convince consumers and businesses to give it a try.

Microsoft may have a revolutionary product on its hands. The last great advance in personal computing was the smartphone, and I'm willing to bet that the next great advance will be the HoloLens, or something like it. It may take a few iterations before the HoloLens becomes a mass-market device, but I think there's a good chance it ends up being a game changer for Microsoft.

Timothy Green has no position in any stocks mentioned. The Motley Fool both recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.