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Okay, why can't you see this happening? Search augmented reality and it'll bring up a Howstuffworks.com page.
The very fact that there is a "how stuff works" page on this pretty seals it, as far as I'm concerned. Did you
see their article on the Rev? I mean, this is a site that honestly believes researches have broken the speed of light by shining a lazer at a curved mirror. You'd be better off reading the National Inquirer, it's at least funny.
It won't happen first because it would require you to lazer-image everything in the environment in order to have the game properly interact with it, a process as expensive as it would be tedious and pointless. Unless you happened to be an expert in 3-d modeling, in which case you could use a level editor and do it by hand, I guess. Second, I can't think of any reason to believe someone will find a workable display. Workable requires reasonable power requirements (especially given that you have to have a portable device capable of generating near-photorealistic graphics running of the same power). It also has to be small, completely transparent, and somehow allow your eyes to focus properly. "Augmented reality" is entirely faith-based, in that the people who want it to be true simply assume that all the necessary technology is possible and will simply be discovered in a matter of time. It's much like cold fusion that way. Third, it's the ultimate g immick. How many games would be improved by playing them in levels exactly corresponding to your house? 0. After the first ten minutes, when the novelty of walking arund your house while playing a video game wore off, you would just be playing a video game with monotonous (and bad) level design. (Want to play outside? Guess what? You get to lazer-image everything
there too! Hurray!) Finally, if all the previous hurdles were miraculously to evaporate, the expense would just be mind-boggling.
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Could you imagine walking around while millions of tiny marios scatter every which way as the panic for dear life. They would hide in your closet, or run behind the couch.
Wow, yes, this certainly would be mildly amusing for a brief period of time. Quite worth investing thousands-millions of dollars and pouring God knows how many hours of my life down the drain.