If virtual reality is going to change everything about the world, its impact will be felt first in the video game industry.

It seemed in recent months that the battle lines were becoming clear as competing headsets were being built by Facebook-owned Oculus, HTC and Valve, Sony, and Microsoft, with the first commercial release dates set for 2016.

Now Microsoft has suddenly thrown in its lot with Oculus.

Oculus held a press conference to fill in a few key details about the headsets.

The company said it would begin selling the devices by the end of March 2016, announced a US$10 million fund to help independent developers make Oculus games, and demonstrated prototype controllers that players will hold in each hand to navigate virtual environments.

Brendan Iribe, the company’s chief executive, said the headsets will ship with Xbox controllers, and he described how Oculus will have a “tight integration with Windows”.

He said players will be able to stream Xbox One games onto the Oculus headsets.?

It’s not yet clear how developments in the virtual reality industry will play out. Customers and developers have yet to cast their votes as to which headset should win.

What it means for Microsoft?

For Microsoft, Oculus allows a way into virtual reality without having to do a lot of heavy lifting. If Oculus takes off, Microsoft shares in the success.

If it doesn’t, Microsoft won’t have much on the line.

A significant prize would be a boost in the gaming console market. The Xbox One has been trailing Sony’s Playstation since they were introduced in late 2013.

But while the companies say gamers will be able to stream Xbox one games on the Oculus headset, this isn’t quite the same thing as turning Oculus into Xbox’s version of Sony’s Morpheus, a virtual reality device designed to work directly with the console.

Hedging bets

While virtual reality blocks your senses to place you in a new world, augmented reality allows you to stay in the real world while seeing digital imagery integrated into reality.

Virtual reality is something the entire hardcore gaming industry has jumped at, but Microsoft is currently the only big player working on augmented reality.

Flexibility

Merel of Digi-Capital thinks augmented reality could end up being a more important technology than virtual reality because it is inherently more portable than a headset that completely blocks your natural vision.

His company forecasts that augmented reality could be a US$120 billion industry by 2020, with VR topping out at US$30 billion and being more tightly focused on gaming and 3D entertainment.