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Report: Microsoft in talks to buy Israeli VR firm

The software giant is said to be on the verge of paying $35 million for 3DV Systems, which makes the ZCam, a tool that could help Microsoft take on Nintendo and its Wii console.

The ZCam, from 3DV Systems, which is rumored to be in acquisition talks with Microsoft. Jared Kohler/CNET Networks

Microsoft hopes the acquisition of a virtual reality start-up will give it another trick up its sleeve in the game console wars, if one report proves true.

As anyone who has been following the video game industry over the last couple of years knows, Nintendo's Wii console has been the runaway sales leader.

In the early going of the so-called "next generation" of consoles, which began in late 2005 with the release of Microsoft's Xbox 360 and continued a year later with the launch of the Wii and Sony's PlayStation 3, each company tended to refer to the "console wars" as being a battle between the three.

But more recently, as the Wii has vaulted far ahead of either the Xbox or the PS3, Microsoft and Sony have recast the console wars as being just between the two of them; They argue, instead, that the Wii is a very different kind of machine and that, in fact, many Xbox or PS3 owners also own a Wii.

Semantics aside, it's clear that Microsoft and Sony have long since determined that their consoles might never catch up to the Wii in total sales, especially if they don't do something drastic to compete with the Wii's intuitive motion-sensitive controller, the Wiimote.

That might explain why Microsoft is in negotiations to spend around $35 million to buy Israeli start-up 3DV Systems, as is being reported by the Israeli daily Haaretz.

With its ZCam, a 3D camera that connects directly to a PC, 3DV was already hoping to be a player in the video game space, since the camera was designed to let players control games entirely with their hands.

The ZCam was designed to put out short infrared pulses and then measure the reflections off objects. Then, the system's algorithms interpret the reflections, allowing it to judge the distance of, and distinguish between, different objects.

In late 2007, 3DV vice president of marketing and product management Tomer Barel told CNET News that the ZCam is built to focus on a gamer's hands, even distinguishing between his or her fingers, and that it can run a variety of applications depending on what the person is doing with their head, torso, hands, or fingers.

At the time, Barel said 3DV was looking to license its technology, perhaps even to one of the main console makers.

Now, however, Microsoft finds itself looking for ways to bolster sales of the Xbox, despite strong sales over the last couple of years. As such, the ZCam, if recast as an Xbox 360 accessory, could provide a boost to the Xbox and help the console appeal to the same kind of broad audiences that the Wii does, in large part because of the flexibility of the Wiimote.

Microsoft declined to comment for this story.

But Haaretz said definitively that, "Microsoft is negotiating to acquire...3DV Systems for about $35 million, despite the alarming condition of the global economy and grim forecasts of more pain to come...Microsoft apparently plans to use 3DV Systems' technology in its own gaming technology, probably in the Xbox 360."

If this were the case, then, it would likely be a big move for Microsoft. While the ZCam was still quite a way from prime-time readiness in 2007, it is surely much further along now, and if Microsoft were to acquire 3DV, the company would seem to have a high degree of motivation to expedite integrating the technology with its own gaming system.

Given that consumers have demonstrated their attraction to the Wii and its Wiimote, it would seem to be a very smart decision for Microsoft to find some kind of technology for the Xbox that could provide a similar attraction. And though the economy is in shambles right now, $35 million is pretty small potatoes for a company like Microsoft, especially for a technology that could help it sell hundreds of thousands or even millions of consoles over the next few years.