Microsoft may have already bested Magic Leap, one of the most anticipated startups of 2017

The secretive startup called Magic Leap is working on a pair of glasses that will impose images and interactive video onto the real world. But it may have implied that its products will be more spectacular than they really will be when the first generation start shipping sometime next year, former employees have told The Information's Reed Albergotti.

The initial demos of the technology, done under non-disclosure agreements, promised a phenomenal experience with YouTube marketing videos seemingly validating the hype. Investors have been so impressed, they've poured $1.4 billion into Magic Leap and valued the company at $4.5 billion.

However, these videos were done using regular Hollywood special effects and were not actual demos of the technology, Albergotti reports. And the technology demonstrated to investors required such big, bulky and expensive prototypes, that the first commercial glasses won't make use of a lot of that tech, according to employees talking to The Information.

There's one company that's probably loving this thought: Microsoft.

Microsoft's HoloLens is an augmented reality headset that is the nearest direct competitor to what Magic Leap is building. But HoloLens is already here with apps and commercial customers like Autodesk and Volvo.

Early mover

Microsoft's $3,000 Developer's edition of HoloLens is available now for developers to write apps.

Plus, the underlying technology is embedded into Windows 10 and manufacturers like HP, Dell, Lenovo, Asus and Acer have already signed on to build their own Windows 10 AR headsets. Microsoft confirmed just this week, that such headsets will be available at prices starting at $299.

Magic Leap's founder and CEO Rony Abovitz shrugs off Microsoft's lead in the market, telling the Information "If we're Coke and they're Pepsi, it's actually good, because you need people creating a market for soda," he said. "They validated us and increased the number of investors banging on the door."

But the reverse is also true. After Microsoft missed the entire smartphone mobile market trying one failed strategy after another, this time no one can accuse Microsoft of missing the boat on the next-generation of devices. Not even its biggest and most hyped competitor.