Augmenting Reality

Take a stroll through the Plaza San José in San Juan, Puerto Rico, and you'll see on one side of the square the Museo Pablo Casals, dedicated to the famous Spanish cellist. Point a specially equipped mobile phone at the elegant 18th-century building and you'll notice more than the museum. On the device's screen, you can see data on admission prices and video clips of Casals superimposed on the real-world scene.

This view may offer a glimpse into the future. Tech companies are working furiously on what they call augmented reality, or methods of blending digital data with the physical world. They're finding that mobile phones, as they become increasingly capable, may be the ideal device for bridging the gap. "[Augmented reality] will prove to have far-reaching impact," says John Hagel, co-chairman of Deloitte's innovation research center. "It's a tool for navigating cities or learning about services that aren't visible."

The technology in Puerto Rico comes from a Dutch startup called Layar. The company makes free software that any developer can use to associate digital information with a specific location, from the Great Wall in China to the local Wal-Mart (WMT). Any phone with Layar software, including Apple's (AAPL) iPhone and handsets running the Android operating system, will show the information onscreen at no cost. Layar makes its money by charging developers to advertise their apps on the phone's screen.

Researchers at Nokia (NOK), IBM (IBM), and Microsoft (MSFT) are experimenting with augmented reality, too, but Layar has beaten them to a commercial program. In June, Dutch bank ING (ING) launched a Layar app to steer customers to ATMs in Amsterdam. Aim phones in any direction, and onscreen circles pop up referring to nearby ING branches. Among Layar's 213 other applications is a guide to McDonald's (MCD) restaurants in Hong Kong.

ENDLESS BILLBOARDCo-founders Claire Boonstra, Maarten Lens-FitzGerald, and Raimo van der Klein founded Layar eight months ago and are closing a $1 million financing round led by Copenhagen's Sunstone Capital. Lens-FitzGerald says the 10-person company is already profitable.

This month, Layar will unveil a new feature that allows developers to create three-dimensional virtual objects Layar users will see through their phone's screen. It's a bit like limitless billboard space for techies. "There's a completely new industry being created," says Boonstra. "We want to bring our own vision to that."

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