An excerpt from Vernor Vinge's talk at the Austin Game Conference (transcribed by Mark Wallace):
If you take together all of the things I have been pushing here [augmented reality through high-resolution HUD, geolocation, smart tags...], there really is a situation where cyberspace has leaked into the real world, in fact the title of the talk was Inside Out, which was intended to convey the notion of what was inside box in all eras up to ours, in this sort of era is outside. (...) Wearables are the interface to it, but the situation with the network as a whole is very interesting, it hasn’t gotten rid of big pipes or server farms, however we would be in a situation where reality has become its own database, in the sense that objects in the outside world, millions of them would know what they are, know where they are, know where their nearest neighbors are, and can talk to their nearest neighbors and by extenstion to anything in the world. (...) This produces the possibility of a form of insight into dealing with the real world once cyberspace has leaked out, once you have this inside out thing.
Then he described the consequences for games and digital entertainment:
There’s a mad rush into embedded processors going forward very rapidly. The localization I’m talking about is much harder. Really good 4k by 4k HUDs, I’m actually somewhat surprised it hasn’t happend already. When those come along, there’s suddenly a whole other set of things you can do. (...) One question is how many alternate realities could simultaneously exist. If you work out the arithmetic and believe the hardware infrastructure scenario I painted, you’re getting 10 to 100 gigabits per second to each person. That means that basically the number of possible alternate realities would be at least as high as the number of people, and could be higher depending on what kind of multitasking people were doing. (...) It’s not so much a question of the place of games in the future world, but a question of whether there’s anything going on besides games. It depends what you mean by game. There are going to be very serious things going on in this world, but the technology behind them might not be distinguishable from games, or only in that with a game you can often turn a bug into not only a feature but a selling point. On the other hand, if you are writing software to land aircraft, mother nature does not accept bugs that are selling points.
So what?:
One of biggest problem with this sort of situation is generating content. Nowadays one thing you hear a fair amount about is getting customers to generate content, which has attained almost faddish levels. In an auidience like this that’s probably not that popular of an idea. On the other hand, when you look at the amount of content that would be necessary to support this, which is essentially all of reality, and you look at the fact that already the largest generators of content are people with home cameras, there is probably something that’s going to be going on with that sort of stuff. It seems to me that we are entering an era various companies have figured out, in which there are ways of spending enormous amounts of money on certain hardware platforms, software, social interactions, and coaxing the creative beast to come out of hiding and do things for you.
See also Mike Kuniavsky's notes on that.