The term augmented reality (AR) has been making the rounds in marketing and consumer products circles for the past few months, particularly as companies look to carve out new ways to reach a young tech-savvy audience. And while some may be writing it off as a passing fad, it appears AR might just have legs in the kids digital space.

AR encompasses a range of applications – many of which are starting to turn heads – but most currently identify AR as the layering of digital imagery on top of a real-world setting that then seemingly brings virtual objects to life. To date, companies dipping their toes into AR have concentrated largely on marketing-based efforts such as Turner Broadcasting UK’s Incredikids launch last August that included a range of virtual games where users would print out markers and hold them up to their webcams to trigger 3-D worlds on-screen. Canuck kidnet YTV teamed up with Lego Canada on an AR promo for the toyco’s Bionicle line last August that included features similar to Incredikids’.

Mattel, however, was at the head of the line as the first major consumer products player to incorporate AR into a retail toy product. As the master toy licensee for James Cameron’s heavily hyped feature film Avatar, which hit the big screen last month, the El Segundo, California-based toyco teamed up with AR software solutions house Total Immersion in L.A. to create a line of action figures that delves into the imagery of Avatar planet Pandora.

Each figure, vehicle and creature in the line is equipped with a 3-D marker shaped like a military dog tag (branded i-Tag by Mattel) that uses Total Immersion’s proprietary D’Fusion technology. Kids can ‘scan’ the tag via a computer webcam to unveil animated 3-D models on-screen that correspond with that particular plaything. Placing two i-Tags from the battle pack together results in the 3-D images interacting with each other.

‘So with the [i-Tag], you can now have a character or a component of the storyline as a durable item – that’s the action figure – and have its digital accessory show up in AR,’ says Total Immersion North America GM Greg Davis. ‘What’s interesting about this is that it gives insights and more information about the characters for collectors and fans, making it a very meaningful experience.’

The AR house had previously targeted kids and collectors last spring when it teamed up with trading card manufacturer The Topps Company for Total Immersion’s first foray into consumer products. It incorporated the tech into a line of Topps 3-D Live baseball trading cards, where holding the cards up to a webcam produces a 3-D player that can pitch, bat and catch, and appears to leap off the computer screen.

While no one would divulge specific numbers, tech expert and DigitalTrends.com publisher Scott Steinberg notes that the cost of producing AR-enhanced products is dropping each year, which means it’s likely to be making more frequent appearances in kids products. ‘As [toy and game companies] begin to understand the potential of what they can do with AR, it’s inevitable that you’re going to see it become more prevalent,’ he states. ‘At this point, there’s no turning back. We’ve waited years for this.’

The potential ubiquity of AR also raises concerns that it will be quickly relegated to the status of gimmick or passing fad. James Milward, executive producer at Toronto, Canada-based digital creation company The Secret Location, is well aware of the possibility, but remains confident that it doesn’t have to be that way – if done correctly. ‘It’s very show-and-tell right now,’ he admits. ‘But it gives us a reason to innovate in that space because others are there already. People are enamored with the initial experience, but there are limitations, so getting over those hurdles is the first step.’

Right now, AR relies on webcams, a fast internet connection and an equally robust CPU processor. Total Immersion’s Davis notes that the webcam install base State-side was tricky to calculate, but his company tracked numbers that put webcams in between 20% and 25% of US households. While that’s nowhere near the majority, he adds that integrated cams are standard features in more than half of all PC laptops being sold now and that Apple laptops have had the feature since 2006.

As such, computer gaming is where AR really flexes its strength, followed by iPhone apps. Sony PlayStation’s Eye of Judgment and EyePet have both applied the tech using the PS3’s proprietary camera PlayStationEye. Now, Edison, New Jersey-based gameco Majesco Entertainment is looking at AR’s potential in the handheld space.

The DSi, the second iteration of Nintendo’s popular touchscreen device, was launched last spring with a built-in camera, offering a wealth of cool opps for developers. So when Majesco’s director of marketing, Liz Buckley, and her team found Ghostwire: Link to the Paranormal created by developer A Different Game at the Game Developer’s Conference last March in San Francisco, they knew they’d stumbled on something special. It challenges players to locate apparitions using the DSi camera and snap pictures of their environment, armed with a range of tools to aid in the search. Interestingly, Buckley says the yet-to-be-rated title is being positioned as software rather than a game, which helps deliver a more supernatural experience for users.

Ghostwire is only the beginning of AR gaming, and Buckley says with the right opportunity, concept and platform, incorporating the tech is a logical fit for Majesco as it becomes more prevalent in games. ‘It’s just a natural evolution of that technology,’ she says. ‘With the next generation of hardware coming (i.e. Microsoft’s Project Natal, Sony’s yet-to-be-named motion controller), publishers are going to be looking for product opportunities that take advantage of that.’

Though Steinberg says many companies are in the experimental phase with AR, he believes this is where the industry is headed. ‘As long as you find a natural and intuitive way to integrate it into an experience, kids are going to gravitate to it,’ he says. ‘That’s what AR is about – putting more information more readily at your fingertips, so I do think kids will take advantage and enjoy it.’