Hold up certain bottles of the sports drink Muscle Milk to a webcam, and something strange happens. Shaquille O'Neal suddenly pops out of the bottle on your computer screen, like some kind of virtual genie. The 7-foot basketball star, who now appears only a few inches tall, stands firmly on the bottle cap, even when you move the bottle around. It's not a hologram -- it's all happening on the screen, but it looks as if tiny Shaq is right in front of you, cracking jokes and interacting with animations that pop up around him. At one point, he even jams on an animated electric guitar before appearing to dive back into the bottle with a splash.

This nifty trick, commissioned by CytoSport, the Benicia, California, maker of Muscle Milk and other sports drinks and dietary supplements, is an example of what's known as augmented reality, an emerging technology that allows interactive information and graphics to be superimposed onto a live video stream. Lately, many businesses have begun experimenting with the technology. For example, Yelp, the business review website, recently launched a new version of its iPhone app that lets you see reviews of, say, the restaurant you are standing outside of, by aiming your iPhone's camera at the building's exterior. And in December, Esquire published an issue that, when held up to a webcam, showed cover subject Robert Downey Jr. popping out of the pages.

Tech firms are racing to create augmented-reality applications to cash in on what analysis firm Juniper Research predicts will be a more than $700 million industry by 2014. But even traditional businesses are finding ways to take advantage of the technology's wow factor. "We like the way it allows the consumer to interact with our brand," says Nikki Brown, chief marketing officer for CytoSport. The company rolled out the campaign in January to commemorate the move O'Neal recently made from the Phoenix Suns to the Cleveland Cavaliers.

The special-edition Muscle Milk bottle, created by the San Francisco -- based advertising agency Pereira & O'Dell, is distributed exclusively in Ohio. It carries a special marker on the wrapping -- a 33, O'Neal's new Cavaliers number. When a user holds the bottle up to a webcam while visiting CytoSport's website, the virtual basketball star appears. Not only has the campaign attracted more customers by tapping into Ohioans' excitement over the team's A-list acquisition, but the technology itself has generated buzz. "Our distribution partners are very excited about it," says Brown. "We know very few companies in the beverage industry that have done it so far, and it allows the user to engage with our brand for quite a few minutes on the website."

Despite augmented reality's growing popularity, the technology is not without skeptics. Given that most of its commercial applications have been used only to elicit "oohs" and "aahs" and that the nascent technology is sometimes complicated to use, augmented reality has been dismissed by some as just a gimmick. But according to experts, that's not necessarily a bad thing if companies can use it to make a sale.

"You have to understand -- where gimmick loses its value is when you click around for a minute and then there's nothing left to do," says John C. Havens, who follows the technology as senior vice president of social media at Porter Novelli, a global PR firm. "Augmented reality can be gimmicky, but more important, it's inspiring a sale."

That's what Catherine Chow and Corina Nurimba are hoping for. Last September, the co-founders of Tobi.com, a San Francisco -- based online clothing retailer, were approached by e-commerce developer RichRelevance about integrating an augmented-reality application into their website. The program, called Fashionista, which was co-developed by RichRelevance and the digital marketing agency Zugara, simulates a virtual dressing room for online shoppers. It works like this: The customer prints out a special icon on a piece of paper and turns on her webcam. As she holds the paper in front of herself and looks at herself onscreen, the paper suddenly becomes a dress she is wearing. And an interface of virtual buttons appears to hover around her on the screen. She points her finger in the direction of the virtual buttons to go from one dress to the next. She can even snap a picture of herself in the virtual dress and upload it to Facebook to get friends' opinions.

"It's one step closer to creating that reality, as if you're in the shop," says Chow. "We can recommend the products, and they can actually try on the clothes." Well, almost. One size fits all in the virtual dressing room, and every dress seems to fit flawlessly. Jeff Lee, Tobi.com's vice president of products and technology, acknowledges that the technology isn't perfect but says the company has received positive reviews so far. "Although the technology in its current state may not help our customers with the size and fit issue, we've received feedback that it does help them with the question of, 'How will this look on me?'" he says.

Applications like Tobi.com's virtual dressing room are merely scratching the surface of what augmented reality is capable of, say some experts. The simulated space in which the technology operates, for example, could yield limitless opportunities for virtual ads, says Havens of Porter Novelli. Think invisible billboards in Times Square that would become visible when tourists looked at the scene through the cameras in their phones. A company could hypothetically put up a high-profile advertisement -- without the million-dollar price tag. "I see what people are calling the Outernet," he says -- a sort of virtual world linked to real-world locations. "It's this whole new virtual palette that's completely blank, and we get to start painting it."