A cost effective, gesture based modelling technique called Virtual Interactive Prototyping (VIP) is described in this paper. Prototyping is implemented by projecting a virtual model of the equipment to be prototyped. Users can interact with the virtual model like the original working equipment. For capturing and tracking the user interactions with the model image and sound processing techniques are used. VIP is a flexible and interactive prototyping method that has much application in ubiquitous computing environments. Different commercial as well as socio-economic applications and extension to interactive advertising of VIP are also discussed.