The Market for Smart Wearable Technology

There is massive excitement in the industry about wearable technology. Connected wearable products aren’t new – they’ve been around in various forms for almost forty years. The pace quickened about a decade ago with the start of the quantified‐self movement, but in the past eighteen months the arrival of new sensors and low power radio chips has transformed them. At the Consumer Electronics show in Las Vegas and Mobile World in Barcelona at the start of 2014, wearable technology appeared to have come of age. A year later at CES 2015 the story was only slightly more muted. Many companies had spent the intervening twelve months making copies of the devices shown the year before. Fitness trackers, smart watches, connected headsets, smart glasses, personal trackers and wrist bands were there in abundance. However, there was still no clear killer trend. That may have been due to the dampening effect of the Apple Watch launch offering “jam tomorrow”, along with a prescient concern about the future of Google’s Glass.

None of that failed to dampen the enthusiasm of the industry, which is desperate for the market to take off sooner rather than later. Many analysts now believe that it will be the next major wave of consumer technology, replacing the love affairs of the last decade that have seen the success of laptops, smartphones and tablets. They are spouting phrases like “a technology tsunami” and “a revolutionary force” to kick‐start the hype cycle. “The pace of change will never again be as slow as it is today” isthe rallying cry, but will the pace of purchasing match that expectation? But are consumers ready?

The industry giants that have grown to serve these markets certainly need something new. It’s easy to forget how many of the leaders of those industries have gained global prominence and then disappeared or have been badly burnt and withdrawn from the consumer electronics market to concentrate on other less aggressive areas – amongst them major names and brands like Nokia, IBM, Motorola and Compaq.

Today commoditisation is the curse that the current players fear. Laptops, tablets, even smartphones are no longer the next great thing. For most purchasers, they’re just something we have and use, replacing them when they wear out or fail, like light‐bulbs and socks. As smartphones and tablets look more and more alike the only differentiator is price, hence the desire to find a new market to invigorate the behemoths of the consumer electronics industry

Large companies are fuelling the hype cycle as they rush to outdo each other. Before its announcement, the promise of the Apple Watch spurred Samsung, Motorola, Asus and others to up the pace of the technology treadmill, launching smart watchesfaster than a user could bare their wrist. The Apple announcement acted as something as a damper on their enthusiasm and probably gave the pre‐emptive wrist‐grabbers a lean Christmas. Nevertheless, as the smart watch star dims for the time being, more strategic announcements, such as Xiaomi’s multi‐million dollar investment in Misfit [1] and Valencell’s threefold increase in licensing revenues [2] have managed to maintain the momentum of the hype cycle.

Fuelled by of the enthusiasm of the big players to embrace this market, analysts are falling over themselves to define and inflate the size of the wearable market opportunity. It certainly provides promising new revenue streams as manufacturers apply their expertise to a new range of products.

However, I am not convinced that these analyst projectionsreflect the consumer appetite for wearable technology, rather than replicating models for previous generations of consumer devices on the assumption that the average consumer will buy whatever they are offered.

I have the good fortune to travel the world,speaking at conferences and working with many technology companies. It gives me the opportunity to look at the penetration of wearables in different markets. At tech conferences in San Francisco or San Diego over 50% of the audience wear some kind of connected device, almost exclusively wristbands. At similar conferences elsewhere in the world it’s around 10%. But when you look at the general public’s wrists you see a different picture

As a final data point for this report, I sat on Highbury and Islington train station during a July morning rush hour and looked at how many people wore some kind of smart device on their wrist. It’s a busy interchange station in central London, two stops away from Silicon Roundabout with a young demographic passing through – exactly the one which wearables’ marketeers are pitching to. Out of 1,000 wrists only 183 were wearing watches at all, of which one looked asif it might be a pebble. There was one other person with a Fuel band, but that was the extent of visible wearables. Not 10% or 50%, but 0.2%. That’s one of the problems with much of the market analysis – it’s still a very introverted, incestuous community of developers, analysts and founders, which makes it difficult to see or predict the wider appeal.

The press coverage following Sony’s recent stealth crowd‐funding campaign for their e‐ink FES watch [3] is a classic example of how the hype machine works. It was conducted under the auspices of a sub‐ group called Fashion Entertainmentsto gauge interest in the concept. It certainly got that, when it was made known that this was a group led by Hiroki Totoki, who heads up Sony’ssmartphone efforts. What none of the media stories mentioned was the fact that the FES campaign had only received pledges from 137 people before the media went ballistic proclaiming it to be “an overwhelming success”. Such is the measure of informed analysis that is driving the industry.

It is telling that little is said that is meaningful about brand. In the desire to count numbers most analysts believe that brand is purely related to market share and revenue. Hence in their eyes the brand value of Sony in wearables is largely equivalent to Nike, of Intel to Google, even Apple to Samsung. They fail to make the distinction that owning and managing a supply chain has only a very limited correlation with owning a customer’s desire, nor that owning the customer’s desire is often different from owning the customer, which some of those names do very well. What most of the wearables industry is missing, because it is generally tech centric is the concept of mentality of Brand, by which I means that they fail to appreciate that Brand is different from branding. In that respect, perhaps the most significant announcement at CES this year was the collaboration between Misfit and Swarovski [4] to produce a solar powered version of the Shine fitness band. It uses a cleverly cut crystal to concentrate light on a photovoltaic cell, ensuring that the device never needs recharging. Whilst customers and techies might appreciate that, most customers will neither understand nor care about it. They will buy the Swarovski Shine because it is beautiful. They will then buy a second one or a new mount for evenings out because it’s a different Swarovski crystal. And then another one for weekends; maybe one for the gym, and so on. Swarovski’s promotional video [5] is worth watching. Whereas every other video for fitness and health devices is about numbers and charts on smartphones, Swarovski’s is about the beauty of what you wear. Plus it is aimed at women who aren’t sweaty all the time. That is where wearables need to be, not just trying to be accessories to smartphones.

If wearables are to succeed, then the people I observed on the station are the people the industry needs to engage, not the high profile techies and their acolytes on the West Coast. It should be very possible to engage with that wider demographic, but only if the industry concentrates on what will appeal to them as opposed to what appeals to its members.

The belief that consumers will ultimately decide is driving this report. It does not just look at what is possible by applying technology to generate a new category of products, but tries to balance that with an estimate of what people will want to buy and why they would want to buy them. It shows that there is still a good opportunity, but potentially for a very different range and mix of products than those most analysts promote. It also looks at some of the technical risks and barriersto market growth, particularly with respect to market channels.

The full version of this report goes further [6]. As well as providing detailed numbers for each sector, it investigates the service models which will be enabled by smart wearables. They, and the revenue opportunities are further out – we need the devices first. But they may be the ultimate goal and revenue stream for the industry. If they can be made to succeed, then the wearable devices themselves may find themselves on a fast track to commoditisation.