Winning in Wearables: Strategies to Drive Enduring Market Traction

Transcription

1 Winning in Wearables: Strategies to Drive Enduring Market Traction By Todd Bricker Wearable Computers, aka Wearables, are at the peak of the hype cycle. Companies are rapidly innovating along two paths. On the first path, a fragmented set of niche players are driving leadingedge functionality to address high-value needs in industry verticals. Along the second path, tech giants are leveraging leading-edge innovations and driving integration across their partner and supplier ecosystems for greater convenience and affordability. June 2014

2 The Importance of Wearables Wearables are at the nexus of many emerging technical and social developments and the leading edge of bringing technology to bear on our lives. They free product and business developers from the constraints of the dominant touchscreen-based smartphone and tablet form factor opening myriad possibilities for interaction and value creation. Wearable devices such as smartwatches, fitness trackers, smart glasses, wearable cameras, smart clothing, tattoos, skin patches, and even contact lenses, have become increasingly prominent on Kickstarter, IndieGogo, and at industry events. They have captured the attention of technology analysts, the mainstream media, and of companies ranging from technology industry leaders (e.g., Google, Samsung, LG, Motorola, Sony) to a host of start-ups. Analysts project rapid adoption leading to a very large revenue opportunity within the next five years. Estimates of 2018 global revenue from wearables range from a low of $8.4B to a high of $19B. As illustrated in Figure 1, revenue growth rates for the next few years are forecast between 22% and 68%. 1 In the smartphone and tablet markets we have seen similar rapid growth which has enticed many players to compete for share. Thus far, only two (Apple and Samsung) are generating profits from their hardware. 2 We anticipate that the wearables market will be subject to similar forces (e.g., ecosystem network effects, economies of scale, etc.) implying that many players will struggle and there will be only a few winners as defined by profitable growth from selling mass market wearables. However, it must be noted that wearables differ from tablets in terms of their range of potential form factors. This leads to greater scope for niche players to differentiate. To succeed, whether focused on niche opportunities or the mass market, players need to choose their approach carefully and assemble the right technology and organizational capabilities. Figure 1: Global Wearable Device Revenue Growth (Indexed from 2014) 1 This paper examines wearable sector dynamics and presents hypotheses about where different industry players can best contribute in order to maximize their returns. 1 Wearable Electronics Market and Technology Analysis ( ), Markets and Markets, May Smart Wearable Devices Fitness, Healthcare, Entertainment & Enterprise , Juniper, October Market trends: Enter the wearable electronics market with products for the quantified self, Gartner, July 1, One in Every Five Wearable Wireless Devices Set for Healthcare Deployment by 2017, ABI, June 20, Enterprise Wearables Market to Reach US$18 Billion by 2019, ABI Research, May 14, According to Canaccord Genuity, Apple accounted for 56% and Samsung 53% of mobile device profits in Q Copyright 2014 Cartesian, Inc. All rights reserved. 1

3 Key Enablers vs. Current Inhibitors As with any new technology, wearable devices need to demonstrate value beyond existing products and technologies in order to gain traction in the marketplace. This effectively means that they must supplement and extend smartphone functionality. Recent and ongoing advances are increasing wearables utility and addressing barriers to adoption: Functionality: Sensor miniaturization and cost improvements are rapidly increasing the amount of data that wearable devices can collect. Voice input and integration with smartphone ecosystems are enhancing the interface/ease of use. Design/Comfort: Development of hardened, shaped, and flexible displays are increasing design possibilities and robustness. Specialized form factors are rapidly emerging to address niche applications. Designers are increasingly aware of the importance of style. Battery Life: Low energy connectivity through Bluetooth 4.0, wireless charging, and advances in processor, display, and battery technologies are extending battery life. Social Engagement: Social networking functionality is being built into many of the device offerings to drive customer engagement/stickiness and network effects. Platform Flexibility: OS/platforms designed specifically for wearables (e.g., Android Wear, Samsung Tizen and SIMBAND) with APIs, SDKs, and following open design principles are accelerating innovation and ecosystem construction. Intelligence: Data analytics, cloud-based processing, context awareness, learnings from academic communities, and the quantified-self movement are increasing the ease of use and the potential value of the information collected from wearable sensors. Cost: While high-end wearables will continue to command premium pricing, lower cost alternatives are being introduced so that average selling prices will follow typical technology cost curves. 3 Product developers face trade-offs between the above factors and must carefully tailor their designs to strike the right balance for different niches or mass-market consumers. For example the number and type of sensors that are integrated into the device and how frequently the sensors take measurements are major drivers of a device s utility but also impact cost, battery life, device size, and comfort/wearability. Another critical design choice involves whether to integrate Wi-Fi or LTE connectivity so that the device can operate independently of a smartphone hub. This approach drastically increases power requirements vs. low-energy Bluetooth 4.0 connectivity. However, as smaller, lower power chipsets integrate multi-radio capabilities this will be an increasingly common feature that users can turn on or off as desired. Tradeoffs: Simplicity and Convenience vs. Leading Edge Functionality Enterprise verticals will drive demand for high-value niche applications of wearable technology. Verticals such as healthcare, defense/law enforcement, and manufacturing have use cases with benefits to justify the application of technologies earlier in their maturity cycle, 3 For example: $1,500 Google Glass vs $200 Laforge Optical s Icis; or the $500 SiME Smart Glass from ChipSip Copyright 2014 Cartesian, Inc. All rights reserved. 2

4 before they are cost-effective and sufficiently convenient for the mass market. As a result, we expect vertical applications developed by a fragmented set of start-ups and niche players to drive innovation. Smartphone ecosystem and mainstream device leaders will identify the features and functionality that are ready to cross the chasm and be integrated into mass-market solutions without compromising their convenience, affordability, comfort, or performance. Emerging/niche players will increasingly find that the ecosystem platforms they rely on quickly become their biggest competitors as features are integrated into base platforms (e.g., activity tracking). Co-opting of niche features will be a continual process but it will not be without exception. Major mass-market focused players will also occasionally develop sensor technology independently/ahead of niche players (e.g., Apple s fingerprint scanner for biometric authentication). Conversely, niche players will continually strive to create enough value to challenge mainstream players, but any that begin to gain serious market traction are likely to be acquired. Figure 2: Mass-Market vs. Niche Applications Target Market Comfort/ Convenience Example Form Factors Benefits Consumer Mass-Market Applications Comfortable/Inconspicuous Convenient (e.g., longer battery life, simple interface, pre-integrated with common platforms) Smart watches Activity bands Note that this is a current view. Over-time, niche form factors will cross the chasm to mass market. Modest/incremental Niche Applications Enterprise Verticals Military/law enforcement Researchers, developers Enthusiasts/early adopters Uncomfortable/Conspicuous/ Possibly Invasive (e.g., contacts or implants) Inconvenient (e.g., short battery life, custom integration required) VR headsets Helmet mounted HUD Google Glass Smart Fabrics Wrap-around head-mounted EEGs Contact lenses Implants May be high-value, mission critical/ lifesaving Current Pricing ~$ ~$1,000+ The Future of Wearables The wearable device sector is undergoing a classic Cambrian explosion of proprietary form factors, HW, SW/apps. This is a natural result of the process of innovation at the frontier of the adjacent possible. However, not every wearable that can be constructed should be. 4 The drive to differentiate and gain first-mover advantage leads to device proliferation and a highly fragmented space of point solutions that limit benefits. Competing ecosystems will 4 Copyright 2014 Cartesian, Inc. All rights reserved. 3

5 form to aggregate capabilities, contributing to an overall trend towards open standards for sensors, data collection, aggregation, and security. Given the diversity of needs with respect to wearables we anticipate increasing modularity of design and solutions that leverage networks of sensors via body area networks using smartphones or wearable computers as hubs. Samsung s SIMBAND reference architecture, for example, follows this type of modular approach. 5 In the more distant future, we foresee wearables evolving to integrate more tightly with humans in the form of implants/bio-electronics that utilize sophisticated sensor arrays to detect and understand individuals physical and emotional status and support better outcomes through greater awareness and direct intervention (e.g., through electrical signals). 6 Opportunities for Industry Players Potential strategies emerge given the strengths and limitations of key players in the industry. Making clear strategic choices allows players to prioritize M&A, R&D, and other investments in product development and go-to-market capabilities. The table below illustrates the tools typically available to players of each type that shape where and how they can best compete. Figure 3: Capabilities/Assets Matrix *Including sales, support, operations, and billing capabilities 5 The Samsung platform will include open APIs and envisions a data broker to collect and leverage data from various sensors, devices, and even on-line sources in real-time using algorithms. 6 Can the Nervous System Be Hacked?, New York Times, May 23, 2014 covers use of implants to counter rheumatoid arthritis; Samsung s recent announcement of its Voice of the Body initiative points to their recognition that it will be possible to listen to our bodies and take informed action on the path to self-improvement Copyright 2014 Cartesian, Inc. All rights reserved. 4

6 Device and ecosystem leaders are best positioned to capitalize on the mass-market consumer opportunity. They can draw on critical strengths in device design, and some of them bring significant platform/interface development expertise, to develop tightly integrated mass market wearable solutions. Device players and ecosystem leaders are already making moves to establish platforms and attract coalitions of partners to extend their reach and create more compelling offers. 7 Device specialists and ecosystem leaders may also partner with vertical solution and niche device specialists to develop enterprise focused/niche solutions. Service providers can participate by developing their bundling and pricing strategies for consumer and enterprise devices, and for related wireless services (although uncommon in current generations, wide area network/macro wireless connectivity will expand). Partnering with device specialists and/or ecosystem leaders and overlaying go-to-market and support programs can enable service providers to differentiate and capitalize on the value being created. Key levers will include: policies on bundling, pricing of shared data, adding devices, tethering, and storage of data/content in service provider clouds. In the near-term, service providers best opportunity may lie in leveraging network and cloud assets, along with enterprise-facing sales/service and solutions capabilities, to carve out defensible positions in particular verticals. To be successful they need to select focus areas, key partners, and invest in further developing their integration and implementation capabilities. Selective vertical engagement via wearables can offer service providers a beachhead, enabling them to gain experience and lay the groundwork to grow profitably as wearables help redefine mobile computing and human-computer interaction. 7 Apple s HealthKit includes APIs to enable communication of activity and health data between ios and third-party devices/apps. Google has its Android Wear platform and is reportedly planning a health service called Google Fit. Copyright 2014 Cartesian, Inc. All rights reserved. 5

7 Cartesian TM is a specialist consulting firm of industry experts, focused exclusively on the global communications, technology and digital media industries. For over 20 years, we have advised clients worldwide in strategy development and assisted them in execution against their goals. Our unique portfolio of consulting services and managed solutions are tailored to the specific challenges faced by executives in these fast-moving industries. Combining strategic thinking, robust analytics, and practical experience, Cartesian delivers superior results. Contact us to find out more about how we can support your wearable device strategy: Opportunity assessment: Customer insight, opportunity sizing, competitive assessment Business case development: Financial modelling, entry option analysis, scenario planning Go-to-market strategy: Market proposition, pricing, partner and distribution strategy Technical execution: Business requirements, solutions design, implementation and assurance Data analysis: Award-winning Ascertain data analytics platform For further information, please contact us at cartesian@cartesian.com Copyright 2014 Cartesian, Inc.. All rights reserved.