Smart Wrist Good. Smart Home Bad.

Or so it appears if you look at where the funding’s going.  This week Jawbone, maker of the Bluetooth headset and more recently of the UP wristband, managed to raise $93 million in debt financing based on sales of its new products, with the rumour of a further $20 million in VC funding to come.  It’s not alone.  Earlier this year Fitbit, founded on clip-on devices, but now another player in wrist real estate had VCs falling over themselves to give it an additional $43 million.

In contrast, the smart home market has begun to look decidedly unexciting.  After the Nest love-in, which raised them $80 million at the start of the year, their German rival tado only managed a measly $2.6 million from its previous investors.  I’d always tended to discount the Nest fundraise, not because of the product, but because of their heritage.  Ex-Apple staffed start-ups in California with slick products seem to get VCs wetting themselves in much the same way as followers of the cult of Apple do at the launch of a new iPhone.

If you take a look at the media coverage, it’s also pretty obvious where everyone considers the action to be.  It not what we live in – it’s what we wear on our wrist.  Investing in Smart Home looks rather dumb.

So what is it about the wrist that beats the more prosaic alternative of an efficient domestic environment?  For the last twenty years the legacy of John Harrison, the man who first suggested that we wear the time on our wrist, has been slowly fading away.  There’s still a thriving market for status bling which keeps the Rolexes and Breitings in business, but mobile phones have been as liberating for our wrists as they have been for curbing smoking in teenage girls.  Much to the dismay of the Casios and Timexes of the world, more and more of us have become wrist naturists.  Whilst the friendship band and virginity pledge bracelet have covered up a limited number of mid-West, post-pubertal wrists, a growing number of the world’s citizens are joining the ranks of the great unticked.

That’s led to a two pronged attack by technology companies eager to have their brand on our hand.  After some clumsy attempts by watch makers to ship watches that connect to our phones, the market is being invigorated by the entry of the big boys, with Samsung’s recent Galaxy Gear Watch leading the charge.  That’s building on the success of the Pebble – a Kickstarter funded project that holds the record for garnering $10.6 million of crowd-sourced investment in just 30 days.  The Pebble’s now shipped around 100,000 of their watches to users around the world.

It’s not really a watch – it’s a piece of e-paper for the wrist.  You could almost describe is as a connected post-it note for the arm.  That’s not a criticism, but an acknowledgement of an excellent piece of disruptive design thinking.  It can run a native application, like a virtual watch, or it can connect to your phone to show you text message, incoming phone calls, or anything else an apps developer can think up.  Apps developers love it.  There are already Pebble Developer retreats for them, and over 1 million pebble apps have been downloaded. Which at ten apps for the average wrist is not bad going.  It’s even had one developer produce a Watch Face Generator to let anyone design their own.

Despite the rumours about a forthcoming iWatch from Apple, it’s not obvious that the big players will initially dominate the market. There are plenty of others keen to show they can give Pebble a run for their money.  Also funded on Kicstarter we have Cookoo and STRATA, who both raised just over $300k, whilst in Italy, i’m watch is adding some European style.  Of course, if they succeed, they will probably be acquired by the big players, but I suspect that’s what their business plan is all about anyway.

It’s not just digital timepieces and phone extensions we’re sporting on our wrists.  The bigger market, as the headline investments illustrate are for sports and fitness devices.  Whilst there’s a crossover functionality with some of them, such as Nike’s Fuel band, which can tell you the time, most of these are aimed at the health and fitness freaks amongst us.

What is fascinating about these devices is the number of different sensors that are contained within them.  They all grew from a common heritage of pedometers, but have taken advantage of the low cost MEMS sensors developed for mobile phone, which mean they can now capture an amazing array of different information about their wearer.  As well as the sports and fitness devices from Nike, Adidas, Fitbit and Jawbone, there’s a growing range of lookalikes and more medically oriented wrist bands.  There’s even an ECG based band from Bionym, which uses your cardiac rhythm as a biometric fingerprint for security.

When you talk to the designers of many of these, you realise that they often didn’t think through the data streams that could be harvested from these wristbands.  Nor did they imagine that a large percentage of users would wear them twenty-four hours a day.  That’s causing some degree of concern to these companies, who realise that they now have a level of data that allows them to discern a very large amount of information about their wearers.  Not just where and when they run, but what they do for the rest of their waking ad sleeping hours.  By analysing that data they can potentially infer the presence of medical conditions, which gives them the dilemma of whether they have a responsibility to do that and inform the user?  With his ‘n hers wristbands they even know when you’re having sex, who with and in what position.  It’s surely only a matter of time before we see a Fuelband or UP cited in a paternity suit. The reality is that we now have around 100 million quantified citizens, most of whom are unaware of the potential of the data they are sharing. And there’s a further 50 million joining them every year.

Which brings me back to the question of why investors and purchasers are so much happier to be dealing with the wrist rather than the home?  For years, both areas have stalled, so it’s interesting to investigate what has changed?  The key reason that the market for wrist based devices has exploded is Bluetooth Smart (also known as Bluetooth low energy).  It’s a new wireless standard that is now built into most smartphones and tablets, and allows designers to make connected products which will run off batteries for weeks or years.  That’s a very different proposition to the classic Bluetooth that most people know.  The chips to make these new devices are both cheap and easy to use, which is why Bluetooth Smart has become the wireless standard of choice for Kickstarter and Indiegogo projects.

Short range wireless is vital for both markets.  We neither want wires trailing from our shirt cuffs, nor do we want to install new cables around a home.  Whilst the wrist has effectively had a standard imposed on it, as Bluetooth Smart has become endemic in phones and tablets, the Smart Home market has never come to an agreement on which wireless standard to use.  Commercial smart buildings have a range of moderately expensive and geographically constrained standards, including EnOcean, wireless-KNX and wireless-MBUS, whilst the home market has experimented with ZigBee, Z-Wave, X-10 and proprietary wireless for their products.  That means there’s no interoperability.  Nor do any of these connect to the de facto consumer control devices – the smartphone and tablet.  As I argue in my article on Zombie Wireless, it’s led to fragmentation that is causing the industry to stagnate.  It’s instructive that the most successful Smart Home product – the Nest thermostat, eschews all of these for Wi-Fi, although that’s only an option for products and sensors which have a power supply.  Tado are a bit more academic with 6LoWPAN, but as it’s an end-to-end system in their product that’s less important.

However, the biggest difference in the markets is probably the simpler one of appeal.  Something on the wrist not only is a badge of geekery or fitness, but it’s also generating data that ultimately tells you something about yourself.  That may be your Facebook status or your health, but both are personal and hence immediately attractive.  Smart Home system is about controlling the state of the environment where you live, which is both passive and of limited interest as long as it’s working.  And there’s the rub.  Once the installation glamour has passed, you only notice your Smart Home system when it goes wrong.  Whereas your wrist is a constant source and reminder of your personal state and social interaction.  For anyone who is active, it’s the obvious product to buy.  Smart Home may appeal to the housebound or the green energy conscious, but it won’t impress most of your friends, at least until it starts to get a bit sexier or we ban fracking and energy gets a lot more expensive.  Investors can see that and are following the excitement of the wrist.  So if you’re looking to design a smart project, think abut what will excite the market.  If your elevator pitch is about saving energy and money you may need to go back down and think again.