Wearables – Novelty or Necessity?

This year at CES – the market defining Consumer Electronics Show in Las Vegas, the general consensus was that 2014 would be the year when wearable technology took off. There were some dissenting views – some thought it would be the year of Home Automation, particularly when Google went and splashed out $3.2billion for Nest, whilst some felt that maybe the Internet of Things would move from being a playground for geeks to a mainstream business. But if you look at what is actually going into production, it looks like wearables was the best bet. That was reinforced at the Mobile World Congress in Barcelona. Phones and hardware were distinctly passé, the excitement was in what you could wear.

The reason the industry is having this debate is that it’s entering new territory. It’s generally agreed that we are in the post-PC era. Whilst PCs and laptops aren’t dead, they’re a declining market. It’s a long time since anything happened that made people go out and buy a new laptop. Most people don’t change their laptops any more. They wait for them to die and them replace them, just like light bulbs and fridges. Smartphones are facing the same fate. It’s no longer cool for most people to have a new smartphone and there is increasingly little to differentiate between them except price. They’ve reached that plateau where the only thing for manufacturers to do is to make them cheaper and try to saturate the market. Even tablets are entering the same territory, with Android tablets turning them from must-have accessory into commodities.

It’s a problem both for big brand names and also for the ODMs and factories which are churning them out. The latter are desperate to find the “next big thing” to the point that they’re courting new startups for small scale production runs which they would not have countenanced a few years ago. Wearables are the top of the list as the next desirable product. The question is whether that reflects reality, or whether the industry is at risk of believing its own PR?

Wearables aren’t new. They’ve been around for at least ten years. Going back to the early 2000s they were the vision of the “Quantified Self” movement – people who wore miniature computers and sensors to record all aspects of their daily life. It wasn’t a market which took off, but developers continued to innovate, slowly coming up with less sci-fi and more socially acceptable products. As with many industries that fail to succeed, it changed its name to the more friendly term “wearables”.

By the mid 2000s it was big enough to warrant its own international conferences and to start to be taken seriously by the media. One of the first was to highlight it was the eco-fashion website Ecouterre, which started an annual poll of Wearable Tech, asking consumers to vote for the products that it had identified. Many of the early winners were obviously technology products or concept technology, often with healthcare capability. As time passed that changed; by the end of the decade it was obvious that function was giving way to fashion as the winners that consumers voted for evolved from tech to fashion.

In the past few years that trend has accelerated. Even as techie a product as Google Glass was generally promoted as a fashion accessory.  It was given the desirability factor that comes with expensive photo-shoots and cool locations, however much that may have been at odds with those who wore them. Every fashion student seemed to have a graduate show with thermal fabrics, LEDs or sensors in their clothes or accessories, whilst connected products began to enter the mainstream. There are smart clothes to monitor your baby, wearables to tell you your kids are drowning (seriously – one wonders whether they should also inform social services about the parents who buy them?) and a staggering array of wearable pet collars, even connected wearable dresses for your Barbie. But the most ubiquitous is the smart wristband, led by Nike’s Fuel, alongside Polar’s Loop, Fitbit’s One and Jawbone’s Up. (Which makes you wonder when these manufacturers will trust their customers to remember more than a single syllable product name?)

The sports and fitness industry was one of the first to latch on to wearables. Companies like Adidas, Nike and Polar have a long history of designing expensive products to monitor professional sports players. Wearable technology enabled them to move that market down to the keen or moneyed amateur who was prepared to pay for what was often a status symbol. Nike’s Fuel further transformed that market, spreading its appeal beyond the sports prosumer to the worried well, competing for the demographic that Fitbit had been cultivating.

The wrist became the first battleground for wearables. For years the mass market watch industry has been in decline as a younger generation turned to smartphones to tell them the time. Companies like Casio led the development and promotion of smart watches. When they failed, smartphone vendors tried to take on the baton, so far with limited success. Now the market waits for the mythical iWatch in the hope that it will be the Saviour which will restart the market. I’m not convinced. Meanwhile, fitness bands appear to be the only acceptable alternative to a world of naked wrists and the first evidence that wearables may become commodity.

What is noticeable in the wearable marketplace is the change from altruism to fashion. For many years the most exciting wearable developments were those aimed not at sports or personal prestige, but at healthcare – products for assisted living and management of long term chronic conditions. The excitement of fashionable wearables, often containing very similar sensor technology has eclipsed the healthcare work. Sensor and silicon manufacturers now speak of their technology in terms of desirability, not necessity. Some may be saddened by the change, but it suggests a greater degree of pragmatism that realises that technology or good intentions alone are not enough – wearable technology needs business models. And objects of desire tick that box.

However, it raises a question of how far the wearable market has progressed? Almost all of the currently fashionable products include multiple sensors. These may measure our vital signs, or simply our orientation or number of steps we take. Whatever the level of sophistication of the sensor, this means they’re producing data. The other half of the equation that most wearable designers need to come to terms with is that this data is ultimately more compelling than the device itself. The data and what is done with it has the potential for an ongoing service which is where the real value resides. If you think of a wearable as a piece of jewellery, then the data service is the party you wear it at – it’s the raison d’être for the wearable. Designers need to understand that there are two basic categories of wearables – ones that do things themselves and ones that enable services.

We have this data because of an unprecedented growth in MEMS sensors. MEMS stands for micromechanical sensors – tiny mechanical devices that are fabricated on silicon wafers using some of the techniques used for making chips. It’s a technology that has allowed the design of microphones, accelerometers, compasses, pressure sensors and gyroscopes smaller than the eye can see. More importantly, they can be combined with the electronics that drive them and be made in volume for a few tens of cents. In 2007 the market for MEMS sensors was only around 10 million pieces, most going into car airbags. Then they started going into smartphones. This year around 3.5 billion of them will be used. By 2020, it’s predicted over 300 billion will ship. It’s a staggering rate of growth that no-one anticipated. All of a sudden we can measure almost anything. And each one of these tiny sensors generates data, with the potential to take tens of thousands of readings every day. It is very big data.

This is what differentiates today’s wearables market from what came before.  There are wearables which are exactly that and no more, operating as autonomous devices – basically putting electronics to play as part of their autonomous function, which may be smart clothing, headsets or jewellery. And there are those that produce most value from generating data which is then turned into a valuable or compelling service, either from an app on a local device, or via a cloud service. These have very different business models, which manufacturers are only just beginning to explore.

As we move to data enabled wearables the business model needs to change. The compelling nature of the product subtly moves to the value from the data. As well as desirable hardware (or is smart clothing better classified as softwear?), compelling applications become increasingly important. Products will win hearts and mind based not just on their looks, but the enduring feedback they provide. The extreme business model is to give away the wearable and charge a monthly fee for the service. We’re a long way away from that at the moment. Most business models do the opposite – sell the hardware and use the profit from that to attempt to support a lifetime of free server storage and application development. That can be a dangerous business, especially as wearables move towards becoming commodity products.

There’s an equal danger with analysing the data. Although the end game is to win through superior data analytics, already some of the wristband providers are wondering what they’ve released from Pandora’s box of wearables. Data coming back from wristbands is showing that users don’t exercise at the times they said in focus groups. So much of their historic marketing information is wrong. Worse, they never expected users to wear their bands 24/7. Logging activity throughout the day provides intimate information which they’d rather not know. It can also indicate medical conditions. Yet none of this was stated at the point the consumer bought the device. It’s providing headaches for companies who realise they may have a moral responsibility to their users far beyond the compact they thought they’d made. The risk is that this data and the resulting insight is wasted because of commercial fears. Equally it provides market opportunities for those who understand the risk.

That points to some of the skills that wearable companies need to nurture. As well as designers and engineers, these companies will need data scientists, behavioural psychiatrists and ethicists. Where will those companies come from?

Crowdfunding sites like Kickstarter and Indiegogo have catapulted new wearable technology companies to the fore. Pebble, Emotiv and Dash have raised sums over $1m for their products. You can argue they’ve been more successful than the large technology companies who have tried to emulate them. As a result many will be acquired – Intel has allegedly paid over $100m for Basis Science. That strategy may not work, although it’s nice for the acquirees and their investors. The world of high tech products has been dominated by a very small number of brands. The bulk of the market for PCs, tablets and smartphones has under half a dozen manufacturers dominating each category. In contrast wearables are more like clothes, with hundreds of brands in the High Street. Although the PC and phone companies are desperate to find a new sector to play in, wearables may not be such a sector, as diversity is likely to be more important. Wearable tech is very clever, but it doesn’t need the massive engineering teams, particularly the software and firmware teams that characterised the PC and smartphone era. The heavyweight players in that sector are mostly less than 20 years old. I suspect most of the companies that make up the future of wearables will be new names, which may well outlast the current technical giants.

There was an interesting comment from Aapo Markkanen – one of ABI Research’s analysts at this year’s Mobile World Congress, which is “that booth babes have more clothing than last year”. He reckoned that was the 21st century catching up; modernity beyond tech. Like many steeped in the smartphone and PC industry he may have missed the clue in the name – wearables are wearable. If they don’t manage that, they’ve failed. So expect to see more emphasis on what we wear at future tech shows. The less we notice of the technology, the more it’s likely to find a market.

There is everything to play for. Wearables may be the next bubble, but it promises to be the most fun of any technical bubble we’ve seen yet.

(This article and slideshow are based on the keynote I gave at the Wearable Technologies Conference in Munich in January 2014.)