Wearables, the next big thing?
Yes, but … how big and how fast?
We might be witnessing a turning point for the wearables industry, driven by three main forces:
1) the connectivity leap and potential generation of data, 2) the solid business case and financial dynamics of wearables, and 3) the adequate environment for wearables proliferation.
1) Connectivity, and the possibility of wearable devices to be constantly connected, will be a key factor. On the one hand, there are faster and more ubiquitous mobile communication networks such as Wi-Fi, 3G, and LTE. On the other hand, we will start to see the rise of Ultra Narrow Band networks, low-power and low-bandwidth networks, optimised for the expected explosion of smart sensors, appliances and wearables.
Moreover, as we see the evolution of eHealth and related wearables (such as the newly announced Apple Health app in iOS8), robust connectivity and “life-lines” will be on the rise. There could be a sizable opportunity for telecom operators in this arena. Telecom operators will not only benefit from the rise of wearables, but will most probably foster its development, leveraging their core-assets to provide connectivity, tailored content and services, as well as distribution and retail capabilities.
If wearables can be constantly connected, there will be an exponential increase of our digital foot-print and thus the amount of behavioural and localised data we will be generating. This big data will certainly be most valuable for a series of players from industries such as advertising, health, insurance, and technology.
2) The combination of the rise of connectivity and the massive generation of data will create interesting financial dynamics around wearables well beyond the low margin manufacturing and purchasing of finished goods (see Exhibit 2). An ecosystem with many other players and interests, will create a sound business case around the gadget itself and related services that could yield much higher margins. Together with wearables, the rise of the Internet of Things (or Internet of You), will foster the compatibility between different realms of information, and information exchange, to create more compelling usages (i.e. we foresee an opportunity in data “brokerage” -aggregation and sale - to create more sophisticated and personalisedusages)
3) Wearables physical components’ cost, and performance, has improved significantly during the last few years (i.e. the amount of sensors below100 USD available for the mass market has increased by three times in the last 10 years). This, together with a growing installed base of smartphones, an established software ecosystems (i.e. Android and iOS) and social networks’ potential to enhance the development, adoption and use, represents, a very favourableenvironment for the proliferation of wearables. Additionally, telecom operators could become the ultimate enabler of this convergence through providing intelligence platforms and product support, leveraging local market infrastructure. Easier said than done, but telecoms should work on this direction.
Top notch tech and apparel companies as well as VCs are well aware of this, and are making wearables, and related apps, one of their main strategic priorities; as we have seen both in Apple’s WWDC 14 (introducing Health app) and more recently at Google’s I/O conference (introducing the Android wear, Google’s specialised OS for wearables).
Now, it’s not all good news. There are a series of concerns that could become a showstopper for the expected rise of the wearables industry. First, there is the security/privacy concerns around personal data and digital footprint. Second, there is the “fashionable” issue, the encounter of the tech and fashion world promises to be far from trivial.
The evolution of security protocols associated to connected devices will be crucial. Especially, in the way that companies would collect the data, mine it and use it, and more importantly, tackle privacy concerns. A strong value proposition, in the lines of life improvement and/or simplification, will have to be put together to overcome these concerns.
In the tech and fashion encounter, it is important to understand that wearable technology represents a new threshold in aesthetics for fashion-conscious consumers. Think of Bluetooth earpieces, and how these, no matter how beautiful they look, have never succeeded in overcoming the lameness perception; or the concerns arising around the success of Google Glass. Technology companies that have demonstrated mastery in design, will now need to conquer a completely different realm, fashion. Some of the leading players such as Google and Apple are indeed recruiting talent from Burberry, Yves Saint Laurent, and other fashion firms. Recently Google joined forces with Luxottica, the world's largest eyewear company, to improve the frame of Google Glass. Other smaller players are working to unite functionality and fashion, such as Misfit Wearables and their Shine activity tracker, or the Agent smartwatch.
To conclude, we think that the main ingredients to see the wearables industry exploding are in place, and the revolution could be around the next corner. Still, it is difficult to forecast who the winners will be, while the leaders, most likely, will be the established tech companies. Creating the habit to actually keep wearing these devices, and to share our digital footprint are the pressing issues to be cracked-down by industry champions before wearables really go mainstream and the industry unleashes all its potential.
© 2018 Delta Partners.