The golden age of wearables is upon us. But we should be wary: there is no easy path forward. From smart watches to smart socks to smart door locks, the business models are uncertain and the competition is intense. There are five battlegrounds ahead for companies that want to survive.

1. The Golden Age of Wearables:
Personal Networks, Smart Things & Intimate Knowledge
Paul Brody
Americas Strategy Leader, Technology Sector
Wearable Technology, Adoption & Monetization Conference
San Francisco, 21 April 2015

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The future is already here. It’s
just not evenly distributed.
William Gibson

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Here, there, and everywhere, the Internet of Things has
arrived in huge volumes
3 Source: Gartner Group estimate of connected devices by category.
Forecast Volume of Connected Devices to 2018
Millions of Devices
ValueAxis
0
7,500
15,000
22,500
30,000
2016 2017 2018 2019 2020
Automotive
Consumers
General Business
Vertical Business

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With every order of magnitude reduction in cost comes an
order of magnitude or greater increase in adoption
4
Typcal Platform Cost At Introduction, US$, Log Scale
$1
$1,000
$1,000,000
Mainframe Servers PC Phone Wearables
Estimated Device Installed Base, By Type, Number of Devices
1
100
10,000
1,000,000
100,000,000
10,000,000,000
Mainframe Servers PC Phone Wearables

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And these devices are getting very up close and personal
with all of us
5
Sensoria Smart SockOmSignal Smart ShirtWrist Bands Galore BSX Insight

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What’s fueling this massive growth curve?
6
Technological Change
Business Model Envy
New Market Opportunities
Wishful Thinking

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Powerful software and cheap sensors are increasingly
competitive with precision sensors & skilled interpretation
7
Intel Basis Peak
• Cardio activity
• Total calories
• Heart rate
Cheap Sensors Are Everywhere
• LEDs & Image Sensors for O2 Sat
• 3 Axis Accelerometers
• MEMS Microphones & Speakers
Atlas Wristband
• Form & intensity
• Strength training
• Heart rate & calories

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Powerful computers are now cheaper than dumb ones.
8
At higher end of the market, this shift has
already started:
These high powered SOC chips can do far
far more than their basic embedded tasks
Apple Lightning HDMI Adapter
• Full ARM SoC
with over 256MB
of RAM
• Boots OS X Core
when plugged in
• Conducts
software
conversion of
MPEG to HDMI in
real time
Powerful System on Chip costs are dropping so quickly, they are
converging with traditional embedded chip costs:
Non-Recurring Engineering Cost for
Customized Embedded Chips
Shift to SOC with software
customization here
Illustrative: As SOCs drop in price, customization will shift to software, not hardware
Time + + + +
Embedded Unit Cost
Average Embedded Cost
Average SOC Cost

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New technology architectures mean that powerful cloud
services have a marginal cost of zero
9
Traditional cloud services models are built
on centralized services.
Distributed systems will harness the vast
computing power already out there.

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Annuity, service & software business models are
(deceptively) attractive to hardware manufacturers
10
$0
$17,500
$35,000
$52,500
$70,000
Whirlpoo
Electrolux
Bosch
Nokia
Sony
LG
Electronics companies are bigger
than home appliance makers…
2012 Revenue for Major Electronics &
Appliance Companies in US$ MM
Detergent and cleaning supplies
companies are the most profitable
2012 Operating Profit Margin for Major Detergent
& Cleaning Supplies Companies
-10%
50%
Clorox
P&G
Unilever
Appliance makers are
significantly more profitable
2012 Operating Profit Margin for Major Electronics
& Appliance Companies in Percent
-10%
50%
Whirlpool
Electrolux
Bosch
Nokia
Sony
LG

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Clearly, we’re all in the wrong line of business
11
Organic Soap
$16/Bottle
Delicate Detergent
$10/Bottle
Cascade Dish Cleaner
$20/Monthly Supply
Tide Laundry Pods
$20/Monthly Supply
Typical gross margins for cleaning products: >50%

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The lure of new markets is most powerful of all, of which
three seem the most compelling
12
The Quantified Self The Smart Home The Economy of Things

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Make the most of yourself, for
that is all there is of you.
Ralph Waldo Emerson

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It’s too bad there’s no evidence that wearables make much
of a difference, at least in the fitness department
14
Wearables dirty secret: 50% Lose Interest
- Tech Republic, February 2014
My fitness band is making me fat: Users
complain of weight gain with trackers
- USA Today, July 2014
Fitness trackers are long on hype, short on credibility.
- Wired Magazine, January 2013
Fitness Trackers Only Help Rich People Get Thinner
- The Atlantic, January 2015

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Most the market for wearables is driven by information
seekers rather than the most highly motivated
15 Source; IBM Institute for Business Value, The Future of Connected Health Device,s, 2013
Motivated
Healthy
Chronically
Monitored
Information Seekers

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Interventions that work in clinical environments don’t seem
to work with consumers
16
Less Effective With ConsumersWork In A Clinical Environment

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All of that may be about to change: the era of A/B testing is
about go from the web shopping cart to your underwear
17
A B
Google Fit HealthKit ResearchKit

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With more than a million in estimated pre-sale, the Apple
Watch is kick-starting a new era of wearables research
18
Unprecedented user volume.
Apps & Development Tools
Openness for research and analytics
Integration across multiple devices

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The second big market calling is the Smart Home. Long
promised, and never delivered, it’s getting smarter all the time
19
Direct Control
Z-wave Hub
Efficiency
Nest Thermostat
Well-Being
Misfit Bolt

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The biggest market of all is the market for smart, digital
assets. The Internet of Things will digitize the physical world
20
Digital ContentFind It
Consume It
Pay For It
Digital Content

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The biggest market of all is the market for smart, digital
assets. The Internet of Things will digitize the physical world
21
Physical WorldSearch
Utilize
Monetize
Physical World

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Strategy without tactics is the
slowest route to victory. Tactics
without strategy is the noise before
defeat.
Sun Tzu

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I said we are in the golden age of wearables
23

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After the renaissance came the industrial revolution
24

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Wishful thinking seems to be the foundation for many
business models and forays into connected services
25
Device Revenue
Services Revenue
Customer Analytics
VS
Top Concerns for Wearables Users
Data Security
Data Sharing
Data Portability
Mobile Access
0% 20% 40% 60% 80%
34%
59%
63%
77%
Source; IBM Institute for Business Value, The Future of Connected Health Device,s, 2013

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Economics of information markets are challenging
26
Supply Marginal
Cost
$0
Market
Price
$0

27. Page
Software & Services markets aren’t universally profitable.
27
Where The Money Goes: Online Media Services for a $1 Music Track or App
10%
5%
15%
70%
Artist
Transaction
Processing
Data Center & Delivery
Everything Else

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As wearables consolidates and accelerates, lots of business
models may not survive
28

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Five battlegrounds where companies in the wearables space
can distinguish themselves and make a difference
29
Sensors Analytics Integration Business Model User Experience

30. Page
Sensors
30
Low Cost Hardware
Powerful Software
Accurate, Low Cost Data

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Analytics
31
Better Sensors
Huge Data Sets
Predictive Analytics

32. Page
Integration
32
• No single source of truth
• No single source of data
• No possibility to live in a
walled garden
Openness to integration
may outweigh individual
strengths

33. Page
Business Model
33
• Don’t defer profitability
• Leverage sustainable cost
models
• Be wary of “two-sided”
business models

34. Page
User Experience As A Science
34
A/B Testing Methods
Massive Data Sets
Lasting Behavioral Change

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Making a better world through technology
35
It’s all built on optimism about the future.

36. Paul Brody
@pbrody
linkedin.com/in/pbrody