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Wearables Mean Continuous Growth in the Internet of Things Ecosystem

Wearables Mean Continuous Growth in the Internet of Things Ecosystem
by Bill McCabe on 04-13-2016 at 12:00 pm

 The Internet of Things encompasses a wide range of connected services, technologies, and hardware devices. Yet, for consumers, it is the growing number of portable and wearable devices that will be their main interface with IOT tech. The wearable device market is rapidly evolving, especially when it comes to smart watches and fitness monitoring devices.

As opportunities grow, the wearables dominating the market are also changing. What does this mean for those involved in the development, marketing, and sales of these IOT connected devices?

How Big is the Wearable Market in 2015?

International Data Corporation (IDC) has predicted that wearable device shipments in 2015 will rise to 173% of the total sales achieved in the previous financial year. This translates to over 72 million devices, including smartwatches and health trackers. This growth has been largely driven by high profile releases such as the Apple Watch in April of 2015, and also by widely publicized financial opportunities, Fitbit’s recent IPO being a prime example.

With the potential to move over 72 million units across the market, it is no surprise that leading technology companies like LG, Samsung, Sony, Microsoft, Apple, and Motorola are starting to increase their focus on wearable technology.

When we look closer at the marketplace, we see a strong mix of upstart companies and traditional players, with Fitbit, Garmin, and Xiaomi all new entrants. This blend of “old” technology giants and very new companies is promising – the marketplace is growing rapidly, and opportunity actually exists.

Future growth will be an incentive for further investment. IDC figures suggest that by 2019, global sales of wearables could exceed 150 million units. The market is open completely, with any company able to take a device to market open to growth.

Do these figures mean success for all involved in the wearable market? Not entirely.

Challenges for Businesses to Adapt!

Although the overall market has grown, recent trends show that wearable fitness devices are losing out to increased smartwatch sales. Gartner’s latest research suggests that the dip could largely be associated with the increasing crossover in functionality between fitness devices and the latest smartwatches. 50 percent of those seeking a fitness wearable will end up choosing a smartwatch instead, and brands do not necessarily know why this shift is happening.

I think that one feature overlap is contributing to this. Fitness devices chiefly collect information relating to distance covered, physical location, and heath, including heart rate. Nearly every smartwatch on the market today can do all of this, and more. For a savvy consumer, combining a Samsung Galaxy Gear smartwatch with a high-end Galaxy Note 4 or Galaxy S6 would provide GPS tracking, information on calories burnt, heart rate monitoring, and even blood oxygen levels. The technology is advancing year on year, and it is clear that the innovation gap is already closing.

There are two consequences I see with this lack of clear differentiation. The first is that fitness-focused products need to innovate or die. With the market contracting by supporting multi-feature devices over purpose-built tools, the new goal should be for innovation to differentiate. Put simply, the fitness trackers of the world need to do something that smartwatches cannot.

The second consequence is that companies like Fitbit and Nike, which are focused on fitness tracking, will need to lower prices to compete with integrated smartwatches. When a consumer is faced with a $120 fitness tracker and a $200 smartwatch with phone connectivity, alerts, and apps, the choice becomes very one-sided. Yet, the bottom of the market, and the sector more likely to actually increase sales of purpose-built trackers, is relatively unsaturated.

Fitbit, Jawbone, and Nike make up 97% of the wearable fitness device market. In smartwatch territory, it is Samsung and Apple that lead the market. Looking at one of the least expensive fitness trackers, Fitbit’s Zip, we see a $60 base price point. Even at this level, the casual user has to pause and think – their phone already does much or all of what the Zip does, and a waterproof fitness case is cheaper. Fitbit, in this case, needs either to more fundamentally differentiate or drop its pricepoint.

Where is the Money in Wearables?

Even with staggering sales numbers, wearables are not in themselves a key revenue stream. Instead, it is the associated value that provides the biggest benefit to manufacturers.

Smartwatches, in particular, are seen as accessories. They are paired to smartphones and in turn can help to drive sales. They are also showpiece items. Even if Samsung, Apple, Sony etc. only manage to sell wearable technology to 10% of their smartphone customers (a speculative number), they will generate brand marketability, and logically would experience knock-on sales.

When it comes to companies like Nike, Fitbit, and Jawbone, the profit can come from connected services. Examples include subscription based exercise plans, analytics software, and in the case of Nike, a wearable can lead to increased apparel sales.

Still, there is an incredible gap for new entrants to the market. Apple and Samsung can rely on a massive pool of existing customers, and directly integrate their offerings into that group. Fitbit cannot, with no “hub” devices on the market. Even subscription-based models cannot make up for the gap. This makes the marketplace incredibly hard to predict going forward – nothing prevents a company like Samsung from releasing another mid-range watch and completely dividing the market.

As with all IOT technology, the wearable device is only one part of the experience, and therefore only one part of the business model. It is the way in which data is collected, analyzed, and presented that provides the true value of any smart device. Smartwatches already have an advantage because they are highly integrated into their respective smartphone operating systems. Wearable fitness device companies have the opportunity to provide fitness tracking as a service, and must find new ways to monetize the service to generate direct revenue on top of initial hardware sales.

What does the Future Hold For Wearable Technology?

Over a billion smartphones were sold around the world in 2014. Global wearable sales make up less than 10% of that number. The challenge for manufacturers is to develop wearables that easily integrate with daily life that also are something that consumers want to use on a daily basis.

While wearables are high in consumer mindshare, they are relatively low in actual penetration. Smartwatches are now able to integrate a fitness device with a smart device in a way that is both compelling and practical, but is it enough? Those in the industry will need the best ideas, the best strategies, and the best talent to ensure that in-demand products are developed in line with business goals, and that they result in strong financial growth.

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