The Internet of Things encompasses a wide range of connected services, technologies, and hardware devices. For consumers, it is the growing number of portable and wearable devices that will be their main interface with IOT. 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.
Future growth will be an incentive for further investment. IDC figures suggest that by 2019, global sales of wearables could exceed 150 million units.
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.
Fitness devices collect information relating to distance covered, physical location, and even heart rate.Smartwatches can now do most of the same. Combining a Samsung Galaxy Gear smartwatch with a phone like the Galaxy Note 4 or Galaxy S6 would provide users with GPS tracking, information on calories burnt, heart rate monitoring, and even blood oxygen levels. The technology is advancing year on year.
Because of this, companies like Fitbit and Nike, which are focused on fitness tracking, will need to lower prices to compete with integrated smartwatches. With screen and technology prices expected to drop in 2016, Gartner predicts that the fitness wearable market will be able to bounce back. By 2016 there could be as many as 19 wristband type devices for every 24 smartwatches sold.
Who are the Key Players in Wearables?
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.
Apple was relatively late to market, but they innovated with the digital crown (providing a more natural and familiar interface), haptic feedback to alert users of notifications, and a pressure sensitive touch display. It is rumored that Apple’s next iteration will include a high definition camera, which would be a first for wearable devices.
Whatever new innovations companies bring to market, they will be heavily reliant on technology from Qualcomm and Intel. Intel is already working in partnership with Google and Tag Heuer to develop the world’s first smartwatch/Swiss mechanical hybrid. Investors and anyone interested in the luxury product market will be eager to see this partnership develop.
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.
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, and these products should also be 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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