Wearables : Disruptor Disrupted (Industry PoV)

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Wearables:DISRUPTOR DISRUPTED

An Industry Point-of-View byVatsal Malavia and Ashwin Pai

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Wearable Devices have been arguably one of the biggest disruptive products of the last decade. The first fitness tracker was launched by Fitbit in 2007, while the first smartwatch was launched in 2012 by Pebble. Since then a number of companies including Apple, Jawbone, Samsung, Sony, Nike, Tomtom, Xiaomi, and Garmin have entered the race and have acquired significant market share for themselves. The demand for wearable devices was tremendous in the first half of the 2010 decade. According to IDC, wearable device shipments grew 170% from 28.8 Million devices in 2014 to 78.1 Million devices in 20151. Fitbit’s revenue increased from $271 Mn in 2013 to $1858 Mn in 2015 at a CAGR of 161%. Apple shipped 12 Million2 Smartwatches in 2014-15 on debut. Clearly Wearables was a market disruptor in recent times after the smartphone revolution and every company wanted a pie of the cake.

However, the last one year has not looked as promising as the ones before. Fitbit had an annual revenue growth of 150% from 2014 to 2015 but grew a mere 17% between 2015 and 2016. Tomtom’s revenue from their consumer division which is majorly contributed by wearable devices fell by 10% from €624 Million in 2015 to €563 Million in 2016. Apple’s smartwatch shipments fell 71% YoY in Q3, 20163. Pebbles, the first company to launch a smartwatch, closed shutters in December, 2016. There are 40+ companies making smart wearable devices today, however most of these have revenues less than $50 Million. These numbers indicate that wearable devices may have reached a plateau or even begun to degrow post the boom experienced earlier.

To understand current market positioning of wearable devices, we leveraged Zinnov’s proprietary framework to determine where and why wearable devices are lacking, by comparing them with the other prominent consumer electronics available in the market. The products were evaluated on two major aspects- Innovation Intensity and Utility Intensity. Each of the two factors had multiple enabling parameters under them and we applied appropriate weightages to each of these parameters. All the major consumer electronic products were rated on these parameters to arrive at a comprehensive picture.

The framework is as follows:

Utility Intensity

DISRUPTION FRAMEWORK

Inno

vatio

n In

tens

ity

HYPEProduct lines that have created too much buzz

due to high innovation intensity, but are not very critical to the user

DEATHProduct lines that have gone obsolete as newer

and better alternative products have been introduced in the market

DISRUPTProduct lines that have been the biggest technological disruptors in terms of both

innovation and utility

SUSTAINProduct lines that have been in the market

since a long time due to their high utility factor and absence of alternatives

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In order to get a relative product positioning, we rated the top consumer electronic products till date on the above parameters and arrived at a comprehensive positioning of wearables. The products considered were Smartphones, Tablets, Laptops, Traditional Home Appliances, Television, Printers, Desktop Computers, Netbooks, Digital Cameras, Smart Appliances, e-book readers, AR/VR Devices, and Gaming Consoles besides Wearable Devices. The ratings for Wearable Devices on the parameters mentioned above are as follows:

The enabling parameters in each of the factors are as follows:

INNOVATION INTENSITY

UTILITY INTENSITY

Application Diversity

Demographic Addressability

Displacement Capability

Product Necessity

Evolution Potential

Indulgence Frequency

New Market Creation Ability

Adoption Rate

Interoperability

Number of unique application scenarios/use cases addressed by the product

Coverage of the product across demographics- age, profession, interests, education, gender, geography, etc.

Product’s potential to displace similar incumbent products

It is the criticality of the product’s utility

Potential of the product to cater to newer applications/ functionalities

It is the number of hours per week the product is operated or interacted by consumer

Ability of the product to create a new market/opportunity for itself

The rate at which product is adopted by consumers

Degree of compatibility with different products or platforms

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INNOVATION INTENSITY

UTILITY INTENSITY

1. Application Diversity

1. Demographic Addressability

2. Indulgence Frequency

3. Product Necessity

4. Adoption Rate

2. Evolution Potential

3. Displacement Capability

4. New Market Creation ability

5. Interoperability

Wearable devices have relatively low application diversity as they are limited to very few functions and applications. On the other hand smartphones and laptops rate very high on application diversity as they offer innumerable functionalities to their users. Television and traditional appliances serve a very specific purpose.

Today we have wearable devices that cater to almost all the sections of the society be it gender, age, education or profession. Hence, they have very high demographic addressability. Devices such as TV, traditional appliances, printers, and smartphones are other devices with high demographic addressability.

Wearables may be worn on a person all day but the indulgence of that consumer in the device is very low. They are more of passive devices which are checked once or twice daily. Smartphones have a very high indulgence frequency while TV, digital cameras, gaming consoles and traditional & smart appliances have medium indulgence frequency.

Wearables have developed a new market for themselves by creating demand among the consumers. Consumers have realized how handy and helpful these devices can be, hence they are rated high on this parameter. Other devices with high product necessity include appliances, smartphones, and printers.

Wearable devices revenue boomed between 2012 to 2015, however as mentioned earlier these numbers have plateaued and degrown for some companies too indicating that the adoption has slowed down. Hence, we have rated Medium for wearables on adoption rate.

Even though the rise of wearable devices has been recent, they have undergone many significant advancements to support new features such as activity, sleep, and heart rate, etc. In the future, Wearables have tremendous potential in predictive and preventive healthcare. Hence they are rated high on evolution potential. Devices such as smartphones, gaming consoles, AR/VR devices have evolved quite significantly while devices such as digital camera, printers, TV have not undergone much change since their inception.

Wearables have limited potential to displace existing products, hence they have been rated low on this parameter. Smartphones, laptops and smart appliances are some of the products which displaced their incumbent counterparts.

Smart-watches and fitness bands have developed interest and curiosity among their consumers and have created a whole new market where none existed earlier. Hence, they have a very high rating on this parameter. AR/VR devices and Gaming consoles are other such devices that created a new market for themselves.

Wearable devices are highly interoperable as they are compatible to smartphones, tablets as well as laptops. Printers and Gaming Consoles also have high interoperability.

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The basic inference from the above framework is that for any product to survive and last, it has to be high in utility intensity. Devices such as Smartphones, laptops and Smart appliances have or would completely revolutionize the way things are done. On the other hand Gaming Consoles, TVs, printers, and traditional appliances have been able to sustain their market as they have their own sets of irreplaceable utilities. The wearables are currently in the Hype Zone as they do not have a value proposition critical to the consumers. If they continue to remain in the same zone, they will enjoy popularity for a limited period and eventually die when the novelty wears off. They need to push themselves to increase their utility among the consumers. Otherwise, they themselves will be disrupted by newer innovations, eventually pushing them into the Death Zone. In the past, digital cameras, netbooks and more lately desktop computers have been pushed into the death zone due to new and disruptive technological innovations.

The biggest argument as to why these wearable devices are not gaining traction with the general public, is the hype around it. These devices are considered more of a style statement rather than an essential product. Other factors contributing to the fall in demand include continuously discharging batteries, dependency on a smartphone application to operate as well as smartphones getting embedded with fitness tracking technologies, devices being generic and not personalised, and lastly, lack of predictability factor i.e. to show the user as to what results they can achieve if they follow the prescribed plan and what if they don’t. Companies need to increase the criticality of wearables in the lives of the consumers so that they can fare better on both Indulgence Frequency and Product Necessity.

One such company to achieve higher rating on the Utility Intensity is Goqii, an India-based fitness and heath company. Goqii sells their own line of fitness bands just like Fitbit or Jawbone. However, their USP is the services they provide over the wearable devices. They offer personal coaches and doctors who monitor user’s daily activities and then provide recommendations to the user to improve their lifestyle in order to get fitter and healthier. They earn revenue through their subscription model by engaging better and offering more lifetime value to their customers. Wearable Devices by Goqii will be rated high on both Indulgence Frequency and Product Necessity thus shifting their position rightwards into the Disrupt Zone.

In conclusion, wearable devices have definitely created a lot of buzz among the people. However, they still have a long way to go before they are established as critical devices by the consumers.

Utility Intensity

DISRUPTION FRAMEWORK

Inno

vatio

n In

tens

ityHYPE

DEATH

DISRUPT

SUSTAIN

Digital Cameras

NetbooksDesktop

E-book Reader Tablets

WearablesSmart Appliances Laptops

SmartphonesAR/VR Devices

GamingConsoles

Traditional Appliances

Television

Printers

After rating all the products on the above parameters, the final outcome was as follows:

Vatsal Malavia is a Consultant with Zinnov. He has been working with Zinnov for almost two years and has been part of multiple market expansion engagements such as organic diversification and M&A target identification for global product engineering service providers. He was also involved in due diligence of a potential acquisition target for a large Private Equity Firm and has assisted the Zinnov Zones PES and IoT teams in publishing the respective reports. He has a Bachelor’s Degree in Electronics and Instrumentation from BITS, Pilani.

Ashwin Ballambettu Pai is an Associate Director with Zinnov. Having 5 years of rich experience in management consulting, he has advised leadership teams of clients in formulation of business and operations strategy. He has spearheaded multiple client engagements in product R&D, Globalization and GTM strategy for both MNCs and global product engineering service providers. Ashwin has deep expertise in various hi-tech industries such as semiconductors, consumer electronics and telecommunications. Previously, Ashwin spent over a decade in Semiconductor industry working for organizations such as Avago Technologies, Solomon Systech. Ashwin has an MBA from Indian Institute of Management, Bangalore, a Master’s degree in Consumer Electronics from Nanyang Technological University, Singapore and a Bachelor’s degree from MIT, Manipal.

Reference Links

1.http://www.mobihealthnews.com/content/wearable-device-shipments-topped-78-million-units-2015

2.https://techcrunch.com/2016/02/05/apple-watch-took-two-thirds-of-smart-watch-market-in-2015-says-analyst/

3.http://www.cnbc.com/2016/12/05/apple-watch-shipments-plunge-70-as-consumers-favor-simpler-wearables- idc-says.html

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