Wearables – All pain, little gain.

Reply to this post

Wearables are already a commodity despite unit growth.

• Pebble is the latest wearables company to show signs of stress as it has decided to lay off 25% of its work force.
• This comes hot on the heels of Apple cutting $50 (14%) off the entry price of the Apple Watch, a poor reception for Fitbit’s latest product and a slew of M&A and restructurings at the end of last year.
• The problem is not market growth, but the fact that Apple Watch has taken the premium segment has left the majority of the rest of the market priced well below $100.
• Top of this list is Xiaomi which prices its Mi Band Pulse at just $13 meaning that anyone who wishes to price their product at a premium has to offer a lot more than just fitness tracking.
• This is where I think Pebble (and others) have been caught in the middle and why it has become much harder to make any real money despite the market growing nicely.
• In 2015 the wearables market grew 171% to 78.1m units (IDC) driven mostly by Apple and Xiaomi at the two opposite ends of the market.
• I think that the reason why there is so little differentiation remains that no one has really figured out how to make a wearable product a must have.
• Even Apple, which has a legendary ability to come up with compelling use cases, has struggled and the main question asked by potential users is: “Why would I buy it?” rather than: “How much is it?”
• Fitness tracking is already a commodity and one with which many users rapidly tire.
• Health tracking is also in its infancy as the sensors are still not close to being good enough to provide safe and secure health monitoring (see here).
• Outside of that, wearables are little more than remote controls for a smartphone providing no reason for mass market adoption.
• I suspect that this year will see growth in unit volumes but the value of the market will be much more challenged with brutal price erosion.
• Of all the wearable players, Apple is likely fare by far the best as it has a very strong ecosystem which is critical to ensure differentiation.
• Even Fitbit, which currently leads this market, is likely to struggle as it does not have the scale nor the experience outside of fitness tracking to put together a user experience compelling enough to keep its gross margins where they are.
• Hence I think that 2016 will be very difficult for wearables in general as the ravages of commoditisation bite despite unit growth.
• Apple is the only company with exposure to this market that looks even remotely safe.