2016 has not been a great year for the consumer wearables market. However, declaring wearables dead is a mistake.
First, the bad news.
During CES 2016, which took place in January, wearables were the star of the show, with numerous companies, including Pebble and Samsung, introducing new hardware. After the early success of the Apple Watch and steady increase in Fitbit’s sales, many were predicting a strong and growing demand for these devices.
However, throughout this year, the wearables market began to show signs of weakness. And, a number of negative market events occurred in rapid succession. For example:
- The market research firm IDC reported that estimated sales of the first-generation Apple Watch had fallen over two consecutive quarters. These reports led Tim Cook, Apple’s CEO, to make a rare public statement indicating that sales of the Apple Watch Series 2 are running above expectations
- Fitbit’s stock has lost significant value as poor sales of new product offerings make investors nervous about whether the company can maintain and accelerate consumer uptake of its devices.
- Microsoft and Motorola pulled back from the wearables market due to poor demand. In addition, Intel laid off employees in its wearables division, fueling speculation that the company may exit the sector (Intel says otherwise).
- Pebble, which proved extremely adept at generating interest among a core group of fans for its devices, was never able to achieve mass appeal. Pebble’s assets were recently acquired by Fitbit but that deal does not cover Pebble’s outstanding liabilities.
- Consumer opinion on wearables is mixed with a recent Gartner study indicating that many believe wearables are useless and expensive.
The flurry of bad news has led some to declare that wearables are dead, or at least over-hyped. Is this true?
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
There are a few reasons why the consumer wearables market is facing significant headwinds. Fortunately, many of these issues are fixable. They include:
- Lack of consumer clarity around how to best use wearables: Are wearables supposed to replace smartphones, operate as independent devices or something else? Because smartwatches have so many features, it is difficult for users to understand how best to use them. Early market signals suggest that consumers are embracing fitness trackers, which are relatively simple and (for consumers) deliver a clear benefit. Wearables makers like Apple are beginning to realize that clear messaging about how to use smartwatches is important, which is why the new Series 2 (Nike edition) watch may be more successful, as it is billed as being fitness-focused.
- Wearables’ dependence on mobile devices: Technical challenges and smartphone makers’ unwillingness to cannibalize mobile sales kept the first generation of smartwatches tethered to users’ phones. Smartwatch makers now realize that people don’t want devices that are simply extensions of their phones, but have the ability to function independently. Samsung’s recent messaging around its Gear S3 smartwatch in terms of its independence from the phone is a sign that wearables makers are beginning to get it.
- Dissonance between wearables makers’ long-term strategic focus and the market’s emphasis on quarterly sales performance: Wearables makers like Fitbit face a daunting challenge. Their financial health is tied to their quarterly sales numbers. Yet, they are pursuing longer-term strategies such as monetizing user data and becoming more diversified by bringing products and services to enterprise customers. There’s significant potential for these strategies to pay off, but it remains to be seen whether the market will be patient and sales will support these efforts. Currently, Jawbone and Fitbit appear to be pursuing this type of long-term strategy. It remains to be seen whether they can succeed given that they are less cash rich than Apple.
Where is the wearables market going in 2017 and beyond? Think niches, medical care, the enterprise and beyond the wrist
All of the problems listed above are difficult, but not insurmountable. What these issues suggest is that the wearables market is still young and evolving. It is far from death’s door.
Moreover, it is vital to not be myopic about wearables by focusing only on the consumer segment. Wearables have shown great strength during 2016 in the enterprise, clinical and certain niche markets. Expect momentum in these areas to continue into 2017 and beyond. Here are a few examples of where wearables are performing well.
- Wearables in medical research and the clinic: Pharmaceutical companies, hospitals, startups and others have engaged in initiatives designed to utilize patient-generated health data from wearables in clinical research and patient care. One example is Brockton Hospital, which has partnered with Validic to use data collected from activity trackers and other connected devices to improve the care of patients with chronic conditions. Another example is how Fitbit is being used in more than 100 clinical trials in a range of conditions, including obesity, diabetes, and cancer. These activities are helping providers understand how to utilize data from wearables optimally and provide much-needed evidence about the benefits of wearables that, if positive, may spur increased adoption by health organizations.
- Wearables for niche customer segments: Wearables are also gaining traction among specific patient populations and niche consumer markets. Garmin is building a robust wearables business by developing a portfolio of devices that are targeted toward athletes and even parents. From a health perspective, a number of wearables will be introduced in 2017 that are targeted toward people with specific medical conditions such as ADHD.
- Wearables in the health enterprise: Remember Google Glass? It’s far from dead. In fact, the product may find new life in the health enterprise. Also, companies like Atheer are helping to expand the use of smart glasses across a range of industries, including healthcare.
- Beyond the wrist wearables: While much attention has been lavished on wrist-based wearables, a number of companies are working on rings, clothing, ear buds and other devices that allow for the passive tracking of key biometrics, AI-assisted training and more. Under Armour, which has a community of millions of users, could help accelerate the use of smart clothing as it develops and expands its offerings in this area.
We’re at the beginning, not the end of the wearables market
As in many market segments, it’s important not to be distracted by short-term thinking, quarterly sales numbers and daily changes in stock prices. Wearables are becoming more useful, practical and fashionable by the day.
While it’s an open question about whether Fitbit, Jawbone and other less diversified wearables manufacturers will be able to successfully navigate the still-volatile wearables market, the long-term future of the sector is very bright.
