Developing for wearables: from shrunken smartphone to wearable-first and beyond

[The hype around wearables is giving way to new opportunities for developers. Wearables move from “smartphone copycats” to wearables-first applications, to data-driven powerhouses. In this post we present the recording of our webinar on developer trends in wearables, and we answer the most pressing questions from participants.]

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Wearables are moving from a period of hype to a period of deeper exploration.

In a previous post, we called the Internet of Things the peace dividend of the smartphone wars, and IoT developers the baby boomers of that period. In other words, smartphone innovation made hardware technology abundant. It’s no longer the bottleneck. IoT breakthroughs will happen not by making more powerful processors or larger memories, but by identifying new applications for the sensors, devices and connectivity. This certainly seems to be the case for wearables, which arguably started with the first Fitbit in 2008 and boomed after the launch of the Pebble and Android Wear in 2013 and 2014. Those were the days of the wearables hype.

That hype has now died down. Developers in particular are getting more cautious about wearables. Between Q4 2014 and Q2 2015, the percentage of IoT developers targeting wearables dropped from 28% to 21%. Developers have not turned their back on wearables entirely – many still plan to develop for wearables in the future – but the initial enthusiasm is making way for realism, and a search for truly valuable uses for these new devices.

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Towards deep exploration and mature platforms

We investigated the burgeoning space of wearable developers and platform in detail in our October 2015 report: The Wearables Landscape 2015. The report draws data from the 670+ wearable developers that participated in our 9th edition Developer Economics survey (Q2 2015). We also took a good look at the platform space for wearables, and presented a leaderboard of the 15 smartwatch platforms vying for developers’ hearts and minds.

Some of the key insights from the report include:

  • Wearables move from “smartphone copycats” to wearables-first applications, to data-driven powerhouses. Companies experiment with fashion, authentication, entertainment, and workplace applications.
  • Digital identity will be the new axis of competition for fashion brands.
  • The future winning developer platforms for wearables are emerging right now. These winners will be as dominant as Android and iOS are in mobile.
  • In smartwatch platforms, Apple Watch OS leads, while Android Wear is under pressure from new challengers.
  • Data apps are the next big untapped opportunity for wearable developers. Platforms are emerging for health and wellness apps, and for productivity-oriented people analytics. Data platforms will be at least as important in defining the wearables market as smartwatch platforms. Developers have yet to discover these lucrative data app opportunities.
  • Power shifts from West to East. Strong Chinese wearable platforms are emerging that no longer need the West for innovation, or to reach a critical mass of users. The wearable developer population of Asia is almost as big as those of North America and Europe combined.

We covered all of these insights in our webinar on the topic.

Your questions

After the webinar, we received lots of questions from participants. While we didn’t have time to cover all of them during the webinar, we don’t want to withhold you our answers.

Q: Do you foresee any technology discontinuities which will drive either customer or enterprise adoption of wearables & hence market size to the next level?

A: While there are certainly interesting technologies on the horizon (I mentioned printable electronics and energy harvesting in the webinar), we look for the key market driver elsewhere. What wearables need are killer apps – use cases that are so powerful that they become almost universally desirable. The way to find a killer app is not by doing better market research, but by exploring thousands of use cases and letting the most powerful ones emerge. That’s why app platforms (both on the device and the data level) are so important, and also why it’s so important for app platforms to have the most apps.

Q: Does having an app store, like the Pebble app store or the Myo market, impact the size of the developer and app ecosystem?

A: Absolutely! App stores are the glue that connects developers and users. App stores reduce the effort it takes for users to find a suitable solution for their needs, and makes it easier for developers to get discovered. But it’s more than just convenience. Having this discovery, promotion, and sales mechanism, is a key element of starting network effects, where developers and their apps attract users to the platform, and users provide an attractive addressable market for developers. Network effects are the dominant economic driver of app platform success.

Q: Do you see data being stored on the device, centralized on the mobile, or rather sent to the cloud?

A: Engineers will presumably pick the solution that makes more sense, given the ever-evolving capabilities in bandwidth, on-device storage, battery life, connectivity, and requirement to connect the watch to a phone. Different companies will have different philosophies in this regard, e.g. Apple is more device-oriented, Google more cloud-oriented.

The more interesting question is what developers will do with that data. In a device-centric model, you’re not just limited in processing power, storage, and battery life, but also to the data coming from that device itself. The more “up” you go, the more opportunities there are to connect device data with other sources (like other devices, smartphone sensors, or internet services) and with historical user data.

Q: Do you believe there is an opportunity for testing the software for wearables? Or do wearable leaders appeal more to the Shiny Object Syndrome phenomenon and focus more on initial market appeal rather than quality?

A: To answer this question, we can look back at the history of smartphone apps. Quality was indeed not the first consideration in the early stages of the app ecosystem. Still, the user rating feature of app stores ensured that reasonably successful apps had to take care of quality. Over time, as competition increased and technology matured, testing and quality became more important. Today, we track as many as 180 app testing tools on developereconomics.com, depending on which ones you count. I would expect a similar evolution in wearables.

Q: How would you calculate the value of the longer lasting customer relationship for traditional fashion brands?

A: When fashion embeds digital technology into its products, its economics change to that of a digital company, to some extent. To calculate the value of a long-lasting customer relationship, digital metrics like customer lifetime value, churn, customer acquisition cost, etc become more and more relevant for fashion businesses. These are fundamentally different metrics than the ones fashion companies use today, and it will take time to adjust the corporate culture to valuing them properly.

Q: When it comes to those health data platforms, do you by chance have any data regarding adoption of those by health players (clinics, hospitals, etc)? There are a lot of strict regulations regarding medical data…

A: We are currently collecting data about developer adoption of health data platforms in our 10th wave Developer Economics survey, so stay tuned. It’s very early to see a lot of systematic data on these emerging platforms. There is some anecdotal evidence out there, e.g. see this article on the progress of Apple ResearchKit.

Regulation might not be as big a hurdle as it seems. Some types of data and applications are not explicitly regulated (yet). There’s a spectrum between, say, simple step tracking and data generated by the CAT scanner in your hospital. Even for the more serious medical research, the work of Apple (ResearchKit), Google (which also has research partnerships) and others prove that it can be done, with a reasonable amount of time and investment.

The Commerce of Things

You might be forgiven for thinking that Internet of Things stands for adding apps to a watch, or connecting a thermostat to the internet.

This is where IoT stands today. More broadly, IoT is about adding computing capabilities to a physical object, and allowing it to interact with the world around it. But this is only the beginning. As we argued earlier, IoT is fast escaping both Internet and Things. And it’s about to change e-Commerce in ways we never expected.

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An unconnected ‘thing’ is a missed business opportunity

Today, it’s well understood that adding computing and Internet to a car, a watch, a thermostat, or a chair can allow the manufacturer to capture value beyond the purchase of that object and into data-driven business models. Car makers can now offer post-sales services, like vehicle diagnostics that alert you when it’s time to have your car serviced by a dealer. Or smartwatch apps that alert you when you’ve forgotten to put your seatbelt on. Watchmakers can create stickiness as you can now use your watch to unlock your front door, or control your thermostat without leaving the couch. Thermostat makers can now expand into energy management. Office furniture makers can now extend their business into productivity management.

[tweetable]Makers of connected ‘things’ can subsidise them to make money from data-driven services[/tweetable]. We suspect that new norms will form in industry after industry, as goods manufacturers and services vendors experiment with these new business models. What is clear is that selling unconnected ‘things’ will increasingly look like a missed opportunity.

Amazon’s wake up call

But there is a much bigger revolution at play. We believe that [tweetable]IoT will fundamentally change the shape of e-Commerce[/tweetable].

With IoT, washing machine makers can now not just deliver detergent just in time by knowing when your supplies run out. They can also recommend the right detergent, based on your usage, type of clothes, on demand. Car makers can recommend where you buy your gas, by understanding your drive journey, availability of gas stations, pricing on-demand discounts, and gas station commission. Watchmakers can command a commission from health insurers, as they can monitor your heart rate, temperature, fitness habits and determine what risk zone you are in. In short, IoT makers can now afford a negative BOM (bill of materials) “a la Dell”, by subsidising the cost of hardware with the revenues from bundled e-commerce services.

Internet of Things will allow any connected “thing” to become an affiliate for e-Commerce goods that are consumed together with the “thing” – what in economics are termed complements. Any connected object could become a distribution surface and customer acquisition channel for e-Commerce goods and services of every kind and description. IoT extends e-Commerce affiliate and user acquisition schemes beyond websites, mobile and apps, into every physical object.

Amazon’s Dash offers an early glimpse of this model. Place a Tide button on your washing machine, a Huggies button next to your baby’s changing room, or a Gillette button in your bathroom and pronto, your supplies are at your door the following day. More importantly, Dash acts on your intention to buy before you change your mind and pop over to the 7 Eleven convenience store. Similarly, Amazon’s Echo, allows you to order anything from the comfort of your living room, and without lifting a finger. What’s interesting is that nor washing machine neither FMCG companies are directly involved in Amazon’s effort. Amazon’s moves should be a wake-up call for the white goods industry.

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The Physical Affiliate

e-Commerce affiliate sales can happen in two ways: firstly, by pre-sales hardcoding of the e-Commerce service into the physical object. Think how Mozilla was able to make over $200M annually by preloading the Firefox browser bar with Google search, before moving to Yahoo. Affiliate sales can also be dynamic. Think how BMW can recommend a different brand of oil for the maintenance of the car based on price, oil efficiency observed on the car and many other similar cars, and the driver’ analyzed behavior on the road. Naturally, makers like BMW who can create value by tracking user behaviour will also be able to capture more value as an e-Commerce affiliate.

White goods manufacturers can now extend their business models across the product lifecycle. They can also own the device real-estate that offers e-commerce discovery and distribution, and act as a customer acquisition channel for e-commerce goods and services. More likely, this customer broker role will be seized by more agile e-Commerce players.

And all of this while adding value to the customer. Think: I’d like to buy a watch and improve my fitness at the same time, and get better health insurance cover. Or I’d like to buy a car and save money from fuel, every time. Or I ‘d like to buy a thermostat and have the peace of mind that I’m never spending more on energy bills than I need to. All these Jobs To Be Done are not for the few, the wealthy or the early adopters. In this smarter world, they are for the many.

Closing the attribution loop

More importantly, [tweetable]Internet of Things will allow e-Commerce to stretch across the breadth of the customer journey[/tweetable]. Consider how limited e-Commerce is today in understanding the customer journey: you search on Google for something to buy, click on what fits your purchase intent, including advertisement link, then lead to a purchase on the device being used. Along that path, Google receives a kickback (typically on a cost-per-click, CPC) from the advertiser on the assumption that a small percentage of those clicking the link will buy, making the business case for paying the CPC. There is no way for advertisers to know when a real purchase was made in a brick-and-mortar shop, let alone make someone with purchase intent visit that physical shop in the first place. This is the holy grail of advertising business, i.e. being able to track consumer behaviour from awareness to intent to purchase to purchase, and across web, mobile and increasingly number of physical connected touch points. By embedding the e-Commerce discovery and distribution surface on physical objects, and more connected touchpoints across the customer journey, you are now able to cross the last mile from awareness to purchase intent to purchase.

Put simply, connected devices will become the optimum point-of-sale for e-commerce, search boxes and app stores for services, at the ideal place and ideal context of a purchase intent.

The rise of programmatic e-Commerce

Moreover, consider billions of “things” doubling as e-Commerce points of sale (PoS). This will result in the unbundling and extension of PoS for e-commerce outside the web (think Amazon.com), app and product (think Kindle) silos controlled by e-commerce players. It will lead to programmatic auctions for e-Commerce Call To Action (CTAs), as the most market-efficient way for matching demand with supply. This will mean that the programmatic, real-time bidding (RTB) for ads today will carry over to e-commerce and into the real world.

More importantly, by retaining attribution across the customer journey and touchpoints, programmatic e-Commerce will be able to monetise by Cost-per-Action (CPA) in the physical world while providing enhanced value experience beyond what the comparable but unconnected appliance could ever bring. We can clearly expect a major reshuffle of the advertising industry and a further cycle of VC investment and consolidation that it will entail.

–Andreas Constantinou
As CEO and Founder, Andreas oversees the growth and strategy of VisionMobile. He has twelve years experience in mobile, having worked with the top brand names in the mobile industry including Telefonica, AT&T, Telenor, Vodafone, Deutsche Telekom, MTS, Nokia, Sony, RIM, HTC, Qualcomm, Ericsson and Microsoft. Over the last five years, Andreas has grown VisionMobile into the leading, most respected research firm on app economy and developer economics, with a client base and reputation that out rivals companies many times the size.
Andreas on LinkedIn

–Nicolas Sauvage
Nicolas Sauvage is a “Software guy”, since first programming at 8 years old, and forever passionate about Software contributing to a better Connected World. He joined the management team of NXP Software in Feb 2011, and took various responsibilities over time including leading the OEM Business Line, worldwide sales, product management, Head of Korea, Head of Greater China. He is an Alumni of TTPCom, OpenPlug, London Business School and INSEAD.
Nicolas Sauvage on LinkedIn