Sunday, January 12, 2014

Wearables Devices - The Future And The Past

Wearable Devices have generated interest from consumers and investors alike: Fitbit has shipped more than three million fitness trackers, the Pebble smartwatch has raised more than $10 million in the most successful crowd-funded project on Kickstarter to date, and Google has released Google Glass to beta developers with great fanfare in early 2013. Hundreds of millions of dollars of funding have been poured into Fitbit and Jawbone over the past five years. And major athletic brands like Nike and Under Armour have staked out initial positions in the race to quantify personal fitness. But is this an area where angel investors should tread?

The initial fitness appliances have been targeted towards walking and biking. Trackers to quantify additional activities such as weightlifting or swimming are in the works, and the race is underway to put sensors and hardware on every imaginable place of a person’s body. In what initially appears to be a race to scale the distribution of their hardware, the winners will be tightly integrating hardware and software to build a ubiquitous platform. The goal is to successfully repeat Apple’s journey from the iPod device to the iTunes platform.

Wearables of course are not a new category per se. Personal accessories like watches and glasses have been around for centuries, and watches were digitized in the seventies. What is new is that modern accessories collect much more data using miniaturized sensors and are tethered to smartphones to make this disparate information transparent. Fibit, Nike Fuelband, Jawbone, Lumoback and many others bear testament to this current wave. But with all the data gathered from accelerometers and other sensors, one wonders how much physical information is really needed until everything is quantified for every sport and every motion in every imaginable activity.

Back to Apple and the smartphone. The mobile phone emerged as a personal accessory in the 1980s and has become the central hub to collect and process all kinds of information. In fact, smartphones disrupted the market for wrist watches to such degree where the emergence of a new platform for wearable devices seems somewhat improbable, and displaying smartphone information on a wristband seems like a limited step at best.

However, more aspirational uses cases for wearable devices beyond the quantified self are emerging. Studies by educational researchers suggest that approximately 83% of human learning occurs visually, and the remaining 17% through the other senses. To date, Google Glass seems to be the device with the highest potential to change user behavior and the potential to become a stand alone platform. And yet, use cases for Google Glass still seem few and far between.

As Marc Andreessen has stated, hardware is hard. While there is a new crop of engineering graduates combining ME, EE and CS backgrounds, success in wearable devices requires expertise in manufacturing, design, inventory management and distribution, making success highly uncertain. And yet, there are three areas that could offer attractive opportunities for early stage investors:

  • Wearables for enterprise applications. A successful Kickstarter campaign can launch a product in the consumer space, but capital intensive marketing, distribution, and inventory are required to participate in the battle for the consumer space, let alone to become the one winner. In contrast, B2B spaces can have multiple winners, and avoid much of the channel and marketing cost.
  • Portable and detachable devices. These devices can be used in stationary or mobile modes, for example in laser distance measurements.

  • New software platforms. KPCB’s investment in MyFitnessPal and UnderArmour’s acquisition of MapMyFitness are examples of investors and acquirers hoping to replicate Android’s success in the wearable device space while avoiding capital intensive hardware.

Andreessen Horowitz has decided to forego early stage investments in wearables and instead double down in the later stages. This should not deter angels from investing in this exciting space.

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