Wearables

June 3, 2014
wearables
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Excerpt from the Digital IQ Index®
: wEARABLES To access the full report, contact membership@L2ThinkTank.com
© L2 Inc.

2June 3, 2014
L2 intelligence report wearables
© L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws.
wear·a·ble / ˈ / noun
A digital device designed to be carried or worn on a user’s body. It
is frequently employed to capture behavioral data, monitor health
and fitness metrics, or enhance how the wearer engages with his or
her surroundings.
Adornment
In 2007, a team of archeologists excavating caves in Morocco uncovered perforated
seashells dating back 82 thousand years—the earliest known example of jewelry.1
This
discovery challenged conventional anthropological theory, suggesting symbolic behavior
(i.e., adornment) significantly predated the more complex behaviors (e.g., language, burial
rites, arts) that emerged during the Upper Paleolithic age.2
Although the urge to adorn oneself appears engrained in our evolutionary imperative, it
is only recently that such accessories offered newfound utility. Low-power chipsets, cheap
sensors, and ubiquitous network access—all repercussions of the smartphone wars—
established the prerequisites for a new class of consumer device: wearables.3
Overnight,
everyday items ranging from bracelets to sunglasses to footwear became untapped
platforms for new technology.
Growing Pains
In January, market forecasts pegged 2014 shipments of wearables at 90 million devices
worldwide (double the previous year) due to the widening appeal of fitness trackers.4
Three months later, news leaked that the Nike Digital Sport division was halting
development efforts on the third-generation FuelBand, exiting the hardware business.5
The
shakeup at Nike, a major recall at Fitbit,6
and building backlash against Google Glass7
(see
“glasshole”) all underscore an unavoidable question: are wearables the next big thing—or
just another fad?
1. “Discovery of the Oldest Adornments in the World,” Science Daily, June 18, 2007.
2. “Oldest Known Jewellery Discovered,” Nancy Hynes, Nature, June 22, 2006.
3. “Why Wearable Tech Will Be as Big as the Smartphone,” Bill Wasik, WIRED, December 17, 2013.
4. “Ninety Million Wearable Computing Devices Will Be Shipped in 2014 Driven by Sports, Health, and Fitness,” Press
Release, ABI Research, January 30, 2014.
5. “Exclusive: Nike fires majority of FuelBand team, will stop making wearable hardwear,” Nick Statt, CNET, April 18, 2014.
6. “Fitbit Force Recall Is Bad News For The Company And Wearable Tech, But Is It Necessary?” Mark Rogowsky, Forbes,
March 13, 2014.
7. “Does Google Glass Have An Optics Problem? And Does Google Care?” Jeff Bercovici, Forbes, April 22, 2014.
Watch the Video
Sources: ABI Research & MobiHealthNews
Wearables: Global Market by Device Type
2014E
0%
0% 100% 200% 300% 400% 500%
10%
20%
30%
40%
60%
currentShareofwearableDeviceShipments
projected growth (2013-2018 cagr)
Wearable Cameras
Wearable Cameras
Smart Watches
Smart Watches
Healthcare
Healthcare
Sports / Activity Trackers
Sports / Activity Trackers
Wearable
3D Motion Trackers
Wearable
3D Motion Trackers
42.64M 7.44M
22.59M
13.61M 0.87M
Wearables: Worldwide Device Shipments by Catergory
2014E
Smart Glass
Smart Glass
2.13M
Smart Clothing
Smart Clothing
0.72M

3June 3, 2014
Yin & Yang
This lingering uncertainty is traced to a dearth of evidence showing wearables
can move outside the fitness category and beyond early adopters. Silicon
Valley may be the cradle of innovation, but not style. Likewise, the arbiters
of fashion who set trends on the runways of New York, Paris, and Milan are
not engineering powerhouses. Acting alone, few brands possess the capital,
technical prowess, and culture of innovation necessary to push wearables into
the mainstream.
Slowly, organizations from both camps are recognizing the futility of going
it alone. Nike emphasizes its long-standing partnership with Apple,8
Fitbit
highlights its collaboration with Tory Burch,9
and Google’s latest Android Wear
announcement singles out Fossil as a future channel partner.10
The ability of
brands to develop effective partnerships that bridge function and fashion will
determine the route of a potentially large, but abstract market (reaching upwards
of $30-$50 billion over the next 3-5 years).11
L2 Intelligence
Throughout human history, adornments have been employed to signal style,
affluence, and desirability. Select prestige brands are now positioning themselves
to endow wearables with the qualities these devices desperately lack.
This primer profiles key data and insights into the role wearables may
play in a direct-to-consumer strategy. Like the medium we are assessing,
our approach is dynamic. Please reach out with comments to improve our
methodology and findings. You can reach me at Scott@L2ThinkTank.com.
8. “Why can Nike dump the Fuelband? With friends like Apple, it doesn’t need its own hardware,” Kif Leswing,
Gigaom, April 21, 2014.
9. “Announcing the Tory Burch for Fitbit accessory collection,” Fitbit Blog, February 4, 2014.
10. “Google’s Android Wear project adds HTC, LG, Motorola, Qualcomm, Fossil and more for new smartwatches,”
Joseph Volpe, Engadget, March 18, 2014.
11. “The Future of Wearable Technology,” Ashley Kindergan, Credit Suisse, April 7, 2013.
Sources: Annual Reports, Bloomberg, Forbes, Press Mentions, strategy&
Wearables: Silicon Valley vs. Madison Avenue
Profile of Positioning & Resources Required to Drive Mainstream Adoption
aapl:us
$538B market cap
14.9 P/E ratio
$3.4B R&D spead
2.7% of revenue
“iWatch” rumors
resurface in
February 2013
following a supplier
report in the China
Times
goog:us
$382B market cap
30.5 P/E ratio
$6.8B R&D spead
13.5% of revenue
Android Wear SDK
released in March
2014; Google Glass
enters “open beta”
in May 2014
December 2013
reports suggest
“Father of Xbox
Kinect” moving on
to develop Windows
wearables
msft:us
$331B market cap
15.0 P/E ratio
$9.8B R&D spead
13.3% of revenue
005930:KS
$203B market cap
25.2 P/E ratio
$10.4B R&D spead
5.8% of revenue
Announces Galaxy
Gear 2 smart
watch in February
2014; Galaxy
Glass coming in
September 2014
intc:US
$134B market cap
14.4 P/E ratio
$10.1B R&D spead
19.0% of revenue
CES keynote in
January 2014 used
to announce focus
on wearables and
debut Intel Edison
“system on a chip”
®
NKE:us
$67.2B market cap
25.7 P/E ratio
Launched
Nike+iPod in May
2006; laid off as
many as 55 of
the 70- employee
FuelBand team to
focus on Nike+
software in April
lux:im
$27.1B market cap
36.4 P/E ratio
Announced strategic
partnership with
Google in March
2014 to make Glass
“fashionable”
Madison Avenue
Silicon Valley
brby:ln
$11.3B market cap
20.7 P/E ratio
Former CEO begins
work at Infinite Loop
(Cupertino) in May
2014
Private
$4.6B in revenue
—
Partnered with
Philips in July
2000 for the first
electronic clothing
(ICD+ jacket)—
ahead of its time?
Private
$800M in revenue
—
Announced “Tory
Burch for Fitbit”
accessories for
SS14 season at CES
Scott Galloway
Founder, L2

4June 3, 2014
Sources: Catalyst
Wearables: Global Shipments of Wristband Devices
2H 2013
Wearables: Major Barriers to Purchase
Leading Reasons Cited by U.S. Consumers, October 2013
Source: TNS Global (n=1,000 U.S. consumers)
EXPENSE
PRIVACY
LOOK
COMFORT
HEALTH
RISKS
54%
31%
13%
13%
10%
OTHER OTHER
58%
21%
14%
8%
FITNESS TRACKERS SMART WATCHES
54%
19% 16%
11%
Internet Devices: Forecast of Global Install Base
2004-2018E
Sources: Business Insider (IDC, Strategy Analytics, Machina Research)
*IoT: Everyday objects (e.g., refrigerators, door locks, thermostats) equipped with Internet or M2M connections,
allowing them to relate not just to the user, but other sensors/inputs within the immediate vicinity.
Wearables: Forecasts for Global Device Shipments
2010-2018E
Source: Business Insider (ABI Research, IMS Research, Juniper Research)
DEVICESINUSE(BILLIONS)
2004
2
4
6
8
10
12
14
16
18
20
2006 2008 2010 2012 2014E 2016E 2018E
WEARABLES
SMART TVS
TABLETS
SMARTPHONES
PERSONAL
COMPUTERS
INTERNET
OF THINGS*
2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E
0
50
100
150
200
250
300
250
DEVICESSHIPPEDANNUALLY(MILLIONS)
REST OF
WEARABLES
MARKET
FITNESS
TRACKERS
SMART WATCHES

5June 3, 2014
smart watches
infotainment
October: 3 years after debut at the
TechCrunch50 conference, Fitbit Ultra
activity tracker launches as clothing
clip-on
November: UP expands Jawbone
offering beyond headsets and speakers,
emphasizing social elements
December: Jawbone CEO
acknowledges product defects,
instituting a “no questions asked”
refund policy
November: UP24 overcomes last
year’s launch woes, adds wireless
connectivity
November: Nike launches
“SE” FuelBand models, which enable
continuous syncing and hourly
motivational reminders
September: Samsung debuts $299
Galaxy Gear alongside new tablet
devices
October: Reports circulate that Galaxy
Gear’s return rate tops 30%
November: Samsung reports 800k
units sold in two months
December: FCC product filing
suggests SW3 launching in 2014
Summer: Glass pops up
everywhere from live surgery to protest
coverage to a Bon Jovi concert
September: Glass featured
across 12-page “Futuristic Vision of
Fashion” editorial in the September issue
of Vogue
October: Upgraded Airwave
1.5 launched with better iOS Android
integration and longer battery life
October: Glass road show
begins—ironically; first person ticketed
for driving while under the influence
wearing Glass
January: FuelBand goes on
presale online, expanding on established
Nike+ ecosystem
February: FuelBand goes on sale
in the U.S. at Nike and Apple stores
April: Aria “smart scale” accessory
introduced, adding weight and BMI
tracking to pedometer data over Wi-Fi
September: Fitbit One and Fitbit
Zip become first wearables to leverage
Bluetooth 4.0
January: Android-based SmartWatch
announced at CES as part of “Smart
Extras” product suite
April: SW1 goes on sale in the U.S.
for $150
April: Launches Kickstarter campaign,
raising over $10M from nearly 70k
backers in one month
April: “Project Glass” formally
announced; Sergey Brin sports headset
at Fighting Blindness charity event
June: Initial signup for
developer kits offered at Google I/O
conference ($1500 price tag)
September: Oculus Rift
raises $2.4M on Kickstarter to fund
development kits
September: Glass graces
the DVF runway during New York
Fashion Week
October: “Airwave” ski goggle
featuring Recon Instrument’s MOD
heads-up display goes on sale in the
U.S. ($600)
January: Nike launches
“METALUXE” collection, catering to style-
conscious FuelBand fans
January: Partnership with Tory
Burch announced
February: Fitbit Force issues
voluntary recall due to reports of skin
irritation
April: Launches Innovation Lab
in San Francisco as rumors suggest
shifting focus from hardware to software
January: Announces next-gen “Steel”
at CES ($100 price increase)
February: 1000+ apps now available
for device
February: Garmin announces
support for Xperia devices, including
SW2 integration
February: Gear 2 and Gear 2 Neo
announced at Mobile World Congress
(less than 6 months after first gen)
January: Google announces
“Titanium Collection” frames for Glass
February: Google publishes
etiquette guide for Glass; Kenneth Cole
becomes first major brand to experiment
with Glass app via “Mankind” campaign
February: Facebook announces
agreement to buy Oculus VR for $400
million in cash and $1.6 billion in stock
January: Nike opens API developer
portal to drive digital sports innovation
March: 10 startups selected to
participate in 12-week Nike+ Accelerator
program
May: Fitbit Flex evolves sensor from
clip-on to wristband device
October: Fitbit Force adds display
into wristband model
January: Begins mass production,
four months behind target release
May: PebbleKit SDK released
June: SW2 unveiled featuring
water-resistant screen and near field
communications (NFC)
July: Confirms 85k units sold
September: SW2 goes on sale
for $200
February: “How it Feels
[through Google Glass]” video racks
up 25M views; expands Explorers
promotion with #ifihadglass campaign
April: “Explorer Edition” of
Glass starts shipping, third-party apps
slowly expand
May: Google announces it
will not approve apps that use facial
recognition without “strong privacy
protections in place”
June: 1080p version of Rift shown
at Electronic Entertainment Expo (E3)
August: Legendary game designer
John Carmack (id Software) joins Oculus
as CTO
March: U.S. head of Sony Mobile
suggests in interview that SW3 will shun
Android Wear for a customized platform
May: Rumors emerge that Samsung
will release a Glass competitor in
September
March: Partnership with
Luxottica announced to offer additional
frame designs
May: Officially available
to general public for $1500; Ivy Ross
(Calvin Klein, Coach, Gap) becomes new
head of Google Glass
May: ZeniMax Media files lawsuit
alleging Oculus unlawfully exploited
intellectual property
Wearables: Major Developments by Use Case
2011–2014 Chronology
Fitbit Jawbone UP Nike+ FuelBand
Sony SmartWatch Samsung Galaxy Gear Pebble
Google Glass Oakley Airwave Oculus Rift
Sources: CNET, Glass Almanac, Mashable, The Guardian, Wired
fitness trackers

6June 3, 2014
Homegrown Efforts
Kickstarter is often touted as an incubator for wearables—a
reputation gained from high-profile success stories including
the Pebble smart watch (May 2012)12
and the Oculus Rift
virtual reality gaming headset (September 2012).13
There are nearly 50 Kickstarter campaigns that reference
“wearables” (versus 4,423 categorized as “technology”). The
average wearables campaign receives 399 percent of its
funding goal—a statistic that obscures the wide gap between
winners and losers on the platform. On average, successful
campaigns receive 692 percent of their initial goal ($54k)
versus only 14 percent for failed campaigns ($80k).
Ultimately, only six in 10 wearable projects achieve their
funding target. Success rates are picking up as the catergory
achieves traction, with nine funded campaigns in the first half
of 2014—the best yield since 2011. However, mimicry persists
among crowd-sourced initiatives. Seven of the top 10 projects
in terms of funding are all variation on the smart watch theme.
12. “Pebble Smart Watch Delivers on Kickstarter Promise and More,” Christina
Warren, Mashable, August 31, 2014.
13. “Oculus Rift: From $2.4 million Kickstarter to $2 billion sale,” Richard
Mitchell, Joystiq, March 28, 2014.
$10,266,845
$100,000
Pebble
Ended May 18, 2012
68,929 backers
10,267%
$2,437,429
$250,000
Oculus Rift
Ended Sep 1, 2012
9,522 backers
875%
$264,527
$80,000
EMBRACE+
Ended Jun 9, 2013
4,474 backers
231%
$143,377
$100,000
Woojer
Ended Dec 6, 2013
1,710 backers
43%
$1,032,352
$100,000
Omate TrueSmart
Ended Sep 20, 2013
4,378 backers
932%
$1,012,742
$100,000
AGENT
Ended Jun 20, 2013
5,685 backers
913%
$801,224
$100,000
Neptune Pine
Ended Dec 21, 2013
2,839 backers
700%
$616,231
$150,000
HOT Watch
Ended Sep 7, 2013
4,141 backers
311%
$309,393
$100,000
MetaWatch STRATA
Ended Aug 20, 2012
1,767 backers
209%
$305,393
$150,000
cookoo
Ended Jul 7, 2012
2,560 backers
104%
Kickstarter: Top 10 Wearable Projects by Total Pledges
May 2014
Initial Goal Total Pledges Percent Overfunded
Active “Wearable” Projects
Projects by year
most common locations
Average # of backers
Average goal
57% funded
2011 7 57% funded
2012 9 44% funded
2013 15 40% funded
2014 13 69% funded
22% San Francisco
18% New York
14% los angeles
44
2,314
$65,304

7June 3, 2014
Click logo to return here.Click to jump to: 5
6
DATA SPOTLIGHT
KEY FINDINGS
6 Typology
7 Chronology
8 Homegrown Efforts
9 Major Platforms
10 Channels
11 Impact
L2 TEAM
ABOUT L2
FIRST MOVERS
13 Accessorizing Existing Tech
14 Intel Inside®
15 Power Play
16 Connected Cars (Version 2.0)
17 Wearable Advertising
18 Enhancing Customer Service
19
20
12

8June 3, 2014
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