The Golden Age of Wearables: Personal Networks, Smart Things & Intimate KnowledgePaul Brody Americas Strategy Leader, Technology Sector Wearable Technology, Adoption & Monetization Conference San Francisco, 21 April 2015

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The future is already here. It’s just not evenly distributed.

William Gibson

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Here, there, and everywhere, the Internet of Things has arrived in huge volumes

3 Source: Gartner Group estimate of connected devices by category.

Forecast Volume of Connected Devices to 2018 Millions of Devices

Valu

e Ax

is

0

7,500

15,000

22,500

30,000

2016 2017 2018 2019 2020

AutomotiveConsumersGeneral BusinessVertical Business

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With every order of magnitude reduction in cost comes an order of magnitude or greater increase in adoption

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Typcal Platform Cost At Introduction, US$, Log Scale

$1

$1,000

$1,000,000

Mainframe Servers PC Phone Wearables

Estimated Device Installed Base, By Type, Number of Devices

1

100

10,000

1,000,000

100,000,000

10,000,000,000

Mainframe Servers PC Phone Wearables

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And these devices are getting very up close and personal with all of us

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Sensoria Smart SockOmSignal Smart ShirtWrist Bands Galore BSX Insight

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What’s fueling this massive growth curve?

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Technological Change

Business Model Envy

New Market Opportunities

Wishful Thinking

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Powerful software and cheap sensors are increasingly competitive with precision sensors & skilled interpretation

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Intel Basis Peak

• Cardio activity • Total calories • Heart rate

Cheap Sensors Are Everywhere

• LEDs & Image Sensors for O2 Sat • 3 Axis Accelerometers • MEMS Microphones & Speakers

Atlas Wristband

• Form & intensity • Strength training • Heart rate & calories

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Powerful computers are now cheaper than dumb ones.

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At higher end of the market, this shift has already started:

These high powered SOC chips can do far far more than their basic embedded tasks

Apple Lightning HDMI Adapter • Full ARM SoC with over 256MB of RAM

• Boots OS X Core when plugged in

• Conducts software conversion of MPEG to HDMI in real time

Powerful System on Chip costs are dropping so quickly, they are converging with traditional embedded chip costs:

Non-Recurring Engineering Cost for Customized Embedded Chips

Shift to SOC with software customization here

Illustrative: As SOCs drop in price, customization will shift to software, not hardware

Time + + + +

Embedded Unit CostAverage Embedded CostAverage SOC Cost

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New technology architectures mean that powerful cloud services have a marginal cost of zero

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Traditional cloud services models are built on centralized services.

Distributed systems will harness the vast computing power already out there.

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Annuity, service & software business models are (deceptively) attractive to hardware manufacturers

10

$0

$17,500

$35,000

$52,500

$70,000

Whi

rlpoo

Elec

trolu

x

Bosc

h

Nok

ia

Sony LG

Electronics companies are bigger than home appliance makers…2012 Revenue for Major Electronics & Appliance Companies in US$ MM

Detergent and cleaning supplies companies are the most profitable2012 Operating Profit Margin for Major Detergent & Cleaning Supplies Companies

-10%

50%

Clo

rox

P&G

Uni

leve

r

Appliance makers are significantly more profitable2012 Operating Profit Margin for Major Electronics & Appliance Companies in Percent

-10%

50%

Whi

rlpoo

l

Elec

trolu

x

Bosc

h

Nok

ia

Sony LG

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Clearly, we’re all in the wrong line of business

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Organic Soap$16/Bottle

Delicate Detergent$10/Bottle

Cascade Dish Cleaner$20/Monthly Supply

Tide Laundry Pods$20/Monthly Supply

Typical gross margins for cleaning products: >50%

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The lure of new markets is most powerful of all, of which three seem the most compelling

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The Quantified Self The Smart Home The Economy of Things

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Make the most of yourself, for that is all there is of you.

Ralph Waldo Emerson

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It’s too bad there’s no evidence that wearables make much of a difference, at least in the fitness department

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Wearables dirty secret: 50% Lose Interest- Tech Republic, February 2014

My fitness band is making me fat: Users complain of weight gain with trackers

- USA Today, July 2014

Fitness trackers are long on hype, short on credibility.- Wired Magazine, January 2013

Fitness Trackers Only Help Rich People Get Thinner- The Atlantic, January 2015

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Most the market for wearables is driven by information seekers rather than the most highly motivated

15 Source; IBM Institute for Business Value, The Future of Connected Health Device,s, 2013

Motivated Healthy

Chronically MonitoredInformation Seekers

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Interventions that work in clinical environments don’t seem to work with consumers

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Less Effective With ConsumersWork In A Clinical Environment

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All of that may be about to change: the era of A/B testing is about go from the web shopping cart to your underwear

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A B

Google Fit HealthKit ResearchKit

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With more than a million in estimated pre-sale, the Apple Watch is kick-starting a new era of wearables research

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Unprecedented user volume.

Apps & Development Tools

Openness for research and analytics

Integration across multiple devices

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The second big market calling is the Smart Home. Long promised, and never delivered, it’s getting smarter all the time

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Direct Control

Z-wave Hub

Efficiency

Nest Thermostat

Well-Being

Misfit Bolt

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The biggest market of all is the market for smart, digital assets. The Internet of Things will digitize the physical world

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Digital ContentFind It

Consume It

Pay For It

Digital Content

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The biggest market of all is the market for smart, digital assets. The Internet of Things will digitize the physical world

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Physical WorldSearch

Utilize

Monetize

Physical World

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Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.

Sun Tzu

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I said we are in the golden age of wearables

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After the renaissance came the industrial revolution

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Wishful thinking seems to be the foundation for many business models and forays into connected services

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Device Revenue

Services Revenue

Customer Analytics

VS

Top Concerns for Wearables Users

Data Security

Data Sharing

Data Portability

Mobile Access

0% 20% 40% 60% 80%

34%

59%

63%

77%

Source; IBM Institute for Business Value, The Future of Connected Health Device,s, 2013

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Economics of information markets are challenging

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Supply MarginalCost

$0

Market Price

$0

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Software & Services markets aren’t universally profitable.

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Where The Money Goes: Online Media Services for a $1 Music Track or App

10%

5%

15%

70%Artist

Transaction Processing

Data Center & Delivery

Everything Else

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As wearables consolidates and accelerates, lots of business models may not survive

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Five battlegrounds where companies in the wearables space can distinguish themselves and make a difference

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Sensors Analytics Integration Business Model User Experience

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Sensors

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Low Cost Hardware

Powerful Software

Accurate, Low Cost Data

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Analytics

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Better Sensors

Huge Data Sets

Predictive Analytics

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Integration

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• No single source of truth • No single source of data • No possibility to live in a

walled garden

Openness to integration may outweigh individual

strengths

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Business Model

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• Don’t defer profitability • Leverage sustainable cost

models • Be wary of “two-sided”

business models

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User Experience As A Science

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A/B Testing Methods

Massive Data Sets

Lasting Behavioral Change

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Making a better world through technology

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It’s all built on optimism about the future.

Paul Brody

@pbrody

linkedin.com/in/pbrody