EXECUTIVE SUMMARY

The trend of “wearable technologies” consists in incorporating technology into items of

clothing and accessories which can be comfortably worn: imagine a t-shirt that releases

chilled water vapour when it senses its wearer is hot or a pair of eyeglasses that allows

you to take pictures of what you see, engage in live conference calls and see restaurant

reviews as you walk in front of them – all in one product. This trend is far from being a new

thing (20+ years old), but it is gaining traction now because of (1) a rapidly growing

smartphone user base, (2) significant component cost/performance improvements, (3) the

presence of established software ecosystems (Android/iOS), and (4) the opportunity to

leverage other businesses models’ needs to develop the market (such, apparel industry’s

need for products that enhance users’ performance). Few industries will remain untouched

by this trend and the market is estimated to be of around $42.5bn over the next 3-5

years. Many players are diving in it: established tech companies (e.g. Google, Apple,

Samsung, etc.) willing to dominate the next disruptive innovation, traditional companies

(e.g. Hamilton, Casio, etc.) willing not to be ousted from the industries they have

dominated for decades, and many start-ups (I’m Spa, LUCE, etc.) willing to be rapid

enough to become the next giants. Out of this panorama, Google seems the horse to bet

on: a well-established ecosystem, an impressive strength of the brand, and a relentless

force for innovation make “Big G” the best positioned to catch the booming demand.

Behind these wearable technologies, in fact, lies a true revolution with many business

implications: the possibility to collect data on every aspect of user’s interactions, to create

an ecosystem of enhanced reality, to establish totally new means of customer interaction,

and to change every aspect of people’s lives. As Steve Lee, head of the Google Glass

project said, “in three to five years it will actually look unusual and awkward when we view

someone holding an object in their hand and looking down at it. Wearable computing will

become the norm.”1

INTRODUCTION

The so-called “wearable technology” is a trend that refers to “incorporating electronic

technologies or computers into items of clothing and accessories which can comfortably

be worn on the body”i, with the aim to enable what we wear to act as an active device.

Examples are t-shirts with sensors that release chilled water vapour when sensing its

wearer is hot, or watches that can cover all the usual features of a smartphone. Wearable

technologies have existed in some capacity for more than 20 years ii: they have been

considered functional, but they have never attracted significant attention. In last years, lot

has changed and wearable technologies are the new raising trend, projected by many to

revolutionize consumer behaviour. The present report will firstly explain how wearable

technologies developed, why they are gaining traction now, what is the size of market and

the main competitors, and finally what are the possible future scenarios. I believe this trend

is unique in its impact on people’s lifestyle as users and consumers: it is foreseeable a

future in which every wear will incorporate technology, entirely changing our lives.

THE TREND AND ITS DEVELOPMENT

While $30mm of wearable technologies have been sold in 2012 iii, this trend has developed

slowly, passing unnoticed for long. Looking back at its history, we can say it gradually

gained traction as its concept became applied in different product categories, one after the

other: firstly clothing, secondly sport/activity trackers, and then watches and glasses.

Smart clothing – For many years, wearing companies have developed futuristic forms of

cloths functioning as active devices, by storing/manipulating data, displaying

images/text/video, connecting to the Internet, etc. The main applications have been limited

to the military and sport industry and no product reached the mass market;

Sport/activity trackers – The apparel industry has been an early adopter of smart

wearables first in the form of the wristwatch, then of activity trackers like Nike+ Fuelband

and FitBit (Appendix 1). Sport companies (e.g. Nike, Adidas, Under Armour, etc.) applied 2

wearable technology to enhance the fitness experience/efficacy of their products by

accumulating users’ athletic statistics and becoming an integral part of his performance

improvement. Critical to this product category affirmation has been the Nike+ FuelBand

activity tracker, a user-friendly and stylish wrist-tracker on which you set a daily goal (e.g.

number of calories to consume) and the tracker helps you achieve your goal iv. Activity

trackers have brought consumers closer to the concept of wearable technologies and can

be considered by far the most successful commercial application: it is estimated

sport/activity trackers will account for 61% of the wearable technologies market in 2013v;

Smart watches – Wearable technologies have been applied to the centuries old watch

industry, with the potential of cannibalizing its $56bn marketvi. While several players

compete in this field, no clear-winning alternative has emerged (both Sony and Samsung

watches, for example, have encountered negative reviews). Apple and Google are

rumoured to be working on alternative productsvii;

Smart glasses – Google Glassviii has represented a ground-breaking innovation, not

because it scaled up the application of wearable technologies (no mass production has

started so far), but because it acted as catalyst of change, educating the public to

wearable technologies. Soon after, many companies producing advanced optical devices

for military use have started adapting their products to consumer use and price range.

We are about to cross the chasm to mass market adoption (Appendix 2) and see an

avalanche of new wearable technology products. These devices can be classified into six

segments: Fitness, Medical, Lifestyle, Infotainment, Gaming, and Other (Appendix 3).

WHY THE TREND IS GAINING TRACTION NOW

Industry experts consider very likely a leap in wearable technology from niche market to

mass production. The main reasons for such a forecast are:

1.rapidly growing installed base of smartphones (Appendix 4), from 1.1 to 3bn+ units

in 3-5 years. Smartphones support wearable technologies enhancing their capabilities;3

2.component cost/performance improvements (Appendix 5), in particular in power

connectivity, sensors, battery life, interfaces and displays;

3.opportunity to leverage established software ecosystems (Appendix 6) in order to

increase adoption rate. Apple and Google can respectively leverage on iOS and

Android to achieve a higher penetration rate (strong position in entering this industry);

4.opportunity to leverage other businesses models’ needs to develop the market .

Many companies and industries benefit from a wide use of wearable technologies such

as companies in appliance, mobile payments, medical monitoring, e-commerce, and

LBS industries. Wearables have the potential to add context to location and provide an

additional channel to reach consumers (just imagine a discount coupon materializing in

your view field as you walk in front of a Starbuck with your Google Glass). Yelp and

eBay are already developing applications to function on wearables (Appendix 7).

THE SIZE AND THE MAIN COMPETITORS IN THE MARKET

Forecasts on the size of the wearable technology market largely differ from source to

source. To give the reader an idea of the numbers we are talking of, Credit Suisse in a

report published in May estimates a market of around $42.5bn over the next 3-5 years

(applying a 15%/25% attach rates of wearables to smartphones), while Juniper Research

only reports a value of $19bn that will be touched by 2018 (up from current $1.4bn). The

main competitors in the market can be divided in three groups:

- Technology companies (e.g. Google, Samsung, etc.), which can leverage their existent

technological capabilities to disrupt traditional industries like the clothing and watch ones;

- Start-ups (e.g. I’m Spaix, Lucex, etc.), that are diving in the market leveraging their

flexibility and strategic focus, but lacking brand recognition and financial strength;

- Traditional companies (e.g. Hamilton and Casio in the watch industry), which have

played for decades in the industries currently disrupted by wearable technologies. They

are investing to offer their own alternatives to the market and, even if suffering from 4

organizational rigidity, they could leverage on brand recognition and market knowledge to

survive the paradigm shift. Among all these players, I see Google and Apple best

positioned to win the competition since they have a strong brand name, huge resources to

innovate and an experience in disrupting traditional industries (e.g. Apple with the iPod).

Traditional companies are likely to see their market share drastically reduced, unless they

are able to adapt to the paradigm shift.

FOCUS ON ONE COMPANY: GOOGLE INC.

So far, Google has only been working on the Google Glass (probably available to a limited

number of users in 2014) and it has been rumoured to be working on a number of other

projects, among which a “smart watch”xi. However, I see Google ahead of competition in

the wearable technology market for three reasons that set it apart:

1. Well-developed ecosystem – Thanks to its dominance in the smartphone market and

in the online World, Google can deliver a far superior, unified user experience;

2. Strength of the brand – Google not only can release a product, but can actually create

a market for it. So far the greatest result of Google Glass has been attracting vast media

attention and therefore educating the customer on the “next big thing”;

3. Innovative force – Google’s relentless effort in exploring and experimenting can be a

significant advantage when creating a whole new category of products.

THE VISION BEHIND THE TREND: CHANGE IN THE LIFESTYLE

Behind the affirmation of this trend, it is possible not only to envision a whole new product

category, but an entirely revolutionized lifestyle: “We envision a connected world, in which

everything in people’s life will have computing power, wireless connectivity, and a lot of

sensors. Wearable technologies will empower people to have a healthier and more

connected life style” (Harry Strasserxii, 2013). The business implications are massive:

1.Collection of data on every aspect of user’s interaction – While we live in a more

connected World today, “connectivity is still mainly one dimensional – it has the ability to 5

say where the user is, but not what the user is doing – the next wave of Wearables will

be able to add context to location providing a deeper understanding of how we interact

with our surroundings.”xiii The implications for businesses (e.g. ability to access to much

more detailed info about their customers) are huge;

2.Creation of an ecosystem of enhanced reality – Pushing the concept further,

wearable technologies can change how the user lives and interacts with the World – the

vision behind the Google Glass. Without interrupting real social interaction, the user

lives in an enhanced, constantly online reality: as he enters in a commercial centre,

reviews of the restaurants he is looking at appear in his vision field and a visual

navigation system guides him to the selected destination – all this while walking along

and talking with a friend;

3.Establishment of new means of customer interaction – Companies can establish a

much closer relationship with customers, with the goal of offering products perfectly

crafted on users’ profile, current behaviour, and consumption history.

4.Growth in profitability for consumer technology companies – The wearable trend

has the potential to “boost the currently thin margins of consumer technology products

by allowing tech brands to price their products at the kind of premiums normally

reserved for fashion accessories”xiv.

5.Revolution in every sector of the economy – The revolution of wearable technologies

will touch every industry: think about the potential for wearables monitoring health

conditions for an health organization or an insurance company, or the usefulness of live

streamed medical surgeriesxv.

In conclusion, will wearable technology become as widespread as smartphones are? “Yes,

– says Steve Leexvi – in three to five years it will actually look unusual and awkward when

we view someone holding an object in their hand and looking down at it. Wearable

computing will become the norm.”6

APPENDIX

1. Sport/Activity Trackers – Source: Company website, 2013

FitBit Nike+ FuelBand

2. Adoption Curve of Wearable technologies – Source: Wearable Technologies Group, 2013

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3. Wearable Technology Products – Source: Credit Suisse Equity Research, 2013

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4. Growing Installed Base of Smartphones – Source: Credit Suisse Equity Research, 2013

5. Wearable Technologies’ Component Cost / Performance Improvement – Source: Credit Suisse Equity Research, 2013

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6. Established Software Ecosystems – Source: Credit Suisse Equity Research, 2013

7. Yelp Application for Google Glass (Yelp Monocle) – Source: Google website, 2013In this product concept the user while wearing the Google Glass can see the reviews of the restaurants he is looking at as they are on the Yelp website.

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Endnotes

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i Source: WearableDevices.com, 2013ii To give just one example, the first concept of what we know today as Google Glass has been developed by Steve Mann already in 1994iii Source: Wearable Technologies Group, 2013iv Video on how the Nike+ FuelBand works: http://www.youtube.com/watch?v=dG0vLFFtZDs v Source: ABI Research, 2013vi Source: Credit Suisse Equity Research, 2013vii Source: On Google “smart watch”, please refer to Wall Street Journal, http://online.wsj.com/news/articles/SB10001424052 702304655104579165080029933904 . On Apple “smart watch”, please refer to MacRumors, http://www.macrumors. com/roundup/iwatch/viii Due to space limitation, I decided not to explain in detail how the product named Google Glass works, assuming an expert reader. However, here how Google itself explain the product: http://www.google.com/glass/startix Source: On “I’m spa”: http://www.imsmart.com/enx Source: On “Luce”: The LUCE is a project nurtured at the X-lab of Tsinghua University and I have entered the team as Marketing Manager as I arrived in Beijing in September. The business idea is to develop wearable technologies in the form of fashion products with a technological component. For more information: http://www.luceisabela.com/ xi Source: http://www.crunchwear.com/patents-suggest-google-is-getting-in-the-smart-watch-game/xii Managing Partner at Wearable Technologies AG and former CTO at Siemensxiii Source: Credit Suisse Equity Research, 2013xiv Source: Jenny Lai, HSBC analyst, to WSJ reportersxv In fact, Philips is collaborating with Accenture to deliver vital patient data via Google Glass. Source: http://www.wearabledevices.com/news/2013/10/12/philips-collaborates-with-accenture-google-glass/ xvi Product Manager in charge of the Google Glass project together with Babak Parviz