I wrote early this month about the features of connected wristwatches. Since this time there has been significant digital ink spilled discussing the connected wristwatch space with a focus on Apple’s potential foray into the market (see: 100 people are working on the Apple watch, Apple’s entry into wearable tech, On the Apple Watch watch, Apple watch that talks to your iPhone appears in patent, and a thousand more articles).

There is always some trepidation in throwing a number out for the potential addressable market for very nascent – and in this case nearly nonexistent – categories. A back-of-the-envelope forecast  for connected wristwatches will surely haunt me and in these exercises I always think of the cellular telephony forecast McKinsey constructed in 1980 at the request of AT&T (whose Bell Labs had invented cellular telephony).  McKinsey & Company predicted 900,000 subscribers by 2000 – only slightly less than the 109 million that actually existed by that year.

But with that caveat squarely attached, I want to walk through some of my thinking on this topic.

Background Assumptions

Today there are roughly 240 million adults in the U.S. living across about 119 million households  (There are about 314 million total living in the U.S., but for this estimate – and simplicity – we’ll focus on the adult population).  Roughly 87 percent of American adults have a cell phone and about 45 percent of American adults have a smartphone.

With these type of exercises, it is always important to remember two things: (1) rarely does a product see 100 percent adoption (and only a few tech devices have ever even seen household adoption above 85 or 90 percent), and (2) adoption follows logistic functions.  This second point means slow adoption in the early years followed by several years of accelerating adoption before eventually the second derivative of the growth function turns negative (adoption grow continues but at a slower pace).  While not always evident, the first derivative of the growth function often turns negative in the end (adoption/ownership actually declines as consumers move to new products and forego replacement).

I prefer the term connected wristwatch over “smart” watch because we are really talking about watches that primarily connect to the Internet by piggybacking on the connection of the smartphone or some other Internet-enabled device. Because most connected watches will leverage the embedded connectivity and functionality of smartphones the addressable market today is probably the 45 percent or so of U.S. adults that have smartphones.  Over the long-run many and perhaps most mobile phone users will likely adopt smartphones so the longer-run addressable market is probably closer to 80 percent or 85 percent of U.S. adults. This suggests a current addressable market of roughly 108 million individuals and a potential long-term addressable market of say 190-200 million adults.

Anything that attaches to mobile phones is by definition one of the largest addressable markets in tech because of the high ownership rate of the underlying device.  This is one of the largest reasons connected watches deserve the attention they are getting. But obviously not all smartphone users will adopt connected watches. The global watch market is itself a not small addressable market,  with some estimates suggesting a $45 billion global market. I’d guess 25 percent to 40 percent of this market is in the U.S.  The wristwatch market today is not surprisingly driven heavily by luxury brands and high-end watches.  The watch market has become more of a fashion accessory than the utility device it once was because individuals are using their mobile phones as their timepiece in most cases.  But these dynamics could reverse as the connected watch becomes more than just a timepiece device.

Without doing any real research, if I had to guess I imagine long-term attachment rates of perhaps 30 to 40 percent seem reasonable if the category is successfully established so you are looking at an installed base of maybe 60 million to 80 million owners in the U.S. If the category never materializes of course then you are looking at maybe one to two percent adoption over the life of the category.

The average smartphone is replaced roughly every 18 months in the U.S. and U.S. carrier subsidy models accelerate the replacement cycle compared to other markets. While smart watches are less expensive than smartphones they aren’t likely well suited for subsidy programs since they leverage the connectivity of the mobile phone.  But they would be influenced by fashion which might shorten the replacement cycle.  Guessing, I imagine connected watches would be replaced every 36-48 months.

Summarizing, here are my (early) basic assumptions:

  • Long-term (underlying) addressable market= roughly 200 million smartphone users
  • Attachment rates to that addressable market = 30 percent to 40 percent or 60 million to 80 million
  • Replacement cycle = 3-4 years
  • Density rates = 1.  I assume adopting consumers own about one on average.
  • Replacement rate.  In this exercise I’m primarily focused on initial adoption, but could also factor in replacement cycles. My starting estimate is that 80 percent of users actually replace the product. This 80 percent figure would fluctuate higher or lower depending on how committed users are to the device and I imagine it naturally decays over time. An 80 percent replacement figure suggests a pretty strong commitment to the device and an otherwise successful category.

With these starting assumptions, I’m suggesting the category is generally successful with the portion of the addressable market that adopts the technology relatively committed to the category.  Whether the category can bring value to the consumer and realize this potential (or even surpass it) remains to be seen.

Sizing the Market for Connected Watches

We are already getting a sense for early demand for connected watches.

0213 adoption

Kickstarter darling Pebble reports they’ve sold about 85,000 watches to-date. Here I use some relatively simple diffusion equations to approximate what sales would look like over the next 30 years given the assumptions above.  A few things to note in the following charts.

First, total U.S. sales hit about 220,000 this year and 320,000 next year. Annual sales break the million market for the first time in year 6 and subsequently annual sales peak in year 13 at about 5.8 million.  Over the 30 year period, 60 million devices are sold and if you consider replacement cycles another 47.7 million devices are sold just by replacing 80 percent of the first cycle of purchases. This latter figure grows if you consider multiple replacements over this forecast horizon.

Given the simplified model I’ve used, five percent of U.S. adults own the product within 9 years and 10 percent own it with 11 years. By year 24 adoption rates have reached 30 percent at which point I’ve assumed they reach their steady state.  If I were to project broader adoption then ownership rates would accelerate over the forecast horizon. In other words, we’d see a higher rate of ownership rates more quickly.

0213 cumulative adoptionI actually believe adoption rates are broadly accelerating.  I’ve written about this in the past. Information diffusion is happening more rapidly today. Potential buyers are learning more quickly about new technologies. Adoption rates are still following logistic functions but those logistic functions are being compressed over a shorter time period.  New products are finding life (or conversely death) much more quickly today.

The above approach is a simplistic model that suggests what adoption might look like given some average parameters and assumptions. Clearly, reality will look much different.  The first few hundred thousand units of any device are relatively easy to sell. I like to say there is a 50,000 unit market for everything.  It is the next few hundred thousand that are more difficult to sell.


Does the Entry of Apple Change these Estimates?

Maybe. By some estimates, Apple controls about half of the U.S. smartphone market so about 54 million U.S. adults have Apple iPhones. Presuming maybe five percent to ten percent of the installed base are early adopters of Apple products and buy within the first 12 to 18 months, so you are looking at maybe two to five million iWatches selling over the first 12 to 18 months. That figure is four to ten times what I estimated above. But I think an Apple entry influence is more of brand story than a product viability story. Long-run adoption dynamics and replacement cycles will be less influenced. I think Apple’s entry could shift the market and compress the adoption cycle as I discussed above, but I don’t know that it changes the market size for the category over a longer horizon.

What Do Connected Watches Do for a Company’s Bottom line? (ie Why Enter the Connected Watch Market?)

At the end of the day, companies like Apple are hardware companies.  As public companies they have investor communities they must appease.  They do this by growing both top-line and bottom-line revenue. They need to grow both sales (top-line revenue) and net income (bottom-line revenue). They do this by entering into new markets and selling more stuff.  At the same time, they must maintain (or increase) margin which ensures net income grows inline with top-line revenue growth.  Companies want to grow sales but not if it sacrifices profitability (obviously). Companies must think carefully about the type of new markets they enter.

Service markets are generally attractive new markets because they typically have relatively high margin.  This is one of the reasons you see companies from telcos to cable companies to utility companies to hardware companies entering into new service and entertainment markets.  It is also the reason you see companies like Cisco exit certain markets.  Cisco recently announced they were selling off their Linksys business and they completely shuttered what was believed to be a successful Flip division simply because these divisions had lower margins than they were accustomed to within their core business units.

For well over a year there have been rumors Apple would enter into the TV business. This would certainly help grow top-line revenue, but the impact on company margin is less clear.  On the other hand, connected watches are a category that are relatively margin rich so they represent a pretty attractive new market for a company looking to maintain margin while growing sales.


Tech has always had a pronounced impact on how we teach – from prehistoric times of passing on survival skills to Johannes Gutenberg’s 1450 invention of the printing press to the most recent two decade push in online education.  Tech within a classroom continues to change with the advent of teaching aids like smartboards and software solutions like blackboard and recent pushes in massive open online courses which are once again redefining how we think about organized higher education.

Today, companies like Knewton are working with universities like Arizona State University to create adaptive learning environments that take advantage of the ability to capture and analyze “big data” (see The New Intelligence in Insider Higher Ed). These new approaches are building adaptive learning systems that essentially measure how much time a given student spends on a particular concept and how well they do on related tests and assignments.  It can then make recommendations specific to the individual.  Modern approaches also restrict students from moving to new material until they have sufficiently mastered a given concept – allowing for individualized timelines.

Approaches likes this could even be developed for live classroom settings wherein short quizzes are built into the curriculum.  With every student having a tablet, smartphone, or computer, deployment and grading of the quiz would be easy and it would force students to stay focused in a classroom that is increasingly dominated by technological distractions.  It would also provide real-time feedback to the instructor on how well students are learning the subject.

College courses and university degrees have long provided a signal to the labor market, but most agree they say less about what one exactly knows. As new data-driven approaches begin to not only test a myriad of concepts, but also record a variety of metrics about one’s ability to master each of those concepts it isn’t difficult to envision an educational world that is driven by thousands of metrics as opposed to one single course listing and a corresponding grade.

TV screens continue grow.  According to CEA, the average TV sold in 1997 had a diagonal screen size of just 22 inches.  Today that same figure has ballooned to 36 inches. The average TV screen size is expected to continue to grow for at least the next three years as households opt for larger screen TVs.

With the continued growth in average TV screen sizes and the recent launch of uber large Ultra HD 4K TVs,  I’ve recently been asked frequently if there is a point of diminishing returns to ever-increasing TV screen sizes.

There is a wide variety of opinions on this topic and you can see some of these opinions together with some of the technical discussion summarized here.

Here’s a look at the math involved:

$$\huge\textrm{VD}=\frac{\textrm{DS}}{\sqrt{\left(\frac{\textrm{NHR}}{\textrm{NVR}}\right)^2+1} \cdot \textrm{CVR} \cdot \tan{\frac{1}{60}}}$$

VD: Viewing distance
DS: Display’s diagonal size
NHR: Display’s native horizontal resolution (in pixels)
NVR: Display’s native vertical resolution (in pixels)
CVR: Vertical resolution of the video being displayed (in pixels)

Take a current 55″ Full HDTV and the math looks like this:

$$\huge\textrm{VD}=\frac{\textrm{55}}{\sqrt{\left(\frac{\textrm{1920}}{\textrm{1080}}\right)^2+1} \cdot \textrm{1080} \cdot \tan{\frac{1}{60}}}=85.8 inches = 7.15 feet$$

In other words, if you are watching Full HD content on a Full 55″ HDTV, you will have the most immersive experience if you sit about 7 feet from the screen. Farther away and you’ll lose detail. As you get closer, you’ll be able to see more individual pixels as image pixelation happens.

Considering most seating areas in typical living room settings are 6 feet to 10 feet from the TV, the optimal TV size is  between 46 inches and almost 77 inches. So many of today’s living room settings can support larger TVs and we could see the average TV screen size continue to grow.

The introduction of Ultra HD 4K TVs can push this size/distance relationship even further.  Ultra HD TVs have twice the horizontal resolution and twice the vertical resolution (for a total of four times the resolution) of Full HDTVs which changes the above formula to this:

$$\huge\textrm{VD}=\frac{\textrm{55}}{\sqrt{\left(\frac{\textrm{3840}}{\textrm{2160}}\right)^2+1} \cdot \textrm{2160} \cdot \tan{\frac{1}{60}}}=42.9 inches = 3.58 feet$$

In other words, watching 4K content on an Ultra HD cuts the optimum viewing distance by roughly half.

Now a television in a standard living setting should be 92 inches to 153 inches to provide that same immersive experience.

With Ultra HD televisions and 4K content, households can support much larger screens.

There has been significant talk about Facebook’s revenue future.  Two weeks ago Facebook introduced gift cards consumers can use at retailers like Target and restaurants like Olive Garden (see here and here).

Facebook’s CFO, David Ebersman said during the quarterly earnings call in the same week that the long-term potential revenue will remain small for the immediate future. But the potential is interesting and that is where I want to focus for a few minutes.

Here is a screenshot I took from Facebook in December:

Facebook 2012

This screenshot was taken on December 23rd – just days before Christmas.  At this point, it was too late to order a gift online and have it shipped by Christmas.  If you wanted needed to buy a gift you had to go into the store, battling crowds, and hoping inventory was available. Or you could turn to gift cards. You could turn to online gift cards.  I would imagine well over 50 percent of gift cards are bought within two days of actually gifting the gift card.  And I wouldn’t be surprised if it was as high as 75 percent within a 24 hours of actually giving the present to the gift recipient.

An ad like this with the correct timing can become highly relevant. Add to that the behavior of Facebook’s installed base of users. Some 400M users access Facebook everyday. Facebook is also a major platform for birthday wishes, well wishes, and general positive reinforcements when someone is feeling down. I think lower denomination gift cards in the $5 to $10 range could grow into high volume transaction items on the Facebook platform – especially if timed and placed well.

The essential worry of Wall Street analysts and investors is that these streams of revenue will not materialize quickly enough and sufficiently enough before users inevitably move from Facebook to the next big thing.

I’ve talked a lot about curation in the past.  This is simply one form of curation. An extension of curation. Facebook is curating a user experience that (presumably) has relevancy to the end user.  There is significant digital ink spilled on the large volume of information Facebook knows about you.  But what they know about you also has a time component – and this receives little attention.

Approaching gift card sales as they did in the few days leading up to Christmas, Facebook is clearly seeking to take advantage of impulse purchase dynamics.  To date, e-commerce platforms like eBay and Amazon have been successful at being the online clearinghouse for impulse purchases. Arguably they’ve expanded these impulse purchases well beyond what was ever available in the store because of the ability to exponentially and infinitely expand the digital shelf space.

Take for example this screenshot taken from Amazon:amazon impulse purchase positioning This comes from the Amazon page for the Cuisinart DLC-105 Pro Classi 7-Cup Food Processor in White. I literally selected this page at random.  I typed in Cuisinart and picked one of the first Cuisinart food processors listed.  Almost every Amazon page is designed in this way. Below the initial item, you will find the item bundled with one or two other related (and popular) items.  Then you see a series of other items purchased by those who also bought the main item featured on the page.  In this case there are 11 pages of items consumers also purchased. In many ways this is equivalent to the checkout aisle of the brick and mortar store. Right before you finalize your purchase the retailer puts other things in front of you that you might also want.  In the case of digital retailing, the retailer knows a lot about you and also has essentially unlimited shelf space so they can put highly relevant and nearly unlimited choice before you.  Just like with Brick and Mortar stores, these  “impulse purchases” are designed to increase margin for the retailer.

Facebook has additional information not commonly available to other retailers – even other digital retailers.  Facebook knows two unique things.  They potentially know about the intended gift recipient and I think they’ll get even better at identifying the gift recipient. For events like birthdays, they also know the relevant timing. Presumably these two things will enable them to more effectively provide you timely and appropriate offers. Gift cards make sense, but they are just a start.

Facebook’s past is built upon a connection platform, but Facebook’s future will be defined by its ability to curate a meaningful and relevant experience. This experience could be a much larger and more involved retail experience than just gift cards.

Dell announced earlier this week that it was going private in a $24.4 billion deal. The buyout is the largest since Blackstone’s $26 billion takeover of Hilton Hotels in 2007 and will add $15 billion of new debt to Dell.

Dell is clearly at a difficult crossroads. In 2005, Dell was the world’s largest maker of PCs while today it is now third behind HP and Lenovo.  Today Dell’s market share in PCs is roughly 11 percent – down from about 16.8 percent in 2005.  While PCs have suffered, some of Dell’s other business units continue to expand. Dell’s server & networking revenue grew 11 percent year-over-year during the third fiscal quarter ending November 2, 2012 – the only business unit to experience growth.  This growth enabled Enterprise Solutions and Services to grow three percent during a quarter wherein overall revenue was down 11 percent.  The most severe revenue declines came from client products like notebook and desktop PCs.  Mobility products – which include notebooks – experienced a revenue decline of 26 percent while desktop PCs declined 8 percent.

Here’s a view of things from that most recent 10Q:

During the third quarter of Fiscal 2013, net revenue from our Commercial segments decreased 7%, and represented approximately 82% of our total net revenue. The decrease in our Commercial net revenue was driven by an 11% decrease in net revenue from our Public customers, who continue to experience budget constraints, and an 8% decrease in net revenue from our Large Enterprise segment. Net revenue from our SMB segment decreased 1% during the third quarter of Fiscal 2013. All of our Commercial segments experienced declines in revenue from client products, and for our Large Enterprise and SMB segments, these declines were partially offset by increases in revenue from our enterprise solutions and services offerings. During the third quarter of Fiscal 2013, net revenue from our Consumer customers decreased 23%, and represented approximately 18% of our total net revenue

While Dell’s consumer business is still 18% of revenue – some $2.5 billion in the most recent quarter – it declined 23 percent. More importantly, while the segment added nearly $100 billion in operating income in the year-ago quarter, it had a $65 billion operating loss in the most recently concluded quarter.

In a memo to employees, Michael Dell wrote, ” “Dell’s transformation is well under way, but we recognize it will still take more time, investment and patience. I believe that we are better served with partners who will provide long-term support to help Dell innovate and accelerate the company’s transformation strategy.” Certainly it would be easier for Dell to exit the consumer PC market outside the scrutinizing eye of the financial markets.

A recent analyst report covering Tawainese ODMs suggested Dell and to a certain extent HP have few design-in and models targeting the consumer PC segment in 2013. This might support the belief Dell is pulling out of the consumer PC segment.

At the same time, the consumer PC segment is still a large one for Dell.  As I stated above, it generated $2.5 billion in the most recent quarter. But operating incomes have been recently negative – a $65 billion loss in the most recent nine months. In the last nine months, Dell’s consumer segment lost $19 billion in operating income while it made $372 billion in operating income in the same period a year-ago.

Should Dell exiting or even de-emphasize the consumer PC segment, it will probably likely benefit companies like Lenovo, Asustek, and even companies like Vizio who are steadily attempting to make inroads into the PC market.  Though Microsoft’s commitment to lend Dell $2 billion as part of this buyout does support the belief Dell won’t disrupt the PC market with a grand exit anytime soon. “Microsoft is committed to the long term success of the entire PC ecosystem and invests heavily in a variety of ways to build that ecosystem for the future,” Microsoft said in a statement – one that doesn’t point to Dell making major changes within the PC business units.

How important the PC business – and specifically the consumer PC business – will be in helping Dell pay down its new found debt remains to be seen. The New York Times article on the buyout reads, “despite taking on an additional $15 billion in debt, Mr. Dell and Silver Lake argue that the company will survive, thanks to the cash that the PC business still generates” and “people involved in the transaction said that the buyers had prepared for potential further declines in the PC business, but intend on at least maintaining the company’s position. Dell’s cash from operations has held steady for four of the last five years, coming in at $5.5 billion for the most recent fiscal year.”

These statements don’t seem to take into account the financial reality of what’s happening at least within Dell’s consumer PC business. Over the last 9 months Dell’s consumer PC business has negative operating income so there is no “cash” to pay down debt from this division. If things continues, it will require some of said cash.  And since operating income contributes to net income which contributes to cash flow from operations, Dell’s consumer business doesn’t currently contribute to helping maintain Dell’s cash from operations.



The next big connected device is the wristwatch.  At the 2013 CES earlier this month, there were a myriad of watches launched.  Here are just a few examples:


I mentioned watches in my CES trends presentation when I talked about the next leg in connectivity and  the Verge covered many of these watches as part of their CES coverage.  There has been a tremendous written about watches – especially related to coverage of the dozen plus watches and similar devices we saw at CES earlier this year.

I believe watches can become the next big connected device segment because bringing relevant and meaningful connectivity to the wrist could prove useful to the end-user.  Herein is the key element that will determine if watches can become the next big connected device story. In order for it to matter, the device has to bring relevancy to the individual user.  The device has to enhance the value to the end user because it becomes yet another device that will need to be maintained.  If the value it provides doesn’t offset the cost of maintaining the device (keeping the software up-to-date, keeping it connected to the smartphone, charging the device) then consumers will naturally stop using it.

Let’s discuss what these new breed of connected devices are bringing to the table:

  1. Fashion: Watches are first and foremost worn. Like anything we carry with us frequently and especially the things we wear, fashion becomes a key element of the end-user experience. As Oscar Wilde once put it, “Fashion is a form of ugliness so intolerable that we have to alter it every six months.” The biggest hurdle for watches on this front is that they also serve a utilitarian purpose. Smart watches must balance fashion and functionality.
  2. Pairing: One of the key features of smart watches is the ability to pair with smartphones.  Either they do this so they can gain access to WiFi and cellular in order to upload (and download) information or they connect to smartphones so they can provide additional information and notifications on the watch interface (like text messages sent to the phone, alerts for incoming calls, etc).  Most smart watches on the market or coming to the market this year appear to pair with smartphones and other mobile devices over Bluetooth and many require a related app to customize the watch.
  3. Screen technology and size: Most smart watches are being built with OLED or e-ink screens with screen sizes between 1 and 2 inches.  Pebble’s screen size of 1.3 inches seems to be a good/optimal size though some watches with specific use-case scenarios (like say maps) are clocking much larger screens.  Watches like the Martian watch have dedicated more of the watch real estate to being a watch so it has a smaller screen within the watch interface that supports 40-character previews of text messages.
  4. Watch face: The art of telling time have historically been the primary purpose for watches.  While I don’t think that will be the case with smart watches, all smart watches will provide the user with a watch face by which they can determine the time.  Some of the smart watches like Pebble even allow the end-user to customize the watch face.
  5. Indicators, alerts, and notifications: Most of the smart watches have embedded speakers for audible cues, vibration motors for oscillation prompts or screens to visually provide signals and alerts. We are overrun with alerts and prompts.  Personally, I would turn off most alerts and only want alerts for incoming calls which would solve the digital age problem of not having the ringer of your phone on or having your phone buried deep in your bag. I could also imagine calendar alerts would be helpful.
  6. Bluetooth: Most smart watches are connecting to smartphones via Bluetooth and increasingly they are utilizing Bluetooth 4.0 (featuring Bluetooth low energy) to help extend battery life.
  7. Waterproofness: Smart watches come in a varying array of waterproofness – though perhaps surprisingly many/most are waterproof.
  8. Maps: several of the smart watches connect (or will eventually connect) to the map functionality of the phone to provide maps or turn-by-turn directions on the phone.
  9. ECG sensors: Several smart watches are embedding ECG sensors to measure the pulse in your wrist.  This can be used for health and fitness related services and can also be utilized to identify you based on your unique pulse and lock down features if someone else puts on your watch.  Given the explosion of health and fitness devices and services, I’d expect more smart watches to include ECG sensors.
  10. Accelerators: Accelerometers have become a mainstay in other connected devices and are a natural fit in a watch. With the accelerometer on the Martian Watch for example you can send incoming calls to voicemail with the shake of the wrist. Expect to see more here.
  11. Calendar: Several smart watches allow you to see upcoming calendar appointments on your watch.
  12. Email: Most smart watches alert you to incoming email and many will allow you to also read some or all of the incoming email.
  13. Text messages and incoming calls: Most smart watches alert you to incoming text messages and calls and provide relevant information like Caller ID.
  14. Social Updates:  Many of the smart watches also allow you to see/read incoming Facebook posts or Tweets on Twitter.
  15. Battery Life: Most of the early connected watches need to be charged every few days and most still need to be charged regularly but some of the smart watchers are seeing an improved battery life.  The Cookoo watch for example can run for a year on a standard button cell watch battery.
  16. Adjust Time Zone Automatically: The Casio G-shock can adjust time zones automatically based on location information retrieved from the iPhone.
  17. Music Control: Several of the watches allow you to control music on your smartphone which could be a useful feature if your phone is docked in a speaker dock or otherwise slightly out of reach.
  18. Voice Control: The Martian watch works with the voice command on iPhone or Android
  19. Apps, Widgets and Customization: Apps and widgets play an integral part in creating value on the smart watch. In some cases – as in the case of I’m Watch – the watch is running a version of Android and runs apps directly.  In other cases, the phone runs widgets that can be customized. For many of these devices, apps on smartphones are used to program and customize the watch with features.  Several of the smart watches are running an open source software open to 3rd-party developers so expect more to come for the watches that find mass market appeal and gain strong audiences.  In many cases users can customize their watch utilizing different watch faces and a host of widgets and apps.

The most successful smart watches will allow for strong customization from the end-user. Beyond being able to customize watch faces we are seeing smart watches that can be customized with features like a presenter app enabling you to control PowerPoint presentations. Sony’s smart watch for example has an app that allows you to directly tap-to-like on Facebook. You can also use smart watches as a remote control for your phone’s camera or find a misplaced phone. Eventually we’ll see integration with websites of the most successfully adopted smart watches so notifications and alerts can be sent directly to the watch from different web properties.

Gaming is not a strong category for smart watches today, but over the next few years as the category of smart watches matures and adoption increases expect to see a push in the  games arena.  Watches are a natural interface for games intended for short periods of play.

I’m most interested to see how features like notifications and alerts evolve. Beyond just being alerted, does the watch provide a unique position from which to consumer information and subsequently perform other tasks?  I look forward to seeing how features like the accelerometer are used in the future.  Being able to shake-off an incoming call makes a lot of sense to me.  It would seem to create some efficiencies which makes the device valuable and helps off-set the cost of maintaining another device.  It is clear, we are only at the initial chapter and only time will tell (pun intended) if smart watches can become the next be connectivity story.



There is a misconception that engineering wins in the end.  It doesn’t. Perhaps it once did.  Certainly over the last 60 years of technology engineering won out more than it does today. But today, pure engineering is simply less powerful in influencing adoption and consumer use. This has become acutely evident over the last 24 months.

Nick Bilton hit on part of this in his New York Time’s column a few weeks ago entitled Disruption: Design Rivals Technology in Importance. One can certainly argue design – industrial design – at it’s purest level is engineering. But this element of engineering – design – is different than the engineering that dictates how a product functions, what it does, and all of the engineering that goes along with defining the embedded technologies of a device.

You can see how engineering historically influenced purchase decisions and how it now suddenly doesn’t.  Manufacturers use to market their devices with numbers – a classic engineering approach.  If model 8000 was good then clearly model 9000 is better. Let the numbers speak.  Let the specs define how useful the device is. But we’ve largely moved away from this approach.  Sure we still at times name things sequentially.  The iPhone 5 is “newer” and therefore probably “better” than the iPhone or the iPhone 4. But the iPhone experience isn’t really defined by a series of numbers. One of the touting features of the iPhone 5 is the inclusion of a secondary microphone on the back which is intended to cancel out ambient noise.

Last year I said 2012 was going to be the year of the interface.  I believe that is exactly what we’ve seen materialize.  For example, a large number of devices are now capturing information or performing other activities for the end user. But many of these devices lack much of a user interface.


Think of devices like the new Fitbit Flex which was recently launched at the 2013 CES. The device itself doesn’t really have an interface. The device captures information, transmits that information to a cloud service (via bluetooth and the cellular or WiFi connectivity of the smartphone).  That service is essentially a curation service.  The Fitbit (cloud service) curates an experience for the end-user by aggregating the captured information and using algorithms to provide insights back to the end-user.  Those insights are provided back to the end-user not through the interface of the device – because remember the device doesn’t really have an interface – but rather through the smartphone. The smartphone becomes the interface for the device.  The smartphone becomes the interface for the curated experience delivered back to the consumer. I said recently that the smartphone has become the viewfinder for our digital life.  That is exactly what is happening here.

The engineering is clearly important. The engineering makes it all possible.  It still adds value and there is still a tremendous amount of engineering innovation taking place.  There is much more to come.  I think we have only scratched the service of what is possible when it comes to embedded MEMS technologies in consumer devices for example. But the really interesting things are happening at the application level.  MEMS sensors will digitize interesting information, but curation services will deliver value to the end-user. And because many/most elements of engineering can be replicated by others (especially given enough time), the interface is what differentiates the experience for the consumer.  Simply put, engineering continues to add value but the design of the experience is defining the ultimate value for the consumer.

Last week I spoke at an event at the Hanken School of Economics.  Timo Seppala also spoke and I’d like to highlight one of the points he made (you can read the underlying paper here). In talking about IP regimes, he argued there are two core types of patents – essential patents and platform patents.  The essential patents are fundamentally engineering patents. As Seppala and Kenney write, ” traditionally, the mobile telecommunications industry has been an industry where standard setting and ownership of the essential IPR, such as GSM (global system for mobile communications), 3G (third generation mobile telecommunications), LTE (long term evolution), and other similar standards that play a significant role in defining market structure and the positions of industry firms.” You can think of essential patents as patents that cover things like radio, transmission, and telephony engineering.

Platform patents are patents covering things like sensors, materials, optics, digital data, signaling, speech recognition, and picture communication). Seppala and Kenney point out that platform patents are becoming more numerous and in fact are becoming the majority of patents in the mobile device space.  More, companies like Apple, Google, and Microsoft come from a world of platform creation. They are each bringing mobile operating system (platforms) to mobile (and in the future other “smart”) devices.

We’ve seen significant leadership shifts within the mobile device marketplace over the last 24 to 36 months. Some of this shift is certainly explained by a shift in the way consumers are approaching these devices.  Consumers are perhaps focusing less on the pure engineering experience of devices and more on the platform experience of the device and in turn the companies who have approached marketplaces from a platform perspective have benefited.

The consumer experience is clearly influenced by the engineering of a device. But increasingly, the consumer experience is being defined explicitly by more than the engineering of a given device.








There’s been a lot written in the last few weeks about the rise of Chinese-based tech companies (see: CES coverage, showing up in major motion picture placements, and today’s coverage of Huawei in the FT).

In many ways, this is nothing more than Clay Christensen’s Innovator’s Dilemma at work.  Secondary brands in every segment of the economy are continuously attempting to move up the value creation chain.  Most of today’s top consumer tech brands were not long ago just like the Haiers, Hi-senses, Huwaweis of today. They were not globally diverse companies leading in a myriad of different segments.  They were fighting to move up the value chain within one given category. Within consumer tech, we’ve also seen the Innovator’s Dilemma play-out across countries as first Japanese and then South Korean domiciled companies successfully made inroads into the U.S. market.  Now Chinese-based companies are doing what has been done for 50+ years.

At the same time Chinese companies are looking to gain a foothold in the U.S. market, market dynamics are starting to change.  Currently, mobile connectivity perpetuates the telephone model.  Things like shared minutes and device subsidies show just how dominate the traditional way of thinking continues to influence business models. But the entire business model is becoming less beholden to telephony services. We’ve already seen changes in non-U.S. markets – places like Indonesia – where cellular subscriptions are morphing to data-only plans.  This way of thinking is also starting to influence the U.S. market. T-mobile has recently made pushes to offer “value” cellular subscriptions sans device subsidies and moving away from subscriptions tied to device subsidies was much of today’s talk around Verizon’s earnings announcement.

Anecdotally, I’m seeing how unsubsidized devices are influencing the choices teens are making in the U.S.  Recently, I’ve seen many teens who are granted permission from their parents to have a mobile device but they are subsequently required to pay for the device themselves along with the accompanying data plans. As opposed to buying subsidized devices and locking into a two-year contract many of the teens I’ve witnessed have purchased slightly higher priced unsubsidized devices like the Apple iPod Touch. These teens are then forgoing monthly data subscriptions in exchange for being reliant on WiFi networks. but since many teens are in constant WiFi networks – from their home to school to coffee shops to friend’s homes – WiFi only devices are nearly equivalent always-on devices.  This approach provides most of what teens want without a heavy monthly fee hitting the teen’s wallet.


I believe companies like Huawei and ZTE will successfully enter in the U.S. market by letting these shifting trends play to their advantage. Today Huawei and ZTE are working to serve a discerning customer within their domestic market.  They want to produce high-end smartphones but the domestic Chinese market is an unsubsidized market so they want to maintain costs as much as possible. These are exactly the trends that will influence the U.S. market in the years to come.  So while many point to the necessity of carrier agreements to bring new phone hardware to market in the U.S., I’m not convinced that will strictly be the case in the future.



Here my is presentation on trends to watch at this year’s International CES and in the months/years to come.