Thoughts on the Whitebox Wearable Market

Deflationary price pressures have definitely been evident in the sensor market where motion sensing for example has dropped from over $7 an axis of motion capture in 2005 to around $0.50 an axis of motion capture today. With wearables – and especially with fitness trackers – sensors are a key element of the hardware solution. A move into wearables is a natural move. Input prices are down, demand is up, competition will compress prices and correspondingly margins which all combine to create an attractive business environment for whitebox manufacturers. Perhaps more importantly many of the OEMs have gained important experience with key components over the last few years as they’ve manufactured whitebox tablets and smartphones.

But unlike tablets, hardware isn’t the only element of the solution. For tablets, whitebox OEMs could turn to Android for an essentially of-the-shelf operating system, but no such option really exists for many of the wearable categories. Whitebox smartwatches can run Android, but today most fitness trackers are using proprietary operating systems. The fitness and activity tracker segment is currently the biggest segment of wearables and the most likely place for whitebox OEMs to enter. The fitness and activity tracker segment is currently dominated by the likes of Jawbone, Fitbit, and others and saw many of the major consumer electronics manufacturers like Sony and LG enter the category earlier this month at the 2014 CES.

But the use case scenario for tablets are starkly different than for wearables. While the value-add of activity and fitness trackers lies partially in the hardware and especially within the hardware design, it primarily resides in the algorithms that drive the recommendations delivered to end-users. The interface and mechanisms for delivering these recommendations combined with the algorithmic-derived recommendations themselves have become the key differentiation for fitness trackers. I suspect that should other wearable categories breakout, it will require the proverbial “killer application” and that application will be driven by the algorithm and interface part of device and not but inexpensive hardware. To be successful in the wearables space, OEMs will need to deliver a holistic and full 360 solution that delivers a rich interface driven by meaningful algorithmic-derived recommendations.