What’s the business model Kenneth?*

Wearables are hot, we all know that, and there is so much happening it’s easy to get caught up in the hype so to get some balance I reached out to Silicon Valley entrepreneur Adam Traidman to get his take.

Adam is an EE and serial entrepreneur in Silicon Valley who recently researched the Wearables market so I knew he would have some interesting points of view based on his data.

Adam thinks we are still in Wearables 1.0 and will be stuck in it until some of the major hurdles are overcome.  Specifically Adam cited these challenges in the use and adoption of wearables:

1. Compliance, most wearables get 6 to 8 weeks of use and then are put away in a draw
2. Hassle factor, charging is a major issue,  Bluetooth headsets have this issue as well
3. Overtness, they can be seen, not fashionable, do people really want to wear it?
4. Data problem, for it to be useful it has to be always on and used every day

These 4 issues are all interrelated and taken as a whole they become a significant barrier to adoption. If you want to dig into some academic data on Adam’s points here is a Slideshare from Clemson University wearables researcher Vivian Motti. Adam has looked some of the early market entrants, for example: Lark was the first sleep monitoring wearable and the first sold in the Apple store, and then came Fitbit, the Jawbone UP, the Nike Fuel band and finally the Misfit Shine. Adam bought and wore them all at the same time and noted that the data from these devices (on the same person) can be up to 50% off from each other. But perhaps this doesn't really matter since the devices are not all about technology but more about psychology, a tacit reminder to move and exercise and that’s what really matters.

Adam also noted that the social aspect is a huge incentive to act so inaccuracy isn't important as we might think,  it’s all about the delta factor,  the device and app prompted you and then you exercised more today than yesterday so it’s a win-win.

Looking at how the early entrants have fared we can see some stress in the current business model. Lark dropped out of hardware and now just sells sleep management software. Nike has slowed or stopped development of the Fuel band product line while Jawbone has continued to innovate and Misfit are pushing all the style buttons (see pic of the Misfit Shine below).

Interestingly some of these players are addressing the battery issue with one time use coin cell batteries that can last for 6 months (Shine) to a year (Garmin Vivofit, see our teardown) and are removing that hassle factor Adam talked about.

Perhaps the most interesting part of my conversation with Adam was around the business model for these devices,  is selling the hardware for a one time price of $50 to $250 going to work?  Some alternatives to a one time purchase are subscription models similar to the “new phone every 2 years” deal that you can get from your wireless carrier (the AT&T version is called Next).  So rather than buy a wearable and keep it for a few years you subscribe to a service that includes the device and the vendor sends you a new one periodically, maybe before the battery runs out! This way you always have the latest technology and the old device gets recycled so that’s a plus.

This approach may be a better business model for the vendor but what about the compliance issue? Humans need incentives to change their behavior so Adam thinks that vendors who tie their plans to corporate and medical programs with a discount for compliance may be successful.  The health insurer saves money, the employer saves money and at the end of the day the employee is healthier.  This may sound radical but incentive programs by employers and governments to help people stop smoking based on some kind of incentive are not new but tying them to a device is different.

So what’s your take? How much of an incentive do you need to wear a fitness tracker every day?