Wearable: ‘Hardware Ponzi Scheme’

Wearable: ‘Hardware Ponzi Scheme’

Market news |
By eeNews Europe

The market demand for body-worn gadgets has been declining all year, according to the latest report from by Argus Insights, a market research firm based in Los Gatos, Calif.

Are we surprised about this? Not really.

Argus Insights CEO and founder John Feland told EE Times, "Sixty percent of fitness band users stop using it within the first six months." I think that rings true for most of us.

Let’s trace the enthusiasm curve. A consumer starts using his fitness band to count steps. One day, the thing tells him he isn’t walking enough. Really? he asks. I’m being judged by a device that doesn’t walk at all? So, when the fitness band’s battery dies, what’s the motivation for charging it again? So it can keep on nagging him? Better to just leave it in a drawer and forget about it.

"Fitness bands have a stickiness problem," said Feland. "Designers put accelerometers around a wearable’s silicon. But for consumers, its novelty wears off quickly. They find there isn’t much else to do beyond counting steps."

The rate of wearable demand is slowing post holiday 2014(Source: Argus Insights)

The rate of wearable demand is slowing post holiday 2014. (Source: Argus Insights)

While many market research firms track sales and shipment numbers, Argus Insights is in the business of analyzing consumer reviews to predict demand. "It’s a methodology originally developed at Stanford Univ. in early 2000. It has proven that mindshare predicts demand," said Feland.

The firm said that over the last 18 months, the wearable market has started to mature. 

Using data compiled from approximately 328,000 consumer reviews since January 2014, Argus Insights reveals that after the holiday season of 2013, consumers briefly lost interest in wearables before steadily increasing demand reached its high point in January this year. At that point, demand reached four times the level of a year earlier. However, since then, demand has slowed.

Included in the firm’s study are numerous wearable products such as fitness bands, smartwatches, smart glasses, and other sensor-enabled devices.

In contrast to fitness bands, smart watches in general, including Apple Watch, the Moto 360, and the LG Watch Urbane, "outperform fitness bands in the hearts of consumers," according to Feland.

"Although it’s hardly a killer app, people use their smartwatches as an information snacking piece," observed Feland. "Smart watches are like yapping puppies. They are needier, and users end up spending more time, trying to find apps or things they can do with their devices." Hence, they are "stickier" than fitness bands.

Hardware Ponzi scheme
Feland bluntly put it: "Fitness bands are like hardware Ponzi schemes." In order to sustain their business, suppliers of such devices need to be in perpetual motion. Keep selling new hardware to new customers, while coming up with new game-like content to keep users’ interest.

Even when old customers drop away and residual income sinks, hardware suppliers have to keep providing data services for their fitness bands, or customer mindshare disappears.

All the while, the price of fitness bands is racing to the bottom, said Feland. Xiaomi, for example, has slashed prices for its Fitbit-like gadgets, Mi Band. Its suggested retail price is only $13.

Today’s fitness band business is prompting wearable device vendors to become "content creators” and “gaming companies," Feland observed. "By offering users more points through the use of certain characters in stories, for example, they hope they can keep their customers interested."

But, he added, "You can’t be a free game company forever. You need to figure out a way to make fitness bands stickier."

Apple Watch
How many Apple Watches Apple has sold thus far remains anybody’s guess. The company doesn’t disclose numbers.

Argus Insights doesn’t have much information on that front, either, since Apple doesn’t allow customers to write reviews of Apple products on its site. (Argus still needs to wait for more consumer reviews to show up on Amazon, Best Buy, etc.)

Based on educated guesses among financial analysts after Apple’s last financial call, the average estimate of Apple Watch sales in the last quarter is about 2.53 million units, according to Fortune.

It’s clear that Apple hasn’t sold tens of millions, as a few optimists predicted. In fact, earlier this year, Morgan Stanley reportedly projected Apple Watch sales of 30 million to 60 million units in the first year.

Well, that never happened. However, Feland is seeing "consumer delight for the Apple Watch" skyrocketing, while Fitbit’s is falling.

The big question the wearable industry faces now is: Will the rise of the smartwatch kill the fitness band?

And who cares?

Feland concluded that it’s time for Fitbit and other companies to prepare for another shift in consumer fickleness and look for additional capabilities for fitness bands.

Consumers, meanwhile, may be able to find other uses for their old forgotten bands. Cat collars? Ring-toss games? Hamster tiaras?

About the author:
Junko Yoshida is Chief International Correspondent at EE Times

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