Designing the Business of Wearable Tech

This article originally appeared in WIRED Magazine.

Both consumer electronics and apparel are notoriously difficult businesses competing in mature industries. Wearable technology — everything from activity trackers like Fitbits and Misfits to watches like the Pebble to jewelry like the MEMI bracelet — blends two notoriously difficult, mature industries together: consumer electronics and apparel. Success is not guaranteed.

Design is often touted as the secret to success here, but what’s often overlooked is the business models that will ensure wearables will take off. Because the fact remains that like many cool new ideas, some wearables may just be technology in search of a problem to solve. And even when they do solve a problem for users, the unanswered question still is how to create new and sustainable businesses around them.

That’s where design thinking — with its ability to tackle complex problems from the perspective of deep user empathy — is the right approach to designing a business model strategy for wearable tech. In fact, the business model for wearables can be a key part of the product experience itself: The very tools that help create the product can be used to identify which models will support and enhance the customer experience.

Digital music services is a great example where the business model was a critical piece of the iPod product experience design and its success: Apple understood that a feeling of ownership was critical for digital music, and focused its attention on making purchasing and owning digital music as easy and intuitive as possible. Many pundits predicted streaming or rental models would overtake iTunes, since they were more affordable or provided access to more music. Yet, without a sense of ownership, the long-term value of those streaming and rental alternatives was harder for users to “get.” The results of those design-driven choices — and of course other factors — are clear: Apple iTunes business generated $4B in revenue this past quarter, while streaming and rental services continue to struggle.

As with digital music, wearables companies need to understand consumer expectations from these technologies. We can’t just create aesthetically pleasing products that generate interesting quantified self (QS) data — we need to create compelling experiences that connect emotionally with customers, to help them realize their goals and aspirations.

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The Key Is to Focus on Outcomes, Not Just Utility

The sweet spot for wearables today is utility. There’s a stunning array of range of fitness devices that provide a flood of data like heartbeat, calories burned, perspiration, movement, distance, location, more.

While the data itself might be interesting at first, people purchase those products to make a meaningful difference in their lives; to become healthier, fitter, better rested, happier. As Aaron Filner, a product manager at Facebook told me, “If a device doesn’t help someone change their behavior, how long will they keep using it? It needs to make a difference to be valuable over the long term.”

That is where design thinking comes in. Approaching wearables from the point of view of the outcome we want to achieve and the meaning we want to deliver allows us to move beyond utility and start thinking about the emotional connection and value users will actually place on them. Fields such as behavioral economics and behavior modification also have as much to contribute to the product as traditional industrial and interaction design.

As wearable technology is designed to achieve positive outcomes for the long term, companies’ business models need to adapt accordingly. For example: If the value comes from the service rather than the one-time device purchase, we could see free devices bundled with annual contracts or with an ecosystem of other services (such as nutrition counseling or fitness and lifestyle coaching). A company such as Weight Watchers, for instance, could bundle a wearable device that measures clients’ physical activity and nutritional intake and use the data to develop personalized plans for members.

Such transactions-based business models would not only help subsidize the device, but would strengthen long-term relationships with the manufacturing brand and provide additional distribution channels for the devices.

But Outcomes Depend on Building an Emotional Connection

Unlike (or less so with) phones and other gadgets, wearable technology becomes part of people’s personal images. Consumers will identify with wearable products in the same way they think about the fashion brands they wear. Every choice is a defining one.

This means that establishing a deep personal connection will be critical. Engineering-focused organizations that emphasize functionality over design will be forced to adapt. As one enthusiastic early adopter told the New York Times about Google Glass for example, “I love them, they’re amazing, but I feel like a dork wearing them in public.” Contrast that with Beats By Dre, the iconic headphones whose design, positioning, and brand made a strong connection with an audience and began as a business from the start. It’s rocketed to become a $1b+ business.

Adopting the deep sense of empathy with users (a key element of design thinking) is what will allow wearable tech companies to engage with their customers and build a product that goes beyond usefulness. But building an emotional connection goes far beyond the product itself. It extends into business strategy. Carefully selecting distribution partners whose brand and volume expectations are aligned with a company’s goals and resources can be a great way to achieve early customer growth while staying focused on the product. That might mean working with more focused retailers that target specific audiences, and are eager to highlight new innovative products as part of their assortment strategy — even if they don’t ship in high volume.

Dan Pingree, VP of Marketing at performance clothing company Moosejaw, points out that “Something that’s new, fresh, and innovative can be a big win for a retailer that wants to stay current and connected with its customers. Focused retailers that have enthusiastic customers can be great channel partners for new startups that are starting to scale.” Interestingly, the need to find smaller targeted retailers aligns well with the need to establish an emotional connection with the consumer. Fab.com and Warby Parker have succeeded by providing an emotionally connected shopping experience. Retailers like these will be very likely to look into wearables to extend the customer experience.

Even Disney’s Magic Band provides a great, though closed-ecosystem, example for retailers to follow. The band provides a way to deliver breakthrough customer service while reducing barriers to purchases throughout the Disney parks. This more personal, frictionless shopping experience is likely to offset the cost of the devices. And in a time when retailers strive for differentiation, it is a powerful incentive for retail brands to align with nascent wearable technology devices.

The real winners in the wearable tech race will be the companies and products that manage to deliver utility, help the user achieve a goal, and, at the same time, create a strong emotional connection. That’s why there’s so much enthusiasm for smart watches in general and Apple’s and Samsung’s efforts in particular — the user-friendly form factor, as well as its traditional role as an utility device, make this an exciting race to watch. But the winners won’t just focus on designing the wearable products themselves. They’ll design the right business model around them.