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  • 1. June 3, 2014 wearables in partnership with: ® Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc.
  • 2. 2June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. wear·a·ble / ˈ / noun A digital device designed to be carried or worn on a user’s body. It is frequently employed to capture behavioral data, monitor health and fitness metrics, or enhance how the wearer engages with his or her surroundings. Adornment In 2007, a team of archeologists excavating caves in Morocco uncovered perforated seashells dating back 82 thousand years—the earliest known example of jewelry.1 This discovery challenged conventional anthropological theory, suggesting symbolic behavior (i.e., adornment) significantly predated the more complex behaviors (e.g., language, burial rites, arts) that emerged during the Upper Paleolithic age.2 Although the urge to adorn oneself appears engrained in our evolutionary imperative, it is only recently that such accessories offered newfound utility. Low-power chipsets, cheap sensors, and ubiquitous network access—all repercussions of the smartphone wars— established the prerequisites for a new class of consumer device: wearables.3 Overnight, everyday items ranging from bracelets to sunglasses to footwear became untapped platforms for new technology. Growing Pains In January, market forecasts pegged 2014 shipments of wearables at 90 million devices worldwide (double the previous year) due to the widening appeal of fitness trackers.4 Three months later, news leaked that the Nike Digital Sport division was halting development efforts on the third-generation FuelBand, exiting the hardware business.5 The shakeup at Nike, a major recall at Fitbit,6 and building backlash against Google Glass7 (see “glasshole”) all underscore an unavoidable question: are wearables the next big thing—or just another fad? 1. “Discovery of the Oldest Adornments in the World,” Science Daily, June 18, 2007. 2. “Oldest Known Jewellery Discovered,” Nancy Hynes, Nature, June 22, 2006. 3. “Why Wearable Tech Will Be as Big as the Smartphone,” Bill Wasik, WIRED, December 17, 2013. 4. “Ninety Million Wearable Computing Devices Will Be Shipped in 2014 Driven by Sports, Health, and Fitness,” Press Release, ABI Research, January 30, 2014. 5. “Exclusive: Nike fires majority of FuelBand team, will stop making wearable hardwear,” Nick Statt, CNET, April 18, 2014. 6. “Fitbit Force Recall Is Bad News For The Company And Wearable Tech, But Is It Necessary?” Mark Rogowsky, Forbes, March 13, 2014. 7. “Does Google Glass Have An Optics Problem? And Does Google Care?” Jeff Bercovici, Forbes, April 22, 2014. Watch the Video Sources: ABI Research & MobiHealthNews Wearables: Global Market by Device Type 2014E 0% 0% 100% 200% 300% 400% 500% 10% 20% 30% 40% 60% currentShareofwearableDeviceShipments projected growth (2013-2018 cagr) Wearable Cameras Wearable Cameras Smart Watches Smart Watches Healthcare Healthcare Sports / Activity Trackers Sports / Activity Trackers Wearable 3D Motion Trackers Wearable 3D Motion Trackers 42.64M 7.44M 22.59M 13.61M 0.87M Wearables: Worldwide Device Shipments by Catergory 2014E Smart Glass Smart Glass 2.13M Smart Clothing Smart Clothing 0.72M
  • 3. 3June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. Yin & Yang This lingering uncertainty is traced to a dearth of evidence showing wearables can move outside the fitness category and beyond early adopters. Silicon Valley may be the cradle of innovation, but not style. Likewise, the arbiters of fashion who set trends on the runways of New York, Paris, and Milan are not engineering powerhouses. Acting alone, few brands possess the capital, technical prowess, and culture of innovation necessary to push wearables into the mainstream. Slowly, organizations from both camps are recognizing the futility of going it alone. Nike emphasizes its long-standing partnership with Apple,8 Fitbit highlights its collaboration with Tory Burch,9 and Google’s latest Android Wear announcement singles out Fossil as a future channel partner.10 The ability of brands to develop effective partnerships that bridge function and fashion will determine the route of a potentially large, but abstract market (reaching upwards of $30-$50 billion over the next 3-5 years).11 L2 Intelligence Throughout human history, adornments have been employed to signal style, affluence, and desirability. Select prestige brands are now positioning themselves to endow wearables with the qualities these devices desperately lack. This primer profiles key data and insights into the role wearables may play in a direct-to-consumer strategy. Like the medium we are assessing, our approach is dynamic. Please reach out with comments to improve our methodology and findings. You can reach me at 8. “Why can Nike dump the Fuelband? With friends like Apple, it doesn’t need its own hardware,” Kif Leswing, Gigaom, April 21, 2014. 9. “Announcing the Tory Burch for Fitbit accessory collection,” Fitbit Blog, February 4, 2014. 10. “Google’s Android Wear project adds HTC, LG, Motorola, Qualcomm, Fossil and more for new smartwatches,” Joseph Volpe, Engadget, March 18, 2014. 11. “The Future of Wearable Technology,” Ashley Kindergan, Credit Suisse, April 7, 2013. Sources: Annual Reports, Bloomberg, Forbes, Press Mentions, strategy& Wearables: Silicon Valley vs. Madison Avenue Profile of Positioning & Resources Required to Drive Mainstream Adoption aapl:us $538B market cap 14.9 P/E ratio $3.4B R&D spead 2.7% of revenue “iWatch” rumors resurface in February 2013 following a supplier report in the China Times goog:us $382B market cap 30.5 P/E ratio $6.8B R&D spead 13.5% of revenue Android Wear SDK released in March 2014; Google Glass enters “open beta” in May 2014 December 2013 reports suggest “Father of Xbox Kinect” moving on to develop Windows wearables msft:us $331B market cap 15.0 P/E ratio $9.8B R&D spead 13.3% of revenue 005930:KS $203B market cap 25.2 P/E ratio $10.4B R&D spead 5.8% of revenue Announces Galaxy Gear 2 smart watch in February 2014; Galaxy Glass coming in September 2014 intc:US $134B market cap 14.4 P/E ratio $10.1B R&D spead 19.0% of revenue CES keynote in January 2014 used to announce focus on wearables and debut Intel Edison “system on a chip” ® NKE:us $67.2B market cap 25.7 P/E ratio Launched Nike+iPod in May 2006; laid off as many as 55 of the 70- employee FuelBand team to focus on Nike+ software in April lux:im $27.1B market cap 36.4 P/E ratio Announced strategic partnership with Google in March 2014 to make Glass “fashionable” Madison Avenue Silicon Valley brby:ln $11.3B market cap 20.7 P/E ratio Former CEO begins work at Infinite Loop (Cupertino) in May 2014 Private $4.6B in revenue — Partnered with Philips in July 2000 for the first electronic clothing (ICD+ jacket)— ahead of its time? Private $800M in revenue — Announced “Tory Burch for Fitbit” accessories for SS14 season at CES Scott Galloway Founder, L2
  • 4. 4June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. Sources: Catalyst Wearables: Global Shipments of Wristband Devices 2H 2013 Wearables: Major Barriers to Purchase Leading Reasons Cited by U.S. Consumers, October 2013 Source: TNS Global (n=1,000 U.S. consumers) EXPENSE PRIVACY LOOK COMFORT HEALTH RISKS 54% 31% 13% 13% 10% OTHER OTHER 58% 21% 14% 8% FITNESS TRACKERS SMART WATCHES 54% 19% 16% 11% Internet Devices: Forecast of Global Install Base 2004-2018E Sources: Business Insider (IDC, Strategy Analytics, Machina Research) *IoT: Everyday objects (e.g., refrigerators, door locks, thermostats) equipped with Internet or M2M connections, allowing them to relate not just to the user, but other sensors/inputs within the immediate vicinity. Wearables: Forecasts for Global Device Shipments 2010-2018E Source: Business Insider (ABI Research, IMS Research, Juniper Research) DEVICESINUSE(BILLIONS) 2004 2 4 6 8 10 12 14 16 18 20 2006 2008 2010 2012 2014E 2016E 2018E WEARABLES SMART TVS TABLETS SMARTPHONES PERSONAL COMPUTERS INTERNET OF THINGS* 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 0 50 100 150 200 250 300 250 DEVICESSHIPPEDANNUALLY(MILLIONS) REST OF WEARABLES MARKET FITNESS TRACKERS SMART WATCHES
  • 5. 5June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. smart watches infotainment October: 3 years after debut at the TechCrunch50 conference, Fitbit Ultra activity tracker launches as clothing clip-on November: UP expands Jawbone offering beyond headsets and speakers, emphasizing social elements December: Jawbone CEO acknowledges product defects, instituting a “no questions asked” refund policy November: UP24 overcomes last year’s launch woes, adds wireless connectivity November: Nike launches “SE” FuelBand models, which enable continuous syncing and hourly motivational reminders September: Samsung debuts $299 Galaxy Gear alongside new tablet devices October: Reports circulate that Galaxy Gear’s return rate tops 30% November: Samsung reports 800k units sold in two months December: FCC product filing suggests SW3 launching in 2014 Summer: Glass pops up everywhere from live surgery to protest coverage to a Bon Jovi concert September: Glass featured across 12-page “Futuristic Vision of Fashion” editorial in the September issue of Vogue October: Upgraded Airwave 1.5 launched with better iOS Android integration and longer battery life October: Glass road show begins—ironically; first person ticketed for driving while under the influence wearing Glass January: FuelBand goes on presale online, expanding on established Nike+ ecosystem February: FuelBand goes on sale in the U.S. at Nike and Apple stores April: Aria “smart scale” accessory introduced, adding weight and BMI tracking to pedometer data over Wi-Fi September: Fitbit One and Fitbit Zip become first wearables to leverage Bluetooth 4.0 January: Android-based SmartWatch announced at CES as part of “Smart Extras” product suite April: SW1 goes on sale in the U.S. for $150 April: Launches Kickstarter campaign, raising over $10M from nearly 70k backers in one month April: “Project Glass” formally announced; Sergey Brin sports headset at Fighting Blindness charity event June: Initial signup for developer kits offered at Google I/O conference ($1500 price tag) September: Oculus Rift raises $2.4M on Kickstarter to fund development kits September: Glass graces the DVF runway during New York Fashion Week October: “Airwave” ski goggle featuring Recon Instrument’s MOD heads-up display goes on sale in the U.S. ($600) January: Nike launches “METALUXE” collection, catering to style- conscious FuelBand fans January: Partnership with Tory Burch announced February: Fitbit Force issues voluntary recall due to reports of skin irritation April: Launches Innovation Lab in San Francisco as rumors suggest shifting focus from hardware to software January: Announces next-gen “Steel” at CES ($100 price increase) February: 1000+ apps now available for device February: Garmin announces support for Xperia devices, including SW2 integration February: Gear 2 and Gear 2 Neo announced at Mobile World Congress (less than 6 months after first gen) January: Google announces “Titanium Collection” frames for Glass February: Google publishes etiquette guide for Glass; Kenneth Cole becomes first major brand to experiment with Glass app via “Mankind” campaign February: Facebook announces agreement to buy Oculus VR for $400 million in cash and $1.6 billion in stock January: Nike opens API developer portal to drive digital sports innovation March: 10 startups selected to participate in 12-week Nike+ Accelerator program May: Fitbit Flex evolves sensor from clip-on to wristband device October: Fitbit Force adds display into wristband model January: Begins mass production, four months behind target release May: PebbleKit SDK released June: SW2 unveiled featuring water-resistant screen and near field communications (NFC) July: Confirms 85k units sold September: SW2 goes on sale for $200 February: “How it Feels [through Google Glass]” video racks up 25M views; expands Explorers promotion with #ifihadglass campaign April: “Explorer Edition” of Glass starts shipping, third-party apps slowly expand May: Google announces it will not approve apps that use facial recognition without “strong privacy protections in place” June: 1080p version of Rift shown at Electronic Entertainment Expo (E3) August: Legendary game designer John Carmack (id Software) joins Oculus as CTO March: U.S. head of Sony Mobile suggests in interview that SW3 will shun Android Wear for a customized platform May: Rumors emerge that Samsung will release a Glass competitor in September March: Partnership with Luxottica announced to offer additional frame designs May: Officially available to general public for $1500; Ivy Ross (Calvin Klein, Coach, Gap) becomes new head of Google Glass May: ZeniMax Media files lawsuit alleging Oculus unlawfully exploited intellectual property Wearables: Major Developments by Use Case 2011–2014 Chronology Fitbit Jawbone UP Nike+ FuelBand Sony SmartWatch Samsung Galaxy Gear Pebble Google Glass Oakley Airwave Oculus Rift Sources: CNET, Glass Almanac, Mashable, The Guardian, Wired fitness trackers
  • 6. 6June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. Homegrown Efforts Kickstarter is often touted as an incubator for wearables—a reputation gained from high-profile success stories including the Pebble smart watch (May 2012)12 and the Oculus Rift virtual reality gaming headset (September 2012).13 There are nearly 50 Kickstarter campaigns that reference “wearables” (versus 4,423 categorized as “technology”). The average wearables campaign receives 399 percent of its funding goal—a statistic that obscures the wide gap between winners and losers on the platform. On average, successful campaigns receive 692 percent of their initial goal ($54k) versus only 14 percent for failed campaigns ($80k). Ultimately, only six in 10 wearable projects achieve their funding target. Success rates are picking up as the catergory achieves traction, with nine funded campaigns in the first half of 2014—the best yield since 2011. However, mimicry persists among crowd-sourced initiatives. Seven of the top 10 projects in terms of funding are all variation on the smart watch theme. 12. “Pebble Smart Watch Delivers on Kickstarter Promise and More,” Christina Warren, Mashable, August 31, 2014. 13. “Oculus Rift: From $2.4 million Kickstarter to $2 billion sale,” Richard Mitchell, Joystiq, March 28, 2014. $10,266,845 $100,000 Pebble Ended May 18, 2012 68,929 backers 10,267% $2,437,429 $250,000 Oculus Rift Ended Sep 1, 2012 9,522 backers 875% $264,527 $80,000 EMBRACE+ Ended Jun 9, 2013 4,474 backers 231% $143,377 $100,000 Woojer Ended Dec 6, 2013 1,710 backers 43% $1,032,352 $100,000 Omate TrueSmart Ended Sep 20, 2013 4,378 backers 932% $1,012,742 $100,000 AGENT Ended Jun 20, 2013 5,685 backers 913% $801,224 $100,000 Neptune Pine Ended Dec 21, 2013 2,839 backers 700% $616,231 $150,000 HOT Watch Ended Sep 7, 2013 4,141 backers 311% $309,393 $100,000 MetaWatch STRATA Ended Aug 20, 2012 1,767 backers 209% $305,393 $150,000 cookoo Ended Jul 7, 2012 2,560 backers 104% Kickstarter: Top 10 Wearable Projects by Total Pledges May 2014 Initial Goal Total Pledges Percent Overfunded Active “Wearable” Projects Projects by year most common locations Average # of backers Average goal 57% funded 2011 7 57% funded 2012 9 44% funded 2013 15 40% funded 2014 13 69% funded 22% San Francisco 18% New York 14% los angeles 44 2,314 $65,304
  • 7. 7June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. Click logo to return here.Click to jump to: 5 6 DATA SPOTLIGHT KEY FINDINGS 6 Typology 7 Chronology 8 Homegrown Efforts 9 Major Platforms 10 Channels 11 Impact L2 TEAM ABOUT L2 FIRST MOVERS 13 Accessorizing Existing Tech 14 Intel Inside® 15 Power Play 16 Connected Cars (Version 2.0) 17 Wearable Advertising 18 Enhancing Customer Service 19 20 12
  • 8. 8June 3, 2014 L2 intelligence report wearables Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact © L2 Inc., 2014 Circulation of the report violates copyright, trademark and intellectual property laws. Research Digital IQ Index® : The definitive benchmark for online competence, Digital IQ Index® reports score brands against peers on more than 850 quantitative and qualitative data points, diagnosing their digital strengths and weaknesses. Intelligence Reports: Intelligence Reports complement L2’s flagship Digital IQ Index® with a deeper dive on platforms or geographies of future growth. Critical areas of investigation include: Mobile, Video, Emerging Platforms, APAC and Brazil Russia India. L2 Collective® : Series of benchmarking reports designed to help member brands better understand resources, human capital, budgets, and priorities supporting digital strategies. EVENTS Forums: Big-picture thinking and game-changing innovations meet education and entertainment. The largest gathering of CPG executives in North America. 300+ attendees Clinics: Executive education in a classroom setting with a balance of theory, tactics, and case studies. 120–180 attendees Working Lunches: Members-only lunches led by digital thought leaders and academics. Topic immersion in a relaxed environment that encourages open discussion. 40–80 attendees MEMBERSHIP For membership info and inquiries: L2 business intelligence for digital. We are a membership organization that brings together thought leadership from academia and industry to drive digital marketing innovation. Upcoming Events BREAKFAST & lunch: wearables June 03, 2014 · NewYork BREAKFAST: MOBILE & TABLETS June 03, 2014 · London Lunch: Mobile & Tablets June 04, 2014 · Paris Breakfast: Mobile & Tablets June 06, 2014 · Geneva Clinic: social is media June 12, 2014 · NewYork breakfast: omnichannel June 25, 2014 · NewYork Upcoming Research Digital IQ Index® Reports: Hotels Auto Departments Stores L2 Intelligence Reports: Amazon Omnichannel Retail Social Platforms Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact
  • 9. Contact Info: 155 Wooster Street, 2nd Floor New York, NY 10012 © L2, Inc. 2014 Reproductions Prohibited This report is the property of L2, Inc. No copyrighted materials may be reproduced, redistributed, or transferred without prior consent from L2. L2 reports are available to L2 Members for internal business purposes. Excerpt from the Digital IQ Index® : wEARABLES To access the full report, contact