Wearables market embraces subscription model – but will users pay?

Image by Andrey Popov | Bigstockphoto

You buy a smartwatch, ring, or shoes, pay for it, and then you can use a free app to monitor your data. Or at least it used to be like this. Today, more wearables firms are moving towards subscription models, where users must pay to use the app and get the data and analytics benefits of these devices. Could these developments indicate that the wearable business is evolving to a new era? What kind of platforms are we going to see emerging soon? And what does this mean for users’ rights to data?

I wrote earlier that wearables businesses will follow the PC and mobile phone businesses to go from hardware to software dominance, and that luxury brands need to get into the wearable tech business too. These trends tell how the wearable business is changing. Now we’ve got more evidence about the change: Oura’s new monthly subscription model. As an Oura ring owner, you need to start paying a monthly fee to get more data and analysis. Meanwhile, Fitbit has introduced a premium subscription model for more data and app features.

These follow on the heels of Whoop, which offers a wearable device and an app to view data and analysis. But Whoop is a subscription-only model – the device cannot be used at all without the subscription. Whoop has raised approximately $400 million in funding so far – the valuation for the latest funding round was $3.6 billion.

All these illustrate a change in market strategy. But it is not yet proven that this is a model users will like.

Venture capitalists (especially those that own Whoop and Oura) certainly love the idea. VCs and Silicon Valley as a whole love monthly recurring revenue (MRR). Some people even say that VCs have an MRR fetish. Higher MRR is typically the best way to get a higher valuation for a company.

I am pretty sure the wearable business is about to change. According to comments from Oura CEO Harpreet Rai in recent interviews, the health and wearable device business is moving towards the platform economy.

But what does this mean for different actors?

It is not so simple for a device manufacturer to make a transition to become a data and application platform. Walled garden platforms are even more complex to make successful transitions. Even for a single device company to open its platform to other parties is a risky and complex strategy. It also requires different competencies to make hardware and its own app compared to a platform and application marketplace.

We can see at least three trends in the wearables market:

  1. Wearable device manufacturers are moving towards a subscription model to get users to pay for their data and applications, which will subsequently lead to the introduction of more application features.
  2. Some companies want to create platforms that aggregate data from several devices and build applications on this aggregated data. But wearable device companies probably want to introduce a fee for these aggregators as well to access and use data from their devices.
  3. User-held data is becoming an important model – i.e. users can get their own data for themselves and then have a personal platform where they can run applications using their data. Furthermore, in many countries users already have legal rights to get their own data.

The first model dominates now. Some companies offer the second one. The third one is making a bigger disruption for the entire data analytics market because it offers users tools to control and utilize their data, and thus the ability to be in charge of their data and privacy. It becomes even more important when it is possible to combine, for example, your health records, DNA data, and other personal data with your wearable data. Health data is something people really see as a primary illustration of the importance of privacy.

We still have limited information on which models consumers prefer. Most probably, it would not be correct to assume that one model could fit everybody’s needs. For some people, watches, rings, shoes (but also wearable tech clothes or jewelry in the future) are really about brand and fashion, and they want to pay for the ‘hardware’. Others prefer commodity-type sensors. For them, what matters most is getting value from data and the ability to have apps on the data. But for most people, it is a mix of different things.

In any case, the crucial question is whether people are ready to pay a high price for a watch and ring, and then pay a high monthly fee to use it?

Walled gardens don’t last

History has also shown that totally closed walled garden systems rarely survive for long. Nowadays, we don’t see any computers or phones that only run software developed by their manufacturers. Telcos also failed when they tried to create mobile internet that was totally or primarily based on their own services.

Thus, we can safely assume that the wearable business will also move to open platforms, data aggregators and user-held data platforms, as well as open marketplaces for apps. There will be millions of apps to use data and help live a better and healthier life.

In the past few years, individuals have been increasingly concerned about their privacy and the way tech companies use their data. People’s realization of the value of data and changes in regulation suggests that wearables data is probably the first category of data that people will really start to care about.

Recent data privacy laws such as GDPR in Europe and the CCPA in California enshrine a lot of rights for people regarding their own data. For example, individuals can request technology companies to provide copies of their personal data. Individuals can also request companies to delete all of the data that companies have collected about them. More specifically, in California users can also request that companies stop selling personal data to third parties.

From an ethical perspective, such rights to personal data have a strong moral justification. Personal data indeed has a strong emotional link to individuals, which entitles them to be able to determine how such data is used (so-called “personality theory”). In reality, individuals are also the ones who generate such data. This is especially obvious in the case of wearables data.

We are starting to leave the infancy phase of the wearables and personal sensor business and move to the phase of platforms, smart data layers, developer ecosystems, and app marketplaces. Up to now, wearables hardware companies have been the major driving force for development, but when hardware becomes a commodity, the software and data layers are what really matter. This means we will see a new emerging category of businesses to build wellness and health platforms and apps.

Yet, at the end of the day, they must offer value to consumers – and consumers have their own opinion on having the freedom to choose apps that really bring value, and also get value from their own data, and how much all this is worth paying for. And they don’t want their wearables handing data to third parties and thus becoming the Facebook of your health data.

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