Wellness and health wearables need open ecosystems to thrive

Wellness and health wearables companies are at a crossroads – will they choose the path on which they can build a long-term successful position, or the path that enables quick wins? The answer depends a lot on the ecosystem model they choose.

Many companies dream of building their own closed ecosystem and tie customers into it. Most companies fail at this. In fact, probably the worst model you can pick is to have your own ecosystem and hope that everyone else joins it. An open ecosystem may sound scarier and less certain, but it’s the model that is far more likely to succeed.

When we talk about open versus closed ecosystems, Apple is often cited as an example of a successful closed ecosystem. It is true that Apple’s ecosystem is profitable, and Apple has firm control over it. On the other hand, is it really closed? That is actually a hard question to answer. When Steve Jobs returned to Apple, he made peace with Microsoft and accepted Microsoft Office for Mac computers in 1997. It might sound like a small detail nowadays, but it was an important step at the time. In order for Apple to get more users and become successful once again, it had to accept its rival’s leading office software package into its ecosystem.

Apple’s App Store is also a complex thing. Apple controls and dominates it – on the other hand, it’s open enough that anyone can make apps for it. In 2007, that was a radically different approach compared to Nokia’s Symbian and app ecosystems offered by various mobile carriers. Those systems were tightly closed, with the ecosystem owner selecting which applications were published. It’s fair to say that Apple’s ecosystem wouldn’t be in its current position without opening to developers and enabling them to make money.

I have written earlier about how many new hardware companies first started with their own software, but sooner or later the software component became more important, just like with PCs and mobile phones. Wearables are now in the phase where the hardware companies are still trying to control the data and applications. But we can already see it is quite impossible for most wearables companies to succeed with their own closed ecosystems.

There’s just too much data

If we look at the latest development in the wearables market, this is getting even more evident. Consider the following points:

1. Users increasingly expect more quality and better analysis from wellbeing apps. When two devices give you totally different stress and sleep scores, you really start to wonder which one to trust – is the underlying data reliable, or is the problem in the way the app analyze the data? The app also needs a smart software layer to select trustworthy data to trust and correct data that is inaccurate or out of date.
2. Sensors are becoming increasingly ubiquitous, as I wrote from this year’s CES event in Las Vegas. If you have lots of sensors in your undershirt, jacket and socks to scan your body, you really don’t want to have an app (and corresponding independent data stream) for each of them.
3. We have more places to utilize our personal and biometric data. We can use it for our gym training app or our metaverse avatar. We can link our health records to dozens of concepts to make our daily life better and healthier.
4. There will be so much data from various sensors and sources (e.g. wearables, DNA, medical devices, health care) that the data alone becomes useless – the value is in analyzing relevant information in the data. 
5. Data privacy regulations will make it impossible for hardware vendors to hoard data only for their own services. The latest example is the European Data Act that gives more rights and power for consumers to control their own data.

Twenty years ago, mobile carriers dreamed that they would offer mobile portals to their customers and basically control and monetize what mobile services their customers use. Many carriers spent billions to build these closed ecosystems, and consultants were also keen to help them do it. I remember when I was working for a leading management consulting firm – I got into battles with our own management when I tried to tell them that these plans were not realistic. They didn’t care – they just wanted to monetize the short-term consulting assignments.

Now we are in the same situation with personal data, especially the wellness, biometric and user-generated data. Many wearables, hardware and DNA data companies have the same dream as the telcos did – that they can build all the relevant services with their data, and control how customers utilize it. Wearables companies want to control the data, but that dream will fail, just as walled-garden mobile portals did.

Resources to win

The winning companies in this ecosystem will be those that are prepared to work with an open ecosystem and enable other companies to make money. Let’s take some really simplified examples:

1. It’s much better for you when hundreds of developers and companies make applications that use your device’s data, rather than you developing just one or two apps yourself. But those other parties must be able to make good business with their apps, otherwise they have no incentive do it.
2. If a health app combines data from multiple sources, controls and improves the quality of the data and thus offers more useful and reliable apps to users, it adds value for all parties in the ecosystem – it also ensures more users will want to keep using the devices and apps in the long run.
3. Users must be able to trust that their data is generating value for them and isn’t  being misused or sold just to make some other parties rich. People have already become wary about how their web browsing and social media data is monetized – user-generated data and health data is much more personal and sensitive.

The temptation to choose a closed ecosystem is perhaps understandable. Closed ecosystem business models are easier to understand and manage, whereas the open ecosystem requires more platform orchestration. Open ecosystems also require a management team and shareholders that have the competence, stamina and courage to plan for long-term success.

So open ecosystems certainly have their own challenges. However, the tradeoff of easier management  is better revenue and profit only for the next few quarters at best – it is a dead end in the long run.

The open ecosystem model is a long game, and wellness and health wearables companies are now at a turning point where they have to decide what their future is going to be – a long-term position in this huge and growing market, or a short-term model of fast cash, fat bonuses and a quick exit.