Finnish smart watch makers at a crossroads

Ever since Apple introduced iWatch in 2014, market for smart watches has been under great amount of change and turmoil. Virtually all smart phone makers have pushed their own smart watches and smart bands to the market. Traditional watch manufacturers have also reacted, Tag Heuer publishing their Connected smart watch running Android wear. Companies from other industries have also shown interest on the nascent market, for example Nokia, manufacturer of mobile networks, acquired French connected health appliances maker as part of their Internet-Of-Things strategy. Fast change and evolution of the market with introduction of new competitors have put Finnish sport watch makers Suunto and Polar at crossroads.

Suunto and Polar both have shared history on being specialists on heart rate monitoring. Polar received its first patent on wireless heart rate monitoring in 1979 while Suunto expanded from being a compass maker to manufacturer of wrist computers with build-in navigation and instrumentation capabilities. They both have expanded and moved to become specialists of sports and health’s instruments with sport watches being at the core of their offering. While concentrating to serve a special niche market have allowed them to grow and show profit, it has also left them to be small companies. In 2015 Suunto reported total revenue of 63 million euro while Polar in 2014 reported revenue of around 203 million euro. Suunto is owned by Amer Sports, of sports equipment conglomerate, with yearly revenue over 2.5 billion euro and EBIT of 212 million euro. Polar on the other hand is family owned business.

The key problem that both of these companies share is that they are too small and have very limited resources compared to their competition. Big technology giants such as Apple, Samsung and Microsoft have more or less unlimited money to spend. Even smaller competitors such as Garmin has yearly revenue of over 2.8 billion USD with fitness products counting for 662 million USD. Both companies have responded to the changing market structure with different strategies. Polar has chosen to seek revenue growth by introducing multitude of different products such as activity and fitness trackers in lower price points. This strategy has enabled the company to keep up with the overall growth of the market. Suunto on the other hand has chosen to concentrate on higher end of the market with mix of design and usage of premium materials. This can be best seen in the new Spartan collection where the all titanium model retails at around 749 euro. This strategy of concentrating to a niche has caused company revenue growth to halt.

When looking at the future, what can be seen is that the sports and smart watch market is moving from being appliance centric to being application and service centric. When Apple first introduced iWatch, applications running in the watch were dependent of the phone. With Apple watchOS 2 and Android Wear 2, applications now run independently in the watch itself. What this means is that device functionality and offered value is not anymore tied to the manufacturer, but is largely created by independent third parties. While Suunto and Polar have resources to create few supporting services to their devices like polarpersonaltrainer.com, they don’t have enough resources to serve the whole wider market and even if they would, they would be playing catchup all the time. The question isn’t will there be a killer application for smart watcher or not, the question is when that application and service will come out.

What currently protects both companies is slow progress of battery technology and computing power requirements of both watchOS and Android Wear. While Suunto sport watches have battery life of weeks, smart watches running watchOS or Android Wear have in best day scenario battery life of 1-2 days. As technology develops this will change. The big question that both of these companies need to ask, how are they going to respond to technological change and how will that impact their overall strategy. There are three options for these companies to take: 1) develop offering based on Android Wear; 2) develop offering based on fork of Android or Linux; 3) continue using and developing in-house operating system.

In my honest opinion the most difficult option for these companies to take would be option number 2: to develop offering based on their own fork of Android or Linux. The reason is that keeping internal version of Android or Linux active and update needs lots of developer resources, not to forget the need to create their application stores and keep up connections to developer community. Clearly this option is too expensive and offers too little return of investment. Unfortunately other options are not much better. The biggest problem of using Android Wear is that Google doesn’t allow individual manufacturers to customize it and thus prevent creation of unique user experiences and offerings. With Android Wear manufacturers can only compete with hardware which essentially will lead into commoditization of the Android watch market where low cost and scale of economies only dictate winners. Finally the third option is to continue developing in-house operating systems which suffer from missing out the application market.

So what should Suunto and Polar do? Whatever the technical solution will be, as small companies they should target higher price segments and compete with specialization and quality. Suunto has already geared its strategy towards this and Polar should do the same. In case of technical solution, be it creating a new version of Android or Linux, or further developing their in-house operating systems, it is necessary to move away from developing closed source software and instead move on to develop open source platforms and components as group of companies with same interests. If Suunto or Polar would take the lead and create an open source project with a small dedicated team for creating either operating system or application runtime for future wearable devices, they could make big impact on how the market will develop.

Personally I see application runtime environment as the key ingredient that will make or break any future wearable project as there is no benefit with the project if it doesn’t achieve more applications to be available for the platform. Instead of inventing the wheel again, I would instead choose to copy an already popular platform like Google’s Java-language based runtime environment. The good thing about this is that there are already lots of available tools and companies specialized on enabling Java based programs to run both on embedded Linux and on real time OS’s. Whatever the specific solution will be, time is of the essence as it is easier to develop solutions for a market that is just about to bloom than to a market that has already formed. I believe Suunto and Polar can response to the challenge that Apple and Google have created, but they have to move very quickly.

Meego is the strategic choice for mobile vendors

In the past half a year mobile industry has experienced turbulent time of great market changes. When the year started Nokia was still committed to developing Qt-based Symbian and Meego ecosystem, Google backed Android was the preferred choice for the market challengers, and the Apple iPhone was unchallenged industry benchmark. The era of change started when Nokia abandoned its own development efforts and made a deep alliance with Microsoft to adopt Windows Phone as its sole smartphone platform, leaving both Symbian and Meego dead in the water. At the same time Android manufacturers gained momentum while Apple stalled and Nokia lost ground, making it seem that in the near future smartphone market was going to be divided in three camps: Apple iPhone, Google lead Android group, and Microsoft-Nokia. This all changed when Google acquired Motorola Mobility.

While Google informed the public that its acquisition of Motorola Mobility was defensive, that its intention was to obtain patents to defend the Android ecosystem, that it would retain Motorola Mobility as independent subsidiary, that it would treat equally all Android vendors, it is hard to believe that this state of affairs would continue for long. Google made a massive investment and its investors will sooner or later demand results from the management, and from the management the only way to obtain them is to become a vertically integrated company, imitating Apple. Not to mention that in large organizations there is always massive inertia to favor home grown solutions, even if the upper management tries to maintain neutrality with users of Android, the human factor, middle managers and developers inside Google-Motorola will pull and give flavors to each other’s. The simple fact at the end of the day is that due to acquisition of Motorola Mobility, the playground isn't level anymore and by time it will become even less so.

So what is next? Apple doesn't license IOS and with Microsoft the playground isn't even due to Microsoft working closely in deep partnership with Nokia. Fortunately there is a choice that mobile vendors can and should take, that choice is Meego. While Nokia did more or less abandon Meego, Intel continued to push forward and invest into it. It is a production ready mobile OS that is thoroughly modern, easy to develop and adopt. By adopting Meego as one of the used smartphone platforms in their offerings, device manufactures gain by..

..Having leverage against Google and Microsoft. Leverage is needed because both Google and Microsoft have in the past made it clear that they are in charge of their platforms, dictating more or less the terms of usage to manufacturers. They also have taken the freedom of favoring one device manufacturer to further their own goals. To ensure more fair and equal treatment, vendors need to have the nuclear option to threaten abandoning both platforms if needed, this threat should allow manufacturers to gain concessions to modify platforms, but also gain more favorable financial terms to license Android or Windows Phone.

..Allowing deep alliance with network service operators. Since the dawn of mobile networks, service operators have had one single goal, to be something more than just a pipe of bytes. They want their customers to select them not because of their pipes, but because of the unique features and services that they offer as part of their larger customer experience. With Apple, Microsoft and Google the problem is that they offer their own standardized customer experience, leaving operators to be commoditized pipe providers. This creates tremendous opportunities for device manufacturers to ally with service operators to create unique customer experiences, for example operator specific user interfaces that interwove services into tightly packed offering. In case where this co-operation leads to a hit product, benefits are more than clear. It should also again be mentioned that operators to need and want leverage against Google, Apple and Microsoft, which itself makes the business case worthwhile enough.

..Enabling product and brand differentiation via software. The big problem that all major phone manufacturers of today are trying to solve is to how to be different and how to maintain that difference once it is found. Designs can be easily copied or imitated. User interface is the same across the multiple vendors who use the same operating system. Hardware components and technology are the same and used by multiple vendors, buzz words changing from Retina Display and Super AMOLED to Clear Black Display, for the customer it is more or less the same, better than normal displays. The only way to clearly obtain differentiation is via creation of unique software offerings. The only platform that in the future offers this is Meego.

In my honest opinion, there is a very strong case for mobile device manufacturers to make use of Meego. While I don't think that any device manufacturer at this point should commit them solely to it, they should take the option for obvious strategic reasons, as a life insurance, but also as a way to move forward in the ever changing mobile market.