Why breakout consumer tech hits have become harder to find
The main forces behind today’s must-have products are services and ecosystems
The Consumer Electronics Show, which takes place in Las Vegas next week, is an annual orgy of technology and gadgets. It also provides a fascinating glimpse of new categories of tech struggling to be born.
More than 10 years ago, one of the hits at the show was an LG “watch phone”, complete with a music player and built-in camera for video conferencing. Throwing these capabilities together turned out to be harder than it looked, and it took the genius of Apple to produce the first coherent packaging of wristwear technology in the shape of its Watch.
As a new decade dawns, the gadget enthusiasts will be out in force once again. But the factors animating the consumer electronics world have changed. Rather than technology and devices, the main forces behind today’s must-have products are services and ecosystems. Often, it is powerful companies from the tech and media worlds, operating in the background, who are pulling the strings.
One sign of this change is the way that breakout hits — the things that CES-goers most hope to find — have become few and far between. In the new world of connected devices, a standalone device capable of breaking the mould is now a rarity. When new things do break through — like GoPro’s wearable cameras — they struggle to maintain a lead without the motor of a compelling service to keep consumers interested and buying more.
A trail of disappointments from CE start-ups in 2019 make the point. One of the most technically accomplished companies in the field of personal robotics, Anki, failed after its run of well-received robotic toys ran out. Fitbit, which has been struggling to turn its fitness trackers into more useful health devices, sold itself to Google. And fans of augmented reality spent another year waiting in vain for Magic Leap, which has raised more than $2.5bn, to kick-start a new AR ecosystem of gadgets and content.
No wonder start-up investors have gone cold on the sector. According to figures from Crunchbase, US investors put $1.74bn into CE start-ups last year, down nearly 30 per cent from 2018 and the lowest level for four years. It was always hard to launch a company in the low-margin, hit-driven hardware world, but making it in the world of connected devices is even harder.
Exercise equipment maker Peloton beat the odds with its successful IPO last June, thanks to its built-in service and subscription revenue stream. But it is still far too soon to tell if it can go the distance, and this year’s CES will be full of copies, as well as people trying to apply the Peloton model to other areas of personal tech.
Services are now a vital force driving personal tech. Video streaming, for instance, was one of the biggest stories of 2019, as media and entertainment companies lined up to launch premium services. Voice assistants — led by Amazon’s Alexa and Google’s Assistant — have become the animating force behind many gadgets, making it more difficult for hardware makers to differentiate their products.
This year’s show is also likely to provide glimpses of the next cloud services lining up to disrupt consumer tech. These include cloud gaming, where Google’s recent entry into the market points to a world where much of the computing power that was once at consumers’ fingertips disappears into the data centre, even as a new generation of gaming consoles is about to be launched.
All of these services drive demand for more digital gadgets — but the subscription streams and other new business models they support are likely to yield higher returns for the services companies than the hardware makers.
The second force at work behind the scenes is the power of consumer tech ecosystems. Brand and technology integration are the factors that hold these together, along with a growing reliance on personal data. In the field of smart home devices, these factors are making Amazon and Google formidable competitors.
The most effective consumer tech ecosystem company, Apple, will not be at CES. Its impact will be felt everywhere — for instance, in the large number of companies trying to copy the success of its wireless AirPods. For consumers already living in Apple’s world, these will hold little appeal.
None of this will prevent the race to build the next breakout hit products. “Smart” and “connected” have been the watchwords that defined the frontiers of consumer electronics over the past few years. A technology revolution is now in the offing, as 5G connectivity and AI that can work at the level of the individual device bring a new impetus.
Next week will see the usual creative attempts to package these into the next must-have gadgets. But when the dust settles, most will have joined LG’s watch phone on the digital scrapheap.