What’s Next for Pebble and The Future of Wearables

Pebble, a hardware technology company based out of Palo Alto, California, is one of the first firms to bring smartwatches to the masses. I must admit that I have a sweet spot for Pebble, since the founder and CEO Eric Migicovsky is a Canadian like myself. To start, let me give you some quick history on Eric. He grew up in Vancouver and moved to Southern Ontario to attend the University of Waterloo in Systems Design Engineering. His first smartwatch prototype was made years ago when he was on exchange at the Netherlands’ Delft industrial school. Since then, Eric made a number of iterations until he launched a Kickstarter campaign in 2012 for Pebble. Pebble, a smartwatch that pushed notifications from your phone onto your wrist, asked for a modest $100,000 in fundraising to help bring the new product to life. By the end of the fundraising campaign on May 18th 2012,  Pebble secured $10.2M – 100 times the ask, with an estimated 85,000 preorders. Pebble went on to hold the title for the most successful fundraising campaign on Kickstarter, until the Coolest Cooler, a modern, updated cooler for the 21st century, beat it last August. So Pebble is super successful now, right? Well yeah, kind of:

Pebble Sales Stats

As we can see, Pebble had an explosive start in 2013 with an estimated 400,000 units sold, a 368% increase from its 2012 Kickstarter pre-order figures. Growth can be attributed to the media attention received as a result of the successful Kickstarter campaign, as well as partnership agreements with retailers across the United States, Canada, UK, and parts of Western and Northern Europe. The 400,000 figure was pulled from a recent Globe and Mail interview with Eric Migicovsky while, the 85,000 was estimated based off the company’s Kickstarter page; assuming the 85,000 is not part of the 400,000 Eric mentioned.

Now while Pebble had an amazing year, 2014 will likely show less than glamorous results as growth in units sold is estimated to slow down to 45% or roughly 570,000 units sold. In the interview with the Globe and Mail, Eric mentioned that they recorded roughly $60M in revenue for 2013 and are on track to double that by 2014. That would mean $120M in revenue by the end of 2014, but that does not translate into 800,000 units, double the 400K units sold in 2013. In January 2014 at CES 2014, Pebble Steel, an upgrade to the original Pebble watch was announced. The watch, made out of higher quality materials, was priced at $250, compared to the the original watch at $150. Then at the end of September, Pebble announced a price drop for the both the Steel and the original by $50 each. Since Pebble has not disclosed how many watches it has sold at each price level, we will need to estimate our own average price per unit. In this case I arrived at an average price per unit of $207 by assigning the following weights and assumptions:

1. 50% X $250 (This was the price tag for the launch of the new Steel which likely drove most of the sales for H1 2014)

2. 30% X $200 (This is the new price of the steel which will drive sales for H2 2014 and the Christmas holidays)

3. 5% X $150 (This was the price of the original pebble which likely did not drive many sales in H1 2014)

4. 15% X $99 (This is the new price of the original pebble which will drive sales for H2 2014 for those who can’t afford the steel at $200)

Dividing the estimated revenue of $120M by the average price per unit ($207) yields an estimated ~578,000 units sold for 2014. Not bad for a start-up, but not as large of a sales leap as last year. So why the slow down?

In Come The Giants

2014 marked the year of fierce competition as the number of smartwatch players grew. Samsung, an early entrant, is already on its 3rd generation of the Gear, while Motorola and LG recently released their own smart watches as well. In the thick of it, Apple made a splash with the announcement of the Apple Watch. So how does the Pebble stack of against these new entrants?

pebble product chart

Pebble has three advantages when compared to the competition: price, compatibility, and battery life. Pebble was originally priced at $250, putting it right up against smartwatches like the Motorola 360, which is arguably one of the better looking smartwatches on the market. Not only that, but the Motorola 360 has more functionality and built in sensors to give users more value for their dollar. Pebble’s recent price drop to $200 seems to be a defensive tactic in response to the Motorola 360. The new price will lure price conscious shoppers, but how long will this advantage last for?

Compatibility is another advantage as the Pebble works on both iPhone and Android phones. While compatibility across devices opens up a larger target market, one needs to question whether that will really translate into more sales for the company. Is Pebble creating more sales channels due to compatibility? Will more customers actually buy a Pebble because it is supported across multiple smartphone operating systems? To answer this we would need to compare lifecycle of a smartphone with that of a smartwatch. The theory is that if the lifecycle of a smartwatch is longer than a smartphone, then compatibility might be a decision-making factor. However, until we see today’s early adopters buy their second watch, we won’t have an true estimate of what a smartwatch’s lifecycle looks like.

The third and most important advantage is battery life. Pebble claims that its smartwatch lasts for up to a week, while reviewers estimate its battery life closer to 4-6 days. I have a Pebble Steel, and I can say that mine will last for a good 5 days before it starts asking to be charged. Regardless 4-6 days is much better than all other smartwatches on the market. This is mainly due to the fact that the Pebble uses an e-paper display while other watches use color LCD screens.

Pebble has a few advantages against the new entrants, but how long are these benefits good for? I’m always cautious to say price is an advantage, as a larger competitor like Samsung or Motorola can easily lower its own price as it continues to roll out new iterations. Compatibility, as previously stated, is questionable if it actually leads to more sales for the company. Finally, battery-life seems to be the one advantage Pebble has left. The question in this case is how long will it take for competitors to improve the battery life of their own smartwatches and at what point is it enough for the customer? If Motorola can increase battery life to 4 days then is that good enough to forget about Pebble? We can be certain that these larger players are already working on their next installment of smartwatches and with many complaints, battery-life will be high on the pecking list to address. So finally, if the advantage of battery-life is taken away, then what does that leave Pebble with?

Time to Pivot?

CEO Eric Migicovsky thinks Pebble will be fine, arguing that customers don’t want all this additional functionality provided by the giants. Instead customers want simplicity: the ability to tell the time and see new notifications at an affordable price. However, if that’s the case, and customers do move in this direction, then it only makes sense that Samsung, Apple, and Motorola will follow suit. Making a product goes beyond just software development and hardware design; securing partnerships, managing supply-chains, forecasting demand, transportation, and customer care are some of the many responsibilities that software start-ups do not have to deal with. In these cases, being a big company helps, as you use size to secure favorable rates, not to mention you can afford to have more resources tied up in working capital.

I saw Pebble’s struggle to maintain operations when I ordered my first Pebble in January 2014. As one of the first customers to pre-order, I was very excited to receive my product. However, as time went on and no confirmed date was outlined, the waiting game became frustrating. Pebble’s team of 80 employees could not handle questions, inquiries, and support required by the thousands of customers complaining on their community forum. It left a poor customer experience for the customers who were willing to become loyal Pebble fans.

A second example of mismanagement occurred earlier in 2013 when there were reports that Pebble had started shipping inventory to BestBuy before shipping pre-orders to backers who helped the company get up and running. Online messages of users complaining that they had yet to receive their Pebble stained the company’s image. What was Pebble’s response? To tell customers that this occurred because some units were made in larger batches than others causing delays among certain customers. Nothing more was done as backers waited with frustration to receive their product. To correct these problems in the future, Pebble will need a much larger team specializing in supply-chain management to help it compete, but even then, it will take time. Time is a luxury that Pebble does not have as larger competitors continue to spit out new generations of their smartwatches. So what does Pebble do now? One idea is to look at the broader wearable market.

Wearable Market

The 2014 smartwatch hype is a distraction from the fact that the wearable market goes beyond devices attached to your wrist. Wearables can go on your head, face, body, or even on your feet…that’s the whole point of using the word wearable. A great example of  a non-wrist wearable is the Lechal, a bluetooth enabled shoe or insole that can track your movement and guide you from point A to B without having to look at your phone.


If Pebble is serious about the wearable space, then a lateral into another category, one with less competition, will give it more time to build a robust team and back-end supply chain. If that’s the case, then where should Pebble go first? Your guess is as good as mine, but I have an interesting theory.

First, Matt Witheiler from Flybridge Capital Partners pulled data together on two subjects: crowd-funding by wearable category and VC funding by wearable category. The idea here is that we can compare what kind of devices consumers are funding vs. what venture capitalist are funding to see what are the biggest opportunities for wearable technology.



The crowd-funding chart shows that 61% of funding is going into wrist/hand wearables. A large part of this is driven by Pebble’s $10.2M kickstarter campaign. Now unfortunately crowd-funding data only tells us what customers like, not what the wearable market will look like. Just because backers are raising funds for wrist/hand devices does not mean that 61% of revenue will come from this market in the future. Remember that backers do not design the products, they simply donate to start-ups that need that extra push to get their product out and into consumers’ hands. Essentially, backers can only back what exists today, not the vision of tomorrow.

Venture capitalists on the other hand are often investing in companies with great ideas and visions for products that do not yet exist. When we look at the graph on the right, we can see that VC funding by category is more evenly distributed between the three categories of wirst/hand, head, and body. This is a promising sign that VCs believe that while wrist devices are the low-hanging fruit, opportunities in the body and head are likely to be just as lucrative. Unfortunately, the fact that VCs are investing nearly the same portion of funding into the wrist, body, and head shows that VCs are more likely hedging their bets as they themselves do not know which category will yield the most opportunity.

Non-Tech Wearables: A Proxy for Technology?

One theory that might prove to be a good way to investigate the potential categories of wearables is if we look at the breakdown of the real non-tech wearables of today. This means looking at spending on each body part based on products like apparel, footwear, and accessories. A high level analysis would look something like this:

body chart


Source: United States: Bureau of Labor Statistics

As we can see, accessories that go on the wrist or the head make up only 15% of average US household’s expenditure when it comes to non-tech wearables. The larger category is apparel such as shirts, pants, dresses, sweaters, and women aged 16+ are the biggest spenders in this category, spending on average $562 per household. If we can use this data as a proxy, then how might our direction on wearables change over time? Will we begin to see the introduction of technology embedded apparel? Will my clothes tell me when I smell and need to reapply deodorant? Will they work on the back-end for retailers and tell them when their clothing starts to fall apart ? What about catering to women? They are the biggest spenders when it comes to actual things that you wear! New technology has been somewhat biased over the years to better suit men, but will the biggest opportunity in wearables be when we discover use cases specifically for women? And if so, where will these use cases be? I don’t have the answers today, but these are the questions that we will need to tackle if we want to discover the true potential of connected wearable technology.

Finale Note on Fashion & Technology

When you look at product comparison charts for smartwatches like above, one thing you will realize is that they don’t score the aesthetics of the watch, yet every review will talk about it, noting how the Motorola 360 is superior in comparison to others on the market. Wearable technology has a barrier to adoption that we haven’t quite seen before in laptops, PCs, or smartphones. When consumers make the decision to purchase a smartwatch or a smartshoe or any wearable device, the question of fashion and aesthetics will come into play and be an incredibly important decision making factor. Unless you plan on only wearing your smartwatch in the house, you will be conscious about what other people think. This means that companies like Motorola, Pebble, Samsung, and Apple need to seriously think about marketing and design on a whole new level. A one size fits all approach no longer works. Apple realized this when it announced two sizes across three “editions” to end up with six different models; not to mention all the extra, customizable straps. Having variety matters.

Apple has also been building a world class retail team with iconic members such as designer Marc Newson and Burberry chief Angela Ahrendts. In this new era of wearables, branding is going to be very important to show who you are and what you stand for. I like to think that when Apple acquired Beats, it did so because it wanted to eliminate its second biggest competitor. Beats was one of the few technology companies that could attract people to buy its products due to its iconic brand image. You could get similar or even better headphones from Bose or other high-end companies, but Beats was more successful in marketing and branding itself in order to connect with the younger generation. At the end of the day, wearable start-ups like Pebble will need to look into the future and ask themselves how they will build this brand over time and what resources they will need. Venture Capitalists will need to ask prospective start-ups what kind of retail experience they have, and if management has the capability to create powerful brands. If you don’t have answers to any of these questions, then you might need to look at how you can build a product on the back-end, because in consumer retail, branding is power.


About Amir Bashir

TMT Strategy Consultant, Canadian, Value Investor, TV Junkie, and Traveler

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