By now we know that almost every B2C software company out there is after our data. Social networks, search engines, e-commerce sites, online encyclopedias, payment systems, and porn sites (yes, porn sites) collect endless amounts of personal and behavioral data. This information gathered through usage of the software is incredibly valuable both internally for product strategy and externally for 3rd party marketers looking to buy the opportunity for more targeted advertising.
But it isn’t just software services that have use for our data. There are also a number of physical devices which have software components collecting user information. In fact, it appears that data is so important that soon, there will be almost no “pure” hardware companies at all – just software companies using hardware as a means to obtain user data.
Sooooo Over Hardware
Jawbone started off as a hardware company in 1999. Its initial crop of products consisted of Bluetooth headsets and speakers; devices which didn’t have a significant software component behind them.
Here’s how Jawbone CEO and Founder Hosain Rahman answered a question on whether he saw the company as a software or hardware operation in late 2014:
“…It turned out that building mobile software was actually a lot more like building hardware. We actually had one shot and you had to get it right right out of the gate. So we try to take the lessons from each place and make ourselves really good…But I don’t think there’s ever been a company that’s been equally great at hardware and software, and that’s what we’re trying to do.”
Evidently, the company had transitioned from just making hardware to considering software an “equally great”part of its offering. Earlier this month, Rahman gave another interview at Re/Code’s Code/Mobile conference. His position is much clearer that time around. He doesn’t see Jawbone as a hardware company anymore.
In less than a year, Jawbone went from trying to combine hardware and software like nobody in history, to considering hardware a secondary priority, if even a priority at all. Now, they’re a software company.
The new positioning is certainly supported by their resource allocation: a larger portion of its employees now work on software engineering and data sciences than any aspects of their hardware portfolio. According to Rahman, the brand’s physical devices are just tangible evidence for their other more relevant technological abilities.
Fixing a Broken Jawbone
Jawbone has been part of the Silicon Valley ecosystem for over 16 years now and is what’s known in startup parlance as a unicorn; a company that has a valuation exceeding a billion dollars, and has raised more than $800 million in funding from some of the biggest investors out there. Despite all this, the company has had a hard time making profits.
Meanwhile, newer hardware startups like Fitbit, Nest, and GoPro have been able to turn their strong product portfolios into positive trends in their income. Each of these companies treats its hardware the way Jawbone has finally decided to treat theirs: as a means to a more robust digital presence.
For example, Nest tracks the energy history of a home and presents this data to users in a nice-looking application. More importantly, Nest sends that data back to Google, who acquired the seemingly humble thermostat maker for $3.2 billion early last year. Google will be able to take that user information and provide targeted ads to companies in the energy and home appliances sector.
Another startup that does hardware data extremely well is NeuroOn, a sleep activity headband. The device tracks brainwaves and eye movement to provide hyper-accurate information which can be used to improve sleep schedules within a week. It isn’t clear yet how other corporations may use that data to make revenue, if at all, but the opportunity is clear given the how health tracking is burgeoning.
All Roads Lead to Software
One of the main reasons hardware companies eventually gravitate towards software is that physical devices are prone to commoditization. Over time, it becomes increasingly challenging for any brand producing physical goods to differentiate itself from competitors. Earlier, the only way to stand out was by lowering prices.Now, businesses have the option of distinguishing themselves with the kind of software they offer in conjunction with their devices.
The money made from selling devices is generally insufficient to keep operations afloat due to small margins. Consequently, data is the most valuable asset any company has in the digital age. As a result, it’s inevitable that today’s hardware startups beef up their software teams and focus on collecting user data and making sense of it. Jawbone is only one of many large device makers who will look to transcend their hardware game with a full-bodied suite of software applications.
Prateek Jose is a writer and engineering undergrad from India with an unhealthy obsession for obscure historical trivia. Conversations about absurdist fiction and the technological singularity make his day. He’s already uploading parts of his brain to servers by writing for websites such as this one.
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Companies survive slow times by diversifying what they offer all the time. I would assume this is the same thing happening.
That last paragraph said it, the margins. If you have to create software along with your hardware anyway, it makes sense to focus more on the software part of the equation because software is much more profitable as it’s easier to distribute and has the secondary feature of being able to sell the data. The problem is that a lot of these companies wouldn’t be able to sell the software without the hardware attached to it because of the niche aspect of their service. So I guess the powermove is to create some awesome hardware and once that’s established, shift to making software that is awesome for it and keep updating the software.