We already know the connected device market will be a big opportunity. Early leaders in the category like Nest and Jawbone have shown us that. But as the market for software-infused hardware continues to mature, device makers should consider less traditional ways to distribute and sell their devices.
At least that’s what Cyril Ebersweiler thinks, and he knows a thing or two about connected devices. Ebersweiler is the cofounder of HAXLR8R, an accelerator focused solely on hardware companies, based in both Shenzhen, China, and San Francisco. Founded in 2011, the incubator is in its second class. Eight out of the nine startups in HAXLR8R’s inaugural class made connected devices. This year’s class will have its demo day in San Francisco later this month.
The main thing they can do is try to sell hardware by piggypacking off of selling software. “For the most part, these startups aren’t leveraging the distribution facilities of software,” says Ebersweiler. To illustrate that, he points to a few connected devices that can, in a sense, be un-connected, meaning the software can work independent of the device, though with limited functionality. For example, Kindara is a HAXLR8R company that helps women try to get pregnant. It makes a connected thermometer, and can track ovulation and daily fertility signs. The service also works on its own as an iPhone app. Another example is Shaka, a device that plugs into the iPhone for kitesurfers to measure and find wind. The software also works just as a smartphone app, but the hardware has other features like humidity sensors.
Ebersweiler says companies like these can be smarter about using the software to tease the better functionality of the service that comes with the hardware. It has some parallels to the freemium business model that so many software companies use. In an essay, George London points out one of the flaws of the model is that most companies give the core product away for free, and the paid version offers little more than a few perks or add-ons. It should work the other way around: the free product is just a little taste, and the real value comes from the paid version. That’s the sort of sentiment Ebersweiler is proposing. Since consumers have gotten so used to the process of buying and downloading an app in app stores, companies can use this behavior to try to get consumers hooked enough on the software to pony up for the hardware.
Another way connected devices have a unique opportunity to sell is to have a more integrated relationship with the manufacturing factories. In fact, proximity to the factories is one of the main reasons HAXLR8R is in China in the first place. “Factories are not just places to outsource, they are now partners,” says Ebersweiler. “The old notion of manufacturing is gone.”
Vibease, a connected sex toy – yes, that’s a thing, but only for Android, sorry iPhoners – has a licensing deal with a Chinese factory. Vibease founder Dema Tio says she can’t disclose the name of the factory because the paperwork still hasn’t been finalized, but they will partner on design, production, and distribution. Ebersweiler says a big boon for Vibease will be better access to the Chinese market.
And it’s clear that China as an economic player is and will be important going forward. Having good local distribution — right from the manufacturer itself — could be a smart move.