👷♂️Hardware vs👨💻Software Product Development
Why making physical products is hard
Hey Friends 🖐️,
This week we discuss product development differences in the digital vs physical world. Whether it’s folks who want to pivot careers or even people who are interested in side hustles, let’s discuss some of the challenges when it comes to building hardware.
Case Study
I can just make a list of bullet points outlining differences between the two domains but I always learned better through examples, hence let’s do a case study.
We’ll be developing two products in parallel, one physical and one digital, with similar target use cases and customer personas to try and limit variation during the comparison.
For HW it will be a smart watch and for SW it will be a new fitness tracker app.
The smart watch is relatively simple as it omits technologies such as cameras and motion detection (PIR/radar) but still has key components like RF, a display, heart rate sensing, a gyroscope, an accelerometer, mechanical housings, and soft goods.
The vision for the smart watch is to enable sleek design, stable battery life, and reliable fitness tracking in an affordable price range. The problem it’s solving is that fitness watches are reliable but look boring.
Our fitness tracker app will target unmotivated users with mental health challenges who want to change their lifestyles but need personalized coaching and a mindfulness platform to fit their routines.
The target user persona for both products are aged 22-35 health conscious and tech savy people whose median income is $60,000-$90,000. Their values are frugality, mindfulness, fitness, and social activism.
Differences
Schedule
Software (Fitness Tracker App): The app can be developed using agile (bi-weekly sprints) which allows frequent updates and new features. For example if a bug is found with the goal setting notifications, a patch can be released within a few days.
Hardware (Smart Watch): To mass manufacture a watch without variation or safety issues its scope will need to be locked sometimes years before launch. For example, if the main logic board doesn’t fit in the chassis properly it can take months to remanufacture the tooling. Hence agile can only be used in early proof of concept stages while waterfall is a must once EVT or actual development starts.
Cost
Software (Fitness Tracker App): The app will focus more on CAC (customer acquisition costs) like digital marketing, user support, and server maintenance.
Hardware (Smart Watch): Costs for the watch will be comprised of COGs such as BOM parts like the metal housing, displays, battery, and chipsets. Sourcing and maintaining unit pricing will require significant work from the supply chain team. Let’s also not forget assembly head count, shipping, and packaging.
Profitability
Software (Fitness Tracker App): The app will have significantly higher margins (~70-90%) due to low incremental cost per user after development. For example, once the app is launched adding new users will primarily require bandwidth and minimal support.
Hardware (Smart Watch): This will have a lower gross margin, as is the case in the hardware world due to manufacturing. For reference, margins in automotive are ~5% and ~30-50% in consumer electronics. If the watch’s MSRP is $200, you can expect the landed COGs to be about $130-$160.
Scalability & Manufacturing
Software (Fitness Tracker App): The app will be relatively easy to scale considering that adding new users is a function of server capacity which is usually straight forward and cost effective.
Hardware (Smart Watch): It’ll be orders of magnitude more difficult to scale since we will need significant Capex, equipment, and factory input. For example going from 1K to 100K units will require designing and validating fixturing, tooling, FAT testing, materials, metrology, QC, SOPs, manufacturing, and operators to ensure the process is repeatable.
Engineering, Testing, & Iterations
Software (Fitness Tracker App): Teams usually focus on system architecture, coding, UI, security, debugging, and data analysis with iterations being rapid and fluid with deployment. For example a new exercise tracking feature can be rolled out immediately after dev/QA.
Hardware (Smart Watch): This will involve several interdisciplinary teams such as mechanical, REL, electrical, and firmware engineering. The biggest drawback will be the inability to rapidly prototype and gain design feedback. For example if we want to test assembly level waterproofing flaws we’ll have to wait weeks/months to ensure the PCB, sensors, mechanical housings, sealing, and displays are at the latest design maturation, fabricated, and tested at a component level first.
Supply Chain
Software (Fitness Tracker App): There will be no physical supply chain. Instead we’ll rely on cloud services for managing server load and digital distribution platforms (App Store, Google Play) to get to our customers.
Hardware (Smart Watch): This will be sophisticated given that we have to navigate around supplier souring, selection, contract manufacturers, inventory, logistics, tariffs, and build volumes. The travel and on the ground validation work to other countries is also a huge effort. For example, the watch’s leather band could be sourced from Mexico, chipset from Taiwan, display from South Korea, housings from China, and final assembly in India.
Design
Software (Fitness Tracker App): The app’s UI and UX will be developed fairly rapidly using wireframes and digital mockups. To validate intuitivity and friendliness it will take relatively quick A/B testing.
Hardware (Smart Watch): Aesthetics and form factory will be led by the industrial design team which will focus on the watch’s shape, colors, ergonomics, materials, and textures. Making a comfortable wristband for example will be expensive and time consuming given that iterations require machine shop work, CAD, 3D printing, and clay models.
Regulations
Software (Fitness Tracker App): We’ll need to comply with certain regulations like GDPR and HIPAA to ensure health data is encrypted and secured privately.
Hardware (Smart Watch):
We have to comply with safety and regulatory standards such as FCC for electronic emissions and CE for safety compliance. Ensuring the smart watch does not emit harmful radiation and complies with electrical safety standards can take months.
User Feedback & Support
Software (Fitness Tracker App): There’ll be immediate user feedback through app reviews and analytics given the ability to release rapid updates. For example if the habit tracking feature isn’t working a fix can be caught and deployed within days.
Hardware (Smart Watch): It’ll take longer to gain customer insights because we can’t just press a button to release new features. We’ll need to issue MOQs, manufacture, and ship physical prototypes of the watch to our alpha and beta testers for them to have tangible experience with the watch. If there’s a UX issue with the heart rate monitor, accelerometer, or even display it’ll take weeks to root cause.
Sustainability
Software (Fitness Tracker App): Efforts here will be more implicit in nature such as writing efficient code to lower energy consumption of the app and create more eco friendly hosting.
Hardware (Smart Watch):
As the pressure to build more ethical products grows we’ll have to make several design and manufacturing decisions to ensure environmental compliance. For example will we use aluminum instead of steel for the chassis to ensure recyclability? For the inner frame can we implement reused plastic? In theory sure, but in reality this reused material will compromise mechanical properties and will be more expensive leading to lower margins. Lastly we have to also consider carbon emissions in the overall production and shipping value stream.
Of course it goes without saying that both domains have their own nuances and complexities which can’t be fully covered here. Both are inherently valuable and challenging given their unique applications.
But if hardware is this hard, why even bother? For me it’s because hardware products change the world. There’s a special, visceral feeling in building something tangible that interacts with your everyday space. Also, I was never good at coding anyways 🤷♂️.
Thanks for reading 🚀
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Great comparison. Thank you for sharing