FORTUNE — The key tech battle of the current decade will be about things we wear. Technology is crawling out of our bags and pockets and onto our bodies in the form of wearables. An increasing number of gadgets are finding their homes on our wrists, necks, ears and eyes. These objects – and the smart services they give rise to – will help revolutionize domains like healthcare, fitness, communication, and much more.

A range of wearable products from startups and established brands are inspiring and intriguing people. Nike (NKE) is heavily promoting its FuelBand, the much-hyped Pebble smart watch is finally shipping, and Google (GOOG) Glass is creating a lot of buzz. The GoPro range of wearable video recorders has become a huge hit in adventure sports. Crowdfunding services Kickstarter and Indiegogo are flooded with wearable product pitches. Rumors that Apple (AAPL) is set to unveil its own wearable device are only adding to predictions that the category is set to explode.

But as technology meets and to some extent fuses with our bodies, new challenges arise – and many of them are not merely about technology; they are about people. As Senior Forrester (FORR) Analyst Sarah Rotman Epps observes in her recent report Smart Body, Smart World, “product strategists must embrace a human-centric approach to design — the person is the focus of innovation, not the device.”

Technology that we wear must be designed to withstand wear and tear; it must fit in with our lifestyles and habits in natural ways, and must match our sense of style. Above everything, it must be easy to interact with and get value from. Instead of us learning how to interact with machines, it will now be the reverse – machines need to learn how to work with us.

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Emerging players. In each major battle for dominance, new companies can rise from irrelevance to category leadership, and the wearable paradigm is currently searching for winning models and dominant designs. Microsoft (MSFT) won the battle of the desktop era, and Android and iOS are the dominant drivers of the mobility era. But there’s no guarantee that today’s major technology brands will be the ones to also rule the wearable space – as we’ve learned from Clayton Christensen’s The Innovator’s Dilemma, innovators of one era or category often struggle to also achieve success during following waves of innovation.

While the domain is still only gathering momentum and while it’s too early to declare a winner, there are some companies with promising approaches.

• Elegance and simplicity are core attributes of the quarter-sized activity tracker Misfit Shine, yet it can be used flexibly for several different activities and situations.
• Scales by Withings piggyback cleverly on an existing daily ritual – weighing oneself – rather than trying to introduce completely new digital rituals.
• The Fjord-designed smartphone app Macaw aggregates data from several sources in one experience, allowing users to get an overview of various things they track.
• Category pioneers FitBit have long been known for reliable and accurate data, which is a foundation for trust.
• Excellent design drivers around glanceability and “hands freedom” guide smart watch pioneers MetaWatch.

Especially in the wearable category, it’s imperative to design around people, because your relationships with these devices and services will be quite personal.

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Making sense of the data deluge. Wearables typically contain a range of different sensors, allowing users to automatically detect anything from altitude and speed to their pulse or location. The “quantified self” movement is the living lab of the wearables business, allowing people to understand their own bodies and behavior in ever more sophisticated ways. As the data is transmitted from your wearable device via your smartphone (or computer) to the cloud, you can see, share and analyze the data in real-time.

Data captured by wearables will normally live in the cloud, and the wearable business is therefore about the design of smart systems, not merely small objects.

Raw data is not of much use to normal people, however. The first time you see a graph of your energy use during a day, or your sleep patterns during the night, it might be interesting. But if a graph and a set of numbers is all you’re presented with, chances are that you’ll start developing what we at Fjord call “chart fatigue.” After a few times, the novelty factor has worn off. But personal wearable-collected data can be extremely powerful when it helps bring tangible benefits – such as reducing hassle, saving money, or successfully helping fight or manage chronic disease. Here are a few examples.

• When out biking or when busy with a small child, you can filter communication by simply glancing at a smart watch to see the identity of the person calling or sending a message before you decide to pull out your smartphone from your purse or pocket.
• It’s easy to imagine how smart glasses could save you money and transform any in-store experience by matching the objects you’re looking at with a cloud database to make sure you get the best possible deal.
• In a now legendary blog post, recently diagnosed Type 2 Diabetic Dan Hon detailed how his use of a range of sensor-laden wearable devices allowed him to understand how diet and exercise impacted his wellbeing and future prospects. He ends his post simply stating that “data saved my life.” How is that for core benefit?

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Enabling personal ecosystems. Instead of being its own business line only, wearable technology can also simplify or amplify other things we do. In the U.K. Barclaycard equipped festivalgoers with custom RFID wristbands, which allowed them to buy things and gain access to gigs at the festival without having to carry money or a wallet. Disney (DIS) recently extended this concept with their MagicBand wristband that allows Disney World visitors to use it for a range of actions from paying for rides to opening their rooms at the Disney resort.

The smartphone is now the hub of our connected universe. But constantly growing screen sizes mean bigger phones and more frequent phone charging. This smartphone trend offers a good opportunity for smaller and less energy-hungry devices, and wearables will become handy companions and additions to smartphones. When biking or driving a car, surely smart glasses or voice guidance through earpieces would be more practical than the smartphone? Is the glanceable smart watch not a natural place to receive contextual offers by local shops? When you exercise, would you not want your primary technology to be durable, waterproof and light? In the nightclub or at the beach, is a wristband not more secure and convenient than that big brick of a smartphone?

But even with all the promise, making new wearables fit into the lives and habits of normal people is even more challenging than the many inherent technical obstacles. The most powerful new services help us transform our behavior or adopt new habits. Technology can move very fast, but it takes a lot to change behavior.

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Winning strategies for wearables. If you’re considering a move into wearables, here are a few recommendations:

• Tech fit for the real world – Consider how to best marry amazing technical capabilities with people’s real-world habits and desires.
• Understand needs – Ensure you know who you’re designing the wearables for, and what their needs and desires are.
• Sharp focus – Prioritize ruthlessly around your core service and its core benefit, your wearable device will inevitably die if it contracts featuritis.
• Segment functionality – As wearables should be small, carefully consider what’s best done and seen on the device itself, and what can be “delegated” to a smartphone.
• Make the experience desirable and stylish – As Bill Geiser of MetaWatch says, “we carry devices but we wear fashion.”
• Know the data core – Obsess about the hardware, but obsess even more about the smart data service enabled by the technology. The gadget is merely the keyhole into a kingdom of interconnected data.
• Data fluidity – Allow users’ data to move fluidly between devices and be freely exported and aggregated, as users will get more benefit from solutions that can be compared and mashed up.
• Design for the glance – Ensure a simple glance at the device can provide information and value.
• Have fun inventing – The category needs leadership. Follow the advice of legendary inventor and designer Buckminster Fuller, who said “The best way to predict the future is to design it.”

Olof (@olof_s) co-founded Fjord in 2001, and has since led the company to become one of the world’s most successful service design consultancies working with clients including the BBC, Citibank, ESPN, Flickr, Foursquare, Harvard Medical School, Nokia, and Qualcomm, among others. Olof has years of experience collaborating with major brands to design breakthrough experiences that make complex systems simple and elegant. A frequent speaker at global conferences and events, recent appearances include Fortune 2012 Brainstorm Tech, GigaOm Mobilize, and Rutberg Future: Mobile.