“If I left it at home one day, I wouldn’t drive back to get it.”
This discouraging comment came from a leading tech writer describing his attitude towards his smartwatch. (Walt Mossberg, The Verge, 1/20/16)
What led up to the comment was the assessment that his principal uses for his smartwatch today are: 1) general fitness tracking (but not detailed tracking), 2) notifications, and 3) payment, including Apple Pay. These he judged were not enough to sustain a huge uptake in smartwatches and therefore there was a risk that they would become merely a “footnote” in device history.
Our View – Battle for the Wrist
We have viewed the issue in this area of wearables to be “the battle for the wrist.” As we wrote in early 2014, before the Apple Watch was even confirmed as a product:
“The wrist appears to be a highly attractive location for a number of potential purposes, for a number of different high tech suppliers. The overarching issue is, as in most cases regarding mobile – personalization. How to get one’s product suite to be the most closely ingrained in the habits and consciousness of the greatest number of users. From this vantage point, a device on the wrist has a good deal to recommend it. The wrist is one of the only parts of a person’s body that is visible to the person virtually all the time.”
Bullish Forecasts for Smartwatches
While Mr. Mossberg has voiced his concerns about the progress of smartwatches, there have been generally bullish forecasts of growth for the category.
For example, IDC recently forecast unit sales of smartwatches rising from slightly over 21 million in 2015 to over 88 million in 2019, a 40+% CAGR for the category. Earlier forecasts have ballparked sales in the 100 million units area by 2020, such as one from IHS.
An interesting study from Rethink recently projected a breakdown of revenues by type of watch, listing four categories. In addition to smartwatches, this included “traditional watches,” premium priced Swiss watches and a new category described as “augmented digital watches” (ADWs).
The latter, ADWs, according to the report is expected to grow out of extremely low-priced fitness trackers, specifically the $15 (U.S. price) Xiaomi Mi Band which reportedly sold 10 million units, overwhelmingly in China at about a $3 price (versus estimated sales of 8.8 million Apple Watches in 2015, per Juniper Research.)
While Rethink warns that the ADW category could detract from smartwatch sales, it still projects smartwatches achieving nearly $23 billion in revenue in 2020. Note that depending on how pricing holds up, this revenue target could be achieved on unit sales of less than 100 million units (maybe even much less).
Fitness Trackers – The Rest of the Wrist War
Another recent article with a dramatic theme headlined: “Fitbit Has No Future.” While aimed at investors, the report took the position that the “iPhone replaces” the need for Fitbits.
This is at odds with other sources. For example, Parks Associates, as earlier reported in 2015, projected the fitness tracker market at $5.4 billion in revenue by 2019, up from $2 billion in 2014, about a 22% CAGR.
We’ve viewed the development of wearables in the overall context of the Mobile Cloud. In this regard the wrist is a particularly interesting location, and while it has been traditionally dominated by “watches,” i.e., timepieces, it is not clear that we should view this segment of the industry as continuing to be dominated by the watch capability.
It is understandable that market forecasters like to forecast discrete products, such as “smartwatches.” However, we agree with analysts who foresee, for example, a trend for fitness products and cellphone-adjunct products (which is what the early smartwatches actually are) moving to more closely resemble each other.
The broader issue is what other capabilities could find a home in a digital, wrist-based product that will enhance user experience and have great utility. In an article on the initial introduction of the Apple Watch, we wrote: “The Apple Watch can best be viewed as a hardware platform for ‘personal cloud’ development.”
As we view wearables in general, they have clear, inward-looking utility – meaning, they can tell the user a lot more about themselves, aspects of their health, fitness, etc. They can also act as adjuncts to cellphones – you can receive a notification of an incoming call from something worn on your finger, your wrist, your chest, or elsewhere.
A key question for the wrist-based wearables, we believe, is whether they can gain functionality that permits them to interact with the world outside of the user. Along these lines, Mossberg suggested in his recent article, that the smartwatch could become “a sort of digital token that represents you to the environment around you.”
It’s quite clear that many in the automotive industry are looking carefully at how smartwatches can interact with connected cars. Mossberg advances some other suggestions such as interacting with home appliances or facilitating shopping trips.
We tend to agree with Mossberg’s assessment that smart wrist-based devices are of limited use and importance to most consumers today and we like some of his suggestions. However, we disagree that there is a substantial risk of smart wrist-based devices, and specifically “smartwatches,” fading away into device oblivion.
We believe that the wrist is simply too valuable a locale, loaded with communications potential. Rather than looking for more nifty apps for smart wrist-based devices, we expect that there are probably a number of serendipitous developments that could make these items more and more valuable, perhaps almost indispensable.
Among the developments, we are thinking about:
- Extended battery life
- Durability, making the devices increasingly waterproof, shock proof and the like
- Ability to interact with new information sources – not just IoT, but down the road, LiFi
- Probably a lot of other stuff that we haven’t thought of yet, as well
Links to articles cited in this report:
Fitbit Has No Future, Alex Pitti
Mossberg: Smartwatches need to get smarter, Walt Mossberg
Very smart cars: Why the car is the next home of the connected self, Joe Svetlik
Smart Watches Will Lead Wearable Computing To Mass Market Status, Tony Danova
101 Million Smartwatch Shipments by 2020 with Apple and Google Leading The Way, Paul Lamkin
IDC Forecasts Worldwide Shipments of Wearables to Surpass 200 Million in 2019…
Fitness tracker market to top $5bn by 2019, Paul Lamkin