For the past couple years smartwatches have been often used as an extension of a smartphone. They’ve already proven to be great in handling alerts, reminders and notifications about incoming calls and messages. Is that all smartwatches can do? Can they be something more than just a notification centre on your wrist? What kind of true value can they bring to end users? These questions are being asked by many users and businesses. Lets explore it in greater detail.
Market size and forecasts
Last year 89 companies from 18 countries sold around 6.8 M smartwatches. According to the Smartwatch Group review of 2014, the average price per unit was 189 USD which resulted in the total market volume of almost 1.3 B dollars. Compared to the smartwatch market size in 2013 (711 M USD), this was an 82% growth.
Market research shows that North America and Europe held about 60% of the overall market share in past years and proved to be the highest revenue-generating regions for smartwatches. North America alone accounted for about one third of the market revenue. Even though these regions will continue to grow at a significant rate in the future, the fastest market growth will take place in Asia due to a number of factors. China, which is already a leading low-cost Android-based smartphone manufacturer, will compete for the leadership in the smartwatch market as well. Hence, Huawei, ZTE and HTC and other China-based companies have been working in this direction for quite some time now. Japan, Singapore and India also have a huge user base which could potentially be interested in both low-cost and premium smartwatch brands.
Taking into account the continuing R&D from companies around the world, the huge number of smartwatch app developers, and consumer excitement about Apple Watch, experts are confident that the smartwatch market is poised for strong growth. The market growth and smartwatch sales were slowed down a bit by the anticipation of Apple Watch in 2014. However, in 2015 market volume is expected to boom and reach 8.7 B dollars.
In 2014 the average price per unit was 189 USD (it actually went down 16% from 225 USD per unit in 2013). This year the average price is predicted to grow to 290 USD per unit (largely due to the effect of the Apple Watch, Apple Watch Edition, in particular, and the introduction of premium models from other brands) and will remain above 200 USD until 2020 at the earliest.
One of the biggest challenges smartwatches are currently facing is competition with smart wristbands. For one reason, they overlap in functionality with wristbands and other wearable fitness monitors big time. Of course, for smartwatches the main emphasis is still on displaying time (no wonder Tim Cook emphasised a couple of times during his presentation yesterday that Apple Watch is “the most advanced timepiece ever created”) and have a user interface oriented around various communication options (messaging, calls, emails, etc), whereas wristbands are usually more focused on data collection and convenient data sync with the cloud.
Nevertheless, since Jawbone was introduced in 2011, smartbands have been holding on very tightly to their niche. What’s more, nowadays a number of wristbands are already being sold through non-retail channels as they are introduced to consumers by gyms, insurance providers, or company employees, sometimes at subsidised prices or for free. The feature overlap will continue to take place for some time; however, Gartner predicts that already in 2015, 50% of people considering buying a smart wristband will choose a smartwatch instead. Although there is still a place for fitness bands and other activity trackers on the market, we can safely assume that in a couple of years smartwatches will bite off a big piece of the current smart wristband user base.
The Smartwatch market is growing at a fast pace. We pulled together some stats on the market dynamics for the past two years and it looks like there are many shifts that happen year to year in this rather new field. Whereas proven market leaders are trying to hold on to their market share, there are a number of new players who are fiercely fighting for their piece of the pie.
It struck us as interesting that almost a quarter of the market is occupied by “other” manufacturers which together could be the second largest shipper. Altogether these are about 30 companies from 10 different countries including: companies from the sports segment such as Adidas, Polar and TomTom; security companies such as myFilip and Limmex; and others. Keep in mind that a number of traditional Swiss watch makers are also releasing their smartwatches later on this year. No doubt that in the developing ecosystem of smartwatches, there are many highly innovative companies that haven’t yet made it to the top ten but have great potential to become more successful in the future.
Now let’s take a closer look at the current market segmentation. Comparing the smartwatch market shares in the past two years, you can see that while Samsung’s market share went down from 34% in 2013 to 23% in 2014, it is still the market leader. As a company, Samsung has a huge global distribution power. Aimed at different market segments, Samsung has the great advantage of appealing to an enormous user base who will not only use it as a complement to their Android-based smartphones but some may even choose to get a smartwatch as a simpler and cheaper version of a smartphone. What’s more, Samsung was among the early adopters of this niche and has the advantage of being the first comer.
Their latest creation, Samsung Gear S, became Samsung’s sixth wearable device when it was presented to the public not so long ago at IFA Berlin in September 2014. Its killer advantage lies in connectivity: Gear S has its own USIM card and doesn’t require phone connection to make calls or send sms (it uses its own Bluetooth, wireless and 3G connectivity). Its voice activation capabilities are rather advanced as well: with a built-in microphone and a speaker you can use to look up your contacts, weather etc. Samsung’s existing products are very innovative and already have a wide audience of fans. Two Samsung models even made it to the list of the best smartwatches for 2015 on TechRadar.
Garmin, a company known for its know-how in heart rate monitoring and a pioneer in GPS technology, holds its share of 5-10% of the smartwatch market. A couple of years ago they started with a simple running watch (Forerunner) that had GPS and could be synchronised with your computer via Bluetooth. On top of that, with every new model came additional features: Garmin first added a compass, then integration with smartphones, call/text message notifications, calorie and sleep trackers and many others. Their latest model Garmin Vivoactive, which was presented at CES 2015, has strong GPS support and a high-resolution color touchscreen and is aimed at people who do lots of outdoor sports and need detailed activity tracking, but don’t want to wear a bulky GPS watch. Some call it “the first Garmin’s smartwatch you can wear with a suit”.
Image: Vivoactive by Garmin
In 2014 Motorola/Lenovo made it to second place with 10% of the market share. Moto 360, which was released in March 2014, become not only one of the best looking smartwatches out there but also the one that reminds us of a traditional wrist watch the most. With it’s round face, leather bands and silver/grey coloring, design became the company’s main competitive advantage. It supports all native Android Wear features including custom notification and voice activation and can work with any Android 4.3+ mobile devices. Currently, the company is focusing on developing charging features that would be simple and sustainable.
Image: Moto360 by Motorola
Pebble took the market by storm in 2012 and already in 2014 Pebble Steel was selected as one of the TOP 5 smartwatches of 2014 by the Smartwatch News. Its elegant design, water resistance and compatibility with both iOS and Android attracted many users and developers. Pebble didn’t stop there and early on their latest edition Pebble Time broke Kickstarter’s original record and raised its first million in just 49 minutes! Pebble Time pleasantly surprised us with the promise of 7 days of battery life and a new improved timeline that highlights your most important events during the day. So far Pebble has become the most active smartwatch platform in terms of developer interest. Nowadays Pebble’s appstore has over 1,000 published apps which go beyond traditional notifications and weather and include news, stock apps, transportation etc. This sets a new benchmark for smartwatch apps functionality. Earlier we published some in-depth research on Pebble smartwatches and apps, check it out on our blog.
Image: Pebble Steel, the smartwatch to wear in 2014
However, everything is about to change. Just yesterday, on March 9th, Apple finally unveiled Apple Watch to the public. Experts’ forecasts on the future Apple Watch market share vary tremendously (from 20-55% of the market). Neil Mawston, executive director at Strategy Analytics, who is very optimistic about Apple Watch’s future, says: “The Apple Watch is the catalyst to ignite the global smartwatch market. Apple’s famous brand, loyal fan base, deep retail presence and extensive apps ecosystem will ensure healthy uptake for its Watch.” At Strategy Analytics they also expect Apple to ship over 15 M units by the end of this year (just to remind you – in 2014 the overall smartwatch market volume was about 7 M units).
Apple Watch was developed to partner with the new iPhone 6, but will still be able to sync with earlier iPhones. What makes it different from any other smartwatch on the market is that it’s really personal. Tim Cook underscored this a couple of times in his presentation as well, stating that “it’s the most personal product we’ve ever made, because it’s the first one designed to be worn”. It comes in different sizes (male & female) and three different model types, which all have interchangeable watch bands and are designed to be incredibly personal. Interface can be customised based on your preferences, and new communication options (such as sending a tap, a sketch, or even your heartbeat) make it indeed personal.
Image: Apple Watch, the most personal smartwatch
It’s important to understand that Apple Watch is not just another smartwatch in the wearable-device market. As a device, it has breakthrough functions that others failed to deliver, it is aimed at a wider audience unlike very focused wellness and sport offerings from the competitors (Garmin, Fitbit, Polar), and it has finally closed the gap in style, the gap that kept away the mainstream consumers. The Apple ecosystem and retail presence all over the world, of course, makes it much easier to get the product on the shelves and to the people. Apple Watch sales will launch on April 24th, so we’ll have some fresh data to think about in a month.
However, all of the above doesn’t mean that Apple Watch will kick its competitors out of the market completely. Other manufacturers – such as Samsung, LG, Motorola and Sony – will eventually also benefit from the increased interest in smartwatches and growing trust in smartwatches as smart wearable devices.
Smartwatches are here, but what do consumers really want?
In October 2014 Business Insider shared their survey results from earlier in the year on consumers interest in purchasing a smartwatch. As you can see from the survey, half the respondents were not sure if they even needed a smartwatch. Altogether about 15% of the respondents were concerned with the price and hesitated about the purchase, and indeed high-end smartwatches accounted for approximately 90% of the overall market share in the recent year.
According to another survey conducted by Analysys Mason in various geographical regions, 30% of US consumers expressed interest in purchasing a smartwatch in 2015, compared to 27% in the UK and 28% in Spain. Looks like marketers need to put a lot of efforts in to raising consumer awareness about smartwatch benefits, whereas manufacturers need to find a way to make their products more affordable for the mass market.
Bear in mind that the survey took place almost half a year ago and it was before the Apple Watch was announced. Yet market growth is still restrainted by the smartwatches’ limited battery life and various privacy concerns (user-related data are available in the cloud and might be misused). Luckily, with the latest smartwatch models released by various manufacturers at least the design issue has been solved and most smartwatches already look much more attractive and even slick.
Cost remains a big question for consumers too. Even though the average selling price is predicted to steadily decline (mainly due to increasing competition and a big number of market entrants), it will still remain over 200 USD for the next couple years. Only growing R&D and commercialisation will allow high-end brands to offer mid- and low-priced products on the market.
In spite of improving design and advanced features, the biggest question remains – what true value do smartwatches really bring to the end users? So far health and fitness have been the key smartwatch applications used by consumers who need real-time tracking and a summary of their daily activities. No wonder that the biggest growth is expected from health-conscious youth who want to embrace a healthier lifestyle.
Personal assistance (context-aware management of your calendar, tasks and information needs) together with a number of corporate solutions for simpler & more efficient business processes lead the way in the productivity category. Smart notifications are a very important part of the product’s functionality as the number of messages we receive every day is increasing and smartphone screens are becoming larger. Business people striving to be more effective in their activities are the second largest segment for growth. Personal safety (prevention of emergencies, auto-detection and instant support) is an emerging field where smartwatches can become very helpful. I am sure new app categories including entertainment, of course, will enter the picture as the marketers strengthen user awareness and generate higher demand among consumers.
All of this is just the tip of the iceberg and currently over 30,000 software developers are already building new smartwatch apps. Smartwatch app developers are currently going through the same things we went through with iOS and Android app development trying to figure out the most important features in the product and the best ways to utilise them.
At the end of the day we can say that the smartwatch market has reached a significant momentum due to the entry of several major players in the market, heavy investments in R&D and continuous innovation. Top players such as Apple, Samsung, Sony and Pebble are counting big time on their R&D to maximise the respective market shares. In general, the wearable device market is predicted to grow and reach up to 148 M units shipped in 2019, and smartwatches will constitute the largest share of wearables growing to almost 80% of the market just in four years.
At the same time smartphone manufacturers are customising their operating systems for use in wearable devices. Even though there are a number of key players in the market at the moment, analysts foresee that in the long run the market will be split by the two leaders in the smartphone market – Apple and Google (combining over 90% of the entire mobile platform market) – who will carry on with the leadership in the smartwatch market as well. It’s going to be exciting to go back to these forecasts in the course of a year and find out which ones were fulfilled.
March 11, 2015