The Smartwatch Market: Today and Tomorrow

Having rocked the startup world two years ago with their super successful crowd funding campaign on Kickstarter, Pebble quickly became a #1 choice among smart bands for consumers and created some serious competition for the market giants in wearables such as Apple, Google,Samsung and Amazon. Nowadays Pebble is one and the most successful smart watch producers with $43 million in revenue last year, hoping to double it this year. So far Pebble is also considered to be one of the most successful startups of the Silicon Valley, as they managed to get to the top with only about $25 million in venture funding and 100 employees.

After smartphones, smart watches and smart bands are leading the way in tech world being the most popular wearable devices sold. According to the 2013 data, Pebble sales increased to almost 20% of the market which equaled to about 400k units sold. However, the sales picked up even faster at the end of the year and already in the first quarter of 2014. With the launch of Pebble Steel and Pebble appstore, they became the top selling wearable smart band of the year. According to Canalys report, Pebble has just captured 35% of the smartwatch market pushing back big brands like Sony and Samsung with less than 30% each.

This is a big victory for the Pebble team, however, it’s not the end of the war. Google has big plans on invading the wearable ecosystem as a whole and Apple iWatch is just about to come out. So, the stakes are high. However, Eric Migicovsky, Pebble CEO, isn’t threatened by the competitors. In one of his interviews Eric said: “It’s exciting to see this market grow so quickly – enabling more interesting use cases and keeping all of us laser-focused on creating the very best user experiences we can.”

Why Pebble?

There are a couple of things that made Pebble stand out among others. First of all, it’s a compatibility with both iOS and Android devices which helped Pebble conquer the market by storm. Along with many good tech and design choices (waterproof, stainless steel body, a battery friendly E-ink Display, low energy Bluetooth 4.0 connectivity, long battery life from 5-7 days etc), Pebble keeps building up a large community of app developers. Smart watches are rather new yet very appealing playground for adventurous developers and marketers. So, their number as well as the number of Pebble apps available is constantly growing. “We’re working to get the software and the developer experience up to par so the people can build really interesting and compelling apps,” said Eric Migicovsky in his interview to Forbes.

All of this sounds very enticing. However, if you boil it down, what do smart watches really do? For now it’s a kind of geeky device for alerts/notifications with some fitness features. There are a lot of cool and good- to-have features, but to be fare, quoting NPD Executive Director & Analyst Ben Arnold, “this is still a product that’s looking for a problem to solve”.

Obviously, business, fitness and managing your music will stay among the most widely use categories for smart watches. Handling voice commands might probably be the next challenge. At the last Google IO, the company proudly announce a few nifty features for Google wear including voice dictations. Well, both Google Now and Apple Siri use speech recognition software and can respond to spoken queries which might play a big role in future smart watches, whereas Pebble handles only voice commands which are coming through the smartphone apps.

What’s next?

While developers are still figuring out how to benefit from smart technology and users are just getting used to it, experts forecast huge growth for the smart watch market in the upcoming years. “The smart watch market is poised to continue to grow in 2014” said Ben Arnold from NPD. “With nearly $100 million in US sales in less than a year, the category is off to a promising start with just two major brands.” To be precise, GigaOm report stated: “Estimates the global market for wearables in health and fitness could reach 170 million devices by 2017.”

A mass-market for smart watch to address is huge. For now it’s comprised of mostly tech-savvy users, but actually, it could be the next gadget after release of smartphones that can become a a ubiquitous consumer product – an Internet-connected wristwatch. First of all, according o the consumer surveys, a slight majority of the U.S. and global populations still wear a watch, around 55%. So, the whole idea of having an Internet-connected watch is not as alien for an average consumer as the concept of Google Glass. Another consumer survey found that 20% of buyers are interested in purchasing a smart watch, with younger consumers showing the most interest. Among 16- to 24-year-olds, 30% said they are interested in buying a smart watch, while 25% of 25- to 34-year-olds reported interest.

In the future, experts predict a merger between smart watches and smart bands as well as a high level of adoption of smart wrist devices overalls. Indeed at least one in 20 smartphones will be paired in some way with smart watches. Pairing with a smartphone is simply a must completing the existing smart watch features.

Another field for improvement is battery life, which is a common pain point for all wearables. Smart watches are and going to be highly used for sleep tracking and health monitoring, so they’d better run 24/7 for as long as possible. Charging is always an obstacle in this process, so perhaps using kinetic energy might be the answer for the future.
Including NFC is a big questions. However, when it happens, this will definitely be a break through as smart watches will be used for contract less payments. Sony has already made first steps in this direction, others are to follow.

Smart watches are also expected to progress not only in features, but also in style. For now most of the smart watch models led by Pebble have a sporty-geeky look, whereas there is a big cluster of consumers that are waiting for a more sophisticated sleek wrist watch.

Of course, with other brands entering the market with their own models, the market share and and benchmarks might change. Especially, we should focus on Google’s and Apple’s steps in the smart watch market as they both already have an ecosystem and app developers and that can build on the functionality and features for the new gadgets. Apple’s unannounced iWatch is the biggest intrigue at this point.

However, again Pebble’s CEO Eric is very enthusiastic about his product and is sure they are going to succeed: “There’s a ton of hardware inside Pebble. We future proofed it.” Who is going to be the winner in the smart watch battle, remains to be seen.

July 1, 2014