Smart Watches: Where they stand and where they’re going

A misleading misnomer:

If you’ve been paying any attention to the tech blogosphere over the past few months, a steadily increasing drumbeat of media exposure in the run up to the Apple Watch is perking ears and generating editorial opinion of all kinds. “Wearables” have become the neologism of choice and many column inches have been devoted to exploring the possibilities (or lack thereof) that these devices potentially offer.

A crucial point much of this commentary misses is that the term itself is something of a misnomer. The range of hardware included under the “wearable” umbrella includes both head-tracking, VR displays which will primarily find utility with video games (think the Oculus Rift), to digital wristwatches which aim to replicate smartphone functionality with a smaller form-factor, beginning with the Samsung Galaxy Gear and with Apple following suite.

These devices couldn’t be more different in what they’re attempting to do, in fact, they don’t sit in direct competition with each other in any noticeable way.

Moreover, the Oculus Rift, the device that sparked a succession of VR/AR announcements from established companies, has received a much rosier reception from analysts, who expect it and its competitors to redefine interactive entertainment over the coming decades.

The future of smart watches by contrast is decidedly more opaque. With the Pebble Kickstarter (the first in the new generation of smart watches) successful, but the overall market size of total devices sold remains fairly small at around 8 or 9 million.

So for clarity, we’ll be looking at the potential successes and pitfalls of the smart watch in a little more detail.

A Brief History of the Digital Wristwatch

Both conceptually and in terms of working hardware, interactive digital watches have existed for decades.

With the rise of digital wristwatches in the 1980s, we were given some insight into their potential uses, ranging from basic functionality like calculators, to Seiko-branded wristwatch “computers” which offered very basic syncing with desktop devices. By far the most important device however was Timex’s Datalink, released in 1994. Marketed as an enterprise device, the Datalink included wireless connectivity functionality to PCs, allowing users to communicate with Microsoft Schedule+.

Alongside all of this, were a wide variety of consumer-orientated devices, many of which will probably be familiar to the discerning novelty consumer reading this. These range from watches with infrared sensors and universal remote capabilities, to attempts at recreating scientific calculators.

Because of this and because of their replication of existing smartphone functionality, there’s little about the Pebble, the Apple Watch and Android Wear devices that could honestly be called “ground breaking”. Indeed, device manufacturers themselves tacitly acknowledge as much (most of the marketing for the Gear was as a complementary product to Samsung’s smartphones).

So why the renewed interest in feature-rich watches? The first target for manufacturers is to make them a necessary complementary item for most smartphone users. The more enthusiastic hope is that they will help usher in an entirely new form factor for consumer electronic devices, replicating the disruptive impact of the iPod, iPhone and iPad.

As an aside, a lot of this sort of thinking has to be understood in the context of the post-iPad/iPhone world, where electronics companies hedge big on products which fuses both ergonomic design and hardware. Underlying this approach is a hope that the initial success of the iPhone and iPad can be paid off in a new type of device, which is just so convenient that everyone with a smartphone has to own one.

The question one must ask as a result, is whether smart watches can impact the market in the same way.

Where do they stand now?

One litmus test of assessing the success of smart watches would be how well the Gear and other Android Wear (Google’s version of Android for smart watches) have performed in the marketplace since their release in late 2013. With the exception of the crowd-funded Pebble, these are the first real mass market, mobile-age smart watches.

Thus far, the numbers could best be described as “fairly good”. A total of two million smart watches were sold in 2013, most of which were Samsung Galaxy Gear devices and other Android Wear devices – this was followed by a total of 6.8 million sold in 2014. Worrying for Samsung are the concerns about the quality of the device itself, as it reportedly has a return rate of 30% according to US retailers BestBuy.

Recently, Samsung has decided to divest itself from Android Wear and concentrate, probably because of increasing financial difficulties across Samsung Group as a whole, on wearables which use their own OS developed with Intel, Tizen. This proprietary shift from the big Asian device-makers, something we spoke about back in 2014, seems to be part of a broader trend now, with both LG and HTC pursuing similar native OS options for their own watch ranges.

In light of the poor market reception for the Gear, many commentators have stated that it’s aforementioned hardware issues, mean it is a poor weathervane from which to divine the future of Smart Watches as a whole, identifying inherent issues with the Gear, such as bulky screens and proprietary wristbands – problems that the Apple Watch will presumably avoid.

What’s the future of the Smart Watch?

The future of the smart watch rests on two contingent elements; firstly, the things it can do that a smartphone cannot and secondly, the things it can do that a smartphone can but in a relatively unobtrusive way. This is because the initial success of the smart watch depends on its ability to successfully market itself as a complementary item, while its future success rests on its ability to break away from the complementary product sector and become a must-have product unto itself.

One smart watch-specific feature is the ability to directly interface with the user’s body, in terms of heart rate and other elements.

Fitness-specific apps were well marketed alongside the Gear when it was launched in East Asia. Fitness is big, big business wherever you are in the developed world, and early smart watch success depends on how well it can absorb a part of the already large fitness wearables market. Looking more towards the future, a smart watch’s ability to leverage NFC functionality, particularly when it comes to secure ways of paying in retail stores, will in no small part determine how effectively smart watches can become stand-alone products.

Moving on to the second contingent point. What we mean by more “unobtrusive functionality” are things that ostensibly appear quite insignificant – viewing notifications and messages more easily (and more discretely) rather than pulling a phone out of your pocket is the most commonly referenced example.

In spite of how minor these things seem, when taken as a whole they could represent enough of a convenience dividend for the average person to justify the investment. In today’s saturated electronics marketplace, any innovative product or feature that represents a marginal gain in intuitiveness or ease of use for the end user, is an advantage to be marketed relentlessly.

One important figure to bear in mind is that the tripling of smart watch devices shipped in 2014, as compared to 2013, was accompanied by a 16% drop in average unit price sold, at $189. Crucially, this gives us some insight into the average price the mass market consumer is willing to pay for a smart watch. By comparison, today’s average smartphone selling price stands at just $136 in 2014, but this is after a decade of depreciation. The fact an already comparatively tiny smart watch market has depreciated to a sub-$200 average price point after two years is telling.

Another intriguing question that yet remains unanswered is the so-called “obsolescence question” of smart watches. So far, Samsung have adopted something of a shotgun approach, releasing multiple models with new annual versions. The extent to which old watches will become obsolete with new releases is something currently unknown, but it’s unlikely that consumers are prepared to upgrade watches with the same frequency they currently upgrade smartphones.

Does the smart watch have an addressable market that needs to be serviced? Yes. This much is undoubted, but analysts such as BusinessInsider’s, who estimate 100 million smart watch sales by 2018, as well as others that predict a smart watch paired with every smart phone by a certain date, are probably somewhat too optimistic.

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