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The smartwatch market has already peaked and the outlook is bleakThe smartwatch market has already peaked and the outlook is bleak

What’s the point of a smartwatch? That’s the question the device industry has totally failed to adequately answer, which is why sales and new launches have stalled.

Scott Bicheno

September 15, 2016

5 Min Read
The smartwatch market has already peaked and the outlook is bleak

What’s the point of a smartwatch? That’s the question the device industry has totally failed to adequately answer, which is why sales and new launches have stalled.

Gadget site cnet reports that LG, Huawei can’t be bothered to launch new smartwatches ahead of the crucial holiday season because they just can’t see the point. Elsewhere market leaders Apple and Samsung are so embarrassed about their inability to do anything profound with the category that they mentioned their latest efforts as afterthoughts at the end of smartphone launch events.

As soon as smartphone sales started to slow down a few years ago the devices industry was desperate for a new category to take its place. Tablets did the job for a bit, but replacement cycles are far longer for them so that didn’t last long. Hopes soon turned to wearables, which had been steadily growing in the form of fitness bands and health monitors but looked set to explode once the big players got involved in smartwatches.

Samsung launched its first smartwatch back in 2013, but had to give them away with smartphones to shift any inventory. Apple got involved a couple of years later but failed to make a compelling case for shelling out a few hundred quid for a glorified wrist-mounted pager. Both companies recently refreshed their smartwatch offerings but aside from upgraded components it was more of the same.

The challenge is intrinsic to the category: what is the point of the smartwatch? Without a modem it’s a smartphone accessory that mainly serves to reproduce s small amount of your smartphone functionality onto your wrist via a tiny screen. It essentially solves the massive first-world-problem of having to put your hand in your pocket to use your smartphone and there’s only so much people are willing to pay for that.

Stick a modem into one and you’ve got a tiny, wrist-mounted smartphone. The best of both worlds, smartwatch product managers would no doubt argue; all the fun of a smartphone without all that pocket hassle. In reality you have a screen that’s far too small to either engage with or consume content through, while compelling the user to undergo humiliating contortions in order to make a phone call.

Apple tried the fashion angle with its first smartwatch but went big on health and fitness with the sequel. This is probably correct and represents the one area wearables offer unique value, but with the Apple Watch 2 starting at £369 and going up into the thousands, that’s a lot to pay just to know how many steps you took today.

IDC has just announced its smartwatch forecast for the year and reckons total global shipments will only grow by 3.9%. Even that is an improvement on the numbers it shared a quarter ago, which showed a 32% decline thanks to a massive slowdown in Apple Watch shipments. For IDC’s forecast to be proved accurate Apple will have to see a greater lift from the new version than its new features deserve. Furthermore, IDC is optimistic things will pick up over the next few years.

“To date, smartwatches have remained in the realm of brand loyalists and tech cognoscenti, but we expect that to change over the next few years,” said IDC’s Ramon Llamas. “First, smartwatches will look and feel like traditional watches, appealing to those who put a premium and design and style. Second, once the smartwatches get cellular connectivity, they’ll disconnect from the smartphone, making them more useful. Third, smartwatch applications will build on this cellular connection, and connect with other devices within the home and at work. Finally, smartwatch prices will come down, making them more affordable to a broader market.”

Neil Mawston of Strategy Analytics was less bullish when approached by Telecoms.com. “It is clear the smartwatch industry needs a rethink. The smartwatch industry is not so smart as it thinks it is. Smartwatch manufacturers need slicker designs to wow consumers, lower prices to attract the mass-market, better apps to drive usage, and deeper distribution channels at operators, e-tailers and watch retailers to showcase their enhanced models.”

He does point out, however, that Rome wasn’t built in a day. “It is not unusual for first-generation products to struggle,” said Mawston. “Smartphones, for example, took the best part of a decade to take off from their initial launches in the 1990s. The first pen-tablets in the early-2000s sank without trace, before rising again in the 2010s.

“Smartwatches have grown from under 1% share of the global wristwatch market in 2014 to over 2% in 2016. Apple has risen from nowhere to become the world’s 2nd largest wristwatch vendor by revenue in less than a year. Apple alone will generate at least US$4 billion of revenue from smartwatches this year, up from nothing two years ago. Smartwatches continue to nibble away at the traditional watch market. Rolex, Fossil and others remain worried about Apple and Samsung.”

Recommendations to improve functionality and design are, of course, laudable, but probably won’t be enough. The total available market of people willing to drop hundreds of pounds on a watch is relatively small and there is still a lot of classic appeal in the trusty old mechanical ones. Until the industry comes out with a killer use-case – and that might never happen – it will probably take a price point in double figures to kick-start shipment growth again.

About the Author(s)

Scott Bicheno

As the Editorial Director of Telecoms.com, Scott oversees all editorial activity on the site and also manages the Telecoms.com Intelligence arm, which focuses on analysis and bespoke content.
Scott has been covering the mobile phone and broader technology industries for over ten years. Prior to Telecoms.com Scott was the primary smartphone specialist at industry analyst Strategy Analytics’. Before that Scott was a technology journalist, covering the PC and telecoms sectors from a business perspective.
Follow him @scottbicheno

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