The Future of Smartwatches

By Rushil Patel ’18

smartwatch-comparison-2014

Over the past two weeks, buzz around the smartwatch has reached an all-time high. With the Apple Watch set to release in just over a month and TAG Heuer announcing its upcoming smartwatch collaboration with Google and Intel, the future of the wearables market has been thrust into the spotlight. With both bears and bulls making their cases, now is a good time to analyze how this relatively new industry will fare in the long term.

In terms of size, the smartwatch market is still in its infancy. In 2014, a total of 89 companies sold 6.8 million smartwatches across the world. The only recognizable name among these companies was Samsung, accounting for about 1.2 million of these sales. With tech giants Apple and Google set to release smartwatches of their own this year, the market is projected to grow at a compound annual rate between 35% and 41% over the next five years. To put the sheer size of this estimate into perspective, the smartphone market has grown at a compound annual rate of 24.9% since the beginning of the mobile boom in the late 2000s.

In order to reach such lofty predictions of growth, Apple and Google will need to drive majority of smartwatch sales. However, this seems unlikely considering the target market and price ranges of their respective watches. The most basic model of the Apple Watch will retail at $549, nearly three times higher than the industry average of $189. TAG Heuer, on the other hand, has not released pricing details on their Google smartwatch, but the average TAG Heuer watch runs at about $5,000. By implementing these prices, both companies are clearly aiming to brand their smartwatches as luxurious and sell them to the most affluent portion of the population. With smartwatch users predominantly falling into the wealthiest quartile of 25- to 34-year-old men, however, this strategy will place a ceiling on the industry’s growth. Instead of moving away from the already established narrow target market and trying to popularize the smartwatch in a larger segment of the population, the two companies that are supposed to catalyze smartwatch growth in the coming years look to be doing the exact opposite. As long as the smartwatch remains a niche product without an expanding consumer base, the market will fail to reach the projected growth rate.

Beyond consumer and target market issues, the other main concerns with the smartwatch lie in the battery and hardware. Since normal watches and smartwatches are vying for the same wrist real estate, consumers will naturally compare them. As a result, one major flaw that arises in the smartwatch is the need to charge the battery. While a normal watch can run on a single battery for months or even years, smartwatches in the market today need to be charged every one or two days on average. Additionally, a factor often overlooked by smartwatch manufacturers is the use of a watch as a fashion accessory and an indication of style. In a study conducted by Business Insider, one of the top five reasons people do not buy smartwatches is because they are too “clunky” or “ugly.” Therefore, as battery technology improves and smartwatch manufacturers, like Apple and TAG Heuer, begin to improve the appearance of the hardware, the industry could achieve high levels of success.

Overall, the predicted growth rate of the smartwatch market in the next half decade is quite lofty and depends too heavily on the success of the Apple Watch and smartwatch announced by TAG Heuer, Google, and Intel. Although these tech giants are making headway in improving the hardware of smartwatches, they are doing so at the cost of the industry’s growth potential by limiting themselves to a narrow consumer base. As the smartwatch buzz begins to wear off, it will be interesting to see how product sales live up to the hype.

Sources:

http://www.businessinsider.com/the-wearable-computing-market-report-2014-10

http://www.nytimes.com/2015/03/22/style/tag-heuer-smartwatch-is-the-talk-of-baselworld.html

http://www.statista.com/chart/3290/samsung-leads-the-smartwatch-market/

http://www.bloomberg.com/news/articles/2015-01-08/does-anyone-really-want-a-smart-watch

http://www.telecompaper.com/news/smartphone-market-to-show-25-cagr-to-2017–871027

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