Smartwatch: The Product We Thought That Was Doomed to Fail

Seldom mainstream thought Apple Watch was going to succeed, yet here we are today looking at their success.

Back in 2015, when Apple announced its release of Apple Watch Series 1, doubts and criticisms on the big medias were all around over Apple’s choice of entering the wearable technology industry. When the sales number didn’t go as predicted after a couple of months of the release, Apple Watches were pictured as flopping because they were not powerful or fashionable enough and was “not for everyone” [1]. However, it started to show its potential in 2017 and became not only the most popular smartwatch but also the most popular watch in the world [2].

Apple Watch Sales Exceeded the Switzerland Watch Sales [3]

Smartwatch Industry

What value do the smartwatches create?

For Consumers:

  • Checking time in dark. Yes, this has not been an issue for a long time since we had cell phones. However, a smartwatch is still a watch. It allows people to check time in dark without being too disturbing for the others compared to checking on phones.
  • Activity Tracking. Smartwatches have the full capability to substitute the fitness wristbands. With the increasing awareness of healthy life style, smartwatches connect personal data to their smartphones more seamlessly compared to the original wristbands. Also, compared to smartphones, the wearable devices track activities more accurately.
  • Notifications that further “addict” people to their phones. Once the smartwatch is connected to a phone, people can get alerted whenever they get a new phone call, message, or reminder. This feature helps people to not miss anything from their phones any more.
  • Making phone calls. Since the addition of LTE to the smartwatches, they are now standalone devices that can be used apart from the cell phones. This increased the flexibility of people using the devices.
  • More complicated features. Smartwatches can also be used to perform many other activities compared to digital wristbands, such as navigation, find my phone, and contactless payments, etc. [4]
  • Tech-savvy Fashion. Usage of wearable technologies could show a person’s openness to new technologies and build a tech-savvy image.

For businesses:

  • Additional and more accurate personal data. The wearable devices get businesses access to even more personal data with the devices attached to consumers.
  • Creates loyalties to operating systems. The smartwatches, although could be used as standalone devices, are still more powerful being synced with the smartphones. Having single operating systems on the watches in return keeps consumers staying with their original phone brands or systems.

 

How do companies capture the value?

The biggest value of the smartwatches is unarguably the sales revenue. The most popular brands’ smartwatches price ranges from $150 to over $1000 depending on the feature consumers choose. Beyond the revenue, taking Apple as an example, the ecosystem of the connected devices they are creating explains their success [5]. By expanding the business to smartwatches, they further retain the loyalties of the customers and create more sales of the other products.

 

Major Players

The Winner

And the award of leading the growth of smartwatch industry goes to… Apple! The release of the most popular smartwatch Apple Watch Series 1 “officially” introduced consumers to the wearable technology with more Apps linked to smartphones. Like the 4G technology, it appears that whoever took the first stab to get into the market dominated it. Although there was a slight slide on the sales in 2018, Apple still held 41 percentage of the market share [6].

 

Global Smartwatch Market Share by Platform [6]

Not only Apple proved their decision right, they also created a new global market that is predicted to be increasing by 36% over 2018-2024 [7]. On a side note, smartwatches seem to be their first step into the wearable technology. AirPods followed as the second. Together the wearables had achieved a revenue of more than $10 billion from Q2 2017 to Q2 2018 [8].

 

The Catching-Ups

Certainly, Apple is not the one and only winner in the smartwatch market. They pioneered but the others are catching up quickly as well. Since the debut of Apple Watch, Fitbit, Xiaomi, Garmin, Samsung, and Fossil have also joined the market and are contributing to 74% of the total market share along with Apple [9].

 

Out of the big 6 players above, Fitbit, Xiaomi, and Garmin were already leading the fitness tracker sales in different regions before Apple launched its watches. In 2017, the two major players accounting for 80% of the total sales in the fitness tracker market, Fitbit and Xiaomi, were under a huge impact and had a drop on sales of their fitness trackers for 18% in total [9]. It is a good sign though, that Versa, the smartwatch of Fitbit, was catching up in the smartwatch industry and increased their market share from 8% to 21% from Q2 2017 to Q2 2018 [10]. These wearable technology companies were strong enough to upgrade their activity trackers into a full version of smartwatches and are revealing their potential on catching up with the market.

 

The Loser(s)

The industry that worries the most by smartwatches is probably the traditional watch industry. Although it is difficult to extinct mechanical watches, the industry has been hit the second time since the prevalence of smartphones. The smartwatches have made the sales of watches under 3,000CHF stagnant and are slowly reducing their sales of the luxury ones as well [3]. 2017 was the year that Chinese market became strong again and rebooted the Swiss watch industry by 2.7% [11]. However, if the Swiss watch factories do not catch up quickly enough in the digital market, it is hard to imagine how many will survive along the time when the digitalizing trend continues.

 

Export Value of Swiss Watches from 2000 to 2016 [3]

People could argue that Google is lagging behind with their lack of commitment in the Android system wearable devices [9]. Nonetheless, with Samsung being the largest Android system player and Google’s main business being advertisements, the impact of the smartwatches would not be nearly as significant compared to the traditional watch industry.

 

Conclusion and Future Outlook

Apple has long been good at creating new markets that drives the slow adapters out. Firstly iPhone, and now the wearables. They proved their success in creating the smartwatches, opened up the wearable technology market, and has already made the second move on AirPods. The future looks bright from Apple’s market entry of the wearables, but they also need to watch out for the rapid catching-ups, such as Fitbit and Samsung. Other than that, it is still exciting to be looking forward to the debut of their next wearable product after the AirPods and see how Apple surprise us once again.

 

 

[1]”Why The Apple Watch Is Flopping”, Fast Company, 2019. [Online]. Available: https://www.fastcompany.com/3048375/why-the-apple-watch-is-flopping. [Accessed: 03- Mar- 2019].

[2]”From top secret to best seller: the story of the Apple Watch”, AppleInsider, 2019. [Online]. Available: https://appleinsider.com/articles/18/09/09/from-top-secret-to-best-seller-the-story-of-the-apple-watch. [Accessed: 03- Mar- 2019].

[3]”Apple and Android are destroying the Swiss Watch industry”, TechCrunch, 2019. [Online]. Available: https://techcrunch.com/2018/02/13/apple-and-android-are-destroying-the-swiss-watch-industry/. [Accessed: 03- Mar- 2019].

[4]”What are the Benefits of a Smartwatch? – Smartwatch Labs”, Smartwatch Labs, 2019. [Online]. Available: https://smartwatchlabs.com/what-are-the-benefits-of-a-smartwatch/. [Accessed: 03- Mar- 2019].

[5]T. Haselton, “Here’s why people keep buying Apple products”, CNBC, 2019. [Online]. Available: https://www.cnbc.com/2017/05/01/why-people-keep-buying-apple-products.html. [Accessed: 03- Mar- 2019].

[6]N. Swanner, “Fitbit Leads Smartwatch Growth Trend While Apple Dominates”, Dice Insights, 2019. [Online]. Available: https://insights.dice.com/2018/10/19/fitbit-apple-watch-smartwatch-shipments/. [Accessed: 03- Mar- 2019].

[7]B. WIRE, “Global Smartwatch Market Analysis, Trends, Size and Forecast to 2024 – Growing Awareness of Personal Health & Fitness in People – ResearchAndMarkets.com”, Businesswire.com, 2019. [Online]. Available: https://www.businesswire.com/news/home/20181212005615/en/Global-Smartwatch-Market-Analysis-Trends-Size-Forecast. [Accessed: 03- Mar- 2019].

[8]B. Mayo and B. Mayo, “Apple wearables revenue rises 60 percent, tops $10bn sales over last four quarters”, 9to5Mac, 2019. [Online]. Available: https://9to5mac.com/2018/07/31/apple-wearables-revenue-rises-60-percent-tops-10bn-sales-over-last-four-quarters/. [Accessed: 03- Mar- 2019].

[9]”Smartwatch Popularity Booms With Fitness Trackers On The Slide”, Forbes.com, 2019. [Online]. Available: https://www.forbes.com/sites/paullamkin/2018/02/22/smartwatch-popularity-booms-with-fitness-trackers-on-the-slide/#223d7b7d7d96. [Accessed: 03- Mar- 2019].

[10]”Global Smartwatch Shipments Grew 37%YoY in Q2 2018, Apple Watch Series 1 the Most Popular Model – Counterpoint Research”, Counterpoint Research, 2019. [Online]. Available: https://www.counterpointresearch.com/global-smartwatch-shipments-grew-37yoy-q2-2018/. [Accessed: 03- Mar- 2019].

[11]”Business News: The Swiss Watch Industry Shows Positive Signs In 2017 Year-End Data – HODINKEE”, HODINKEE, 2019. [Online]. Available: https://www.hodinkee.com/articles/swiss-watch-industry-2017-year-end-data-positive-signs. [Accessed: 03- Mar- 2019].

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21 thoughts on “Smartwatch: The Product We Thought That Was Doomed to Fail

  1. Very interesting and actually surprising.
    I thought that the smartwatch market was long doomed, but this article clearly shows that, although it took a while, wearable tech is definitely taking off. I assume that the reason adaption rate has been low is because the value added is not significant compared to a smartphones we all use anyway (that is checking time in dark, activity tracking, making phone calls). I feel that in order for the market to boom smartwatch manufactures will need a- more complicated/compelling features that differentiate smartwatches from smartphones, and b- increase battery life/waterproof so it would be easy to use as a necessity.

    1. I agree! I think the initial criticism also came from that the smartwatches are not even as powerful as smartphones while being priced so highly compared to fitness trackers and traditional watches. However, somehow Apple managed to train the consumers to accept the prices they charge for smartwatches and began accepting this new wearable. This also makes me think that maybe Fitbit acquired so much market share because of their price positioning being $100 lower than the most basic Apple Watch. One thing I was thinking about that limits companies like Fitbit and Xiaomi is they rely on connecting their devices to smartphones, while the operating systems are controlled by Apple (iOS) and Google (Android). It’d be interesting to see how Apple or Fitbit make their next move. Thanks for the comment!

  2. Great post, I assume Apple has been the winner due to the network effects and value created through various integrated products and software. An interesting perspective is that though Swiss watches are being disrupted, they now serve a different purpose; a niche market focussed luxury fashion accessory or as art. Hence, though the value creation may decrease due to smart watches, the value capture remains high with high margins. The watchmakers don’t see value in high volume, low margin digital watch and is why despite mechanical watches being irrelevant since a few decades now, have survived and even thrived.

    To your point, there is also the underlying trend of who the customer is. The typical consumer has become older and has been replaced by Millennials, who don’t see much point in wearing a watch. Additionally, even if one leaves aside digital innovation, Swiss watch makers have not added any mechanical or aesthetic novelty to the watch with time.

    Thanks for your post Ge Li!

  3. You are absolutely correct that the Swiss watches still have their true “cash cow” business holding up the company revenues [3]. Although they are losing the low margin businesses, if they could keep the luxury niche, they could still survive the digital trend. Then to your second point, I also agree that the less Millennials value the mechanical watches. Great thought if the Swiss match makers don’t add further values, they might eventually phase out. In addition to your analysis, my real concern is that the Swiss watches are losing their high-end market as well due to various reasons. They definitely need to make some stronger moves to maintain their most profitable business. It’d be interesting looking at how things would go forward. Thanks for your comment!

  4. Interesting post Ge! Quite an unexpected insight. Although the numbers presented clearly support the argument that smartwatch industry is growing I wonder if the growth is due to the ‘real’ added value or because of the status / ‘tech-savvyness’ label you enjoy when you own a cool smartwatch as you mentioned in one of your points. Despite being so highly priced, I feel the perceived value of these watches is even higher and usually get compared to owing a luxury traditional watch – which is even more expensive which makes it a product of desire. As a user of apple watch, I struggle to find tangible value in the product, rather feel it as an extension of features from pocket (phone) to wrist. Moreover, the low battery life (as touched upon by NR) leads to frequent charging that makes it unavailable for you when you just need to grab it and get out of the house. I second the comment as mentoned by others that smartwatches definitely need new innovative features (tracking health is one good attempt) to sustain the growth beyond just marketing and branding.

    1. Thanks Gaurav! As we discussed today, yes I totally agree the real value-adds of smartwatches have not been that significant compared to our smartphones and the smartwatch makers would want to continue improve the feature to create value. I was more comparing it to the fitness trackers as the smartwatches are definitely more powerful and the prices are not that different for the basic versions. Further to that, I’m interested in seeing the trend of the wearable markets, which I think would be growing over the next few year. Great thoughts and thanks for the comment!

  5. Great post! I am really interested to see where the wearable tech industry, including smartwatches, goes over the next decade! I think watches will only be one part of the smart connected products that we begin to wear on a daily basis, and as their abilities advance, we will rely on their capabilities more and more!

    1. I like your positivity on the outlook of the market! Thanks for the comment!

  6. Very interesting article. Based on Apple v Swiss watch sales, it looks like Swiss watch sales are holding steady. Perhaps the watch category taking the largest hit is the mid-market watches? Or fitness bands (that can somewhat be replaced by a smartwatch).

    1. Yes, I definitely agree that the fitness bands were hit harder than the watches and smartwatches are mainly eating up the low to mid-market watches. My take for the Swiss watches is that there are multiple factors that decreased their sales over the past few years but they are not making big enough move to catch up with the market. However, I totally agree with your points. Thanks for the comment!

  7. Great post, Ge! I’m curious what will happen as the wearables space continues to develop. I personally believe that the Apple watch is only a temporary wearable solution and that the future is more seamless devices like AR glasses (see article below). As those come into play and the Apple watch disappears do you think conventional watches will return as fashion accessories? I don’t foresee them returning to their previous strength but could potentially see an improving outlook for the “losers”.

    https://www.wired.com/story/google-glass-predicted-the-future/

    1. Thanks Maren! I do also see the conventional watches would continue as fashion accessories on the luxury end. Maybe not the mid to low-end market though since I’ve seen a few fashion brands making good look smartwatches as accessories and compared to them, I think the mid-market conventional watches are not as attractive.

      I like your vision on the seamless devices and think they would eventually replace the wearable solutions. Took a look at the article you found and I’m interested in seeing how the seamless devices develop. The example of google glass used in the article I think may not be a good representative since it’s not a very successful product, but still I like that thought!

  8. Nice post, Ge! one of the company that I would mention when talking about smartwatch is Pebble. They were trying to be innovative and put the smartwatch image in a different direction, sadly they failed to thrive and eventually collapsed (with intellectual property mostly bought by fitbit) since they cannot compete with Major players like Apple.

    1. Thanks Hanif! I checked out Pebble since your introduced it and found a good one that convinced me why it failed. Here it is if you are interested. 🙂

      https://www.quora.com/Why-did-Pebble-fail

  9. I wonder if the real losers here are not the upscale swiss watches but the more mid tier types of watches that come from al over the world. Although it seems the most expensive watches have decreased theirir sales I wonder if this could be cuased by something else. I think given the price range of the iWatch it is not competing with the most expensive watches that are 6x or more qhat an iwatch costs.

    1. Definitely agree. As I mentioned in a few response above, I think there are multiple factors that are affecting the swiss watch sales. However, my take is if they don’t catch up on the digital trend, they will eventually have to scale down with less market demand over the mechanical watches.

  10. Interesting take a ubiquitous but often overlooked technology. I actually purchased a Samsung Watch over Christmas break but returned it the next day. It wasn’t as useful, and many functions on the watch I could have done more easily on my phone (playing music, listening to phone calls, etc…). I agree with another comment on whether there is any real value created by the watches. I get Fitbit, but the other watches don’t really add any productivity. If anything, I rather not get notified every time I get a new email or text message. I’d imagine that in the future when the technology is more advanced that they try to replicate the traditional appeal of mechanical watches.

    1. I like the visions you mentioned here and agree that the smartwatches would need to keep adding values to retain customers. I was more comparing the smartwatches to the fitness trackers as they are much more powerful and the prices are not that different. There are stats in my blog that also shows the fitness trackers got a bigger hit than the conventional watch industry. This is where I came from thinking that smartwatches are a success. Thanks for the comment!

  11. Despite a lot of critics who called the Apple Watch a failure, I agree, Ge, that it actually was tremendously successful. To me, what’s most impressive about this product is not its usability or out of this world features (which I agree with many critics, is clearly lacking: https://www.fool.com/investing/2017/05/17/the-biggest-sign-yet-the-apple-watch-is-failing.aspx) but rather its ability to extend Apple’s ecosystem into another piece of proprietary software enabled hardware. First is the phone in our pockets, then it’s the iPad on our night stands, then it was the TV in our living rooms, and then came the piece of fashion on our wrists. Most recently, it was the speakers that can fit anywhere in our homes or offices. This quest to monopolize our homes and bodies makes Apple one step closer in controlling all aspects of our daily communication, socialization and entertainment needs. In effect, this ecosystem creates tremendous barriers to entry – a Fitbit or Fossil or Amazfit cannot interact to the same extent or integrate with nearly as many other Apple devices we already own.

    1. I totally agree with your visions here! Especially the barriers of entry angle is amazing. Can’t seem to find more things to add to your comment. Thanks for sharing!

  12. Thanks for the interesting post! This one is indeed sometimes overlooked despite its value creations.

    I would add one more value creation that many people might not realize, beyond providing convenience. It helps people with ADHD like me (and probably many other health problems) to manage some simple tasks we sometimes have problems to do. It gives nudges to do tasks, to breathe, etc. It also actually alerts health risks, although the downside is it sometimes is inaccurate that it gave someone who was nervous about his presentation and prompted an alarming sound and asked whether he had a heart attack. It could have actually saved lives.

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