The Apple Watch will play a critical role in the future of the smartwatch market
The success of Apple’s first wearable device, the Apple Watch, will play a critical role in determining the long-term future of the smartwatch market.
This was the view from a number of leading analysts ahead of next month’s release of the tech giant’s debut wearable, with some claiming it’s already “make or break” time for the sector which has so far failed to ignite significant mass market appeal despite efforts from Sony, LG, Motorola and Samsung.
“If the Apple Watch fails, and they sell a few but there is a lot of negative sentiment towards the product, that will be detrimental to the whole wearables market,” CCS Insight chief of research Ben Wood, who attended Apple’s ‘Spring Forward’ launch event in Berlin, told Mobile News. “If Apple doesn’t deliver, then everyone has a problem. It is make or break for the smartwatch segment as a whole.”
Expectations are high
In the short term at least, the Apple Watch is lining up to become a major success – and expectations are high.
Last year alone, global smartwatch sales rocketed 155 per cent to around 4.6 million year on year – that’s without Apple, the world’s most popular smartphone manufacturer.
Samsung, which entered the smartwatch space in 2013 with its Gear range, is currently the world leader, accounting for 1.2 million (Gear range) sales last year, whilst Pebble, (exclusive with O2 in the UK) sold 700,000 units (see box out for full breakdown). According to figures, Apple and Samsung accounted for more than 95 per cent of smartphone sales in the US last year.
But numbers are expected to rocket further.
According to CCS Insight, smartwatch sales will surpass 75 million globally this year – whilst BI Intelligence expects numbers to reach 91.6 million by 2018.
The role Apple will play in this rise is expected to be substantial. Forecasters have already predicted that Apple will sell between 10 million (Ovum) and 20 million (CCS Insight) Apple
Watch devices (priced between £300 – £13,500), this year alone.
Achieving such sales figures would not only propel Apple to instant market leadership but also provide a “massive” increase of awareness never before seen in the market – particularly for Apple’s 280 million iPhone users.
“It will become the market leader within 48 hours of it going on sale and obliterate every other smartwatch to date in terms of volume,” said Wood.
Ovum’s lead analyst Ronan de Renesse agreed – saying the Apple brand is likely to give the market the boost it needs after a sluggish start.
“If you look at the wearables market, it hasn’t really taken off as quickly as some people predicted but it is still growing really fast. We expect sales to at least double this year. Apple will be a big player and it will bring traction and demand to this space.”
But it’s not just Apple set to benefit, with the publicity and awareness surrounding the product likely to have an impact on its competitors also.
Whilst Wood remains uncertain of the long-term future of the smartphone space, he believes the market stands a better chance of succeeding with Apple than without it.
Blind loyalty to brand
He estimates 20 million Apple Watches will be sold this year, double that forecasted by Ovum. He claims that with the overwhelming loyalty from Apple ‘fans’ to the brand, many are likely to buy it regardless, whilst non-Apple users will take notice of those offered by its competitors benefiting everyone.
“The Apple Watch is fantastic news for smartwatches and will be instrumental in taking the wearables market to the next level of growth,” said Wood.
“It is going to be extremely successful in the first wave and it will raise awareness to new levels and lift the market. We’ll go from a position where people are just thinking about a smartwatch to it being one of the coolest things.
“Apple will sell millions because there is a loyal band of Apple users who always want the latest product, plus there is a group of people who will buy it no matter what. Likewise, if you don’t have an iPhone, you’ll have to look at an alternative. That will most likely be an Android device or an entry level player such as Pebble.”
“Consumer awareness is already very high, but it’s just going to get higher and higher. That’s the good news.”
Director of trends and forecasting for market analyst GfK Kevin Walsh added: “I think it will significantly ignite the wearables market and have a massive impact not just for generating sales to Apple users but also in the more general smartwatch community.”
Levels will not compare
De Renesse however has warned the market not to expect sales to reach the same levels as smartphones and to a lesser extent tablets.
“The Apple Watch will definitely give the wearables market momentum, but in terms of scale, compared with the smartphone and tablet markets, it is still very small, and even after the launch of the Watch, it will be below 10 per cent penetration.
“So I wouldn’t say the Apple Watch will transform the wearables market into a mass market product, but it will definitely help drive adoption and be one of the leaders in the wearable market.”
UK market undecided
According to CCS, the biggest market for wearables, (75 million units last year – up 158 per cent), is North America, accounting for almost half of all sales.
And whilst Apple is “guaranteed” so says Wood, for success in its US home-market, UK adoption remains to be seen.
According to a recent poll of 15,000 smartphone owners from Kantar, only 60 per cent of people in the UK actually wear a watch (smart or otherwise), while actual smartwatch penetration against population across the whole country sits at just one per cent.
More concerning, the poll also found that interest in the smartwatch sector was staggeringly low, with 84 per cent of consumers questioned stating they had no plans to buy a smartwatch at all, compared with only four per cent who said they definitely will. 11 per cent of the UK were undecided but open to the possibility of buying one.
Three factors to consider
“When there is a new product launch in a new category, there are three main factors to consider: Use case, design and price,” Choudhary explained. “If you have a good use case and strong design then customers will rationalise paying a premium price.
“Apple tried to address a lot of concerns on the first two issues at the launch last week. On the design, it looks premium and they’ve gone for something very familiar, which has the best chance of resonating with people. Also, they’ve given a lot of customisability, with 36 versions launched initially.
“The biggest concern is the use case. It seems better than its rivals but then it is dependent on what apps come to the market. It’s not just about hardware, it is more about the use case. The Apple Watch is not going to change your life in a major way but it showed that it will enhance it in a lot of smaller ways.”
The key to mass market appeal will lie heavily in usability – notably available apps.
CCS recently conducted a survey of 4,000 people which shows 75 per cent were aware of smartwatches and fitness trackers, but less than eight per cent owned and actively used them – with many getting bored.
At the Spring Forward event, Apple CEO Tim Cook spent almost 20 minutes attempting to remove such concerns, talking about apps that would be available on the device at launch, including Uber, Shazam and Instagram.
Apple customers can download apps through the dedicated Apple Watch app store – downloaded to all iPhone and iPad’s in its latest iOS update.
Apps are then downloaded and added to the paired Watch through a dedicated Apple Watch.
Wood said the differences in hardware between the Apple Watch and its competitors is minuscule and that it is the ecosystem that will give Apple the instant appeal its rivals lack.
He explained: “All the best brains in application design have put the effort in to Apple Watch so, out of the box, you’ll see a whole suite of compelling applications.
“All rivals will be watching closely to see how Apple does and if there’s any key applications that are really popular. That will lead to a renewed investment in Android Wear to bring those applications and functionality across.”
Choudhary agreed, pointing to research from Kantar that found 84 per cent of people not looking to buy a smartwatch, 41 per cent of those saying their smartphone already has all the functionality that a watch would offer.
He also praised Apple for not rushing out the device, despite watching its main competitors take an early market lead allowing for developers to be ready.
“Apps will be really important to its success,” said Choudhary. “Normally when Apple launches a product, it releases it within a few weeks but with the Watch, it announced it in September.
“Even at the official launch, it still left more than a month for it to be released, giving developers as much time as possible to make engaging apps. Apple need those apps or it won’t work.”
Wood concluded by saying: “Wearables could become the emperor’s new clothes and not everything that people expect.
“We’re going to see more smartwatches sold over the next few months than we’ve seen sold to date, but this next six to 12 months will determine the future of the category.”