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Watch this space or time to move on?

Alex Yau
May 27, 2015

The wearables market is poised for incredible growth over the next few years but the long term future still remains clouded with uncertainty.  Pádraig McGarrigle investigates

The wearables market is on fire. It is set to grow by 600 per cent to £15 billion in five years says Analysys Mason and is primed for stratospheric growth. All the more staggering when you consider we are in – as CCS Insight chief of research Ben Wood describes it “the stone age” of wearables.

With Google Glass temporarily consigned to the dustbin of history, all predictions about the wearables market currently come with the caveat that if the Apple Watch flops it could set the market back years.

The past year has seen many iterations of smartwatches, notably the Apple Watch. The smartwatch sector is building on the smart band and fitness wearables sector which is already a multi-billion pound industry in its own right and very well established.

This has led to a massive increase in awareness. A CCS Insight survey of 4,000 consumers in August 2014 reckoned 75 per cent of consumers were now aware of smartwatches and fitness bands.

CCS is predicting the launch of the Apple Watch will mean wearables sales will increase from 29 million last year to 172 million by 2018 when there will be more than 350 million in use.

CCS estimates 75 million wearables will be shipped this year, up 158 per cent over a year ago. Wristbands will account for more than 40 million units and the Apple Watch a further 20 million sales.

Innovation time
Early estimates are that there have been 2.3 million Apple Watch orders. This is more than a third of the 6.8 million total global sales of smartwatches last year.

“We should not underestimate the importance of the Apple Watch. If it is not successful it will set the whole category back for several years. There is an awful lot riding on it”, says Wood.

According to GfK, 46 per cent of consumers were aware of the Apple Watch’s launch – a figure described as “high” by the market research firm.

But devices still remain very limited in what they can do for consumers.

“With a few exceptions, manufacturers are trying to find a solution to a problem which we haven’t identified. It’s nice to get a tap on my wrist when I have a text message, an appointment coming up or I want to easily get some directions,” Wood explains.

“But I can’t say this is a game-changing capability I desperately need. We are at the stone age of wearables. It’s similar to the mobile phone back in the 80s and 90s where we went on a period of rapid innovation and evolution. An awful lot has to happen before we understand what wearables will be able to offer people,” he adds.

The hope is that the Apple Watch will spur that rapid innovation from app developers and boost consumer interest in the wearables sector.

While being alerted to notifications via your wrist might be quite handy, it is not likely to inspire the average user to spend around £200 on a device. But being able to pay for things with a tap of the wrist could help the form factor make its mark.

“In the computing sector not many manufacturers took the tablet market seriously until the iPad,” said Joe Officer, who runs Attach, Exertis’ mobile and PC accessories channel sales division.

“Now there are Android tablets from every major manufacturer. App development and availability just exploded for iOS and Android. The same thing will happen with Apple bringing their Watch to market. TV campaigns and marketing will help the entire market to grow. The cheapest Apple Watch is £329 and you have some devices from other manufacturers for £200 and below. People who can’t stretch to the Apple Watch will look at these other devices,” he says.

Ingram Micro Mobility director of sales and marketing Richard Wills agrees: “Over the past year or two, the industry was almost telling consumers what was needed. We saw early examples of wearables that weren’t function rich and had certain weaknesses. That’s beginning to change. Improvements in battery life will really help to drive the whole sector.”

While currently lagging far behind fitness devices in terms of market size, smartwatches are beginning to find their feet in the marketplace.

The Smartwatch Group estimates there were just 6.8 million smartwatches sold last year. Samsung topped sales with 1.2 million units followed by Pebble (700,000), Sony (550,000), Motorola (500,0000 and LG (420,000).

Some of these manufacturers, such as Motorola, didn’t enter the market until September 2014.

Smartwatches can be divided into two camps. There are futuristic square devices that look like mini smartphones (eg Samsung and Sony). And there is a growing number of traditional-looking devices from Pebble, Motorola, Alcatel, Huawei and LG’s latest G range.

Pebble is a US start-up company that was first to market with a round smartwatch. It has had some success, shipping more than a million units in the past three years and raising more than $20 million via a Kickstarter campaign for its latest device.

Traditional watch makers such as Tag Heuer, Swatch and others are also expected to enter the market next
year and bring smart functionality to their products.

The first tranche of devices from Sony, Samsung and LG in 2013 were square faces. Motorola became the first smartphone manufacturer to break ranks with the launch of the round-faced Moto 360.

This does everything that you’d expect from a smartwatch – notifications, heart rate etc – but Lenovo-owned Motorola is clear that it focused on design when planning the product.

Motorola EMEA senior marketing director Marcus Frost explains: “We wanted to make it beautiful and something that you want to wear. We found people wanted something beautiful first which was then complemented with technology.

That was the start point. We wanted to ensure beautiful materials, that it was round and only then did we concentrate on how it complements the smartphone.”

After releasing the first Moto 360 in September, it continued down the “make it beautiful” strategy in March. Moto Maker for Moto 360 allows buyers to customise their 360 before they purchase with a selection of nine straps and one of 11 watch faces customisable through the Google Play store.

The Moto 360, was the first smartwatch to run Google’s boiled-down OS, Android Wear. This OS now runs on the Samsung Gear Live, LG G Watch Urbane, Sony Smartwatch 3 and the Asus Zen Watch. It displays weather updates, navigation, smartphone notifications and health and fitness functions. It can also control the phone’s camera, so selfies can be taken with the smartphone camera. The watches also respond to the “OK Google” voice command for hands-free operation.

Fitness bands and trackers
Fitness trackers have an obvious use as well as the potential to appeal to everyone interested in health and fitness. There are dozens of these fitness bands from the likes of Huawei, Lenovo, Asus and specialists Garmin, Jawbone and Fitbit.

Fitbit is market leader with a global market share of around 50 per cent of the wearable fitness band says Canalys. In the US, Fitbit has a 68 per cent revenue share. The company has just announced plans to go public and its financial figures show stratospheric growth in the past few years.

It sold 11 million devices last year, more than double the total sold between 2007 and 2013 [see graph at bottom of page]. Fitbit revenues trebled last year to $745.4 million. Yet in 2011 Fitbit had just $14.5 million worth of sales. Its products are sold in more than 45,000 stores worldwide.

“Technology which helps people take control of their own health and fitness by having a device on their wrist is a really powerful thing,” says Fitbit EMEA marketing and communications manager Lucy Sheehan.

Fitbit has seven devices, These range from entry-level bands and clip-ons which measure steps, calories and sleep at their basic-to-mid level, moving up to heart-rate and other metrics. A Fitbit smartwatch also provides smartphone notifications.

Sheehan says that advances in functionality and data analytics are really driving the growth of her company and others in the sector.

“The market is going through some pretty exciting growth. It’s a combination of technology being made available and having the right feature set. Integrated heart rate, continuous heart rate on the wrist is opening up new opportunities. The ability to sync to a wider variety of mobile devices and extension in battery life is all driving it.”

Fitbit has a global partnership with Weight Watchers which offers members a discount on a Fitbit Flex or Fitbit One. Data from the device is used by members of the club to track their progress and incentivise them to lose weight.

US insurance provider John Hancock is offering discounts up to 15 per cent on usage-based health insurance. Vitality Points are earned based on physical activity. The points can be used for money-off offers. Health insurers such as Vitality (owned by Prudential) offer members discounted rates on tracking devices from Garmin, Polar and Fitbug. Users are also free to use other devices from Nike, Fitbit and other manufacturers

Ben Wood says the devices aid insurers because they encourage users to be more healthy, and are likely to reduce insurance claims: “Policy holders may be given it as a gift. Even if only 10 percent use it to walk and exercise more, that is useful. That person is less likely to be overweight. That means less visits to the doctor. The health direction is what will become ever-more important. Who wouldn’t want something that could help deliver a longer and healthier life?”

O2 leading operator charge
O2 is currently the only operator to have a wearables section on its website and the only operator with a firm wearables’ strategy. O2 investigated wearables 12 months ago says head of devices Magnus McDonald. This was done for two reasons: the slowdown in phone sales which fell 11 per cent to 27 million in the UK last year (CCS Insight) and customer demand. Sales of wearables are now included in O2’s KPI targets.

However, it is taking its time to overcome obstacles to mass adoption of wearables. There is consumer confusion about what device is compatible with their smartphone, affordability and how to get the best use from the device.

“If you are going to buy a wearable you want to be clear about what it can do. The challenge is helping customers get the best from it, making it easy to work. If you want to get the latest greatest smartwatch or fitness band buy it from a company where you get the best support. We felt we could add a lot of value and be relevant to our consumers.”

O2 sells six wearables online. The Samsung Gear S requires a SIM and is available on contract. O2 also has the UK exclusive on the Motorola 360 and Pebble smartwatches and the Microsoft Band.

The plan is for wearable technology to be displayed in every store with the amount of space devoted to it depending on store space.

It also launched a UK advertising campaign before Christmas which, among other things, alerted consumers to the fact the O2 Gurus, the operator’s in-store experts, could tell them more about wearable technology. The network is now working to ensure that these gurus have access to the latest wearable technology.

“Gurus are the customer-facing manifestation of what we set out to achieve in wearables. There has been a focus in the past on getting the latest tech into the hands of senior people on the basis that they will be seen by senior people at conferences etc. Our customer-facing staff need to get more access to this tech. Wearables, in particular, only become alive when they are worn rather than it sitting on a desk.”

O2 also hopes to make more wearable devices available on a contract-basis, paid over a set term. He believes this will be crucial to driving growth.

“Our ambition is to be able to make non-SIM devices more affordable and to be able to spread those payments. Affordability is critical. Reducing the upfront cost makes a significant difference to the attractiveness to the customer.”

What is less clear is the success of the smartwatch sector and whether this is actually fulfilling the needs of consumers who are not technophiles. Apple Watch and apps for iOS and Android Wear should have a transformative effect.

As with smartphones, it wasn’t the hardware that made them a key part of consumers’ lives but the applications that went with them.

As Ingram’s Richard Wills claims: “The manufacturer with the best apps will win. It will be the applications they can bring to market that will help them.”

For the full coverage, see Mobile News issue 589.

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