Dawn Of The Smartwatch Era

Dawn Of The Smartwatch Era?

Last year when Samsung (SSNLF) unveiled its Galaxy Gear, analysts branded 2014 as the year of wearable technology. While wearable tech come in all shapes, sizes, and functionalities, smartwatches and fitness trackers are at the forefront of this market. Even though there is tremendous hype about Google Glass, it is still in the testing phase and won’t be mainstream for some time to come.

Due to a huge, and still growing smartphone market, the potential for wearable devices is also tremendous. According to a report, Credit Suisse estimates the total market size at $3-5 billion with potential growth up to $30 billion in three years, giving complementary devices a 15% attach rate. As innovation leads to more seamless integration and a tailored smartwatch ecosystem, the attach rates are expected to grow, hinting at the potential in the wearables market which accounts for only 5% of the watch industry.

Fitness trackers such as FuelBand, Jawbone, and Fitbit have led the way in familiarizing consumers with wearable technology. Seeing this excitement and popularity, major players like Apple (AAPL) and Samsung have taken steps to duplicate fitness tracking functionality, built right into the OS. Both the Galaxy S5 and the iPhone 5s have built-in motion sensors that can be used to count steps and give vital health information to the user, making the need to carry an extra device to monitor your health theoretically obsolete. This has shifted focus of startups towards companion software, in order to provide more than the basic ‘step counter,’ and add more data collection points and ways to present that data in a more useful manner.

Moving beyond health tracking, wearables put evolutionary pressure on smartphone manufacturers to move into the smartwatch category. This is similar to the advent of smartphones and how they changed the personal computer market, forcing the likes of Apple and Microsoft (MSFT) into the mobile market. The smartwatch has had a similar effect, with some believing it to be the next logical step in mobile technology.

Balance Between Hardware And Software

Samsung’s foray into the smartwatch space may give us insight into a market still in its infancy. Galaxy gear which Samsung unveiled in September 2013, failed to impress and a quick search through online marketplaces shows a high rate of abandonment by early adopters - a bad sign for any technological innovation. Just one month after its launch, 30% of devices sold by US-based retail chain Best Buy (BBY) were returned by unsatisfied customers. Users have complained about weak battery life, poor Bluetooth connectivity, and lack of functionality with respect to email and instant messaging, making the process of using a smartwatch more complex as opposed to seamless integration with a person’s life.

In a market where more and more companies look to enter the world of smartwatches and wearables, the most common complaints include poor integration; such as the inability to integrate with third-party apps. Samsung Gear can only be used with Galaxy devices using its own development platform, as do countless other smartwatches currently available.

Recently, when Samsung unveiled the Galaxy Gear 2, it added many new features and functions based on feedback from users of the first generation of the product. While it definitely marked a step forward, the problem of cross integration persists and the high price point for a device that is essentially complementary to the smartphone does not help its case. Most smartwatches today use different development platforms. While Samsung has announced plans to move towards Google’s (GOOG) Smartwatch OS, in the past it has relied on developing its own platform.

Companies such as Casio and Qualcomm (QCOM) have had to choose either iOS or Android compatibility, and there is no common platform, making it increasingly difficult for developers to create software that would do for smartwatches what iOS did for its range of products or Android did for smartphones across different brands.

What Works?

While the current generation of smartwatches is riddled with such problems, it is in no way an indication of doom. For example, the mp3 player industry took its time to gain traction as earlier models faced the same problems of poor connectivity and inconvenience of data transfer. It did not however stop the market from blowing up and leading to the iPod revolution.

CEO and founder of Pebble, Eric Migicovsky, presented a different idea about the future of smartwatches, one that is likely to work. The Pebble smartwatch is a crowdfunding success story, raising $10 million on Kickstarter and was one of the first smartwatches to gain serious traction. Some credit it with setting off the smartwatch revolution.

Migicovsky’s ideology is that smartwatches should “flow into the background,” believing that software is where the real innovation will take place. Pebble’s strength is its compatiblity with both iOS and Android and providing developers with an open platform to develop software that integrates and communicates not only with smartphones and their apps, but also with other electronic devices. Examples of such software-backed innovation can already be seen. One is the Air Berlin app for iOS which allows users to push through boarding passes and flight information to their pebble watch.

Pebble has also announced collaboration with Mercedes Benz, which will allow users to communicate with systems in their car. The potential is huge, and Pebble is committed to leading innovation when it comes to software.

Most technologies have found their market by tapping developers to enhance user experience; both the Android Play store and Apple Appstore are prime examples of this. It is this combination, as major hardware manufacturers enter the market along with a shift in focus towards software solutions, which has prompted many hardware investors to seek out startups catering to more niche markets for activity trackers. Climbax Smart Wristband is one such example; targeting rock climbers by providing them detailed monitoring of training regimes and progress. Many startups focusing on hardware have started exploring other such niche markets.

Smartwatches And Shift Towards Wearable Technology

Perhaps it is this insight that has prompted Nike (NKE), maker of FuelBand, to discontinue hardware production and focus on software. Nike and Apple have had a long-standing relationship of collaboration, dating back to Nike+iPod in 2006. Nike CEO Mark Parker has said: “We are focusing more on the software side of the [FuelBand] experience... and the best way to do that, we think, is through the best partnerships that we can find.” This has led analysts to believe in the inevitability of a future partnership between Nike and Apple.

There are strong indications that Apple will also be entering the smartwatch market with the iWatch. Recent revelations of patent filings and acquisitions present ample evidence backing that view. According to a filing published by the USPT, Apple has recently applied for a patent for a wearable pedometer design to improve accuracy of step counters by determining where a user is wearing it, and accordingly adjusting its readings of movement.

Apple, being a hardware manufacturer as well, seems keen on solving some of the hardware issues faced by the current generation of smartwatches and is reported to be researching solar and motion power for its iWatch in order to solve the long-standing issue of low battery life. The recent acquisition of LuxVue, a manufacturer of Micro-LED displays also sheds light on Apple’s intention to enter a market that is desperately looking for innovation in both design and functionality. Along with reports of hiring health professionals, Apple seems determined to enter the market with a bang.

On March 18, 2014, Google also took a leap of faith in providing a software solution to the smartwatch problem, announcing a version of their Android OS, dubbed Android Wear. At its launch, Motorola, LG, ASUS, Samsung, and HTC were unveiled as official partners in the project. Motorola and LG took the lead in announcing products powered by the new system. Android Wear will bring the services of Google Now to the Smartwatch and will no doubt lead to developer interest in creating more integrated software in the future with cross functionality between the smartphone and the watch.

The battle, it seems, will be fought over software offerings of smartwatches along with catering to individuals who would choose to replace their conventional watch with a smart one. The challenge for the future still remains in finding a balance between hardware, which shifts the image of the smartwatch from being ‘geeky’ to ‘cool,’ and software, which offers ease of access and integration. As smartphones move towards bigger screens, a gap emerges with the potential of catering to the convenience factor, which had led to the success of the smartphone and tablet PCs.

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