The week of January 3, 2016

The real battle for wearables hasn’t even started yet

By Mike Wehner

You can walk into your local Best Buy or Wal-Mart and find a display of smartwatches and flashy fitness bands sitting neatly in the electronics department. The concept of a “wearable” is already mainstream, but adoption of them is not. Yet.

Perhaps more than anywhere else in the technology industry, the market for wearables is in a state of seemingly endless flux. Apple, Samsung, Sony, ASUS, and LG have all entered the space, as well as several smaller companies, but no single device has reached mass appeal on par with their ubiquitous smartphones. According to the most recent report from analytics firm Kantar Worldpanel, only 3 percent of all U.S. adults own a smart wearable.

Like the Internet of Things as a whole and the growing push for engaging VR experiences, wearables are going to be a huge focus for many companies in 2016, starting with the annual Consumer Electronics Show in Las Vegas this week. But to understand where wearables are headed, you have to first understand where they’ve been—and what they’re all about.

What is a wearable?

Although the term “wearables” could apply to any gadget that can be worn (and should be banned, for the record), it’s basically shaken out into two categories: smartwatches and everything else.

Fitness bands and activity trackers make up much of the latter group and start at around $50. Their features are devoted to tracking movement, workouts, and in many cases, heart rate, in an effort to give the user a complete picture of their fitness level and progress.

Smartwatches, costing as little as $99 but usually priced at $200 or higher, are defined by their ability to relay notifications from the user’s smartphone, including emails, texts, and various app features. Many even allow you to take calls on your wrist. Smartwatches also almost always feature health tracking features, effectively acting as both a smartphone shortcut and a fitness band in one package.

While they may get the majority of advertising, smartwatches are still being outsold by the cheaper fitness-first gadgets. “Smart wearables only account for about a third of the total market today while basic wearables, led by fitness trackers, account for the rest,” Jitesh Ubrani, senior research analyst for IDC’s Mobile Device Trackers, notes in a recent report. “Driven by advancements in user interface and features, smart wearables are on track to surpass the lower priced, less functional basic wearable category in 2018.”

The number of people willing to spend less than $100 on a device that tracks steps, running, and cycling is large compared to the group who are in the market for a touchscreen watch costing several hundred dollars or more. Like the transition from flip phones to smartphones, companies and analysts think that strong sales of “basic” wearables will eventually lead to consumers wanting even more out of their devices and eventually upgrading.

“Smart wearables will quickly move from a smartphone accessory primarily focused on notifications to a more advanced wearable computer capable of doing more processing on its own,” Ubrani explains, and he’s not alone in that line of thinking. Many analysts and companies believe that smartwatches will eventually act as standalone devices, allowing users to ditch their smartphones entirely.

Why would anyone want emails, tweets, and app alerts on their wrist? Why does a watch need to know how far you ran?

A brief history

Telling the story of wearables begins with steps. Fully electronic pedometers began to rise to prominence in the mid-2000s, and by the time Nike launched its Nike+iPod kit in 2006, both professional and amateur fitness fiends were using iPods and other gadgets to track the number of steps they took each day.

At the same time, smartphones were gaining traction. The popularity of Blackberry handsets and keyboard-equipped PDAs from Motorola and others led Apple to enter the fray, launching the iPhone in 2007. Android, originally designed to support keyboards, transitioned into a touch-based operating system and began its still-ongoing war against iOS.

It didn’t take long for companies and consumers to realize that the watches, pedometers, and smartphones that many people were toting around would benefit from a more harmonious relationship. Not surprisingly, each organization seemed to have a different idea of exactly how to make that happen.

Fitness-first companies like Fitbit and Jawbone put increased emphasis on simplicity and affordability, making built-in displays optional and relying on smartphones or PCs to display workout stats; Pebble took the smartphone-inspired app approach, embracing both iOS and Android in an effort to conquer everyone’s wrists, regardless of which smartphones they favored; and big dogs like Apple and Samsung arrived a bit later, showing off flashy touchscreen watches that are practically as complicated as smartphones themselves and only work with each company’s own smartphones.

There are, of course, many other players here who have had less of an impact. There’s Sony, which still owns the “SmartWatch” namesake itself; Microsoft, with its increasingly attractive Band; Garmin’s Vivofit devices; and a handful of lesser-known and upcoming competitors whose fates have not yet been decided.

Pebble created a market

If there’s one company and one device that defined the wearables space more than any other, it’s Pebble and its debut smartwatch. In a span of 30 days, the company made “wearables” a household term, and it did so without even launching a device.

On April 10, 2012, the Pebble watch popped up on Kickstarter. The small company with an unproven concept hoped against hope that it could raise a sum of $100,000 to push its device into production. The Pebble, an electronic watch with an e-paper display, Bluetooth connectivity, and support for both iOS and Android, was a total shot in the dark.

Why would anyone want emails, tweets, and app alerts on their wrist? Why does a watch need to know how far you ran? What purpose could this type of a device possibly serve? These were the questions everyone seemed to be asking during the monthlong funding campaign, and even though there were very few answers, the money started to pile up on Pebble’s digital doorstep.

After a little more than a month, nearly 69,000 people decided to take the chance, supporting Pebble’s vision of the future of gadgets. Pebble made $10,266,845 in a then-record-breaking campaign. The company announced earlier this year that its smartwatch was the first to sell 1 million units, and Pebble CEO Eric Migicovsky noted in November that the company sold twice the number of smartwatches in 2015 than it had the year prior.

Apple vs. the world

Rumors of an Apple-branded smartwatch were floated for several years before the device itself graced a stage in California. Once Pebble had shown that there was money to be made in wearables, everyone knew Apple, Samsung, and the rest of the major tech players would eventually enter the ring.

By 2014, Samsung had a handful of new wearables ready to compete with whatever Apple would inevitably announce, but none of them had gained much traction with the general public. For a year or more, the consensus among tech journalists and analysts seemed to be that Apple’s smartwatch would be the one to bring wearables into mainstream acceptance.

Nobody, including Apple, has “won” the wearable battle, yet.

The iPhone had made Apple bigger than anyone thought possible, and with an impeccable reputation for design, everyone wanted to see what the folks in Cupertino would dream up. Apple finally showed off its creation, Apple Watch, in late 2014 and launched the device in early 2015. Thus far, nobody can really agree on whether or not it’s been a success.

Apple has chosen not to reveal sales numbers, only stating that the watch has sold more units than the original iPhone over the first two months of its availability. That’s a significant number, but nowhere near the adoption rate of current models of the iPhone or even the iPad. The iPhone continues to break sales records, so the potential number of Apple Watch owners is massive, but not many are taking the plunge. Today, the Apple Watch remains a rare sight in the wild and still prompts glassy-eyed stares and questions like “Is that the iWatch?” from mainstream tech fans, including many iPhone owners.

To put it more simply: Nobody, including Apple, has “won” the wearable battle, yet.

The platform war hasn’t yet begun

The past few years have brought Android Wear and Apple’s WatchOS into the consciousness of early adopters. A smartwatch platform battle between the two seems inevitable, but before one can begin in earnest, the wearable market has to reach a certain size.

Research firm IDC estimates that the Apple Watch sold 3.6 million units in its first appearance in the wearables market, in the second quarter of the 2015 fiscal year, and currently accounts for roughly 58 percent of the “smart wristwear” market, which doesn’t take dedicated fitness trackers into account. Android Wear-based watches are thought to make up less than 18 percent of the market, with Pebble eating up almost 9 percent.

IDC expects Android Wear to make up significant ground in the next four years, reaching over 38 percent market share by 2019, and bringing Apple’s WatchOS platform to just over 47 percent market share. Put simply, analysts are guessing that the smartwatch space will pan out almost exactly like the smartphone market has, with Apple’s product eventually being outpaced in sales by cheaper, Android-based competitors.

If Android Wear and WatchOS follow paths similar to their smartphone counterparts, with Apple’s wearables receiving regular updates to new software and Android-based watches relying on manufacturers to decide how long to support the software on any given device, fragmentation could become a huge concern.

“Looking ahead, customers will need to pay close attention to the different operating systems that power smart wristwear,” explains Ramon Llamas, IDC research manager, in the report. “Different smart wristwear operating systems are compatible with certain smartphone operating systems, and sometimes with specific models. Beyond that, experiences and available applications will widely vary. Just as competition exists for different smart wristwear models, this competition carries over into the operating system landscape.”

The Fitbit future

Even if nobody knows who is going to “win” the wearable war, Fitbit is showing it has what it takes to succeed.

The most reported reasons for why would-be wearable consumers aren’t buying into the market are cost, a lack of understanding regarding the features, and no desire to wear a watch. Fitbit seems to be the only company that has these issues in mind.

If there’s one company and one device that defined the wearables space more than any other, it’s Pebble and its debut smartwatch.

Fitbit’s wearables cover a wide range of pricing options, from $60 all the way to $250, and aside from the Fitbit Surge, which is essentially a smartwatch, the features of the more affordable Fitbit bands are extremely straightforward and easy to grasp. The company even makes two models—the Zip and One—that clip onto clothing rather than strap to the user’s wrist. This may explain why the company is currently leading the pack.

In 2014, Fitbit snagged the top spot in the App Store’s fitness app category. Various reports and estimates give Fitbit between 70 percent and 80 percent of the fitness-only wearable market, and if you lump fitness trackers in with smartwatches, Fitbit accounts for more users than even Apple. The company accomplished these feats despite having a relatively modest advertising budget—evidence that customers can see a clear value in the product beyond the hype. Fitbit reported advertising spending of just over $21 million for the whole of 2014. In just the first month following the Apple Watch’s unveiling in March 2015, Apple reportedly spent $38 million on television ads for the device.

“We’ve always had a great product that people love, so word of mouth has been a big driver for us,” Fitbit CEO James Park admitted in an interview with Re/Code, and the numbers support his claim.

In its most recent earnings release, Fitbit says it sold 4.8 million devices in Q3 2015. The company sold 10.9 million devices in the entirety of 2014, and its total number of devices ever sold is over 25 million. The numbers suggest a significant upswing, and while we don’t yet have a wealth of data points from Pebble, Apple Watch, and Android Wear devices, it’s safe to say that Fitbit is currently holding the lead in market share as well as mindshare. Whether Fitbit users eventually embrace the more expensive and flashy smartwatches remains anyone’s guess.

The year ahead

The past few years of the Consumer Electronics Show have been filled with activity trackers, step counters, and lots of wearables that seemed to launch straight into obsolescence. CES 2016 is expected to be the year that wearables get smarter, and with the industry expecting major growth over the next several years, companies large and small are betting big on personal tech this time around.

Huge companies like Samsung, LG, and Sony all have dogs in the wearable fight, and all have events where they are expected to show off whatever they’ve been hard at work on over the past year. Samsung’s increasing push to abandon Android Wear in favor of its own software platform, Tizen, could lead to the announcement of additional smartwatches, while both LG and Sony will likely show off versions of their current smartwatch lines that are at least marginally more capable than the current models.

Apple, as always, sits CES out, so we won’t hear anything about the Apple Watch in Las Vegas.

Then there’s Fitbit, which is hosting its very own press conference, marking the only exclusively wearable-focused presentation of the show. With its fitness bands rapidly gaining popularity as well as capability, and now that the world has seen which direction Apple intends to take with its own smartwatch, Fitbit’s announcement could very well dictate the future of fitness wearables. The company could reveal a new device (or several), or even a dedicated software platform for app developers to latch onto. At this point, it’s Fitbit’s race to lose.

Regardless of which company does or doesn’t show off something fantastic for the wearable space at CES 2016, the market isn’t going away anytime soon. Both immediately accessible and attached to your body, wearable tech has the potential to surpass smartphones for sheer utility, and the battle to create the best device for everyone’s wrist is just getting started.

Illustration via Max Fleishman