Wearables

Even rivals are waiting for Apple to get into wearables

Market not worth spit  much less the time and money  unless someone transforms the category, argues analyst

There may be big expectations for the embryonic wearables market, but the reality is that until someone transforms the category -- Apple's the usual suspect, as it at least has a track record of doing that -- it won't break out of a very small constituency, an analyst said today.

In a research report issued to his clients last week, Jan Dawson, chief analyst at Jackdaw Research, argued that the market for smartwatches as they now exist is tiny: No more than 10% of the population.

Demand is weak -- "[The market] appears to be providing a solution to a problem few consumers have," Dawson wrote -- and he called the current crop of smartwatches so "underwhelming" that they were unlikely to capture even a small fraction of the possible 10%.

By "smartwatches," Dawson meant the archetype for the category, a wrist-worn companion to a smartphone, or in some cases a tablet, that includes a display and serves a mix of several functions, including telling time, showing notifications, providing identity and payment authentication, and tracking health and fitness.

But consumers aren't breaking down any doors to use those functions now. Because smartphones aren't universal -- Dawson pegged the percentage of the U.S. adult population with one at 50% -- and few smartphone owners are heavy notification users, only about a third of the population rely on notifications at all and just 14% for more than two apps.

Health and fitness trackers, meanwhile, are also a niche, with only about 20% of the adults in the U.S. and U.K. reporting that they use or have tried a device, which typically syncs to a smartphone, tablet or PC for record keeping. As other analysts have pointed out, Dawson said his surveys showed that nearly half of health and fitness tracker users tried one but then later stuck it in the drawer.

In other words, the most widely-cited and -served functions of a smartwatch appeal to a small minority of people. That's not encouraging.

Nor does there seem to be much short- or medium-term hope in some of the things touted as possible applications of a smartwatch, like mobile payments, which require an as-yet-non-existent infrastructure.

Obviously, Dawson was not bullish on today's smartwatches. In fact, he recommended that existing vendors pare their investments and that others pondering the market stick to the sidelines unless they can significantly differentiate their products. "We would advise most would-be vendors to stay out of the market," Dawson wrote in his report.

But wait, there's more

His caveat, however, was huge.

"Two major things could catalyze demand in this market: a player overcoming the significant technological challenges associated with the current smartwatch model, or a player which breaks the model and reinvents the category," Dawson said.

He named Apple as one company, but not the only one, that could do either, or both. Dawson's basis for that thinking: Apple's proven ability to enter an existing market, then dramatically change expectations to the point where it creates a viable market. Whether with 2001's iPod, 2007's iPhone or 2010's iPad, Apple, Dawson maintained, is the only technology company that could boast a track record in transforming an extant market.

"If Apple does enter the wearables market, it will do the same [as in the MP3, smartphone and tablet markets]," Dawson said. "Given [that], we believe this will have to be done by reinventing the smartwatch category in some way."

Wearables chart
The most popular use of notifications on smartphones is for text message alerts; the same is likely the case for the current crop of smartwatches. (Image: Jackdaw Research.)
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