The wearables market outlook for 2017 is not pretty

Fri, Dec 16, 2016, 10:36 AM

Are you in the market for a $400 smartwatch that needs to be in range of your smartphone for most of its features to work? If not, you are part of the reason the market for wearables, an umbrella term that typically encompasses smartwatches and fitness trackers, has struggled to fully take off.

The third quarter, ending in October, was especially unkind to Apple Watch sales. Apple (AAPL) shipped about 1 million Apple Watches in the quarter, according to research firm IDC, a 70% drop compared to the year before. Apple was in fact the only manufacturer to lose market share in wearables in the quarter.

Apple CEO Tim Cook told Reuters that things are looking up for the end of the year, and that the fourth quarter will be the “best quarter ever for Apple Watch” thanks to the holidays and the release of the Series 2.

Fitbit, on the other hand, has forecast a weaker holiday season than expected, even amidst double-digit growth for fitness trackers in the third quarter. And Pebble, a once-hot smartwatch that grabbed headlines for raising $10 million via Kickstarter, unceremoniously sold itself to Fitbit this month. Fitbit (FIT) only wants the “software assets” and will discontinue the Pebble hardware.

Make no mistake: The short-term future for the entire $20 billion wearables market is not sunny unless the leading manufacturers innovate, and fast.

Common complaints about smartwatches

Those consumers who have held off on buying a smartwatch or fitness tracker thus far tend to have one of three complaints, says Ramon Llamas, wearables researcher for IDC.

Many watches must be in range of a smartphone. Llamas points to Samsung’s Gear S2 watch as a rare exception. Indeed, this is one of the big limitations with the new Nike+ Apple Watch Series 2: many of its most exciting features only work when your iPhone is nearby, which defeats the purpose of running with the watch in place of your phone.
Where are the apps? In too many instances, the apps that come loaded onto smartwatches are just modified versions of smartphone apps. “I go back to smartphones, years ago,” Llamas says, “when I would say, You can’t just take your PC apps and shoehorn them into the smartphone. And that’s what’s happening over here.” Many people are bullish on smartwatches for the entertainment, shopping, and social networking possibilities. But the great apps for these purposes haven’t manifested yet.
There’s still a style hurdle. “People want their watch to look like a watch,” Llamas says. Many consumers IDC has surveyed say they’d be interested in a smartwatch for the tech capabilities, but aren’t ready to replace their traditional everyday watch with something that looks like a tech device. (This is my own complaint as well.)

A note of optimism

“Wearables are dead,” declared Business Insider last week, pointing to the Pebble sale, the delay of Google’s next Android Wear smartwatch, and Motorola halting its smartwatch plans as evidence.

Not so fast, says IDC.

“The market has taken baby steps,” says Llamas. “But I’m not forecasting doom and gloom.” The third quarter was a time of “out-of-cycle refreshment,” he says, chalking it up to “growing pains.”

Many have suggested that wearable devices may have been a short-lived fad all along. If you include wearable camera maker GoPro under the wearables umbrella, you have another example; its sales have dropped and its stock (GPRO) is down 49% this year. Fitbit, despite market share gains, is down 74% this year.

But it would only be a fad, Llamas argues, “if what we have now is the end all, be all in wearables.” All of the major wearable makers know they must innovate and update. “This market is going to continue to change, and it’s changing in the right direction,” Llamas says. “I have to preach patience here.”

Apple still has the biggest piece of the smartwatch market in the US, though Samsung is very close behind. But if you expand the pie to all “wearables,” Fitbit is No. 1, then Samsung, then Garmin, and Apple is in fourth. In the global wearables market, China’s Xiaomi, maker of the Mi Band, pops up at No. 2.

It makes sense that Apple would only be fourth when the pool includes Fitbit; Apple only makes smartwatches. It is also a reminder that the term “wearables” is so broad as to include two types of devices that perhaps should not be lumped together: smartwatches and fitness trackers.

If Tim Cook’s big promises about the holiday season prove true and the Apple Watch Series 2 is a hit, the Apple Watch’s weak third quarter will be forgotten. But Apple can’t keep cruising in smartwatches if it only sells them at Christmas. Its future versions will need to address those three popular complaints in order to convert the skeptics.

—

Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.

Read more:

Why I’ll never ever want an Apple Watch

Here it is: Apple unveils the Apple Watch Series 2

Nike’s new Nike Plus app will get to know you– intimately

Nike Apple Watch is slick bling for runners

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