Smart watches: Are we really watching the future?

Tech giants are investing heavily in smart watches. Apple’s own big launch is next week. But is the demand there?

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The Independent Online

Tim Cook will be hoping he has another hit on its hands when the Apple chief executive takes to the stage at San Francisco’s Yerba Buena Centre next Monday.

Mr Cook will be showcasing the company’s latest toy, the Apple Watch, announcing prices, release dates and showing off features. Like the iPod and iPhone before it, Apple’s internet connected wristwear is not the first of its kind. Rivals Samsung and Sony already produce similar smart watches and Huawei and LG have just entered the fray, unveiling new devices at key industry conference Mobile World Congress (MWC) in Barcelona this week. But Apple hopes its Watch can come to dominate the field – the latest must-have device to come out of Cupertino.

“If the Apple watch is successful it will be a rising tide for everyone who makes smart watches and wearable technology,” says Ben Wood, head of research at CCS Insight. “If it falters, I think it could set back the segment for several years. It’s such a high profile launch and expectations are so high.”

Mr Wood, speaking from MWC, believes the former scenario is more likely. CCS estimate Apple will sell 20m Apple Watches this year – a quarter of total number of “wearable” technology shipped this year.

David Maidment, director of mobile strategy at microchip designer ARM Holdings, is similarly bullish. “We see this as a very exciting emerging space,” he says. “From our point of view the market is real, it’s happening. All of the large equipment manufacturers are launching devices”.

But while technology companies are keen to promote smart watches, the devices have failed to set the consumer electronics world alight.

“Pebble, which has been around since 2013, has sold over 1 million units. But that’s the kind of volume that gets sold in the mobile phone space in the blink of an eye,” says Mr Wood. “The products that we’ve seen to date have mainly raised awareness.”

“Our smart watch and wearables sales went up thirteen times over Christmas, but that was from a relatively small base,” says Seb James, boss of Dixons Carphone.

Mr James was an early adopter, showing off his Samsung smart watch at the company Christmas party as long as two years ago. He still has it but isn’t wearing it when we speak. He too is at MWC, hunting for the next big thing, and is undecided on the potential of smart watches. “We don’t yet know if it’s just a flash in the pan. I’m not sure the killer app has emerged.”

The “killer app” he refers to is industry parlance for a unique feature that will have people queuing up to hand over their cash. The Google Glass headset lacked a “killer app” ¬— what could it do that a mobile didn’t already? — and suffered the consequences. The search giant recently abandoned efforts to sell the headset due to weak demand.

Factories making 6 million Apple Watches

Most smart watches on the market rely on a connection to a smartphone kept in the pocket and act simply as an extension of the device. Mr James believes they will only take off if products are launched that can function independently.

“There’s still one big underlying question – how does it enhance your life?” says Mr Wood. “All eyes turn to Apple to see if it can come up with any really compelling use cases beyond the standard who’s calling you, text messages, social network alert and health notifications like activity and heart rate.” One possibility is a payment function linked to Apple Pay. Some think this feature could be demoed on Monday. Mr Wood adds: “Even if it only tells the time, it will sell millions of units,” alluding Apple’s powerful brand.

If technology pundits are optimistic about the prospects of the Apple Watch, traditional timepiece makers are somewhat cooler. In a recent profile of Apple design guru Jony Ive, New Yorker writer Ian Parker asked the director of the Audemars Piguet’s watch museum in Switzerland his opinion of the Apple Watch. “We’re not afraid; we’re just a little bit smiling,” he replied.

“I don’t expect it to be something that will come and destroy the Swiss watch industry in two years’ time,” says Bassel Choughari, an analyst at Berenberg Bank who covers luxury companies like Richemont, which owns watch makers Jaeger-LeCoultre and Cartier, and Swatch Group, owner of Omega.

“When you look at the overall watch market Swiss watches are only 2 per cent of the volumes but over 50 per cent of the value. It could have an impact but it will mainly have an impact on small brands that are not so strong.”

Watch makers are taking care not to be caught napping. Intel is working with Fossil on an internet connected device, while Guess has signed a deal with smart watch manufacturer Martian.

Even Switzerland’s legendary time-keepers are hedging their bets. TAG Heuer is set to launch its own smart watch at industry tradeshow BaselWorld later this month, while Swatch is tipped to unveil something similar.

“[Swatch Group boss] Nick Hayek’s initial reaction was to say it’s a joke and not take it seriously, but he’s coming out with his own solution,” notes Mr Choughari. “Jean-Claude Biver, the chief executive of watches at [TAG Heuer owner] LVMH, believes it’s the future. If Richemont, Swatch and LVMH are coming out with options, that probably means they are taking it more seriously that they sometimes claim.”

Apple is certainly taking aim at the luxury market, producing a solid gold version of its Watch that will sell for an estimated $5,000. Apple’s iconic shops will be overhauled to feature high security glass cases displaying the devices, in line with more traditional jewellery retailers.

But, says Mr Choughari, there is a key difference between an Apple Watch and a Rolex or Patek Philippe. “People buying watches, and especially luxury watches, know they keep their value. Buying a tech product is almost the other way around. When you look at the iPhone, second hand prices tend to drop by about 50 per cent in just a year’s time.”

Even if smart watches do take off, they are unlikely to be the rival smartphones. “It will always be a subset of the mobile phone,” says Mr Wood. “This year 1.5 billion smartphones will be sold and they will address every single tier of the market right down to a poor consumer in an African market, where a mobile phone is seen as an essential part of lifting yourself up the food chain. A smartwatch is more of an accessory or add-on.”

Smart watches also aren’t as profitable as smartphones or tablets. “Anyone who’s done the sums on the Watch knows that it’s not going to deliver the type of returns that the iPhone, iPad or Mac is delivering,” says Mr Wood.

But he adds, “You have to keep investing in new directions and I’m sure this will be one of many that Apple choose to follow. It’s early days. We’re in the stone age of wearables.”

 

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