Our Forecast For

Smartwatches Why
Consumers Will Take To
Them And How Big The
Market Will Grow

Tony Danova | August 30, 2013








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Copyright 2013, Business Insider, Inc. All rights reserved.
Our Forecast For Smartwatches
Why Consumers Will Take To Them
And How Big The Market Will Grow


Tony Danova | August 30, 2013
Wearable computing is about to make a huge leap.
The mass-market debut of smartwatches is imminent: Samsung will
unveil its Galaxy Gear smartwatch on Sept. 4, while speculation
surrounding the Apple iWatch pegs its release date around mid-2014.
The market in mainstream, wearable computing has so far been
anchored by smart fitness bracelets, but smartwatches will potentially
add a whole new dimension to the mobile market.
Smartwatches will have screens, even if they're tiny, and potentially
run software that will allow them to sync with smartphones, so that
they can serve as a robust extension to smartphone operating systems
and apps.
The smartwatch would also be the first new mobile device since the
smartphone to upgrade or enhance a ubiquitous consumer product
the wristwatch. A watch with an Internet connection isn't as alien a
concept as Google Glass.
Watches, in fact, are commonplace. Although it varies by age and
gender, consumer surveys reveal that a slight majority of the U.S.
population still wears a watch. Even if only a minority upgrade to
Internet-connected and app-centric smartwatches, that's still a huge
market.


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We decided to spotlight the potential for smartwatches with a new
forecast. In the rest of this report, we'll highlight our rationale for our
numbers and point to some of the uncertainties and opportunities.
Here are the top-line numbers:
We forecast 91.6 million smartwatch units sold globally
in 2018.
With an average selling price of about $100, that translates to
a $9.2 billion market by 2018.
Click here to download the charts and data associated with this report
in Excel





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Our Model A Story About
Attachment
Our general analytic stance is that smartphones will act as the main
computing hub for complementary smartwatches.
So our smartwatch outlook is rooted in our proprietary forecasts for
smartphone sales and the smartphone installed base.
The key to the size of the smartwatch market is the attach rate, or the
percentage of smartphone owners who will make the decision to also
purchase a smartwatch as a secondary good. This attach, or
attachment rate, will likely be different in a given year for smartphone
owners who buy a new phone, and those who put off a new phone but
may consider a smartwatch anyway.



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We estimate 1.9 billion smartphone sales in 2018. Based on that data,
we calculate that the global installed base of smartphones will have
grown to a cumulative 3.7 billion active handsets by 2018.
We believe the attach rate will be higher at first for existing
smartphones (rather than for newly acquired handsets). That's
because people shelling out money for a new smartphone even if
it's carrier-subsidized may at first be reluctant to also spend on a
new smartwatch, which at first will be an unfamiliar gadget.
But over time, acquiring a smartwatch to complement a new phone
will become more common, perhaps even routine for wristwatch-
wearers, and so the annual attach rate for new phones will actually be
higher than that for old phones.
Overall, we kept attach rates conservative. It's important to keep in
mind that some 30% of smartphone sales take place in China, and
that across emerging markets the smartphone is still a fairly novel
device. The smartwatch won't penetrate those markets in large-scale
numbers for some years to come.
For new smartphone sales, our attach rate climbed to 5% by 2018.
That means one out of every 20 new smartphones will be paired with
a smartwatch by their owners. Meanwhile, the attach rate for the
installed base peaks at 4% in 2018.
Finally, we also accounted for the percentage of the population that
are wristwatch-wearers.
Based on a weighted average of consumer surveys, we calculated that
about 55% of the global population wears and/or owns a watch. This
also factored in to our forecast calculation, as this population will be
more likely than the overall population to attach a smartwatch to their
smartphone purchase.
Please download our Excel datasets for more detail on our forecast.


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Where Our Numbers Fit In

Back in April, we discussed the current size and potential future of the
overarching wearable computing device market.
This includes all smartwatches, wrist-wear, clip-on trackers, head-
mounted displays and eyewear, as well as more esoteric categories
like smart clothing and smart adhesive devices.
Based on the immediate success of fitness and health-oriented
bracelets (also considering the barriers to adoption with other, more
conspicuous wearables), we sized the entire market at about 300
million unit sales annually by 2018.
Framing our smartwatch data with these numbers, that means that
smartwatches will make up about 31% of the wearables market in
2018, up from an estimated 15% share in 2014.
As with any new consumer electronics product that is still very much
in its infancy, the forecasts surrounding the potential market size are


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Copyright 2013, Business Insider, Inc. All rights reserved.
extremely varied. Our smartwatch estimates are on the higher end of
other research firm projections, but lower than some, such as a Credit
Suisse forecast that implies over 100 million smartwatches sold by
2015.

Juniper forecasts just 36 million annual unit sales by 2018.
Credit Suisse discussed smartwatches in their most recent
wearable computing report, which covers the entire wearables
market. Based on their calculations on the market size at risk
for the watch industry, we pegged their implied smartwatch
sales at 114 million units by 2015.
Canalys sees over 5 million units sold in 2014.
ABI forecasts about 30 million smartwatch units sold in 2015.
It's hard to say just how fast the smartwatch market will grow. Many
look at the smartwatch as the next tablet, a device that will define its
own category and alter the pace of the entire mobile industry.



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From Calculator Watches To
Connected Watches
Interestingly, the prospect of smartwatches and other wearables
persuading consumers to shell out money helped push IDC to temper
their tablet forecasts, since some of that spending may have gone to
tablets.
We don't believe smartwatches will compete with larger screen
devices like tablets. Rather, they'll gradually take over the market for
digital smartwatches, as consumers gradually come to expect more
from them.
An Internet connection on a wristwatch may seem an optional or even
strange frill (calculator watches once seemed cutting-edge, after all).
But over time a connection will seem like a no-brainer feature. For
example, a multi-time zone travel watch is a much simpler
proposition with an Internet connection.
The ability to interact with voice-triggered or location-aware
computing systems like Apple's Siri or Google Now may also
eventually come to smartwatches, enhancing their usability and
practicality (watches are too small for sophisticated touch
commands).
Consumers won't buy smartwatches because they're annoyed by
having to pull their smartphones out of their pockets. They'll buy
smartwatches because they like wearing timepieces, and they'll be
lured by new, Internet-improved features like a moon calendar, global
time zones, and calendar notices.
So, early on, smartwatches will be snatched up by mobile-centric
consumers looking to complement and enhance their smartphone
experience. Later, as they improve, an Internet connection will seem
like a must-have feature for a watch.


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A Pebble's Ripples
One piece of early evidence for future smartwatch success is
the Pebble.
The Pebble smartwatch became famous through its massively
successful Kickstarter campaign. The developers originally asked for a
$100,000 crowdfunding campaign goal. Consumers were so
enthusiastic about the concept that it became the most-funded
Kickstarter project ever and shattered its goal to reach over $10
million in funding in just 37 days.
Well after the Kickstarter project, Pebble continues to generate lots of
consumer buzz.
Through just the first half of 2013, Pebble has shipped 93,000
smartwatches and has taken over 275,000 pre-orders.


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Pebble is interesting in that it is a moderately priced device ($150)
and has no ties to any of the major smartphone platforms.
If consumer uptake on the generic Pebble watch is any indication,
then the market is bound to explode once device and mobile software
giants like Samsung and Apple enter the space with high quality,
platform-specific smartwatches that leverage smartphone apps in
different and novel ways (it's not yet clear whether Samsung's
smartwatch will run Android or a separate Samsung operating system
that means it can only be paired with Samsung phones).
Unfortunately, a recent attempt from Sony at an Android-specific
smartwatch failed miserably. Businessweek chalks up its misfortunes
to a first-mover disadvantage.
Category Blur
A final note on smartwatches and fitness bracelets.
It's not often noted that the Nike FuelBand has a watch display. Other
wearable products that are marketed as activity tracking and fitness
bracelets, like the heart monitor-equipped Basis, are also
smartwatches.
It may be that the much-anticipated Apple iWatch is not a stand-
alone iWatch at all, but a modular system of different wrist bands,
monitors, and watch displays, which can be customized according to
customer preference for styles, colors, and features a kind of build-
it-yourself smart-wristwear.
The larger point here is that the smartwatch market naturally
overlaps with the larger market for wrist-worn fitness, health, and
activity-tracking gadgets.
This expands the immediate market for smartwatches beyond the
time-conscious and tech-savvy, to other niche markets.


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In the future, it may be more useful to think of the smartwatch
market not as a separate device category, but as a subset of a larger
market for wrist-worn and even clippable gadgets that sync to
smartphones and PCs.
THE BOTTOM LINE
We forecast that the smartwatch market will reach 91.6 million
units in annual sales in 2018, creating an estimated $9.2
billion market. In the future, about one in 20 smartphones will
be paired in some way with smartwatches.
Consumers will come to embrace smartwatches, not because
they're annoyed by having to take their smartphones out of
their pockets, but because they still like wearing watches, and
smartwatches will have Internet-driven apps that will make
them more informative and fun to use.
The early success of fitness and health-oriented smart
bracelets, as well as generic smartwatches like Pebble, paves
the way for mobile industry giants to create smartphone-
compatible smartwatch devices.




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