The Evolution of the Wearables Market

The Apple Watch had a very good 2017, with shipment volumes growing 56% year over year, catapulting the product to the top of the wearables market in terms of both shipment volumes and revenues according to IDC data. This has led many to suggest that there’s no real wearables market, just an Apple Watch market. But that’s far from the truth, as recent year-end data proves. While Apple clearly leads the market, there are plenty of other interesting developments occurring in this still-growing market.

Smart vs. Basic
Apple’s strong year helped accelerate one evolutionary change that’s occurring in the wearable market: A market-share shift toward smart wearables. A smart wearable is one that can run third-party apps; a basic wearable just runs integrated apps. Most of the original fitness trackers shipping into the market were basic wearables, whereas the Apple Watch-and its third-party-app-supporting Watch OS-entered the market as a smart wearable back in 2015.

IDC began tracking the wearable market in 2013, and during that year basic wearables constituted 83.5% of the market, with smart wearables making up the remaining 17.5%. By 2017 the smart wearable segment had grown to encompass almost 30% of the market. Market pioneer Fitbit shipped exclusively basic wearables into the market until 2016, when it launched its first smart wearables in the form of smartwatches. Later that year Fitbit bought assets from smartwatch pioneer Pebble to help accelerate its evolution. In 2017, 4.4% of the company’s total shipments fell into smart category. While Fitbit’s shift toward offering smart wearables hasn’t been without its challenges, the company is reacting to two key market forces: Consumer demand for smart watches, and the rapid average selling price decline of basic wearables.

Back in 2013, the average basic wearable sold for about $119, but as more vendors have entered the space-including a flood of China-based vendors-the average selling price has declined to $88. China’s Xiaomi, which overtook Fitbit to grab the number one spot in the basic wearable category, had an average selling price of $16 in 2017. During that same time span, the ASP for smart wearables has gone the opposite direction, increasing from $218 in 2013 to $375 in 2017.
Interestingly, while consumer demand for smart wearables has grown, the developer appetite for creating the third-party apps that define the category has seemingly declined. When Apple launched the first Apple watch, many developers rushed to put out mini-versions of their iOS apps for the phone. But the hardware and software limitations of that first device led to poor performance of those apps. Apple Watch hardware and WatchOS 4.0 offer a much-improved platform for apps, but many developers have slowed or stopped development of Apple Watch apps. It’s not clear yet whether Apple can reverse this trend, or if it’s even a priority for the company. Over at Fitbit, the company continues to work to integrate features of the Pebble smartwatch ecosystem into its smartwatch platform.

Shifting Form Factors
In addition to tracking smart versus basic wearables, IDC also captures a wide range of form factors. It’s the growth of new types of wearables that have kept the basic wearable category from ceding more share to smart wearables than it has. To date, the only wearables to qualify for the smart category have been smart watches and smart wrist bands. The broader basic wearable category, which includes basic watches and wrist bands, also includes clothing, earwear, and modular products.

Modular wearables are products that can be worn on different parts of the body depending upon accessories. Fitbit’s third shipping product was the Fitbit One, a modular product that you inserted into a clip and wore on your belt. The Misfit Shine could be worn on a strap on the wrist or ankle, or around the neck in a pendant. Back in 2013, the modular segment of the market constituted about 37% of total basic shipments; by 2017 it represented just 1.6% of total basic shipments. Basic watches and basic wristbands have seen their share of the market decline too, although not as dramatically.

The two categories of basic wearables that have seen dramatic growth are clothing and earwear. Clothing with wearable technology typically focuses on fitness or health features; earwear are products that offer wearable functionality beyond standard Bluetooth connectivity. So, for example, today IDC counts the Bose SoundSport Pulse in the wearable category because it includes heart-rate tracking features. To date, we’ve excluded the Apple AirPods from the category, but future iterations with additional functionality could change that.

In 2014, clothing represented just 0.1% of basic wearable shipments, and earwear was 0.3%. At the close of 2017, clothing represented 2.8% of total shipments (2.3M units) for a year-over-year growth rate of 79% and an average selling price of $62. Earwear increased 129% to reach 2.1% of total shipments (1.7M units) with an ASP of $198. It’s early days in these categories, and looking ahead IDC is forecasting dramatic growth for both.

A Growing Market, Not Just for Apple
The wearables market may no longer be considered the next big thing by many market watchers, but growth here continues. Between 2015 and 2016 the entire market grew by 27.3%; in 2017 that growth slowed to 7.7%, reaching 115.4M units. Wearables face new competition for share of the consumer wallet from emerging categories such as smart home and virtual reality. Some consumers have entered and already exited the market; many others are still figuring out the best way these products fit into their lives.

New technologies and capabilities will bring wearables back into the spotlight over the next few years, and I also expect them to play an increasingly important role on the commercial side of the market over time. And as I’ve noted before, I’m also convinced that wearables will play an important role in the evolution of augmented reality technologies. So, while Apple may well own a significant chunk of the wearables market for years to come, there are still plenty of opportunities for other vendors in this space, and it is much more than just an Apple Watch market.

Published by

Tom Mainelli

Tom Mainelli has covered the technology industry since 1995. He manages IDC's Devices and Displays group, which covers a broad range of hardware categories including PCs, tablets, smartphones, thin clients, displays, and wearables. He works closely with tech companies, industry contacts, and other analysts to provide in-depth insight and analysis on the always-evolving market of endpoint devices and their related services. In addition to overseeing the collection of historical shipment data and the forecasting of shipment trends in cooperation with IDC's Tracker organization, he also heads up numerous primary research initiatives at IDC. Chief among them is the fielding and analysis of IDC's influential, multi-country Consumer and Commercial PC, Tablet, and Smartphone Buyer Surveys. Mainelli is also driving new research at IDC around the technologies of augmented and virtual reality.

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