Why Android Wear is Critical for the Smart Watch Category

Earlier this year, I published a brief report on the smartwatch market opportunity. A key part were several scenarios I laid out. Here is that section of my report:

• The vast majority of watches sold today go “smart” over the next five years and run Android Wear or another third party smart watch platform.
• Watch makers standardize on a smart watch platform and there is little to no smart watch platform fragmentation.
• Google or a third party standard platform is genuinely competitive with Apple’s.

It seems a safe assumption Apple will have the advantage in the early stages of the smart watch category. Like the iPhone, they have a five to seven-year advantage on the competition. It is logical that Apple maintains an advantage in this market for at least two years, if not longer, and we feel scenario #1 is how the market will look for at least the first three to five years if not longer.

While there is a strong case to be made for scenario #2 simply because it is logical the competition will need to contend at some point with Apple and will have to choose a platform to use or create their own and the market may likely flood with low cost Android (or another third party) smart watches. It is unclear if these products will stick or be competitive.

A mix of both scenarios is possible as well. Apple may not be destined to be the only dominant vendor in the top 20% of the smart watch market but poised to have much higher market share even if not the total majority starting to make watches.

It is certainly too early to know how all of this will play out but, from what I’ve observed and studied about the market the past year, I’m convinced the role of Android Wear is important to the smart watch category. I say this with the caveat that, if only Apple is successful in this space, then we don’t actually have a smart watch category. If that happens, there is absolutely nothing wrong with smart watches only penetrating a percentage of Apple’s approximately 500 million customers. The point is, for there to be an actual smart watch category, more companies than Apple need to be successful. If the TAM is to be larger than just Apple’s user base, Android Wear will play a critical role.

A fundamental concept of how markets mature is important to understand. At the beginning stages of any new category, the market is immature. Immature markets occur when consumers have no frame of reference for the product and are being exposed to something new for the first time. In the early stages of a new category, the landscape is also very fragmented. I use this slide to tell the story.

Screen Shot 2015-09-01 at 8.33.14 AM

Fragmented hardware and software platforms plague the early stages of a market. We see it in wearables and even IoT today — the same way we saw it in mainframes, mini’s, personal computers, and smartphones. This formula is tried and true and predictably repeatable. But what happens once a standard software platform emerges, and compatible hardware is build up around that standard software platform, is the market is driven to maturity. The hardware landscape becomes competitive, begins to scale, and market fundamentals emerge to bring that technology to the masses. Most recently, we can observe this with Android. If it wasn’t for Android, there wouldn’t have been much of a smartphone market. In fact, if it wasn’t for Android, it would have taken much longer than 5 years for the market to catch up with Apple. Offerings from Microsoft, Symbian, Blackberry, Samsung, etc., were not on a trajectory to go mass market. I’d also argue these companies were not well positioned for the broader consumer audience which is why it would have taken longer for them to adapt to catch up with Apple. Android helped mature the smartphone market by becoming the standard platform for smartphones and smartphone hardware companies.therefore, Android Wear is crucial to the smart watch category in the same way Windows was crucial to PCs and Android was crucial to smartphones.

If we are to have a smart watch category, we need a plethora of choice and Android Wear offers OEMs that choice. Choice in hardware design, price, features, etc. This is crucial for the category to grow. Google was smart to also bring Android Wear to iOS, a move we saw coming from a mile away. Interestingly, I think this will actually help Apple.

I believe Apple’s thesis is this. Consumers will enter a market buying the most affordable device they can. This could be a PC, tablet, smartphone or a smart watch. Apple knows they are not priced at entry level in most of their product offering, so they likely assume their product is generally not going to be the first choice, particularly of the price conscious first-time buyers of a new product. Therefore, Apple’s thesis is, as a market matures and those consumers who started entry level begin to want more and “spend up to move up”, their products will be ideally positioned to compete for those customers. We need look no further than China to see this play out. iPhones were not the first smartphones owned by hundreds of millions of Chinese consumers. However, as Chinese consumers started to mature and self-identify with what they like and don’t like and want and don’t want in a smartphone, they started to move up the chain. Hence, China has the single largest Android switcher numbers of any market we study. Similar dynamics are happening in the US with Android switching as well as many parts of Europe. This dynamic also explains the slow, yet steady growth of Macs. Customers are identifying value within their specific needs, wants, and desires, and many are considering Apple products. Apple is best positioned to compete when a market matures.

Therefore, if Android Wear helps mature the smart watch category, potentially both with Apple customers and non-Apple customers, it stands to reason, once the market matures, the Apple Watch may benefit from a similar dynamic Macs and the iPhone are currently experiencing.

There may or may not be a smart watch category/market. We know for sure there is an Apple Watch market but beyond that, consumers have yet to speak. Android Wear breaks this open and it may take us into 2017 before we can come to any conclusions about the category.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

29 thoughts on “Why Android Wear is Critical for the Smart Watch Category”

  1. “Like the iPhone, they have a five to seven-year advantage on the competition.”

    ?? What can an iWatch do that a Tizen or aWear watch couldn’t do before iWatch was even launched ?

    1. in 2007 technically speaking what could an iPhone do other devices couldn’t? In concept very similar from web, to software, etc. It was all just better experience on an iPhone.

  2. while I agree with your thesis, except that when it comes to the Smartwatch market I do not think Apple will be the best High end luxury as is the case with smartphones, it tends to reason that luxury watch maker like Bvlgari, Rolex, Cartier, and even Vertu will adopt android wear and use their brand power and experience in selling watches to push the market forward and compete with Apple.

    1. I don’t see it happening. An end to end experience is tables stakes for the high end segment. A modular experience always comes back to the same issue, when you need support who do you call? The store you bought from, the brand name, somebody at Google? High end customers want a single supplier that provides a vertically integrated user experience and supports that experience. Apple isn’t perfect but they seem to be the only company even interested in providing this kind of experience. Although I think Samsung sees the value in Apple’s approach and is moving in that direction, to the degree that they can since they don’t control an ecosystem (and many people here have said the bits Samsung adds to Android aren’t so great).

      But who knows, maybe Rolex will fork Android Wear, provide a unique experience, and create a software/hardware support division. I wouldn’t bet on it, but you never know.

    2. I actually never said anything about Apple being the best high-end brand. Only that there isn’t a category if Apple is the only one moving volume in it.

  3. In the case of the smartphone “wars”, one thing that was very positive for Android early on, was that the iPhone was not on many of the major carriers. This includes Verizon in the US, DoCoMo in Japan, and China Mobile in China. Hence it was not only the high price of the device that was the barrier for adoption. Equally important was the very limited range of carriers. This restriction inflated the importance of an alternative smartphone operating system.

    Consider how the market might have played out in the US, Japan and China if the iPhone was available on all major carriers from the beginning. Although price is a significant and important reason why Apple does not have a higher market share, it is hardly the only one. Restricted distribution is also very important.

    Applying this to the Apple Watch, by being restricted to iPhone users, the Apple Watch is again severely restricted by something other than price. Therefore, instead of waiting for other cheap smartphones to prime the market, Apple could try to lift non-price hurdles.

    One way Apple could do this is to make Apple Watch compatible with Android phones. I am not knowledgable about the technical hurdles for doing this, but I expect them to be lower than the inverse case; Android Wear for iOS. This would allow any Android users (and many of them do have enough disposable income) to use Apple Watch and expand the market, without relying on Android Wear.

    I think one should try hard to avoid the trap of putting Android users in Germany for example, into the same bucket as Android users in Indonesia. There are many Android users out there who are just as wealthy as the average iPhone user, and these users often have non-financial reasons for choosing Android. Apple could easily go after these users, without waiting for Android Wear to prime the market.

    So yes, I agree that expanding smartwatches beyond the markets that Apple can serve is beneficial to Apple long-term. However, I think that Apple itself can do more by itself to expand the market without relying on Android Wear, or any other smartwatch vendor (Fitbit, Tizen, for example). In the smartphone wars, Apple prioritised negotiating favourable terms with carriers over market penetration. They don’t have to do this with smartphones.

    And seriously, since Apple is showing aggressiveness to Google and its business model recently, I think they will try harder to make sure Android Wear will not dominate smartwatch market share ever. Maybe Apple is fine with Android Wear dominating emerging nations, but I’m pretty sure that Apple has Android users in developed countries clearly in its sights.

    1. I’m not convinced Apple is worried about Android Wear very much. I have long thought Android Wear will take years to gain traction, and it may never have a significant impact in the high end segment where Apple operates. Android wearables seem to be a mismatch for the market Android sells to. Wearables offer an additive kind of value, a number of small conveniences, and I see no evidence that the majority of Android buyers are interested in this value. Some are of course, but it is a very small number at this point.

      For me, Apple Watch is the next logical step in an Apple Network of Things, representing both expansion and cohesion re: Apple’s ecosystem. In that sense I doubt Apple actually wants to offer Apple Watch outside of the ecosystem.

      1. I agree that Android Wear may take years to gain traction, although I haven’t yet quite pinned down why that would be (I’m leaning towards the reason being branding, marketing, customer-base related rather than just product). This actually enforces my point that, instead of waiting for Android Wear to prime the market, as Ben kind of suggests, Apple would do better to take the issue into their own hands. They should investigate new approaches to the huge number of Android users out there.

        Regarding Android buyers, simply because there are so many of them, you don’t have to appeal to the majority of them to be successful. IDC reports that Android has 6x market share compared to iPhone. Considering that analysts are estimating first year Apple Watch sales based on ~5% of iPhone users buying the device, you can match that number with only ~1% of Android users. When you’re talking about such small percentages, I don’t think it’s particularly useful to stereotype Android users. In fact, it might be more informative to say “Xiaomi users” or “Galaxy S-series users” instead of just “Android users”.

        Regarding the future of wearables, I agree that at this point they are “a number of small conveniences”. The question is, will that continue to be the case going forward? If wearables find their “killer app”, (and there is little doubt that the Apple Watch will be the platform on which such an app will first appear), then the market for Android Wear will open up. Apple should be prepared for such a future, since it itself is the company that will make it a reality.

        1. I think we agree on why Android Wear will be slow to gain traction. It isn’t a problem with the product. The issue is with the kind of value current wearables deliver. I hear many comments along the lines of “I can already do that on my phone”. This is an admission that the additive experience wearables can deliver has no value for that particular person. Of course a killer app or use case can change that, and I expect it will, eventually. But for now even a lot of Apple customers don’t consider the additive experience valuable enough.

          The approach I expect Apple to take is switching. Rather than trying to bring Apple Watch to Android, they’ll spur people to switch to the Apple ecosystem. It does seem like this is already happening.

          1. I totally agree that Apple’s approach is to convince customers to switch to Apple. The issue is how.

            Ben’s article says that it you wait for a market to mature, then customers will switch to Apple. That may certainly be true, but the question is, what should Apple be doing until that happens? Should they simply be waiting patiently, or should they take affirmative action? I am arguing that they should be actively working to get customers to switch, and I think they already are. It’s just that Apple has many other ways to do this other than pricing.

            Apple Watch is a product that could potentially introduce Android owners to the Apple ecosystem. Although the effectiveness of such a strategy is debatable, as are the technical hurdles, I think it’s an idea that is being contemplated.

            When you look at countries like China and how Apple has been successful there, I think we are misled to think that the same strategy will work in any other emerging countries. We tend to think that as the market matures, the conditions will always favour Apple. I think that is a over-generalisation. Countries like India may be very different and may require a “trojan horse” strategy.

          2. I agree that Apple is doing some amount of R&D on Apple Watch for Android. Apple does a lot of research and development and testing on products that we never see, or see years later.

            But where the iPod was relatively easy to open up, I don’t think Apple Watch is quite so easy. I suppose it depends how fast Apple Watch reaches the point where it is a pretty good standalone product. It will always be more powerful as part of the Apple Network of Things, but once it is good enough on its own, then making it available for Android users is probably fairly easy.

            I don’t think India is different for Apple (or any high end brand). Certainly some countries require tweaks to the strategy, but the general idea that the best customer segment is looking for an integrated, whole experience applies to all humans. Is BMW’s strategy much different in India? The BMW India website looks pretty much like all their other country-specific sites. Maybe the pricing differs?

            For me this is basic human nature as it applies to selling things. This is why I predicted Apple’s success in China long ago.

          3. I agree that the technical hurdles for a cross-platform Apple Watch strategy will likely be much higher that the iPod. Obviously, the current 3rd party apps for Apple Watch will not work since they are tied to iPhone apps. Either there will be completely standalone apps for the Apple Watch, or Android developers will have to write extra code for their apps.

            Regarding BMW in India, are they successful to the same extend that they are in China or the US? Maybe they should change their strategy.

          4. Their success will depend on the size of the high end segment. I would guess that segment is smaller in India right now, but likely growing. BMW was the top luxury car brand in India a couple years ago, but now it’s Audi and Mercedes, and other luxury carmakers are doing fine in India. That’s my point, there is a segment of any population that wants to pay for quality goods and services, doesn’t matter where you are.

          5. If I’m looking at the data correctly, it seems that BMW’s market share in India is something like 0.3% compared to a bit more than 2% in the US, 5% in the UK, and 3% globally. I don’t think that’s fine at all, at least by iPhone standards.

          6. Well, that would make sense if the high end segment in India is small. Do we have any data on an approximate size of what we could call a Best Customer Segment? I also looked at some car share data for India, it does seem that cheap cars dominate. But again, if the high end segment is very small, then it’s no surprise that any luxury car maker would have a tiny market share. Just to clear something up, when I say “doing fine in India” I mean within the high end segment. No luxury car maker is doing fine when compared against the entire market.

            What would be interesting is if India had a large segment of the population that could be considered as the high end segment, and those people were not buying luxury or high end goods and services. That would go against my basic theory of sales and I think it would prove your idea of a culture being strong enough to cause very different buying behaviours (if I understand you correctly).

          7. I think you (and many other pundits) are too fixated on the notion that Apple is a luxury brand. I do not believe that to be the case, at least in the sense that a luxury is generally only a small portion of the market in unit sales.

            Apple is, and has been from its inception, in a business where the ecosystem is critical. In addition to making profits for itself, Apple has to make sure that their developers make money as well, and for that, Apple always has to focus on selling a large number of units. It has managed to do this in the US, Japan and many other developed countries. In fact, I do not know of any luxury brand with 50% market share in units in a certain country. This is the business they are in.

            Another think to consider is that local apps are important. Having a strong global ecosystem is one thing, but to really gain traction in a country, I believe that you have to get the attention of local developers.

            Looking at India, the market share of iPhones is pitifully low. Now since India has a huge number of talented developers, you would imagine that there are a lot of apps that are developed by Indians, for the Indian market. Naturally, a lot of these local apps will be for Android only.

            This will make it tough for Apple to gain traction in India.

            Summing up, Apple is in the business of nurturing an ecosystem. Although it has done a great job with the global ecosystem, that is not sufficient. Local ecosystems are very important, and in many emerging countries, Apple’s local ecosystem is not strong enough.

            If Apple’s ecosystem is not strong enough in a given country, then the customers in that country will not perceive Apple to be a quality brand, but only as an ‘extravagant’ brand, like the useless luxury cars that break down much more often than Toyotas.

          8. Apple isn’t a luxury brand, not really. It’s hard to describe actually. They certainly have aspects of luxury and fashion integrated into the overall experience, but it’s more about quality and craftsmanship, and value. I don’t view Apple’s products as expensive because they deliver so much value for me, and they last a long time. I’m still using a seven year old iPod Touch. My wife still uses an iPhone 4S. We all have iPad 2s from 2011. We have a six year old MacBook and a couple of five year old iMacs. All working great.

            I agree about luxury cars, they’re not necessarily better quality. But Apple wraps aspects of luxury and fashion into quality products that are also very useful, last a long time and deliver lots of value. And price-wise Apple isn’t really much more expensive, not in the way that the price of a Mercedes differs from the price of a Ford.

            So what do we call that? Affordable luxury? That’s not quite right. Apple is about craftsmanship and design. For me, those are timeless qualities that resonate anywhere in the world. Apple isn’t strong in India right now, but I’m confident they will be. There’s no time limit, no missed opportunity.

          9. If we try and run with the idea that Apple is not about luxury(*), we have no option but to fall back on Apple being about profit margin, and downgrading the luxury aspect to a margin enabler.

            That doesn’t change things much: Apple can’t undermine just for the Indian market the luxury status that drives their margins in all the rest of the world.

            They could try and come up with new markets requiring new devices which they could sell at their preferred margin. I’ve already said I thing payments or more generally ID might enable that.

            I think one extra hurdle is that as far as I can tell, Apple still only target devices margin, app/media/commission revenue is just icing on the cake.

            (*) which I doubt strongly. I’ve just spent two weeks in my brother’s and his friends’ iWorld, they’re not doing anything that couldn’t be done for 1/3-1/4 the price on Android/Windows, they’re even suffering unnecessarily for using Apple: Maps in Canada does not have traffic/road work info, that cost us a few hours; all the pre-6 users have to carry around external batteries even for a regular day; and god, that USB2 HDD-based iMac of his is sloooooow, and un-upgradeable, not even to an SSD, not even to an external SSD (makes no sense over USB2).

          10. I don’t follow your logic on luxuries and profit margins. These are not mutually exclusive concepts. Hence not being about luxury does not mean that Apple is about profit margins.

          11. I wonder if the word ‘premium’ describes Apple. As a farmer I think of John Deere, that’s the premium brand, but it sure ain’t luxury, and it ain’t cheap, but there’s quality and value. I want a company like John Deere to have healthy profit margins, long term that’s beneficial for me as a customer.

          12. Ever since pundits have tried to categorise Apple as either “premium” or “luxury”, I’ve been thinking of this issue. I’ve never been satisfied with either, although I do think that “premium” is significantly closer to the reality.
            Instead, I tend to consider Apple as a brand that signifies “ease-of-use” and “quality”. As a result, less tech-savvy people, after having a bad experience with Android or Android Wear, tend to think that the grass is greener on the other side. On the other hand, they seldom ever think that the Android side would be greener. Whether this is true or not is debateable, and I realise that many tasks are easier on Android compared to iOS. However, Android has failed to convince most people that they are the better OS for a non tech-savvy user. This is what counts, and what brand is all about. “Ease-of-use” and “quality” also tend to appeal more to the female audience, which is obviously very important.
            “Premium” is a bit different. You can have premium Android phones with great cameras, big screens and fast CPUs. I’ve always felt that Android tends to be designed more like a high-end gaming console. In particular, the settings screen which is a playground for the tech-obsessed, but a house-of-terror for the less tech-savvy, has always used a dark theme in Android. The Android setting screen design seems to communicate that you can do a lot of cool things in there, hence “premium”. However, it is far from friendly.
            So essentially, I am opposed to the words “premium” and “luxury” because they do not give you a good idea of market segmentation and the marketing message that is to be conveyed. Thus, lumping together premium Android phones and iPhones is not particularly useful, and they aren’t really competitors as far as the majority of consumers are concerned.

          13. Well said. My own experience is that Apple is a value brand, in the sense that I get so much value from the products and the ecosystem. Apple products also give me freedom. But we couldn’t say Apple is a value brand, not in the way that most people mean when they talk of value brands. And freedom is contextual. While I experience a great deal of freedom re: Apple, that is not true for others. It depends on the needs of the user.

            It is very difficult to nail down exactly what Apple is. Again I think of Toyota or John Deere, both known for quality and long lasting products. Perhaps the word ‘quality’ is closest?

          14. Apple Maps has had traffic and road work data in Canada for quite a while. I live in Canada and use Apple Maps, I’m looking at it right now, showing both traffic and road data. We also have two pre-6 iPhones, no battery problems whatsoever, they easily get through the day with battery to spare.

          15. Well, I was in the car when we couldn’t take the designated on-ramp and then not the off-ramp either, and not for surprise roadwork, there were big machines, and the same issue on the way back a few days later. I didn’t double-check on gMaps nor Nokia, maybe Quebec is just bad at announcing roadwork.

            I think usage patterns/screen-on time and radio coverage are what lead some (most ?) to have battery life issues with their phones. Anandtech’s Wifi browsing chart is below (LTE browsing is similar). Are you saying Apple upped the iP6’s battery life by 30% for no reason ?

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