Google is preparing to launch two Nexus-like smartwatches

Global Smartwatch ShipmentsBI Intelligence

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Google is preparing to launch two flagship smartwatches running the new Android Wear 2.0 operating system, Android Wear Product Manager Jeff Chang told The Verge.

Similar to Google’s Nexus line of smartphones, the devices — slated for release in Q1 2017 — will use the manufacturer’s branding rather than Google’s.

Google is likely hoping the new devices will boost its share of the global smartwatch OS market.

By taking a more hands-on approach to how the OS is implemented on the device, Google is likely hoping to provide a better user experience that more closely follows the company’s vision for how the device should function, rather than the forked versions of Android Wear offered by third-party smartwatch vendors, which Google has less control over. Apple’s watchOS is projected to comprise about 52% of total smartwatch shipments in 2016, according to IDC, while Android Wear is expected to make up just 23%. 

Nevertheless, despite Google’s bullish stance on wearables it’ll likely be at least five years before smartwatches fully take off. Here’s why: 

  • Smartwatches lack a clearly defined use case. Smartwatches fulfill many of the same functions as smartphones, but offer less processing power and fewer apps. Less than 1% of smartphone owners (the devices need to be tethered to a phone) purchased a watch in 2013, and that increased to just 2% by 2015.
  • Smartwatches remain too expensive for many consumers. High-end devices from vendors like Apple and Samsung typically start at $350 for the base model, with premium devices costing more. Meanwhile, low-end smartwatches, which cost around $150 to $250, provide even less functionality than the high-end devices. 
  • Currently, there’s not a market for smartwatch upgrades. With the death of the two-year carrier contract, the smartphone upgrade cycle is getting longer — the share of smartphones replaced every two years in the US fell dramatically, from 40% in 2013 to 16% in 2014, according to Recon Analytics. If the yearly launch of a new device model that users rely on every day isn’t enough to drive consumers to upgrade within two or even three years, then a secondary device like a smartwatch would likely have an even longer cycle. Because of this, first-time buyers and early adopters will likely continue to drive smartwatch shipments.

When they first broke onto the scene, smartwatches were touted as the next generation of devices set to transform consumers’ lives. And brands, service providers, and the healthcare segment were ready to capitalize on their “always on” nature, which promised to provide greater insight into consumer habits. But while the market initially grew rapidly, it has begun to cool off, as consumers become impatient with the technology’s lack of distinct capabilities, such as LTE connectivity and device-specific apps.

In the next few years, the smartwatch market will likely see the addition of new functionality and increased capabilities, which will see the device shipments grow at an annualized rate of 18% through 2021 to reach 70 million units.

However, smartwatches are reliant on a number of factors in order to generate any sort of meaningful consumer demand. Until such a time, adoption of smartwatches will likely be sluggish, as consumers wait for vendors to produce products that can run independently from their phones and provide more useful functions.
So what does this mean for the device championed as the replacement for the smartphone? Should vendors manage to implement a lower price point, better functionality, and expanded use cases, there is a vast potential for accelerated global growth. Moreover, because of the low adoption rate thus far, there is still ample opportunity for new entrants to join the market, and capture mind share.

Laurie Beaver, research associate for BI Intelligence, Business Insider’s premium research service, has compiled a detailed report on smartwatches that examines all areas of the smartwatch market, including a five-year forecast, key growth trends, market leaders, consumer demand, and more. It also discusses the need for the inclusion of standalone capabilities in smartwatches, as well as the importance of bringing both better apps to the devices and greater consumer awareness of capabilities. Lastly, it explores the nascent smartwatch app market, including its shortcomings and how it can be improved.

Here are some of the key takeaways from the report:

  • Demand for smartwatches has cooled as consumers wait for better functionality. But early demand suggests the market could take off when functionality improves. 
  • Apple will continue to drive a large portion of the overall market, however, Android Wear devices will quickly catch up as emerging markets begin to adopt the technology.
  • Health and fitness remain a dominant segment of the smartwatch market, providing healthcare workers and hospitals with savings opportunities. As technology and app development advances, the benefits of smartwatches within these segments will become even more robust.
  • The future of the smartwatch market remains somewhat unclear, however, there is profound opportunity for businesses and developers to begin exploring the nascent smartwatch market. This will give them a head start against competitors.

In full, the report:

  • Forecasts smartwatch shipments through 2021 for both overall device shipments as well as by operating system.
  • Provides an overview of the main players in both hardware and software, and how they will size up in the future.
  • Demonstrates the effect of Apple’s entrance into the market, and why it’s unlikely to dictate future growth.
  • Gives insight into what technologies need to be worked on in order to incentivize future growth, the effects they will have on the market, and how they can be used.
  • And much more.

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