Smart wearable devices with the capability to record video or audio and process data and real-time empower the wearer were seen only in sci-fi movies until a decade ago. However, advancement in technology and wireless connectivity has made such devices become real and available for mass consumption.
This specific set of smart devices used in infotainment, sports, fitness, healthcare and military fields are called 'wearable technology' devices. A report by IHS electronic & media estimates the market for wearable technology to reach ~$30 billion worldwide and ~$12 billion in the US alone, with 210 million devices shipped worldwide. The industry has experienced an influx of various devices that are applicable across a variety of industries.
The wearable devices used in healthcare are blood pressure monitors, insulin pumps, hearing aids; in consumer electronics we have smart glasses, smart watches; sports & fitness we have heart rate monitors, pedometers while military devices include smart clothing, hand-worn terminals and industrial devices like sensors.
In 2013, the wearable technology market was $2.5 billion led by wrist-wear, which contributed $850 million in sales.
Who's in the market?
The market is expected to grow at a CAGR of 18% till 2018 and this huge opportunity has attracted many key players including Google (NASDAQ:GOOG) (Google Glass), Apple (NASDAQ:AAPL) (iWatch), Micrososft (NASDAQ:MSFT) among others.
The infotainment segment is expected to be most popular and capture largest share in the wearable device category. Google and Apple are best positioned to lead the segment with their products - the Google Glass and the iWatch.
Their might be significant debate with regard to Apple's likely dominance of the smart watch market, given the fact that several other device manufacturers have already introduced various smart watches in the market. Samsung Electronics, HTC and Intel are some of the players.
Why Google Glass Will Be Big for Google
Google Glass is a wearable computer with an optical head mounted display running on the Android Wear operating system. It has already started shipping to users worldwide on May 15, 2014 at a price of $1500.
The device can be used as a camera and can connect with smartphones. There are also other glass providers for specific uses like optics (Vuzix, Kupin, Olympus), Augmented Reality (AR Lab, Oculus, catchoom) and sports (Recon instruments, Oakley).
While other Glass devices are specific for industrial and military uses or for sports/ gaming, Google Glass comes with a wide range of features and application support for accessing Gmail, Twitter, Facebook etc.,through its open source Android Wear platform.
This makes the device more accessible to developers and makes it more suitable for general-purpose use. Google Glass alone is expected to sell more than 20 million units by 2018 and add more than $10 billion in revenue.
Google seems well poised to dominate the smart glasses market with a wide variety of applications. Most important is the fact that the company's focus on infotainment and integration to social media as well as health sensory applications gives it an edge over its smart glasses rivals.
Furthermore, the company's Android OS that it uses in its smart glasses already dominates the application software market. This is going to play a huge role in Google's dominance of the smart glasses market. It already boasts a huge base of android developers who will be vital in bringing new experiences to Google Glass users.
In addition, Google Glass can be sold at consumer level and just about every consumer may find a reason to own one as compared to other smart glasses; for instance, those used in military and sports.
The IHS report suggests that wearable device shipments could reach 210 million by the year 2018 resulting in a revenue of about $30 billion. On the other hand, Google Glass sales are tipped to cross $10 billion by 2018, which gives us a theoretical 33% market dominance.
Why Apple's iWatch Will Be Disruptive
Apple is all set to launch its iWatch device by end of 2014. The device will be manufactured by Taiwan based Quanta Computer and will include 10 sensors to track and monitor fitness data. According to a Wall Street Journal report, Apple has projected sales of 10 to 15 million iWatch units this year.
Apple has already started creating apps like Health to monitor health data collected by wearable devices. Given Apple's reputation in creating new market segments for its products, the sentiment surrounding iWatch's success is positive.
The company's anticipated iWatch is believed to feature at least 10 health sensors to track and monitor health and fitness data. Again, this is a crucial aspect if Apple is to dominate the smart watch market (Apple first launched a smart watch concept device in 2003 but manufacturers were unsuccessful in marketing the device).
Recent technological developments that seem to presuppose a networked community in all aspects have improved the chances of succeeding in the smart watch market. It is a market that currently appears to be on collision course with the smartphone market.
However, considering Apple's unique health sensors, it is clear there is something that will differentiate the iWatch from smartphones in terms of features and usefulness. This also sets it apart when compared to rival smart watches in the market.
Furthermore, Apple's involvement in both software and hardware markets means it has a seamless capability to produce leading wearable devices. Its strong brand for producing top-notch devices will also be crucial in ensuring that it stays above rivals in this explosive market.
The company's projected 10-15 million iWatch shipments this year is a massive statement of how it sees things panning out in the smartwatch market. Given a premium pricing (e.g $1000), this could easily mean tens of billions of revenues. Now, if we factor in the overall CAGR of 18% as pointed earlier, then by 2018 the company's revenues from the sale of this device would be massive.
Wearable tech is tipped to dominate the smart devices market in the future
The smart wearable devices are tipped to replace smart-phones in the long-term, all be it partially, although some actually think this might happen sooner than expected. Morgan Stanley analyst, Katy Huberty, said in a note that she her team predict 30 million to 60 million iWatch "sales in the first 12 months of availability based on historical penetration of past iDevice[s]." Huberty is referring to devices such as the iPad sales which Apple sold 19.5 million units during the 12 months following the introduction of the tablet.
However, sales in units currently stand at a paltry 2.9 million based on wearable devices sold in Q1 2014 compared to 300 million smart-phones sold in the same period worldwide. Therefore, in real sense the aspect of replacing smart phones seems like a long shot.
Nonetheless, as pointed out in various reports, wearable devices are easier to interact with than smartphones that stay in our pockets. With hi-tech smart wearable devices, it would be possible to interact with the functionalities of the gadgets directly, thereby improving response/reaction times to queries or notifications.
Apple and Google seem set to make the highly awaited step and improve human interaction with smart devices. Google in conjunction with Novartis (NYSE:NVS) are expected to launch smart contact lenses that will perform blood sugar levels tests among other tests and return results enabling diabetes patients to keep track of their blood sugar levels. This is just the tip of the iceberg on what smart wearable tech could offer to humanity in the coming years.
Apple is also reportedly working on a smart watch that will help detect health issues, which also serves to show the importance the two companies are putting on health monitoring smart devices. This will set the difference between traditional smart devices and the wearable tech. When we incorporate smartphone capabilities in these smart wearable devices, then wearable tech will have taken the right steps towards replacing the smartphones.
Based on projected smart wearable devices sales of 210 million by 2018, it appears as though the revolution has already started.
The user segment for these products is yet to be created and will develop in the next few years. The potential for analytics and user profiling from data collected by an ecosystem of wearable devices is huge.
Despite the presence of competitors, Google and Apple with their established brands and application development platforms, are strongly positioned to dominate the wearable technology market.
Disclosure: The author is long AAPL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.