Smartwatches at a Crossroads, and Some Analysts are Optimistic


Over all, smartwatch sales have been disappointing, analysts say, compared with the initial predictions made when the Apple Watch and other models were first hitting stores a few years ago. A central problem, they say, is that the rationale for why consumers who already have smartphones would also buy smartwatches has not been clearly articulated.

Ben Wood, head of research at CCS Insight, a mobile communications research firm in Britain, said that smartwatches “have totally failed to live up to the hype, and I have to look at myself in the mirror because I was one of the guys at the beginning saying, ‘It’s a new category, it’s a great opportunity, Apple is coming into it.’ ”

A central problem, he said, is that early smartwatch pioneers were technology firms that failed to grasp that their products, however technologically impressive, also had to be fashion items.

But that has begun to change, Mr. Wood said, because “smartwatches are starting to look like watches.”

Analysts say an early example of a smartwatch that combined elegance with full functionality was a model that the Swiss watchmaker TAG Heuer introduced in 2015, with the collaboration of Google and Intel, for a retail price of about $1,500.

The watch, the TAG Heuer Connected, surprised some analysts because Swiss watchmakers have long been skeptical of smartwatches. But the company said it sold 56,000 of the watches through 2016, far exceeding initial expectations.

And last week, the house introduced its Connected Modular 45, which allows the wearer to switch between connected and mechanical modules, a choice it said ensures the watch is never outdated.

Photo

Tom Foldesi, head of TAG Heuer’s Connected division, presenting the Connected Modular 45, which allows the wearer to switch between connected and mechanical modules.

Credit
Kelly Sullivan/Getty Images for Tag Heuer

Several consumer electronics firms are also striking a healthier balance between smartwatch style and technology, analysts say. A good example, Mr. Wood said, is the Samsung Gear S watch line, which is a vast stylistic improvement over the early smartwatches the company introduced in 2013. The evolution, he said, illustrates how smartwatches are beginning to shed their reputation of being “geek wear.”

Mr. Llamas said that while many consumers still were unconvinced that a multifunctional smartwatch is a must-have, they may be intrigued by emerging technological developments in second-generation models, like cellular connectivity that frees the smartwatch from smartphone dependency.

“I don’t think they’re over smartwatches,” he said. “If anything, there’s a big curiosity for what these things can do.”

Smart analog watches, for their part, are appealing to watch aficionados in a way that multifunctional smartwatches, which run apps on operating systems, never did, analysts say. A result is that the industry’s consumer base is expanding beyond people who primarily bought the Apple Watch and other early smartwatches for their technological perks.

A January study by the British consultancy Juniper Research predicted that although early interest in multifunctional smartwatches had waned, the “basic smartwatch” category could rise to nearly 40 percent of the $21 billion smartwatch industry in five years, up from 30 percent today.

The typical consumer price of a smart analog watch is $300 to $400, and the market is dominated by watch companies and fashion brands rather than technology companies, said James Moar, a senior analyst at Juniper Research.

He said Fossil, Martian and Frederique Constant were especially strong in that market segment, and that he expected traditional watchmakers to continue taking the lead on smart analog.

That the Baselworld watch fair, rather than any of the popular mobile-phone conferences, is increasingly the preferred debut location for smartwatches, he said, is itself a sign of how the industry’s emphasis is shifting “from the technology side of it to the watch side.”

But even as some Swiss watchmakers are edging into smart analog watches because they feel pressure to stay relevant in a changing industry, a growing concern is that new models could become obsolete as technologies change, said Jason Low, a Shanghai-based analyst with the international technology research company Canalys.

He said that this is a major concern because Swiss brands have operated on a business model that sells watches as long-term investments.

Swiss watchmaking “is about complexity and detailed manufacturing, and the love and care that goes into making intricate products, not some piece of consumer electronics that rolls down the line,” Mr. Wood said. Smartwatches are still more of a commodity than an aspirational product, he said.

“But Fossil is pushing the smartwatch mainstream,” he said, “and everything we have learned from the market is that they are way further ahead than they anticipated.”

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