Wearables – Deadly drift. – Radio Free Mobile

Still, no one knows why they should buy one.

Apple Watch 2 has failed to revive the flagging smartwatch market in yet another sign that wearables remain a solution looking for a problem.
The latest data from IDC shows that the smartwatch market (a subset of wearables) declined by 51.6% YoY in Q3 16 with Apple Watch shipments declining by 71.6% to just 1.1m units.
The overall wearables market is growing around 25% but it is the cheap and cheerful pedometers and basic fitness trackers that are making all the running.
To make matters worse, these are already commodity products with most priced well below $100 where no one is making a sustainable return.
I think that the reason why there is so little differentiation remains that no one has really figured out how to make a wearable product a must have.
Even Apple, which has a legendary ability to come up with compelling use cases, has struggled and the main question asked by potential users is: “Why would I buy it?” rather than: “How much is it?”
Fitness tracking is already a commodity and one with which many users rapidly tire.
Health tracking is also in its infancy as the sensors are still not close to being good enough to provide safe and secure health monitoring although Philips is making every effort to make its devices medical grade.
Outside of that, wearables are little more than remote controls for a smartphone providing no reason for mass market adoption.
The market will grow this year but at a much slower rate than the triple digit growth it experienced in 2015
Furthermore, the value of the market will be very challenged with brutal price erosion potentially driving the value of the market into negative territory.
Of all the wearable players, Apple is likely fare by far the best as it has a very strong ecosystem which is critical to ensure differentiation.
Even Fitbit, which currently leads this market, is likely to struggle as it does not have the scale nor the experience outside of fitness tracking to put together a user experience compelling enough to keep its gross margins where they are.
Hence I think that 2017 will be even more difficult for wearables in general as the ravages of commoditisation bite despite some unit growth.
Apple is the only company with exposure to this market that has the capability to maintain its pricing and not feel the problems of this market in its income statement.
Microsoft, Tencent and Baidu are my top picks but I think that Apple remains a safe place for long term income based investors.