Two Scenarios for the Smart Watch Market

Interesting analysis from Creative Strategies’s Ben Bajarin, speculating that the smart watch market will likely break in one of two ways:

  • Like MP3 players, where Apple dominates in market share.
  • Like the phone market, where Apple owns the profitable high end of the market, but with a 20-or-so percent share of the total market.

Here’s the thing I keep thinking about. Watches and wearables are like Apple Pay, insofar as no third-party solution can compete with Apple for iPhone users. Apple Pay feels like magic because it’s built into iOS, with links to the NFC and Touch ID hardware. Third-party payment solutions can be (and have been) built apps for iOS, but no mere app can offer the experience Apple Pay does.

It’s the same with wearables. Apple Watch will have integration with the iPhone at the system level, not the app level. Other smart watches may succeed, but I doubt they will succeed with iPhone users. If you’re an iPhone user, and you want a “smart” wearable, you will buy an Apple Watch.

Conversely, I don’t think Apple Watch will ever have any appeal to non-iPhone users. This first year, Apple is explicit about it — you need an iPhone to use Apple Watch. So the question of whether the overall smart watch market winds up looking more like MP3 players or phones comes down to how many non-iPhone users will buy any smart watch at all.

(The third possibility I see: smart watches, Apple Watch included, never really become a big deal.)

Update: So is this an anti-trust risk for Apple? I think no, thanks to the advantage of not having even close to a majority market share in phones.

Wednesday, 7 January 2015