SAMPLE PAGES: Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands

November 2014 Report price: US$ 3,495.00

Jan ten Sythoff | Analyst at Large Ozgur Aytar | Research Director Summary

“Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands,” a Research Report by Pyramid Research, examines the high growth opportunity which wrist-worn wearable technologies provide, how the ecosystem is developing, positioning strategies of the key industry players, and the launched and announced products to date. The report provides 5-year projections for shipments and revenue by device segment and global installed base. The analysis is built around Pyramid’s wrist- worn product database of over 70 models, mobile industry forecasts as well as end-user research conducted across several Western European countries and a global survey of over 200 industry players.

2 Key findings

• Following several decades of false starts, wrist-worn with a particular focus on improving battery life. technology is becoming an enormous new opportunity: • Highly functional smart watches will be dominated by the shipments for wrist-worn devices are expected to grow existing platforms, but there are also by nearly sevenfold in 2014 and threefold in the opportunities for devices with lower functionality, following year. Technology developments, high particularly for the traditional watch manufacturers, for smartphone penetration rates, new applications and the whom typically design comes above functionality. availability of well-designed, easy-to-use devices are • Fitness and health applications will be a key driver for some of the key drivers behind this growth. wearables. Many large technology companies are looking • The variety of products available has ballooned, with at cloud based health services as an important new different designs, capabilities and brands, but the entry revenue opportunity. of Apple into the market in 2015 will be the key catalyst • Bluetooth is the connectivity technology of choice today; for growth. Wi-Fi drains batteries quickly but enables independent • Manufacturers face multiple challenges in developing a connectivity and could introduce new opportunities, smart watch that is attractively designed and balances particularly for mobile operators. We expect that NFC will functionality with the right combination of user make the biggest impact, opening the door to new interfaces. Furthermore, there is an inherent trade-off applications, particularly in the areas of access control, between functionality and battery life: typically, loyalty, payments and travel. technology vendors such as Apple and Samsung favor • By 2019, we are projecting shipments to grow by 13-fold functionality and have had to develop innovative ways in from its 2014 level, with more than 10% of the global which the user can interact with the device. Traditional population wearing a connected wrist-worn device. watch manufacturers such as Casio and Citizen prioritize While the market is expected to be triggered by the Apple battery life and limit functionality. In between are a broad Watch, at the same time lower cost devices will also drive range of different possibilities to meet different needs the market as chipset and component prices fall; and tastes. furthermore, the price of connected bands will fall • There remains significant potential for product dramatically as new business models become established. development and improvement, particularly as the chipset and technology suppliers improve their products,

3 Report methodology

The “Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands” report comprises business model analysis, market sizing and demand analysis and trend analysis for wrist-worn device market. Insights and data are derived through a mix of primary research, secondary research as well as quantitative modeling for sizing the market opportunity.

The report draws on a total of three surveys and panels that gauge the status and expectations of both end-users and industry participants, including a survey of over 200 telecommunications and technology professionals conducted by Pyramid Research in August-September 2014 as well as a European technology end-user panel in Germany, Italy, Spain and the UK in July 2014 and a UK wearable technology end-user panel from January 2014, both of which were conducted by our sister company, Canadean Consumer.

In addition to these surveys, Pyramid conducted interviews with key players in the market to support its analysis of the evolution of the ecosystem and business models and development of a database of 70 wrist-worn devices. This effort was supplemented by secondary research, involving the gathering of relevant data and intelligence through publicly available sources, publications, trade associations, specialist databases and company financial reports, presentations and press releases.

Pyramid Research developed a model to size the market opportunity that incorporates global historical shipments, revenue and average selling price (ASP) data at the manufacturer level, survey findings on adoption levels as well as vendor plans over the next 18-24 months in the forecast through 2019.

4 Reasons to buy

• The “Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands” report provides a comprehensive examination the nascent wrist-worn wearable technology opportunity to help executives make informed investment decisions, develop effective partnerships and optimize return on investment.

• This report provides a five-year forecast of wrist worn wearable volumes and revenues broken down into three segments, namely bands, and cellular watches as well as a population penetration and installed base analysis to enable executives assess growth opportunities and position their companies for emerging trends in demand

• The report incorporates a detailed product analysis, highlighting the features, functions, pricing and capabilities of over 70 product models on the market, which provides an in-depth overview of key trends in the wrist-worn device market for any stakeholder and should support vendors in developing competitive strategies as well as differentiation.

• Survey data is included into the analysis, including both end-user awareness information as well as the results on an online industry survey to assess the industry’s position and expectations of the market opportunity.

5 Table of contents

Table of contents 2 III. Product segmentation and pricing Table of exhibits 4 i. Smart watches Executive summary 6 ii. Bands Introduction 10 iii. Cellular-connected smart watches I. Report scope, definitions and segmentation IV. Product challenges II. Survey and panel overview V. Product analysis Section 1: Market overview and background 14 i. User interface I. Overview of wearables and connected watch opportunity ii. Interactivity and functionality II. End-user awareness iii. Android Wear user interface III. Industry expectations iv. Design IV. Watch market overview v. Battery life V. Smart watch history vi. Functions and applications Section 2: Analysis of the smart watch ecosystem 22 vii. Android Wear applications I. Smart watch ecosystem overview, brand positioning and key VI. Product positioning: Price versus functionality takeaways VII. Product connectivity II. Application developers: Positioning strategies i. Wi-Fi i. Runtastic ii. NFC V. Traditional watch manufacturers: Positioning strategies Section 4: 5-Year forecast of wrist-worn device shipments, revenue and i. Swatch installed base 64 ii. Casio I. Key forecast assumptions VIII. Smart watch platforms/vendors: Positioning strategies II. Industry survey results: Population penetration expectation for i. Google 2019 ii. Samsung III. End user awareness iii. Apple III. Product availability XII. Mobile network operators: Positioning strategies IV. Wrist-worn device shipments by segment i. AT&T V. Bands: Shipment and revenue forecast ii. NTT Docomo VI. Cellular smart watch: Shipment & revenue forecast iii. Swisscom VII. Smart watches: Shipment and revenue forecast XVI. Chipset and component manufacturers: Positioning strategies VIII. Global installed base and penetration forecast i. MediaTek Appendices 75 Section 3: Assessment of wrist-worn products 44 Companies mentioned I. Key takeaways Sources and related research II. Product and manufacturer overview About Pyramid Research

6 Table of exhibits

Product count by segment 10 Smith Optics I/O Recon connected goggles 40 Overview of survey and panel surveys 11 Apple S1 SIP and Qualcomm TOQ 41 Survey respondent breakdown by company type 12 MediaTek LinkIt overview 42 Survey respondent breakdown by region 12 Manufacturer breakdown by type 45 Smartphone penetration in selected markets, ye 2013 14 Prices by segment: low, average and high 46 “Which of the following have you heard of?” 15 Yingqu InWatch One, Garmin Forerunner, Tomoon Fire 47 “Which of the following wearable technologies have you heard of?” 16 Sony Smartband Talk, Jawbone Up24 48 “In five years time, what level of population penetration do you expect to Filip, hereo and Tinitell wristphones for children 49 see for wearable connected devices (in your country)? 17 , Timex Ironman One GPS+ 49 “Please rank the following types of wearable devices in the order of how “How important are the following challenges that the industry must successful you expect them to be over the next five years” 17 overcome to ensure mass market adoption of wearable devices?” 50 “Is your company involved in the connected wearable device market?” 18 “How would you expect the user to interact with connected devices worn on “Which of the following devices are/will be within the scope of your the wrist?” 51 company’s involvement in the connected wearable device market?” 18 Product positioning: functionality and user interface 52 Global watch revenue, 2012, 2013 19 Android wear menu and user interface 53 Average watch prices by country of manufacture, 2013 19 designs 54 Early smart watch failures 20 Smart watches with classic designs 55 Smart watch ecosystem 22 Kairos smart watch has both a classic and a digital screen 55 “In your view, how would strong adoption levels of wearable devices impact Watch battery life 56 the following?” 23 “How important do you think the following applications will be in driving “Please rank the following brands in the order of how successful you expect wearable device adoption?” 57 them to be in wrist-worn wearable devices” 24 Early Android wear applications by category 58 Runtastic pro app 27 Product positioning 59 Positioning of watch vendors and smart watches 29 Wearable connectivity capability 60 Swatch Touch 30 “Please rate the importance of the following ways in which wearable devices Positioning of smartphone manufacturers 33 connect” 61 Cellular-enabled watches and subscription costs 37 Telefonica’s TU Go service 62 AT&T devices (Filip watch, Martian watch, Fitbit Flex) 38 Apple Pay on an Apple Watch 63 NTT Docomo’s Move Band 2 39 Starwood Hotel watch app 64 Limmex emergency watches offered by Swisscom 40 Connected wrist-worn device shipments, 2013-2019 65

7 Table of exhibits (cont’d)

“In five years time, what level of population penetration do you expect to see for wearable connected devices (in your country)? 66 “Which of the following new technologies have you heard of?” 67 “Which of the following statements do you consider to best represent wearable technology in 2014?” 67 Bands, cellular smart watches and smart watches launched 2012-2014 68 Segment market shares, millions of shipped units, 2013-2019 69 Connected band shipments and revenue, 2013-2019 70 Cellular smart watch shipments and revenue, 2013-2019 71 Smart watch shipments and revenue, 2013-2019 72 Wrist-worn device installed base and population penetration, 2013-2019 73

8 End-user awareness: Across four countries in Europe

According to Progressive Media’s consumer end-user technology survey in Germany, Italy, Spain and the UK, end-user awareness for wearable technology is highest in Spain and lowest in Germany.

“WHICH OF THE FOLLOWING HAVE YOU HEARD OF?”

Average

Italy

Wearable technology Germany Smart watch 4G Smartphone Spain

UK

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Source: Canadean Consumer: Connected Consumer Tracker Q2 2014; UK, Spain, Italy, Germany

9 Smart watch ecosystem overview

The proliferation of wearable devices will have the biggest impact on data usage, application sales, voice interactivity and targeted advertising.

According to our survey, the biggest impact of high adoption “IN YOUR VIEW, HOW WOULD STRONG ADOPTION LEVELS OF of wearable devices would be on the use of services such as WEARABLE DEVICES IMPACT THE FOLLOWING?” (N=178) (AVERAGE mobile data access, voice use (for interactivity), advertising OF INCREASE, DECREASE, NO IMPACT RESPONSES) and application downloads. The impact on other hardware sales, such as traditional Watch sales watches, tablets and , is less pronounced, but note that the impact on smartphone sales (and loyalty) is Tablet sales overall seen as positive, despite overlapping capabilities. Conversely, traditional watch sales are expected to be Smartphone sales impacted negatively and though this impact was expected to be small by the technology industry, the announcement of Smartphone loyalty the Apple Watch hit traditional watch stocks such as Fossil, Richemont and Swatch negatively. App sales/downloads Communication, information, navigation and entertainment Targeted advertising applications will all benefit with increased usage, but we expect that the area of fitness and health will be the most Voice interaction important growth area, driving application downloads and mobile data usage. Mobile data

-40% -20% 0% 20% 40% 60% 80% 100%

Source: Pyramid Research Industry Survey, August 2014

10 Product analysis: Interactivity and functionality

More advanced smart-watch functionality requires more sophisticated user interface combinations; vendors must choose the best combination of user interfaces for the level of functionality they want to offer.

Devices with more functionality require a more sophisticated PRODUCT POSITIONING: FUNCTIONALITY AND USER INTERFACE user interface, and vice versa. Thus, at one extreme, the Apple Watch has very sophisticated functionality and allows the user High interactivity to interact in several different ways: buttons, touchscreen (to swipe up only), voice as well as vibrations/touch and gesture. Android Wear mainly uses touchscreens and voice for interaction but does support manual buttons also. Apple points out that touchscreen interactivity is not fitting for a watch because the screen cannot be seen, but it remains to be seen how this will develop in the future. It is still unclear Limited Advanced whether users will be willing to use voice commands to functionality functionality interact with wrist-worn devices. The traditional watch manufacturers’ smart watches, with their limited functionality, have stuck to the use of hardware buttons for interactivity. The most recent device from Casio lets users assign hardware buttons in the way they prefer. Simplicity is chosen over functionality, given the uncertainties highlighted above. Manufacturers must therefore carefully decide which types of user interfaces should be used and combined to best access the functions and capabilities of their devices. Limited interactivity Source: Pyramid Research

11 Companies mentioned

Apple Microsoft Tomoon Asus Motorola Toshiba AT&T Neptune Yingqu Casio Nike Citizen NTT DoCoMo Epic Systems O2 Fitbit Omate Fossil Omron Garmin Geak Qualcomm Google Richemont HTC Rolex Huawei Runkeeper IBM Runtastic Jawbone Samsung Kairos Scosche LG Seiko Limmex Sony LVMH Bulgari Swatch Magellan Swisscom Martian Telefonica Mayo Clinic Timex Mediatek Tinitell

12 Sources and related research

Smartphone Forecasts The Smartphone Forecast tracks annual handset sell-through of total mobile handsets and smartphones for a 10-year period including five historical years and five forecasted years. Smartphone sell-through is segmented by the top 10 vendors (including select vendors by country) and segmented by operating system. Granular data is provided for each of more than 50 countries, making Pyramid’s smartphone forecast the most detailed on the market today. Mobile Data Pricing: Innovative Practices To Drive Adoption and Traffic This new Research Report by Pyramid Research provides a strategic analysis of the mobile data opportunity across different regions through 2018, and keys to developing the mobile data business. The report includes an in-depth assessment of mobile service provider pricing plans worldwide, identifying effective data plans and best practices to grow mobile data usage and revenue. The report incorporates detailed country case analyses for China, France, India, Japan, the UK and the US, with examples of a variety of pricing schemes from different market environments and types of players. Cellular M2M Services in Africa & the Middle East: Market Sizing, Forecasts and Case Studies This Telecom Insider Report by Pyramid Research presents the different M2M market segments in the region and includes market sizing, forecasts, growth drivers and case studies. It analyzes the main developments and key trends in cellular M2M verticals, including the telematics/fleet management, utilities/smart city, consumer electronics, health, industrial, financial/retail and security sectors. This Insider also presents case studies of Vodacom in South Africa, M-KOPA Solar in Kenya, Etisalat in the UAE, Sequoia Technology in Mozambique and Turkcell in Turkey, examining how these different players approach the M2M opportunity. We conclude with recommendations. South Korea: LTE-A and 10Gbps Broadband to Drive Operator Investments This Country Intelligence Report offers a precise, incisive profile of South Korea’s mobile and fixed telecommunications and pay-TV markets based on comprehensive proprietary data and insights from our research in the South Korean market. Published annually, this presentation-quality, executive-level report provides detailed analysis of the near-term opportunities, competitive dynamics and evolution of demand by service type and technology/platform across the fixed telephony and broadband, mobile and pay-TV sectors, in addition to a review of key regulatory trends.

Mobile Data Forecasts Forecasts updated quarterly A premium version of Pyramid Research’s Mobile Demand Forecast, Mobile Data tracks current and future demand for mobile data services, within the context of overall mobile demand. This forecast includes all the same tracking as the standard Mobile Demand Forecast but breaks down mobile data ARPS, revenues and subscriptions at the service level.

CLIENT CONFIDENTIAL © 2014 Pyramid Research. All rights reserved. No material contained in this report may be reproduced in whole or in part without the prior written permission of the publisher. Neither the information nor the opinions expressed in the report should be construed as a recommendation for the purchase or sale of any security. The information contained in this report has been obtained from sources we believe to be reliable, but neither its completeness nor accuracy can be guaranteed. Opinions expressed are based on our interpretation of the available information and are subject to change.

13 About Pyramid Research

Advising Leaders in the Global Communications Industries on Emerging Markets and Services Opportunities Pyramid Research (www.pyramidresearch.com) offers practical solutions to the complex demands our clients face in the global communications industry. Its analysis is uniquely positioned at the intersection of emerging markets, emerging technologies and emerging business models, powered by the bottom-up methodology of our market Forecasts for more than 100 countries — a distinction that has remained unmatched for more than 25 years.

How We Cover Communications Markets Our highly structured analysis closely examines the performance, technology trends, macroeconomic environment and regulatory conditions of service providers and equipment vendors in each of the more than 100 countries we cover. Using a bottom-up approach, we size market demand across services and countries, and conduct end-user surveys to validate adoption trends and anticipate shifts in demand. Our commitment to intensive, direct interviewing of regulatory authorities, service providers and manufacturers — complemented with end-user data — ensures the most reliable portrait of every market we examine.

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