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The Apple Watch Will Change the Wearables Landscape

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The Apple Watch Will Change the Wearables Landscape JANUARY 1, 2015 JANUARY 1, 2015 The Apple Watch will Change the Wearables Landscape DEBORAH WEINSWIG Executive Director–Head Global Retail & technology Fung Business Intelligence Centre [email protected] New York: 646.839.7017 Fung Business Intelligence Centre (FBIC) publication: APPLE WATCH 1 Copyright © 2014 Fung Group, All rights reserved. JANUARY 1, 2015 The Apple Watch will Change the Wearables Landscape Executive Summary Apple was not first to enter the smartwatch game. The Samsung Galaxy Gear, Sony SmartWatch, Pebble, Motorola and LG G Watch R, to name a few, all beat Apple to market by a long shot. But in technology, and notably in wearables, it’s not always the first to market who rules the perch. The winner is the one who offers a differentiated product and can effectively inform the consumer. The success of the iPad is a great example of how unique packaging reawakened the market for tablets, a product that had already been around for over twenty years. The user experience changed because the interface had changed. We believe that the Apple Watch could cause the same type of disruption in the smartwatch market and by extension, to the wearables landscape. SMARTWATCHES CURRENTLY ON THE MARKET There are many smartwatches currently on the market from vendors including LG, Motorola, Pebble, Samsung, and Sony. The graphic below contains a collage of smartwatches. Fung Business Intelligence Centre (FBIC) publication: APPLE WATCH 1 Copyright © 2014 Fung Group, All rights reserved. JANUARY 1, 2015 The table below contains a list of the top-10 smartwatch companies, their most popular models, along with units shipped, sales, and market share. Figure 1. Top 10 Smartwatch Companies Units Name of Sales Market Shipped Company Country Smartwatch ($ Mil.) Share (%) (000) Samsung South Korea Galaxy Gear 800 $240 33.8% Nike USA Fuelband (incl. SE) 400 60 8.4 Forerunner 220/620, D2, Garmin Switzerland 200 60 8.4 S4 Fitbit USA Fitbit Force 450 59 8.2 Sony Japan SmartWatch 250 50 7.0 Pebble USA Pebble Watch 300 45 6.3 Shanda/Geak China Geak Watch 100 30 4.2 Mio Alpha Canada Heart Rate Sport Watch 100 20 2.8 Yingqu China InWatch One 50 13 1.8 Technology Casio Japan G-Shock Bluetooth 50 10 1.4 Other 30 Companies 450 125 17.6 TOTAL 40 Companies 3,150 711 100 Source: Smartwatchgroup.com MARKET SIZE The smartwatch market is poised to take off. Estimates by NextMarket Insights show annual smartwatch sales growing from 15 million units in 2015 to 373 million units by 2020. A recent UBS survey found that 10% of consumers polled want a smartwatch, and concludes that the Apple Watch will have a strong showing in its first year, pulling ahead of most other smartwatches on the global market. Figure 3. Worldwide Annual Shipments of Smartwatches 2012-2020 (Millions) 400 320 240 160 80 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: NextMarket Insights Fung Business Intelligence Centre (FBIC) publication: APPLE WATCH 2 Copyright © 2014 Fung Group, All rights reserved. JANUARY 1, 2015 A November 2014 Morgan Stanley report estimates that between 30-60 million Apple Watches could be sold in the first 12 months of availability, representing between 1.5 and 3.1 times the total market in 2014. According to Morgan Stanley’s November Blue Paper on Wearables, 19% of consumers will be “probably buying” and 30% “maybe buying” the Apple Watch, similar to purchase intentions for all existing devices combined. Figure 4. Purchase Intentions for the Apple Watch 30% 25% 19% 19% 7% Definitely Probably Maybe Probably Definitely would buy would buy would buy would not buy Source: AlphaWise Survey August 2014, Morgan Stanley Research Piper Jaffray anticipates that the watch will be released later than the currently anticipated Spring 2015 launch and estimates that at least 10 million units will be sold in the first year on the market. Piper’s recent survey shows that only 7% of current iPhone users intend to buy an Apple Watch when it becomes available. Wall Street consensus estimates call for around 15 million units to be sold in the first year. Apple’s primary competitor in the wearables market is Fitbit, which controlled nearly 50% of the 2.7 million unit wearables market during Q1 2014. Business Insider’s BI Intelligence projects that the wearables market will reach $12.6 million by 2018, led by “wrist-born gadgets”. If Apple’s 12% global smartphone market share in this last quarter (IDC) is an indication of how strong the company’s loyalty base will be for the “add on” device of the Apple Watch, the company has a huge potential to disrupt consumer’s buying patterns in this market. Figure 5. Overview of Brokerage Apple Watch Estimates Piper Jaffray Morgan Stanley UBS Smartwatch 7% of consumers 10% of iPhone users, 10% of consumers purchase intentions Est. unit sales of 10M in first year on 30-60M first year 24M units FY2015 Apple Watch first market (Sept.) year/2015 Sources: Piper Jaffray, Morgan Stanley, and UBS Fung Business Intelligence Centre (FBIC) publication: APPLE WATCH 3 Copyright © 2014 Fung Group, All rights reserved. JANUARY 1, 2015 REVENUE SCENARIOS If we conservatively estimate that 11 million units could be sold at a price of $349, the Apple Watch’s least expensive option, we would be adding $3.8 billion to Apple’s top line in the first year the Apple Watch is available on the market. Alternately, if we assume 60% of the market will buy at the lowest price point of $349, 30% at the low end of the $749 mid-price category, and 10% at the bottom end of the luxury category, and also assuming 11 million units sold would generate $6.1 billion in revenue the first year the Apple Watch is on the market. Figure 6. Apple Watch Revenue Estimate (@ 11 Million Units) Unit Price Assumed Mix (%) Total Sales ($ Bil.) $349 60% $2.3 749 30% 2.5 1249 10% 1.4 TOTAL SALES 100% $6.1 Source: FBIC Thus far, consumers have shown an intense but passing fascination with gimmicky wearable products. Just tracking the numbers of steps taken, or seeing how well consumers slept has not turned to be endlessly entertaining. One of the big issues at the top of industry conversations is long-term consumer engagement. Designers have discovered that a compelling experience optimized for long-term consumer engagement is a crucial element that products need in order to be integrated full time into a user’s lifestyle. Designing for the senses and sustainability inside a space must be part of the inception of a new wearable. The Apple Watch’s combination and application of visual, tactile and audio capabilities is unique to the smartwatch and, most importantly, can be individualized to the customer. APPLE WATCH VS. SONY SMART WATCH: THREE KEY FEATURES Let’s compare key features of the Apple Watch with the current top smartwatch on the market – the Sony Smart Watch 3. APPLE WATCH SONY SMART WATCH 3 • S2 processor • 1.6 in size • Needs iPhone 5 or higher • TFT LCD “transflective” display • Flexible retina display • 8mm thick • Wi-Fi/Bluetooth 4 connection • 10m Bluetooth range • 38mm or 42mm sizes • 3-4 day battery life • Strengthened Ion-X glass Sapphire • Compatible with Sony products crystal screen • Inductive charging • Built in microphone • Customizable screen design • Full integration with most apps/Apple tools The slogan for the original iPhone was, “Apple reinvents the phone.” Very quickly the iPhone became a device whose broad range of functionality distinguished it from other smartphone devices and made it a must-have item with many consumers. Apple is Fung Business Intelligence Centre (FBIC) publication: APPLE WATCH 4 Copyright © 2014 Fung Group, All rights reserved. JANUARY 1, 2015 approaching the smartwatch market in much the same way—reinventing what customers have come to expect from their smartwatches not only through adding functionality and customizing touch and visual components, but also by perfecting and distinguishing existing usage. Apple has won when the consumer begins to view the Apple Watch as both a tech and fashion piece for daily use. Figure 8. Consumer Interest in Purchasing a Smartwatch, by Country Total US UK China Italy Base: All likely to purchase a 747 64 48 340 295 smartwatch Samsung Gear 37% 31% 25% 34% 43% Apple Watch 25% 28% 17% 36% 13% Sony SmartWatch 6% 6% 6% 5% 8% Motorola Moto 360 2% 0% 6% 3% 1% Garmin Forerunner 2% 2% 6% 2% 2% Z1 Android Watch-Phone 2% 2% 4% 2% 1% Source: UBS FUNCTION AND APPLICATION: WHAT’S SPECIAL ABOUT THE APPLE WATCH? The Apple Watch isn’t just built for fashion, mobile optimization or fitness tracking. It is designed to surpass current wearable technology options in all three. Apple Watch Models This table below shows several Apple Watch models, their price range, and their key physical characteristics. Figure 9. Overview of Apple Watch Models The Sport The Watch The Edition Type/Designe Estimated Price Range $349 $749-999 $1,249-4,999 Distinction Anodized Aluminum Stainless Steel 18k Gold Source: Apple Key Features • Fashion: It can be personalized and customized. The Apple Watch can be customized and personalized (in the choice of metal, design and color of the band and face, as well as personalized setup and alerts) more than any other smartphone currently on the market. The consumer has made this message clear—whatever item they are wearing on their person needs to create, define and proclaim individual style. Apple describes the Apple Watch as its “most personal device ever,” and it is seen as value added to the consumer’s most important piece of personal technology—their iPhone.
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