Will Smartwatches Kill Smartphones? By: Gilles Raymond
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Tags: Gear, iPad, Samsung, smartphone, smartwatch

The smartphone market has become increasingly saturated; tablet growth has slowed. So, will the smartwatch revive the market or kill it? Mobiles Republic just released our first apps for the Samsung Gear Fit and Gear 2 smartwatch. Developing the apps have given us a unique hands-on experience with the smartwatch platform. Combined with my strategic analysis I would like to share my perspective on wearables…and what it means to our industry.

Smartphones and Tablets March Toward Saturation

Smartphone markets in Asia and Europe are on their way to complete saturation. South Korea, with 73% penetration rate, reached it first, followed by Singapore with 72%. Countries like Norway, Australia, and UK with penetration rates between 62 to 68% are following closer. Meanwhile, the US comes up behind with rates at 56%, representing a 27% growth in a year. The landscape for OEM (Original Equipment Manufacturers) is at an even greater risk because an almost zero-growth market is painful, new territory for manufacturers and grabbing the last percentage of the market share is always costly, with little-to-no margin. The tablet market is even smaller with a shipment ratio of ten smartphones for one tablet (one tablet for every 2.5 smartphones for the Cupertino-based firm), The other bad news for a manufacturer, such as Apple, is the iPad’s humble growth. From 2012 to 2013, iPad shipment volume went up a modest 15%. Even worse, sales forecasts for Q2 2014 project an 18% decrease to 16.4 million units. Considering Apple created the market just five years ago, the slow-down is very early. (My next post will discuss the lack of engagement on the iPad—an even more concerning issue for tablet creators.) Meanwhile, consider that the global tablet market is growing by 68%, signifying a bigger problem for the US smartphone giant. And for Samsung, with just 19% of the market share, they are experiencing further disappointing numbers. The limited success of Samsung and Apple in the tablet market may signal the maturity of the industry and lack of innovation, therefore increasing the pressure to cut price in order to attract a bigger audience. Will the Smartwatch Breathe New Life into the Market?

From a useless gadget…

The whole hardware digital eco-system is now running toward the unchartered territory of the smartwatch. Samsung leads this new exploration by launching the Gear and Gear Fit just few days ago. Motorola, Sony, and many other OEMs announced or deployed their watches. Rumors say HTC will launch one, and you can bet Apple will deploy its “iWatch”—It would be too risky not too with big competitors, like Google occupying the field. The question is when?

Today, the smartwach doesn’t offer any relevant features without being connected to a smartphone. This ball-and-chain makes the smartwach a limited tool, attracting only very early adopters and techy show-offs. But this last barrier to mass market will disappear soon.

To a new designed phone

An analysis of the Samsung Gear 2 hardware shows that it can already support a GSM module, so it’s easy to assume that the smartwatch will become a cellphone in the coming months. With all the features of a smartphone on your wrist, this revolutionized design will be a worldwide game-changer.

Checking the different levels of the value chain, here is why the smartwatch will be the next big wave:

–  Installed base: The smartwach will be an always-wear mobile, with all basic functions of a smartphone. Easy to wear and fashionable, it will be both useful and trendy, like the iPod used to be. Current smartwatches are priced at less than $200 so if OEMs manage to build aspirational gear with the right design and marketing, it will be a massive wave accessible by all.

–  Usage: A smartphone user spends twice as much time on applications than on the web(1).  If the fuel of usage is the content, the engine is the accessibility. We are back to the famous 4Ps from Jerome Mc Carthy’s theory: Easy access leads to intense usage. A user accesses his smartphone 150 times a day on average (2) and launches applications 10 times per day (3). If a user only needs a slight move of his wrist to access content, how often will he check his smartwatch? 300 times a day? More?  The challenge will be to offer an enjoyable user experience, fully defined for smartwatch. The onus will be on the design and content.

–  Carriers: The opportunity for the carrier to sell additional subscriptions will be a great incentive to distribute and promote smartwatches.

–  Publishers & Monetization: We often think that content monetization is a key factor in building the eco-system. However, the dynamic is such, especially in Silicon Valley, that monetization comes third after critical mass and usage. Facebook, Twitter, and Google are great examples. The absence of an immediate business model will not prevent publishers coming to this new device if usage is there.

The major remaining uncertainty is whether the smartwatch will eclipse the smartphone or create a new need. In our supply market, the answer depends on OEM’s ability to build a useful product and to position it as fashionable gear. By reaching this goal, there’s potential for a new game-changing eco-system on top of the smartphone market.

(1) Previous post

(2) Kleiner Perkins Caufield & Byers’s Annual Internet Trends report 2013

(3) Flurry Blog

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Who is this guy?

Gilles is the CEO & Founder of News Republic, publisher of news application for smartphones, tablets, and TV. Federating more than 1,000 publishers worldwide such as Reuters, Associated Press, The Independent, CNN International,  Al Jazeera, and Gizmodo …
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Why My Thoughts on it?

Running a media company, working directly with more than 1,000 news publishers from regions all over the world, having lived and worked on three continents, after three start ups and 20 years of experience in digital content and mobile technology, many success and mistakes, and wrong interpretations…
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On the settee…

Back in the nineties, Cyril started his career as an architect of embedded software. At the turn of the millennium, he created Alcatel’s first WiFi product line in partnership with the Israeli startup Alvarion. He filed three patents in the digital modulation domain.
After an MBA at INSEAD in 2001, he started a new life as an early stage investor, first for a Silicon Valley VC fund (Telesoft Partners), which taught him the underpinnings of the Venture world, and then for a German VC fund (Munich-based DVCG), where he focused on software and mobility. He joined XAnge in Paris in 2007 as a Partner and member of the Executive Committee.
Cyril holds a Masters’ degree in Engineering from Telecom Paris Tech as well as an MBA from INSEAD.
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