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Google (NASDAQ: GOOGL ) likely had its pick of retail partners for its Android Wear line, but chose Fossil (NASDAQ: FOSL ) . Hence, Google has now officially beaten Apple (NASDAQ: AAPL ) to the punch in this space. However, of those involved, who has the most to gain from Android Wear?
Why is wearable technology so important?
For much of the last year, Google and Apple have reportedly been in a developmental race to produce wearable technology, and many analysts believe that 2014 could be the year of its growth.
According to The Statistics Portal, the market for wearable devices last year was $2.5 billion, but will reach $12.6 billion by 2018, possibly $15 billion. Moreover, 1.6 million wearable device shipments were made last year, a number that could top 40 million worldwide in the next four years. Thus, it is easy to see why tech giants are so eager to control a large piece of the pie, and it's because of this eagerness that analysts are projecting such bright days for the wearable space.
With that said, Google has a big jump on Apple. Last year, Samsung launched Galaxy Gear with Android technology, which according to research firm Canalys, commanded a 54% market share of the wearable device market.
Historically, Google has licensed its operating system to developers, but with its Fossil partnership, the company is showing a desire to be directly involved in the monetization of wearable devices. This leads to Android Wear, a technology initially implemented with wrist watches that respond to voice, monitor health and fitness, control other Android devices, message, access news, and much more.
According to Google, the partnership with Fossil is still in the early stages of development, but with the announcement being made, it appears Google is much further along than Apple. While there have been many alleged photos of the iWatch, Apple has yet to announce anything of substance regarding the release.
Google & Apple: Which needs wearable technology?
Realistically, Apple will likely release an iWatch product this year, but with $174 billion in annual revenue, this is not currently a make-or-break industry for the tech giant. Even if the market grows to $15 billion by 2018, and if Apple (hypothetically) controlled 50% of the market, that would still account for just 4.3% of total revenue, assuming Apple produces no further growth. In reality, it's a market that Apple wants, but does not desperately need, and is not going to break a leg to enter.
For Google, wearable devices is a game-changer, although much will depend on its revenue sharing program and future collaborations. Hence, as Google partners with retail companies, let's award it a fundamentally accruable 30% share of the same $15 billion future market.
With Google's $60 billion in annual sales, wearable devices could account for 7.5% of current revenue. Clearly, that's a much larger percentage than that of Apple, and is likely why Google has been so aggressive.
The real beneficiary
The global watch industry is estimated at $60 billion, and Fossil owned just $2.5 billion of that market last year. While the watch industry accounts for nearly 80% of Fossil's business, the company still has room to grow globally, which is why it continues to grow at a pace in excess of 15% annually.
Now, with the Fossil-Google partnership, investors have to believe that this poses as a great opportunity for Fossil to collect the majority of earned revenue through watch sales. Google will likely partner with other retail companies in the future, but even if Fossil earns just 15% of this market, it would nearly double the company's current revenue in the watch industry. If so, investors can expect large annual returns in the future.
This is a great match for both Fossil and Google. Fossil is an innovating brand that's always up-to-date on the latest styles and trends, which is something Google likely sought. Also, more than half of Fossil's revenue is earned outside the U.S., meaning it will give Google a global partner in regions of the world where it owns the smartphone market; this will also likely help Fossil capture more market share.
Lastly, Fossil sells leathers, jewelry, shirts, sun-glasses, etc., all of which will help Google move beyond watches and into other wearables. Combined, this equals a great opportunity for both companies, and likely large stock gains for Fossil.
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