Can Microsoft Find Success With the Smart Watch?

Microsoft is reportedly looking to jump into the smart watch market. Will Apple and Samsung allow it to gain a significant market share?

Jun 12, 2014 at 11:45AM

The fast-growing wearable tech sector is about to become even more crowded. Microsoft (NASDAQ:MSFT) is reportedly looking to jump into smart watches, according to a report from Forbes. The rumored device will likely sync with Apple's (NASDAQ:AAPL) iOS, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android, and Windows Phone. The device could launch as soon as this summer. It will be developed by Microsoft's Xbox Kinect division.

This comes as Samsung (NASDAQOTH:SSNLF) and Apple continue to dominate the wearable tech sector. Microsoft's smart watch is expected to look similar to Samsung's Gear Fit and will have a color touchscreen that fits nicely on a person's wrist. The watch's display will be placed on the inside of the wrist to make it easier for users to keep notifications private.

Why would you want a smart watch?
One of the big benefits of the product is that it gives information without the need to pull out a phone. Users can have an app launch directly from their watch. Basically, the product allows users to access the power of their phones, all the while keeping them in their pockets. Experts believe that, in the near future, developers will create medical uses for them. For example, with sensors in the watch, heart patients could monitor their heart rate.

How big is the market?

Research firm NextMarket has said the strong expansion of smart watches in the children and health lifestyle segments will drive the overall market from 15 million watches shipped in 2014 to over 373 million by 2020. The firm believes the smart watch category can become a substantial market opportunity, even with a fairly modest penetration of the watch-wearing public.

The bigger picture
While going cross platform with the smart watch may diminish Microsoft's software ecosystem, it makes business sense to the company. Windows Phone is forecast to have a 3.5% share of the global smartphone market by the end of 2014, while Android will dominate with 80.2%. Microsoft needs to shift toward becoming a services business. A smart watch can be an attractive sale for fitness enthusiasts and people with heart problems. The bigger picture, however, is that with a smart watch having a heart monitor, Microsoft could move into the consumer health care sector.

Who are the competitors?
Microsoft's rumored move comes at a time when Samsung is dominating the smart watch segment. Samsung sold approximately 500,000 smart watches in the first three months of 2014, even before the Gear 2, Gear Fit, and Gear Neo were released. Industry sources said that Samsung is currently working on a "next-generation smart watch." It's also been reported that the smart watch could be sold in a bundle along with the Galaxy Note 4.

Apple executives dropped the biggest hint about the upcoming iWatch during the Apple Worldwide Developers Conference in San Francisco. They showed the latest versions of iOS 8, which contains features that would work well with a smart watch. Apple also recently got into a health-tracking game with HealthKick, and the arrangement brings together data from different monitoring devices.

Foolish takeaway
Microsoft is jumping into the smart watch sector to make money. It will embrace rival platforms to expand its addressable market. While Microsoft was late to the mobile party, that may not be the case for wearables. The sector is still a new enough trend that Microsoft can hop on the bandwagon. The market is wide open, and Microsoft's smart watch can fill a void.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Mark Girland has no position in any stocks mentioned. The Motley Fool recommends Apple and Google (C shares). The Motley Fool owns shares of Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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