This Is Why the Apple iWatch Will Dominate Google Android Wear

Even as Google will likely dominate smartwatch market share with the advent of Android Wear, Apple’s iWatch should be the market’s main financial driver.

Jul 14, 2014 at 12:00PM

I'm calling 2014 The Year of the Smartwatch, as companies ranging from established giants like Apple (NASDAQ:AAPL) and Google(NASDAQ:GOOG) to start-ups like Pebble are preparing to move into this emerging device category.


Source: Motorola.

Apple and Google have dominated the bulk of the analysis for this fledgling market, and for good reason. With Google unveiling Android Wear at its I/O conference recently, and with Apple widely expected to launch its much ballyhooed iWatch later this fall, Apple and Google have set the stage to dominate the smartwatch market much in the same way they also share the global smartphone and tablet markets today.

However, investors should also realize that the multi-billion dollar opportunity that is the smartwatch market also presents massively different opportunities for both Apple and Google. And, in turning an eye to the potential financial impact that smartwatches could have on either tech giant, it appears Apple is likely to dominate the one aspect of the smartwatch market that matters most.

Shared market share?
If we're to divvy up the lines along which Apple and Google will split the smartwatch market, odds are it will resemble the current market-share dynamics we've seen play out in both smartphones and tablets. This means Google will leverage the cost-savings and ecosystem advantages it offers device original equipment manufacturers (OEMs) to dominate the smartwatch market in terms of raw market share. And then there's Apple, which will almost assuredly concentrate its smartwatch strategy on its now well-worn high-end, high-margin approach that's proven so remarkably lucrative over the years.

As a quick aside, this future isn't a given; but I think it's safe to say it's the most plausible outcome. There's certainly the possibility that another major tech company could attack the nascent smartwatch market quickly enough to at least partially dislodge the kind of Google-Apple dynamic I'm predicting here. And if we're looking for possible foils, Microsoft or Samsung would be horses worth betting on. However, Microsoft's laughable track record designing consumer devices (Zune, anybody?) won't do it any favors in a smartwatch market where design aesthetic and fashion appeal will matter even more than in other CE categories like smartphones or tablets.

There's also the significant question of whether Microsoft or Samsung, if it chooses to really make a run at its proprietary Tizen software, will be able to muster enough support from developers to present a credible threat to Google. It's not impossible. I just don't see it happening.

Android Wear

Source: Google.

That leaves us back with Apple and Google splitting the smartwatch market along familiar lines, which, as I referenced earlier, should present a far superior money-making opportunity for Apple and its shareholders.

Monetization matters
While the market-share implications hopefully should be more-or-less a given, it's how each company makes money in mobile that makes Apple's smartwatch opportunity so much more attractive than Google's. As we've seen with the iPhone, people will pay up for an experience they perceive as meaningfully better. And with Apple hiring experts and industry veterans from the fashion, athletic apparel, and medical technology community at an impressive rate, it's looking like Apple's about to produce another winner with the iWatch.

Previously, I've touched on how Apple's smartwatch opportunity could be overplayed in the short term as various analysts are pegging potential first-year sales at around 10 million. However, given predictions of global smartwach shipments of 330 million in 2018, Apple could have a product along the lines of another iPad in terms of financial impact on its hands. This assumes it can grab an iPhone-like market share, and that it prices the iWatch at least toward the upper bound of today's current smartwatch prices, both of which are definitely possible.

Google, on the other hand, will be forced to rely on its truly beautiful advertising machine to push ads onto smartwatches. The problem is that ads on smartwatches are likely to be anything but beautiful from an investor's perspective. There's no clear data on smartwatch advertising rates, and I'm wise enough to just pass on attempting any kind of ballpark estimate. However, it's largely common wisdom that screen size and ad premium share some kind of inversely proportional relationship.

A 2013 survey from consultancy Deloitte claimed smartphone ad rates command about 20% the revenue as tablet ads. I'll let you arrive at what the revenue implication would be for Google in attempting to shift new ads onto a screen format one-quarter the size of a smartphone, but hopefully we can all agree it isn't rosy. There's also the argument that smartwatches could be a boon for location-based marketing that's still in its infancy as a potential difference maker for smartwatches; but smartphone users are nearly as captive as smartwatch users would be. If it hasn't worked with smartphones yet, I don't see it becoming a needle mover for smartwatches, either.

As we set our expectations, we'll inevitably have to endure a litany of "who will rule the smartwatch market" articles in the months ahead. I'm firmly of the mind-set that Apple will be the company laughing its way to the bank as Google is faced with yet another CPC sinkhole on its hands. This is, of course, no sure thing, but don't tell me you weren't warned.

Forget Apple or Google, this unloved smartwatch stock is set to soar
By now, we all know that Apple has recently recruited a secret-development "dream team" to make its iWatch a winner. However, with ABI Research predicting 485 million of this type of device will be sold per year, there's one small company few investors know of today that will help power the entire smartwatch market forward, 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!

Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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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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