Will Google's Android Wear Update Help It Challenge the Apple Watch?

Source: Motorola.

With smartwatch shipments set to grow more than 500% this year, according to market research firm IDC, the era of the smartwatch is finally upon us. As was the case with the smartphone and tablet markets, tech giant Apple (AAPL 1.27%) deserves credit for being the catalyst in this long-discussed device category.

However, Apple isn't alone in this mass-market land grab. A host of other names are also doubling down on tech's next major device category, including none other than search giant Google (GOOG 0.74%) (GOOGL 0.55%), whose recent move in this space is a clear challenge to Apple's hugely anticipated watch.

Inside Google's Android Wear overhaul
Earlier this week, Google rolled out the most comprehensive update to its nascent Android Wear platform since the platform launched last year. The new features range from cosmetic to prescient, and are all squarely aimed at helping Google and its coming cadre of Android Wear OEMs to compete with the Apple Watch. Let's take a quick look at some of the most important or widely discussed pieces of this update.

Perhaps the most impressive aspect of the software update from a performance perspective is the added support for Wi-Fi-only usage. This will enable Android Wear smartwatch owners to wander well beyond the limit of the Bluetooth ranges of their smartphones and still receive phone calls, search Google, and receive notifications. Equally impressive, this new Wi-Fi-only ability looks for new, open Wi-Fi networks to maintain a seamless connection for users as they move from one network to another.

It's important to note that much of the computing capabilities that power smartwatches actually exist in their paired smartphones at this point, so this isn't a bullet-proof solution to free Android Wear users entirely from their phones. It does, however, close the functionality gap with the Apple Watch in a very crucial way.

Source: Google.

The Android Wear update also includes a handy always-on feature that allows apps other than the standard watch face to remain on-screen, even after a user drops his or her arm. Rather, an app being used will fade from full color to a black-and-white power-saving version when a user stops looking at the app.

An obvious use-case would be navigating an unfamiliar place in which a user will need to continuously go back and forth from his or her smartwatch. This is another smart move that should help address the concerns over battery life that many have voiced in recent months.

Let's move to the fun aspects of the update. The Android Wear update also includes a new emoji feature, which allows users to draw an image and have Android Wear transcribe it into a corresponding emoji. Far from game changing, the feature is eerily similar to the Sketch function of the Apple Watch. Another gap narrowed.

Source: GoogleWatch. Another gap narrowed.

The more things change...
While many of these recent improvements appear to simply get Android Wear's software back to a level playing field with the Apple Watch, these moves are certainly a net positive for Google investors. It's likely we'll see the same market share dynamics play out in the smartwatch market in the coming years as happened with smartphones and tablets: namely, Apple will control the lion's share of the industry profits, and Google will dominate in terms of pure market share. As uninspiring as this might seem, this is a win for both Apple and Google shareholders.

For Apple, the business model is essentially identical to its historical high-margin hardware strategy. Analysts are already licking their chops for Apple Watch sales growth, which isn't entirely unfair given Apple's installed base of roughly 400 million iPhones.

Similar to Google's overarching strategy, Android Wear will likely be used to funnel additional searches and service-related data back into Google's core money-minting machine -- its search advertising business. A number of high-profile Android Wear smartwatches have recently received price cuts ahead of the Apple Watch's release, which once again helps to reinforce the likely premium-versus-affordable dynamic we're largely accustomed to seeing between Apple and Google-powered devices at this point.

While this market is in its early innings, Google's signal that it's committed to matching Apple Watch's functionality bodes well for this emerging platform's long-term success.