Source: Apple.
Although it has no shortage of ardent supporters, myself included, the global market for wearable devices still remains very much in its nascent stages. Plenty of devices and wearables brands existed before, but the launch of the Apple (NASDAQ: AAPL) Watch earlier this year will likely prove a watershed moment in the category's public awareness.
The coming of the Apple Watch also set off a quasi-arms race among other names, like FitBit (FIT) and Garmin, to gain market share quickly, or risk going the way of the dodo. However, one recent research report actually demonstrates that the Apple Watch likely isn't the existential threat to FitBit and Garmin that many had originally believed.
The Apple Watch prepares for liftoff
From a 30,000-foot perspective, the global wearables market enjoyed considerable growth during the second quarter. According to IDC, the market soared by a breakneck 223.2% during the quarter.
However, as is often the case with emerging growth markets, the figure also reflects the relatively diminutive installed base. All told, unit shipments increased from 5.6 million units last year to 18.1 million in this year's second quarter, just less than 80 million units on an annualized basis.
Among players in this space, fitness-tracker-cum-lifestyle-brand FitBit led the wearables market share, controlling an estimated 24.3% of the market in Q2, with 4.4 million units sold. Closely following FitBit, IDC estimates Apple shipped 3.6 million of its Watches in the second quarter, higher than many estimates from the sell-side community, but by no means inconceivable.
However, IDC's research indicates that the Apple Watch became, by far, the most dominant smartwatch nearly overnight. Keep in mind, IDC defines a smartwatch as a wearable capable of running third-party applications. So, as a matter of semantics, while FitBit shipped the most wearables, Apple apparently sold roughly two out of every three smartwatches by IDC's accounting.
Several other points of interest also pop up in examining IDC's ranking of the top five wearables vendors from Q2. Interestingly, Chinese smartphone comany Xiaomi claimed the No. 3 spot, shipping a surprising 3.1 million of its low-cost MiBands during the period. Garmin and Samsung rounded out the fourth and fifth spots in IDC's research, shipping fewer wearables, with 700,000 and 600,000 estimated units, respectively, in the second quarter. And while this report, and Apple's rapid ascent to the No. 2 spot, likely confirms some investors' beliefs that the Watch will kill smaller upstarts like FitBit, I maintain this report, in fact, signals the opposite.
Rising tide lifts all boats
Viewed through the lens of the IDC report, the Apple Watch appears poised to dominate the smartwatch space. However, Apple's presence within the broader wearables space doesn't have to signal the death knell for other less-tech-laden rivals for a few important reasons.
First, the unit growth opportunity facing the wearables market provides an absolutely massive runway for all parties in this market. Last year, IDC estimated that global wearable devices would expand to reach 112 million units by 2018 alone, or roughly 78% annually. As we've seen with other consumer electronics markets in the past decade, even if one company like Apple captures the majority of its economic value, ample room exists for additional names to establish a meaningful presence.
In the smartphone market, Apple and Samsung both dominate the space in terms of volumes and profits. However, various companies, including Huawei, Lenovo, and LG, each shipped more than 50 million phones in 2014, and this doesn't even account for rapidly emerging market smartphone brands like Micromax and Xiaomi. The same will likely hold true in wearables.
Second, because of its pricing and rich feature set, the Apple Watch creates an opportunity for pure-play fitness trackers like FitBit and Xiaomi to thrive in pockets of the market where consumer preference calls for a more stripped-down experience. Indeed, Apple Watch enthusiasts may well disagree, but not every consumer desires having another expensive device adding to the already frenetic pace of today's constantly connected world.
Again, this is merely an anecdotal observation, but I can think of numerous conversations with friends and acquaintances who cite this as a reason they have no interest in smartwatches, in general. To these consumers, less intrusive and costly alternatives like FitBit and Xiaomi can undoubtedly still provide useful health and fitness tracking data without the significant expense and extra "noise" they clearly wish to avoid.
The Apple Watch will likely prove a resounding success, especially with ongoing improvements with watchOS 2. Furthermore, future updates and hardware innovations promise to unlock even greater potential-use cases. However, the popular narrative that the emergence of the Apple Watch will largely invalidate the business model of other well-known wearables names, like FitBit, also overlooks some of the more important nuances within this booming tech market.
