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Forget Wearables -- Smart Speakers May Be More Popular This Holiday Season

By Evan Niu, CFA - Dec 21, 2017 at 3:48PM

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But will they fit into stockings?

The booming smart speaker market has been one of the big tech trends of 2017, as tech giants all scramble to jump in and address growing consumer demand for voice-controlled speakers. Meanwhile, consumer interest in wearable technology remains relatively tepid, even as that market is still growing amid a shift toward smartwatches. With holiday gift-giving upon us, which product category will prove to be more popular?

It could end up being smart speakers.

Google Home Max on a bookshelf

Good news for the Google Home Max. Image source: Google.

Wearables are lagging while smart speakers are booming

eMarketer is out with fresh estimates on wearables adoption, and the researcher believes that category remains "far from mass adoption." Despite the fact that there have been a handful of promising smartwatch launches in recent months, including Apple's (AAPL 0.96%) Apple Watch Series 3 and Fitbit's (FIT) Ionic, eMarketer estimates that just 17.7% of the U.S. population in 2017 (about 44.7 million users) has adopted a wearable device. This figure could rise to 19.6% next year (50.1 million users). Most of that volume is still being driven by health and fitness trackers, with U.S. smartwatch users totaling just 17.5 million, according to eMarketer.

It's sometimes hard to justify the cost of a smartwatch, according to eMarketer forecasting analyst Cindy Liu, which can be comparable in price to some midrange smartphones. That's especially true in the case of Apple Watch Series 3 models that include cellular connectivity, which adds on another $10 per month for cellular data. Growth in wearables is expected to "primarily come from new users of smartwatches," suggesting that upgrade rates among existing users will be fairly low. Beyond fitness-oriented wearables, there hasn't really been a killer feature in wearable devices, which is holding back the market.

"Instead, for this holiday season, we expect smart speakers to be the gift of choice for many tech enthusiasts, because of their lower price points," Liu concludes.

We're going to need a bigger stocking

The researcher stops short of providing estimates for the smart speaker market, but Strategy Analytics expects total unit volumes in 2017 to nearly quadruple to 24 million.

Unfortunately, Apple will largely miss out on that demand since its HomePod, which was originally set to launch this month, has been officially delayed until "early 2018." Alphabet (GOOG 1.17%) (GOOGL 1.16%) subsidiary Google launched its $399 Google Home Max just a few days ago and is earning solid reviews. (AMZN 0.73%) and Google dominated the smart speaker market in the third quarter, and that momentum should continue in the fourth quarter following Google's recent product introductions, Amazon's aggressive promotions, and a lack of other meaningful competitors in the U.S.

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