Sales growth of 1,886% in just four years' time. That's the kind of growth figure that will get investors salivating, and with good reason. Chart that kind of growth, and you'll have something that roughly looks like a hockey stick. Growing off a small base at first, but then hitting an inflection point that leads to several years of exponential growth.
When it comes to products on that kind of "hockey stick" growth curve, they'll sometimes fizzle out as "fad" products that see sales quickly disappear after peaking. However, there is also the opportunity to get invested near the start of trends that shape the future and lead to the creation of billion-dollar industries.
That 1,886% figure is actually the growth rate for wearable devices in the fitness market. They've become an everyday sight, from small, pocket-based devices like FitBit to wrist monitors such as Nike's (NYSE:NKE) FuelBand. Research from the Consumer Electronics Association shows wearable fitness device sales jumped from just $43 million in sales during 2009 all the way up to an estimated $854 million in 2013. This year, wearable fitness devices are expected to rack up nearly $1.2 billion in sales, maintaining an impressive 35% annual growth rate.
With wearables invading our lives -- from fitness to glasses to watches -- are they just a passing fad or a product category set to continue growing for years to come?
The explosion in wearables is really just the next evolution of mobile growth. As of last June, 56% of Americans owned smartphones. With technologies such as Bluetooth allowing secure connections between devices, smartphones can act as the central "remote control" among a series of devices.
For example, a fitness wearable like Fitbit easily connects to smartphones. From there, an app developed by the company allows users to offload data from the device. The app stores historical data, and allows FitBit users to track the progress of other friends who own the device, among other benefits. On its own, FitBit is a neat pedometer, but when paired with its app on the smartphone, FitBit is a much more impressive product. It becomes a social network, and the hub from which people monitor their activity levels.
Or, we could look at watches. The most noticeable feature on Samsung's Galaxy Gear is the watch's ability to connect to a smartphone and accept voice calls from your wrist.
Are these products anyone needs?
The big question around wearables is whether there is really a need for them. While they pair with smartphones, can't smartphones just handle many of the functions smart devices are built for? For example, reviews of Samsung's Galaxy Gear watch noted that while the watch took nice pictures and allowed voice calls from someone's wrist -- cool in a Dick Tracy sense -- it didn't have much else in the way of redeeming qualities. Throw in the fact that the watch has the battery life of a smartphone thanks to its bright screen, and you have a very confusing product. It does a couple of features well, but they're already handled by a smartphone. In addition, it's a subpar watch because of its poor battery life. In short, it's a product without a real purpose.
Smartphones in general are phenomenal "swiss army knives" -- they have a series of features that replaces other hardware. For example, point-and-shoot camera sales have been in free fall for years. On Flickr, a photo hosting site that sees more than 3.5 million photos uploaded daily, the four most popular cameras are all now iPhones.
However, what's interesting is that while sales of point-and-shoot cameras fell by 26% between June 2012 and May 2013, cameras with detachable lenses actually saw a 5% increase. The smartphone's camera is eliminating low-end point-and-shoot cameras, but more professional cameras with high-end features not easily replicated by smartphones are growing.
Early growth in wearables has come from fitness products in large part because, like detachable lens cameras, they do something unique that smartphones can't. These are devices better at tracking activity levels than most smartphones, and they also have longer battery lives. I own a FitBit, and regularly go over a week between charges. Consumers see the added benefit from fitness wearables, and the result is that they've quickly opened their wallets and created a billion-dollar product category.
Some wearables make sense, others don't
We're going to see no shortage of wearable products across 2014. A vast majority of them will be duds. Samsung's Galaxy Gear watch was rushed to the market in part because of reports that Apple (NASDAQ:AAPL) has been working on its own smartwatch. Wanting to beat a competitor to the market was the biggest factor in Samsung's creation of a smartwatch, rather than the company creating a product that had a unique value and was truly beneficial to the lives of consumers.
Yet, beyond the poorly conceived products created to cash in on the wearables gold rush, there are plenty of fascinating creations in the wearables category. Google (NASDAQ:GOOGL) Glass is an intriguing product because it will test exactly how connected to technology people want to be at all times. On one hand, they could make technology less distracting. A quick reminder flashing in the corner of your glasses that you have a meeting in 15 minutes can be far less invasive than a phone that vibrates in your pocket, and requires you to stop what you're doing to check a notification. Or, imagine walking to a restaurant while Google Glass puts step-by-step directions on your screen. That could be far more safe and useful than staring down at directions on a smartphone while crossing busy streets.
On the other hand, there are natural privacy concerns to people wearing devices at all times that can record video and take pictures. Also, while some people would find the interface of Google Glass helpful, others might find it too distracting. It's hard to know at this point whether a product like Google Glass will find widespread adoption, but what shouldn't be denied is that Glass presents a lot of features that are complementary to smartphones yet different than what smartphones are currently capable of.
Then there are applications beyond consumer products that wearables might fill in future years. For example, while most health and fitness wearables today track activity, wearables could have a profound impact on health care. Imagine wearables attached to your body -- or even small implants -- that have tremendously long battery lives and can monitor people's health.
When you begin to think about wearables becoming central to an area like health care, the potential for health and fitness wearables to grow from their expected $1.2 billion market this year to become something like a $100 billion market isn't so far-fetched.
A little perspective
Make no mistake, there are a ton of poorly designed wearable products that will hit the market in 2014 and beyond. At CES, 39 different exhibitors showed off health and fitness technology being used in wearables. Each time these dud products hit, there will be a temptation to write off the entire wearables category, and I'm sure you'll see more than a few articles doing so.
However, the bigger picture is that it could take years to figure out exactly what the right place for wearables is. Google Glass might fail, but another product that refines some of its best features will then take its place. Fitness wearables might fade as thousands of fitness devices flood the market, but the longer-term opportunity might be wearables that track our general health rather than our activity levels.
I've seen enough to know that wearables will have a huge impact across the next decade of technology and huge upside for investors in companies who create fantastic products in the category. Yet, just be certain you'll have to laugh at some pretty mindless wearable creations during that time. This is technology that looks like it's out of The Jetsons, after all.
Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple, Google, and Nike. 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.