Asus this week introduced the ZenWatch -- a new Android Wear device that blurs the lines between fitness trackers, smartwatches, and traditional watches -- at IFA 2014 in Berlin.

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The ZenWatch. Source: Asus.

The ZenWatch, a curved metal watch with a leather strap, is equipped with a 1.6-inch AMOLED display, 4GB of storage, 512MB of RAM, and a 1.2GHz Qualcomm processor. The ZenWatch also has a heart rate and activity tracker, a remote control for the smartphone's camera, and the ability to track down a user's smartphone. The metal and leather design is reminiscent of Motorola's upcoming Moto 360, another heart rate and activity-tracking Android Wear device that will reportedly cost about $250.

Priced at €199 ($260), the ZenWatch is now one of the cheapest Android Wear watches with health-tracking features. Samsung's (NASDAQOTH:SSNLF) Gear Fit, which features heart and activity-tracking features on a proprietary OS, costs $200. LG's G Watch, which runs Android Wear but lacks a heart rate monitor, costs $229. 

Let's look at what devices like the ZenWatch could mean for major competitors like Samsung, and how it fits into the future of the wearables market.

Two big factors: health tracking and price
A recent ON World survey of 1,000 consumers revealed that 40% were willing to pay $99 or more for health-tracking features on a smartphone. Twenty-three percent were willing to pay $149 or more, while only 8% were willing to spend over $299.

Although no one has launched a $99 Android Wear device yet, the price of health-tracking smartwatches is dropping quickly thanks to lower component prices and rising competition. The Gear Fit and ZenWatch are already significantly cheaper than the Galaxy Gear 2 and Gear 2 Neo, which both launched at $300.

ON World also estimated that smartwatch shipments will rise from 4 million last year to 330 million by 2018 -- which means that we'll likely see many more competitors enter the market in the $100-$300 price range.

A crowded midrange market spurs innovation
During the first quarter of 2014, Samsung controlled 71% of the wearables market with 500,000 shipments, according to research firm Strategy Analytics. But as more competing devices with similar features enter this market, it will be tough for Samsung to maintain that early lead.

Just as with smartphones, the midrange wearables market will become crowded as competitors try different ways to stand out from the crowd. Samsung is merging watches with smartphones through its new 3G-enabled Samsung Galaxy Gear S, while Motorola and Asus are trying to blend smartwatch tech with traditional watch designs. Acer's upcoming Liquid Leap, which strongly resembles Samsung's $200 Gear Fit, aims to fully merge the fitness band with the smartwatch.

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Acer's Liquid Leap. Source: Acer.

Since the wearables market is still in its infancy, there could be plenty of room for all these devices to co-exist. But for now, the industry is trying to find the right combination of features -- fitness band and smartwatch, smartwatch and regular watch, or all three blended together -- that consumers will want to buy.

What the ZenWatch means for Asus
Asus, which is primarily known as a PC vendor, is no stranger to blending form factors. The company previously blurred the lines between tablets and laptops with its Transformer devices, then combined smartphones and tablets with its PadFone series. Asus even tried to bring together laptops and furniture with a bamboo laptop a few years ago.

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Asus' Transformer (L) and PadFone (R). Source: Asus.

Therefore, it's not surprising that Asus would dive headfirst into blending fitness bands, smartwatches, and regular watches with the ZenWatch.

The ZenWatch is synchronized to two Android apps -- the ZenWatch Manager, which allows users to set the watch face, locate the watch, and sync schedules, and Remote Link, through which the owner can remotely control the camera and launch presentations.

Although the ZenWatch doesn't require a ZenFone to run those apps, it enhances Asus' fledgling line of ZenFone Android smartphones, which notably use Intel's Atom processors instead of ARM-licensed chips. ZenFones are also very cheap compared to other Android devices. The 5-inch ZenFone 5 -- which is equipped with a dual-core 1.6GHz processor, 2GB of RAM, an 8-megapixel rear camera, and a 2-megapixel front-facing one -- only costs $170 unlocked.

A Foolish final word
It's easy to dismiss Asus' ZenWatch as another experimental "me too" smartwatch in the increasingly crowded wearables market. 

It might steal market share away from Samsung, or it might flop and fade away. But regardless of the outcome, the ZenWatch highlights the growing demand for biometric sensors, the "acceptable" price range of smartwatches, and the current trend of form factor experimentation in the wearables space -- three key factors that could shape the smartwatch market in the near future.  

 

Leo Sun owns shares of Apple. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple, Intel, and Qualcomm. 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.