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The $12.6 Billion Wearables Market Can Be Unlocked for the Right Price

By Leo Sun - Sep 14, 2014 at 9:03AM

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The wearables market is set to hit $12.6 billion by 2018. What’s the secret to emerging victorious in this big land grab?

Over the past year, tech companies have flocked to the wearables market with new fitness bands and smartwatches. That land grab is certainly justified -- according to research firm ON World, smartwatch shipments will rise from 4 million in 2013 to 330 million by 2018. Meanwhile, Business Insider estimates that the value of the wearables market will rise from $2.5 billion last year to $12.6 billion in 2018.

Those are certainly big numbers, but a recent ON World survey of 1,000 consumers narrows down market demand in two key areas: health tracking features and prices. The survey found that 40% of potential customers were willing to pay $99 or more for blood pressure, heart rate, and activity tracking features. Meanwhile, 23% of customers were willing to pay $149 or more for such a device, but only 8% were willing to spend over $299.

Therefore, let's check in on the various health-tracking features that companies are offering at various price tiers, and if one specific group will rise to the top.

The low-end market: fitness bands
The low-end market is dominated by basic activity trackers like Fitbit Flex, Jawbone UP, and Nike+ (NKE -1.23%) FuelBand. In 2013, these three brands held 97% of the fitness band market, according to NPD Group.

L to R: Fitbit Flex, Jawbone UP, and Nike+ FuelBand. Source: Company websites.

Fitbit offers the widest variety of devices, which cost between $60 and $100. The $60 Fitbit Zip tracks steps, distance, and calories burned. The $100 Fitbit Flex tracks additional data including floors climbed and hours slept, and can synchronize via Bluetooth to a companion app.

Jawbone's $80 UP offers comparable features, but must be plugged into a headphone port to sync to the companion app. The newer UP24 offers Bluetooth connectivity, but costs $150. Nike's FuelBand SE offers comparable features to both rival devices with wireless syncing for $99. However, none of these fitness bands track additional biometric data such as heart rate and blood pressure.

These three market-leading brands are also being squeezed from two sides -- cheaper health-tracking smartwatches and cheap fitness bands like Xiaomi's new Mi Band, which offers comparable features for a mere $13.

The midrange market: cheap smartwatches
Fitness bands could soon be rendered obsolete by low-end smartwatches, thanks to dropping component prices and rising competition. Samsung's (NASDAQOTH: SSNLF) Gear Fit can track a user's smartphone notifications, daily activity, and heart rate on a Super AMOLED screen. At $200, it's one of the cheapest devices to combine all of those features in a single wearable device.

Samsung has flooded the market with five different smartwatches, which helped it claim a 71% share of the market during the first quarter of 2014 with 500,000 shipments, according to Strategy Analytics.

But new competitors in the midrange market could make it tough for Samsung to maintain that lead. Asus' ZenWatch, which was this week unveiled for €199 ($261) at IFA 2014 in Berlin, offers a more stylish take on the health-tracking smartwatch. The ZenWatch offers health-tracking features comparable to the Gear Fit (including a heart rate monitor), but it looks less like a toy and more like a regular watch.

Asus' ZenWatch (L) and Samsung's Gear Fit (R). Source: Company websites.

Like the midrange smartphone market, the market for $200-$300 health-tracking smartwatches is getting crowded, thanks to Android Wear, Google's (GOOG -5.14%) (GOOGL -4.95%) slimmed down version of Android for wearable devices. Notable Android Wear competitors include LG's G Watch ($229), which lacks a heart rate monitor, and the Moto 360 (rumored price of $250), which sports one inside its eye-catching circular frame.

This upcoming launch of Google Fit, Google's unified Android dashboard for fitness apps and wearable devices, could also help low-end fitness bands and mid-range Android Wear devices gain market share quickly.

The high-end market: luxury smartwatches
Although ON World's survey found that only 8% of consumers would be interested in a device priced over $300, that hasn't kept companies from developing high-end devices.

Hewlett-Packard (HPQ -0.83%) is reportedly working on a "luxury" smartwatch designed by Michael Bastian, although it is unclear if it will include health-tracking features. Samsung's new Galaxy Gear S -- a curved 3G-powered, health-tracking smartwatch that doesn't need a smartphone -- will likely cost about $300.

HP's upcoming luxury smartwatch. Source: HP.

Last but not least, Apple's (AAPL -1.92%) long-rumored iWatch -- which might include health-tracking features that synchronize with its HealthKit platform in iOS 8 -- now has a rumored launch price of $400.

It will be interesting to see if the luxury appeal of these high-end devices can outweigh price concerns among consumers in the market for a health-tracking device.

A Foolish final word
In conclusion, we'll likely see a strong divergence in health-tracking wearables in the near future -- regular fitness bands could get much cheaper, the mid-range market will get more crowded, and a select few might rise to the top of the high-end market. Investors and mobile health fans should follow all three pricing tiers carefully to better understand where the market is headed.


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