Microsoft (NASDAQ:MSFT) just entered the wearables market with Band, a $199 fitness tracker which is compatible with Windows Phones, iPhones, and Android devices.
The Band offers a wide array of fitness features including a GPS tracker, a calorie counter, a heart rate monitor, and a UV monitor, along with smart-watchlike features and notifications on a color touchscreen. The data is then synchronized to a new app and fitness platform, Microsoft Health, which is similar to Apple (NASDAQ:AAPL) Health, Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Fit, and Samsung (OTC:SSNLF) S Health. Microsoft Health can synchronize data from other apps like MyFitnessPal, RunKeeper, and MapMyFitness. Microsoft has also partnered with Starbucks (NASDAQ: SBUX) for mobile payments via Band, and the device can offer guided workouts for Gold Gym members.
Windows Phone users also get Cortana integration, which can be used to set reminders and dictate notes through the Band. Cortana can also deliver updates on traffic, weather, and sports back to the device. Microsoft claims that the Band will have a two-day battery life, compared to the one-day battery life of most smart watches on the market.
In my opinion, Microsoft Band certainly looks like a preemptive strike against Apple Watch, which is scheduled to arrive in early 2015 for $349. Can the Band steal the spotlight from Apple Watch, or will it fade away in a market filled with similar devices?
What Microsoft got right
Microsoft was smart to launch Band across all three major mobile platforms, since too many smart watches today are stuck in their own ecosystems. Samsung, which controlled around 71% of the smart-watch market in the first quarter of 2014 (according to Strategy Analytics), tethers most of its smart watches to its own phones. Android Wear devices aren't compatible with iPhones or Windows Phones, and Apple Watch will only be compatible with iPhones.
Microsoft also got the price right. A recent wearables survey by ON World revealed that only 8% of respondents were willing to pay over $299 for a smart watch with health-tracking features. Microsoft Band remains comfortably under that limit, while Apple Watch exceeds it. Its two-day battery life also gives it an edge over Apple Watch, which will require daily charging.
Microsoft sees Band as an opportunity to tether more Android and iPhone users to its cloud via the Microsoft Health app. Windows is still installed on over 90% of the world's PCs, which means that many Android and iPhone users still own Windows PCs. With the upcoming launch of Windows 10, which will be heavily integrated with Microsoft's cloud-based services, the Band and Health app could be a great opportunity to connect introduce non-Windows Phone users to its software ecosystem. Microsoft is currently integrating HealthVault, its personal health record, into its cloud platform, Windows Azure. This combination could be Microsoft's answer to HealthKit and Google Fit.
Why Microsoft shouldn't underestimate Apple
While Microsoft's approach is well thought-out, it would be foolish to underestimate Apple.
Apple has two key advantages over Microsoft -- luxury appeal and brand loyalty. Apple customers are willing to buy new devices equipped with last year's technology as long as they are impeccably designed and marketed. The Apple Watch also fits that profile -- it looks more expensive than the Microsoft Band, but it doesn't represent a huge leap forward in terms of biometric tracking.
A recent Morgan Stanley survey found that 90% of iPhone users planned to stick with an iPhone, compared to 77% for Samsung devices. To reinforce that brand loyalty, Apple is making the Apple Watch compatible with iPhones only -- to corral its existing users within its walled garden and tempt new customers into buying an iPhone. That's why customers might be willing to pay $349 for the Apple Watch, regardless of what market surveys say.
Apple Watch also boasts two other killer features: Apple Pay and HealthKit integration. Although Apple Pay is off to a rocky start, 220,000 stores across the U.S. have recently started accepting payments through the platform. Meanwhile, HealthKit synchronizes with leading electronic health records (EHR) from Epic, Cerner, and Athenahealth, which would ideally allow health data collected on an Apple Watch and iPhone to be directly shared with a doctor. Google Fit and Microsoft Health offer nothing close to that level of integration, although Microsoft's HealthVault can connect to certain EHRs.
The $49 billion battle continues ...
Microsoft and Apple are both rushing to claim a piece of the mobile health market, which Grand View Research estimates will grow from $1.95 billion in 2012 to $49 billion by 2020.
It seems unlikely that the Band will directly compete against the Apple Watch due to their different price points and features. Instead, I think the Band could challenge Samsung and Android Wear devices with its mid-range price and high-end health tracking features, which could help Microsoft gain market share quickly in the wearables market.