Among all the market buzz about the Apple (NASDAQ: AAPL) Watch that will launch later this month, investors shouldn't forget that Samsung (NASDAQOTH: SSNLF) remains the market leader in the fledgling smartwatch market.
Samsung launched six smartwatches over the past 15 months, which helped it claim 23% of the global market with 1.2 million shipments, according to research firm Smartwatch Group. However, that pales in comparison to JPMorgan's forecast of 26 million Apple Watches to be sold in 2015. If Apple hits that forecast, Samsung's market share could drop into the low single digits.
Enter the Gear A
However, Samsung doesn't intend to go down without a fight. According to Samsung-focused site SamMobile, Samsung's next major smartwatch, the Gear A, will arrive in two versions: a Bluetooth one, which uses a phone's Internet connection, and a 3G-enabled one with support for voice calls. Both models are expected to have Wi-Fi connectivity. Previous reports indicate that the Gear A will have a round metal face and run on Tizen, Samsung's own OS.
It's unclear how much the Gear A will cost, but its 3G-enabled predecessor, the Gear S, cost $350 -- the same price as an entry-level Apple Watch. Does the Gear A stand a chance against the Apple Watch, or will it quickly fade away?
Why the Gear A could succeed
If the Gear A launches in 2015, it could have three advantages over its predecessors.
First, expectations for Galaxy S6 and Galaxy S6 Edge sales are optimistic. BNP Paribas analyst Peter Yu expects Samsung to ship 44 million S6 devices this year, compared to 38 million S5 devices in 2014. Yu also expects Samsung's consolidation of its fragmented mid-range devices with the Galaxy J series to strengthen its position against cheaper Android rivals. That mobile momentum could cast a halo effect on smartwatch sales.
Second, strong sales of the Apple Watch should raise mainstream awareness of smarrwatches. That might encourage Samsung owners, who accounted for 20% of smartphone users worldwide at the end of 2014, to buy matching smartwatches for their phones. Samsung's growing ecosystem of watch-compatible apps, like S Health and Samsung Pay, could boost that appeal.
Lastly, adding a circular watch face was a smart way to mimic the Moto 360, which Canalys ranks as the top-selling Android Wear device of 2014. Many new smartwatches, like the Huawei Watch and LG's Watch Urbane, also sport round metal faces.
Why the Gear A could fail
However, there are several challenges that could trip up the Gear A. One problem is Tizen, which Samsung installed across most of its smartwatches and other devices to reduce its dependence on Android. That cuts Tizen off from evolving services like Google Now, which delivers real-time cards to Android Wear devices. That kind of ecosystem isolation could limit the Gear A's appeal.
Tizen-powered Gear devices are only compatible with Samsung phones, but Samsung phones can still pair with other Android Wear smartwatches. This means that Gear A would mainly appeal to Samsung loyalists who prefer Samsung's ecosystem over Google's.
Another key problem with the Gear brand is that it lacks Apple's status-symbol appeal. Smartwatch Group reports that the average selling price of a smartwatch was $189 in 2014, which made the $350 Gear S look like a "luxury" device. Yet Apple Watch starts at $350, while premium versions cost over $10,000. Therefore, Samsung is stuck competing against other electronics OEMs like Asus, LG, and Motorola, while Apple is challenging luxury watchmakers like LVMH's (NASDAQOTH: LVMUY) TAG Heuer.
Samsung is also obsessed with the idea of 3G-enabled smartwatches, but there's no evidence suggesting consumers need a phone-less smartwatch, or like making calls from the wrist. Bluetooth headsets make talking to a watch seem silly, while devices like Sony's (NYSE: SNE) SmartBand Talk can already take calls through the watch without a 3G connection.
In my opinion, if Samsung really wants a piece of the smartwatch market, it needs to widen its potential market by ditching Tizen and 3G-enabled watches. If Samsung reinstalls Android Wear across all of its Gear devices, and Google subsequently launches Android Wear on iOS, its wearables could reach nearly the entire smartphone market.
However, if Samsung values the growth of Tizen and its proprietary ecosystem more than smartwatch sales, it's unlikely new devices like the Gear A will steal the spotlight from Apple Watch.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. 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.
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