Apple (NASDAQ:AAPL) looks set to dominate the wearables market with its watch, but if the company fails, it could take down the entire category.
Until the iPad and iPhone maker got involved, wearable devices have been more about media hype than actual sales. A few products, such as FitBit's personal fitness trackers, have appealed to niche audiences, and some big players, including Microsoft (NASDAQ:MSFT)and Samsung (NASDAQOTH:SSNLF), have entered the space, but no company has achieved mass-market success.
Apple seems likely to change that according to new research from IHS Technology, but if it doesn't, the blow could sink the wearables market.
A tiny market set to grow
In 2014 there were only 3.6 million smart watches shipped, according to IHS, which predicts that number will grow to 101 million by 2020.
"Apple Watch success will drive the overall smartwatch market," said Antonios Maroulis, analyst at IHS Technology. "The smartwatch will become a key accessory device offered by most leading smartphone manufacturers seeking to dominate this new profitable market. We forecast the ratio of smartwatch shipments to smartphone shipments will increase from 1:500 to 1:20 between 2014 and 2020."
The IHS research suggests that Apple entering the field will actually be good news for the other players in the marketplace because the company will raise consumer awareness. IHS also said that Apple's Watch would make it easier for people to understand the benefits of the device clearly.
But, IHS wrote, the $349 starting price of the Apple Watch and the fact that it requires an iPhone to use will leave room for other players to compete.
"The two billion Android smartphone users and those Apple customers unwilling to spend so much on a smartwatch is a large target for Android smartwatch makers," wrote IHS.
As Apple goes, so goes the market
Though the company has not released any initial sales figures, IHS predicts that Apple Watch shipments will hit 19 million units, or 56% of the total smart-watch market in 2015. That number should fall to 38% in 2020 "as other smartwatch makers refine their products and successfully serve the vast Android smartphone market, which Apple chooses not to address," IHS wrote.
The researcher predicts that Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android Wear will be the other major player, shipping 96 million units over the next five years, "leveraging the vast Android smartphone installed base."
Of course, all of this is contingent on Apple's ability to not stumble, and to continue the launch momentum and excitement it has created for its first wearable.
"Should Apple stumble with its foray into smartwatches, the smartwatch market will suffer similarly. Smartwatches could then follow the fate of Google Glass. Without Apple and its marketing strength, the smartwatch category needs greater marketing spend from other smartwatch makers to overcome damage to consumer perceptions," forecasts Ian Fogg, senior director of Mobile & Telecoms at IHS. "Apple's smartwatch competitors need the Apple Watch to succeed."
Apple is set to succeed
"Delivering a wide range of apps will be critical for smartwatch success," Maroulis said. "Apple's and Google's success with existing smartphone application stores will give them an invaluable head start over challengers."
Both Apple and Google should be well positioned to deliver the needed apps, because the companies can leverage the developer base from their smartphone ecosystem. Ultimately, the success of the Apple Watch -- and perhaps the whole category -- will depend upon the ability of the company to steadily grow the user base.
Developers are excited right now because the watch seems like a potentially huge market. To maintain that excitement it's critical that Apple put watches on people's wrists on a steady, but increasing level, As we have learned with Windows Phone, developers lose interest in creating apps for a small audience.
Right now, the Apple Watch has a small audience. If it grows at the pace IHS predicts, which it should as long as Apple avoids any production stumbles, than it could be the leader in making smart watches, and wearables in general, a viable category for years to come.
Daniel Kline owns shares of Apple and Microsoft. He owns a pocket watch that is not smart. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). 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.