New wearable shipment data published by International Data Corporation this week put Apple (NASDAQ:AAPL) just behind market leader and maker of popular fitness trackers, FitBit. In Q2 2015, Apple held 19.9% of wearable shipment market share, with 3.6 million units shipped. That's on slightly behind FitBit's lead of 24.3% and 4.4 million units shipped.
But despite Apple falling slightly behind FitBit, there are some very good reasons why the Apple Watch maker should close that gap very soon.
Leading from behind
Despite FitBit's current lead, there's a larger trend occurring in the wearables market right now that will be very good for Apple, and not so much for FitBit. The IDC noted in a separate report that smart wearables will overtake basic wearables in 2016.
Smart wearables differ from general wearables (like fitness trackers) because they can run third-party apps. And in that segment, the Apple Watch already accounts for about two-thirds of all shipments right now.
And it appears Apple is helping to drive the smart wearable market. IDC's wearable research manager, Ramon Llamas, had this to say about Apple's influence in the market:
"Fairly or not, Apple will become the stick against which other wearables are measured, and competing vendors need to stay current or ahead of Apple. Now that Apple is officially a part of the wearables market, everyone will be watching to see what other wearable devices it decides to launch, such as smart glasses or hearables."
First of all, can we all agree to retire the term "hearables" before it sticks? I suggest the Internet of Listening as its replacement, but I'm good with literally anything other than hearables.
Secondly, FitBit's current success is riding high on the first phase of wearable devices that have basic functionality, are simple to use, and generally inexpensive. And as basic wearable shipments slow down into 2016, IDC says it leaves "Apple poised to become the next market leader for all wearables."
Apple Watch threats
Of course, there are plenty of other Apple competitors looking to make big gains in wearables over the next few years, too.
China-based Xiaomi currently trails Apple in wearable shipments, but only by 500,000 units in Q2 2015. The company's $15 Mi Band has proven to be a popular choice, particular in China, but Xiaomi recently started selling the device in the UK and the U.S. as well. Xiaomi's is known for feature-rich devices that typically undercut competitor's prices, and if the company does the same thing for an eventual smart wearable device, then that could eventually pose a bit of threat to Apple, particularly in China.
And who could forget Samsung, which helped start the smart warbles market with its Gear smartwatch, but barely made it into the top five vendors category in the second quarter. Currently, Samsung holds just 3.3% of the worldwide wearables shipment market. That's largely because the company decided to pair most of its wearables with its high-end smartphones only and use its own Tizen operating system as the primary OS for most of its wearables.
I think Samsung could become a bigger threat to Apple if it opened up the devices to connect to more Samsung phones, and dropped Tizen for Android Wear. But considering Samsung is so far behind in the wearables market right now, and its mobile division is having a hard time making a profit, it's not likely the South Korean-based company poses much of a threat right now.
This may still take a while
Apple's in great position to start taking the lead in the overall wearables market, and is setting the pace for the smart wearables segment as well. With the upcoming release of Watch OS 2, investors should keep an eye on the public's reaction to the incremental changes Apple's made to the operating system, and hope its enough to convince new users to get on board.
But I think it's worth mentioning here that smart wearables are still going to take some time for the general public to get used to. The price point for the Apple Watch is steep, with the current average selling price, or ASP, estimated between $400-$500. That's a hefty price tag that will likely keep a lot of consumers away from the Apple Watch for a while.
Just as with its smartphones, Apple doesn't need to dominate market share because its devices are high-margin items -- the Apple Watch has an estimated gross margin of about 45% -- but Apple will still have to convince users that smart wearables are worth the price, on top of the expensive iPhone prices its users are currently paying.
That may mean adoption rates are slower than Apple and its investors may want, but if IDC estimates are right, then things should start picking up next year. And if we pair that with a possible new version of the Apple Watch coming in 2016, then next year could be a great one for Apple's wearable sales.