The Apple (NASDAQ:AAPL) Watch is reportedly the best-selling smartwatch in the world, according to IDC, but several new devices could challenge that early dominance. High-profile contenders include Samsung's (NASDAQOTH:SSNLF) Gear S2 and Motorola's new Moto 360.
However, Huawei recently turned some heads with the Huawei Watch, which runs on Android Wear. The Huawei Watch will arrive in two versions on Sept. 17 -- one with a steel face and a leather band for $349, and another with a metallic band for $799. That's a bold move that matches the Apple Watch's price tag and makes it pricier than many other Android Wear devices.
The Huawei Watch displays classic mechanical watch faces on its OLED screen. The preinstalled faces imitate mechanical ones from established luxury brands like Breguet, Jaquet Droz, and Patek Philippe, which might appeal to customers who dislike the "geek factor" of traditional smartwatches. According to Huawei, the device sports a two-day battery and the "world's most advanced" heart-rate monitor.
Thanks to the recent launch of Android Wear for iOS, the Huawei Watch will also be compatible with iPhones. Will the arrival of this unusual competitor dent sales of the Apple Watch?
Does Huawei stand a chance?
Huawei is primarily known for its networking equipment and cheap smartphones -- two markets it's done quite well in. Its lower-priced networking equipment has gained ground against Western market leaders, while its global smartphone sales surged 39% annually in the first half of 2015. Huawei's growth bucked the recent slowdown in the Chinese smartphone market, which dragged down Xiaomi and Samsung's growth.
The problem with Huawei's smartwatch strategy is that it doesn't complement its low-cost approach with network equipment and smartphones. Consumers expect Huawei to launch a decent smartwatch at low prices, not one that costs the same as the Apple Watch. Xiaomi would also likely fail if it used the same pricing strategy with its long-rumored smartwatch.
Last year, 89 different companies sold 6.8 million smartwatches worldwide at an average price of $189, according to research company Smartwatch Group. By comparison, IDC forecasts that Apple sold 3.6 million smartwatches over the past four months alone, while Slice Intelligence pegs the average selling price at around $500. Those figures indicate that only Apple can consistently sell smartwatches at higher prices.
Apple is a luxury brand; Huawei isn't
Apple can sell its devices at higher prices because of its brand appeal. A survey by Hurun Research Institute found that Apple was the top luxury brand for gift-giving among China's richest men and women, topping classic brands like Cartier, Hermes, and LVMH's Louis Vuitton. Xiaomi and Huawei obviously didn't make that list.
This shift caused Swiss luxury watchmakers like LVMH's Tag Heuer to scramble to produce their own smartwatches. Apple also beefed up its luxury know-how by hiring execs from Burberry, Yves Saint-Laurent, and Tag Heuer. This defensive moat allows Apple to sell cheaper hardware at higher prices, which gives it a magic mix of high margins and sales volume.
Competitors like Huawei can't simply expand into this market with a nice-looking watch with a high price tag. Without Apple's established brand appeal, cult-like following, and experienced luxury industry execs, pricey devices like the Huawei Watch will simply run into a brick wall. The same rule applies to other pricey challengers like LG's Watch Urbane.
The niche appeal of smartwatches
The tech industry seems enamored with smartwatches, but they're simply not mainstream devices yet. Even if Apple hits IDC's forecast of 15.9 million smartwatch shipments this year, it would only account for a low single-digit percentage of its annual revenue. It would also pale in comparison to the 169 million iPhones and 68 million iPads Apple sold last year.
Those numbers probably won't discourage companies like Huawei from expanding into the market to diversify their product portfolios. But as more companies launch smartwatches, the tougher it will be for individual players to stand out. There might be a market for luxury smartwatches, but Apple still firmly dominates that niche with devices that cost as much as $17,000.
Leo Sun has no position in any stocks mentioned. The Motley Fool owns and recommends 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.