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Good News, Bad News For Apple Inc.'s Watch in 2016

By Tim Brugger - Feb 23, 2016 at 11:03AM

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The iEverything maker’s new Watch didn’t quite have the impact some expected, but that could change in 2016. Or, maybe not.

If the pundits' expectations prove correct, 2016 could be the year that smartwatches finally go mainstream, led by the Apple (AAPL 1.62%) Watch. The reasons why we say it "could" be the year of the smartwatches rather than "will" be is that the predictions depend on which estimate investors choose to believe, as well as whether device makers can overcome consumer concerns.

Apple has kept mum on the specific sales numbers for its new-ish wearable device, but that hasn't prevented multiple research firms from taking their best shots at guesstimating sales.

One thing is fairly certain: The Apple Watch didn't have the kind of impact on sales of other wearable devices in 2015 -- particularly Fitbit's (FIT) market leading fitness trackers -- as industry insiders had expected. That said, Gartner (IT 1.01%) is one of many research firms expecting big things for smartwatches in 2016. But there could be a roadblock on the route to the industry reaching Gartner's lofty smartwatch growth numbers this year and beyond: consumers' willingness to open their wallets.

Image courtesy of Apple

The good news
Gartner's data suggests there were slightly more than  30 million smartwatches sold in 2015, of which some believe about 50% were Apple devices. It should be noted that Gartner's estimates for 2015 were considerably higher than those of Juniper Research, which pegged sales at 17.1 million units last year. However, both firms agree that the jump in smartwatch adoption was largely due to Apple, and both expect it to be a primary driver of growth moving forward.

On the high end, according to Gartner, 2016 could deliver a 67% jump in smartwatch sales to over 50 million units. And that figure is expected to grow to 66.7 million smartwatches in 2017. Assuming Apple is able to maintain its sizable market share lead, Watch sales meaningfully contributing to the company's top and bottom lines could become a recurring theme.

As it stands, iPhones continue to be the single biggest driver of Apple's results, but the Watch could prove to answer to the question of where its next burst of growth will come from. Regardless, it's safe to say the best is yet to come for the Watch, assuming Apple and other smartwatch manufacturers are able to overcome what appear to be significant barriers to entry for consumers.

The bad news
A survey was conducted of 1,000 Internet users to determine what their reasons were for not buying a smartwatch. An overwhelming 69% responded that the cost was prohibitive, and at least for now, it's easy to see why. Compared to around $100 for a Fitbit device, which is more than adequate to meet the needs of health conscious consumers looking for a metabolic fitness tracker -- a use that is the primary driver of wearable sales -- an Apple Watch is a fairly big leap, expense-wise.

The second biggest hurdle to smartwatch adoption, according to nearly 40% of those surveyed, was that there simply aren't enough reasons to spend about $250 (it was nearly $350 until the recent price cut-for an entry-level Apple Watch) let alone more than twice that for a higher -end device.

Apple's wildly successful iPhone line-up is at least partly to blame for the blasé attitude toward existing smartwatch iteration. The message notification feature of smartwatches, perhaps their biggest differentiator from Fitbit's fitness trackers, is already addressed by the widespread use of smartphones, which seem to be surgically attached to many of the world's mobile consumers.

Folks on the go have become so accustomed to using their smartphones for everything from communication to desktop-like computing functions, today's Watch seems redundant.

The big event Apple has scheduled for March 15 is expected to include the introduction of its new iPhone 5se. Given the recent price drops at some retailers, some have speculated the second-generation Watch will also be unveiled next month.

For investors with an eye toward the Watch as a means to jump-start growth for Apple, consumers have spoken. As it stands, many prospective smartwatch buyers love the concept, but Apple has a couple of hurdles to overcome before it goes mainstream. 


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