When a consumer electronics vendor launches a new product category they are often uncertain about the overall market demand. While early-adopters may adopt the new device relatively quickly, the mainstream user market is far less likely to be interested or motivated to buy.
Sometimes the leading vendor in a category will abruptly reach market saturation, as a key indicator of the future outlook. For the first time, the worldwide smart watch market saw a year-over-year decline of 32 percent, according to the latest global market study by International Data Corporation (IDC).
Smartwatch vendors shipped 3.5 million units in the second quarter of 2016 (2Q16), which was down substantially from the 5.1 million shipped a year ago. Apple held the top rank by shipping 1.6 million watches. However, it was the only vendor among the top five to experience an annual decline in shipments.
Smartwatch Market Development Challenges
The year-over-year comparison is to the initial launch quarter of the Apple Watch, which is in many ways the same product offered in the most recent quarter with price reductions.
"Consumers have held off on smartwatch purchases since early 2016 in anticipation of a hardware refresh, and improvements in WatchOS are not expected until later this year, effectively stalling existing Apple Watch sales," said Jitesh Ubrani, senior research analyst at IDC.
IDC analysts believe that Apple still maintains a significant lead in the market, but a decline for them will lead to a decline in the entire market. Every vendor now faces similar challenges related to fashion and functionality, and though IDC expects improvement next year, growth in 2016 will likely be muted.
One of the omissions in the smartwatch market is the absence of traditional watchmaker brands. To date, only a small handful of legacy watchmakers have entered the smartwatch market, trailing far behind their technology brand counterparts.
Adapting to Mainstream User Expectations
This may be changing, as key vendors such as Casio and Fossil introduce their own new device. Established watchmakers are expected to drive the most important qualities of a smartwatch for everyone -- namely design, fit, and functionality; delivered at a reasonable price.
How the smartwatch market evolves from here will be a pivotal stage of market growth, according to the IDC assessment. Continued platform development, cellular connectivity, and an increasing number of useful software apps all point to a smartwatch market that will be constantly changing.
These improvements should appeal to the mainstream market. In fact, IDC does anticipate that the market could return to growth in 2017, driven by the evolving market requirements. Exactly when that rebound happens will depend on when smartwatch vendors invent compelling use cases for mainstream buyers.