Modest outlook for smartwatch market expected, set to swell in 2020

New smartwatch shipments are expected to see only modest growth for the remainder of 2016, despite the Apple Watch establishing a new benchmark following its launch into the market a year ago.

That's the word according to analyst firm IDC, who says late-in-the-year and iterative product releases are behind the unexceptional growth rates.

Despite the modest growth expected for the remainder of the year, the analyst firm expects shipments to significantly swell by 2020.

IDC forecasts total smartwatch shipments to reach 20.1 million units in 2016, an increase of 3.9% from the 19.4 million units shipped in 2015.

IDC categorizes smartwatches as those that can run third party applications. Examples include Apple's Watch, Samsung's Gear S3, Motorola's Moto 360, and Pebble's Watch.

Smartwatches are part of IDC's larger category of Smart Wearable devices, which also include smart glasses and certain wristbands. IDC expects total smart wearable volumes to reach 21.5 million units shipped in 2016.

By volume, smartwatches account for the largest part of the category, and are expected to reach a total value of $17.8 billion dollars in 2020.

Meanwhile, IDC categorizes a wearables that do not run third party applications as a basic wearable devices. Basic wearables can take on multiple form factors – wristbands, clothing, and watches – but underpining all of them is that none of them run third party apps. Examples include Fitbit's selection of fitness trackers, Garmin's Vivofit devices, and Xiami's MiBand. By the end of 2016, total shipments of basic wearables will reach 80.7 million units.

"To date, smartwatches have remained in the realm of brand loyalists and tech cognoscenti, but we expect that to change over the next few years," says Ramon Llamas, research manager for IDC's Wearables team.

"First, smartwatches will look and feel like traditional watches, appealing to those who put a premium and design and style. Second, once the smartwatches get cellular connectivity, they'll disconnect from the smartphone, making them more useful," Llamas says.

"Third, smartwatch applications will build on this cellular connection, and connect with other devices within the home and at work.

Finally, smartwatch prices will come down, making them more affordable to a broader market," he explains.

Ryan Reith, programme vice president for IDC's Mobile Devcice Trackers, says, "It is increasingly becoming more obvious that consumers are not willing to deal with technical pain points that have to date been associated with many wearable devices.

"Complaints about battery life, smartphone dependancy, and minimal use cases have been well versed across most publications and research findings," he says.

"The aformentioned improvements that are rapidly being deployed by most vendors should improve this aspect, but at the same time the increase in devices that have more fashion appeal over technological appeal should also be a catalyst to growth in both smartwatches and basic watches with minimal functionality beyond normal analog."

Top Five Smartwatch Platforms

watchOS will stay atop the smartwatch platform list throughout the forecast. The Series 2 Watch addresses some of the shortcomings of its Series 1 predecessor, but the lower price on the Series 1 (starting at $269 USD) may end up driving more volume in the upcoming holiday season. Still, these will be enough to keep watchOS the overall market leader, and future iterations of the Watch with new body styles, materials, and cellular connectivity will help cement the company's spot later in the forecast.

Android and Android Wear will see the fastest growth of any platform on the list, and by 2020 will challenge watchOS for the top position in the worldwide smartwatch market. Support from OEMs both inside and outside of the IT industry will adopt Android Wear as the cornerstone of their smartwatch strategy, and in the process will address gaps in the product portfolio to lure new users.

Tizen will remain in third place throughout our forecast. This puts significant pressure on Samsung, Tizen's sole supporter, to develop devices and platforms, and cultivate the application selection. Thus far this has proved successful for Samsung, especially in launching its unique bezel-based interface and cellular-capable smartwatches. What bears close observation is when watchOS and Android/Android Wear launch their own devices with similar features and capabilities.

Real-Time Operating System (RTOS) encompasses proprietary operating systems that also allow for third party applications on smartwatches. A prime example is Garmin's suite of devices that connect to the company's library of third party applications called Garmin IQ. IDC expects more vendors – particularly those specializing in fitness trackers – to follow suit with this same strategy in the years to come. This will help RTOS to emerge as the second-fastest growing platform in the worldwide smartwatch market.

Others includes Linux and Pebble OS, two platforms that are expected to decline over the course of the forecast period due to increasing pressure from market leaders. Still, these will appeal to select segments of the market, particularly brand loyalists and gadget tinkerers.