SAMPLE PAGES: Devices for the Wrist: Ecosystems Crucial

to Growth of Connected Watches and Bands

November 2014

Report price: US$ 3,495.00

Jan ten Sythoff | Analyst at Large

Ozgur Aytar | Research Director

“Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands,” a Research Report by Pyramid Research, examines the high growth opportunity which wrist-worn wearable technologies provide, how the ecosystem is developing, positioning strategies of the key industry players, and the launched and announced products to date. The report provides 5-year projections for shipments and revenue by device segment and global installed base. The analysis is built around Pyramid’s wrist-worn product database of over 70 models, mobile industry forecasts as well as end-user research conducted across several Western European countries and a global survey of over 200 industry players.

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Summary

• Following several decades of false starts, wrist-worn technology is becoming an enormous new opportunity: shipments for wrist-worn devices are expected to grow by nearly sevenfold in 2014 and threefold in the following year. Technology developments, high smartphone penetration rates, new applications and the availability of well-designed, easy-to-use devices are some of the key drivers behind this growth.

• The variety of products available has ballooned, with different designs, capabilities and brands, but the entry of Apple into the market in 2015 will be the key catalyst for growth.

• Manufacturers face multiple challenges in developing a smart watch that is attractively designed and balances functionality with the right combination of user interfaces. Furthermore, there is an inherent trade-off between functionality and battery life: typically, technology vendors such as Apple and Samsung favor functionality and have had to develop innovative ways in which the user can interact with the device. Traditional watch manufacturers such as Casio and Citizen prioritize battery life and limit functionality. In between are a broad range of different possibilities to meet different needs and tastes.

• There remains significant potential for product development and improvement, particularly as the chipset and technology suppliers improve their products,

with a particular focus on improving battery life.

• Highly functional smart watches will be dominated by the existing smartphone platforms, but there are also opportunities for devices with lower functionality, particularly for the traditional watch manufacturers, for whom typically design comes above functionality.

• Fitness and health applications will be a key driver for wearables. Many large technology companies are looking at cloud based health services as an important new revenue opportunity.

• Bluetooth is the connectivity technology of choice today; Wi-Fi drains batteries quickly but enables independent connectivity and could introduce new opportunities, particularly for mobile operators. We expect that NFC will make the biggest impact, opening the door to new applications, particularly in the areas of access control, loyalty, payments and travel.

• By 2019, we are projecting shipments to grow by 13-fold from its 2014 level, with more than 10% of the global population wearing a connected wrist-worn device. While the market is expected to be triggered by the Apple Watch, at the same time lower cost devices will also drive the market as chipset and component prices fall; furthermore, the price of connected bands will fall dramatically as new business models become established.

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Key findings

The “Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands” report comprises business model analysis, market sizing and demand analysis and trend analysis for wrist-worn device market. Insights and data are derived through a mix of primary research, secondary research as well as quantitative modeling for sizing the market opportunity.

The report draws on a total of three surveys and panels that gauge the status and expectations of both end-users and industry participants, including a survey of over 200 telecommunications and technology professionals conducted by Pyramid Research in August-September 2014 as well as a European technology end-user panel in Germany, Italy, Spain and the UK in July 2014 and a UK wearable technology end-user panel from January 2014, both of which were conducted by our sister company, Canadean Consumer.

In addition to these surveys, Pyramid conducted interviews with key players in the market to support its analysis of the evolution of the ecosystem and business models and development of a database of 70 wrist-worn devices. This effort was supplemented by secondary research, involving the gathering of relevant data and intelligence through publicly available sources, publications, trade associations, specialist databases and company financial reports, presentations and press releases.

Pyramid Research developed a model to size the market opportunity that incorporates global historical shipments, revenue and average selling price (ASP) data at the manufacturer level, survey findings on adoption levels as well as vendor plans over the next 18-24 months in the forecast through 2019.

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Report methodology

• The “Devices for the Wrist: Ecosystems Crucial to Growth of Connected Watches and Bands” report provides a comprehensive examination the nascent wrist-worn wearable technology opportunity to help executives make informed investment decisions, develop effective partnerships and optimize return on investment.

• This report provides a five-year forecast of wrist worn wearable volumes and revenues broken down into three segments, namely bands, smartwatches and cellular watches as well as a population penetration and installed base analysis to enable executives assess growth opportunities and position their companies for emerging trends in demand

• The report incorporates a detailed product analysis, highlighting the features, functions, pricing and capabilities of over 70 product models on the market, which provides an in-depth overview of key trends in the wrist-worn device market for any stakeholder and should support vendors in developing competitive strategies as well as differentiation.

• Survey data is included into the analysis, including both end-user awareness information as well as the results on an online industry survey to assess the industry’s position and expectations of the market opportunity.

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Reasons to buy

Table of contents 2 Table of exhibits 4 Executive summary 6 Introduction 10

I. Report scope, definitions and segmentation II. Survey and panel overview

Section 1: Market overview and background 14 I. Overview of wearables and connected watch opportunity II. End-user awareness III. Industry expectations IV. Watch market overview V. Smart watch history

Section 2: Analysis of the smart watch ecosystem 22 I. Smart watch ecosystem overview, brand positioning and key takeaways II. Application developers: Positioning strategies

i. Runtastic V. Traditional watch manufacturers: Positioning strategies

i. Swatch ii. Casio

VIII. Smart watch platforms/vendors: Positioning strategies i. Google ii. Samsung iii. Apple

XII. Mobile network operators: Positioning strategies i. AT&T ii. NTT Docomo iii. Swisscom

XVI. Chipset and component manufacturers: Positioning strategies i. MediaTek

Section 3: Assessment of wrist-worn products 44 I. Key takeaways II. Product and manufacturer overview

III. Product segmentation and pricing i. Smart watches ii. Bands iii. Cellular-connected smart watches

IV. Product challenges V. Product analysis

i. User interface ii. Interactivity and functionality iii. Android Wear user interface iv. Design v. Battery life vi. Functions and applications vii. Android Wear applications

VI. Product positioning: Price versus functionality VII. Product connectivity

i. Wi-Fi ii. NFC

Section 4: 5-Year forecast of wrist-worn device shipments, revenue and installed base 64

I. Key forecast assumptions II. Industry survey results: Population penetration expectation for

2019 III. End user awareness III. Product availability IV. Wrist-worn device shipments by segment V. Bands: Shipment and revenue forecast VI. Cellular smart watch: Shipment & revenue forecast VII. Smart watches: Shipment and revenue forecast VIII. Global installed base and penetration forecast

Appendices 75 Companies mentioned Sources and related research About Pyramid Research

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Table of contents

Product count by segment 10

Overview of survey and panel surveys 11

Survey respondent breakdown by company type 12

Survey respondent breakdown by region 12

Smartphone penetration in selected markets, ye 2013 14

“Which of the following have you heard of?” 15

“Which of the following wearable technologies have you heard of?” 16

“In five years time, what level of population penetration do you expect to see for wearable connected devices (in your country)? 17

“Please rank the following types of wearable devices in the order of how successful you expect them to be over the next five years” 17

“Is your company involved in the connected wearable device market?” 18

“Which of the following devices are/will be within the scope of your company’s involvement in the connected wearable device market?” 18

Global watch revenue, 2012, 2013 19

Average watch prices by country of manufacture, 2013 19

Early smart watch failures 20

Smart watch ecosystem 22

“In your view, how would strong adoption levels of wearable devices impact the following?” 23

“Please rank the following brands in the order of how successful you expect them to be in wrist-worn wearable devices” 24

Runtastic pro app 27

Positioning of watch vendors and smart watches 29

Swatch Touch 30

Positioning of smartphone manufacturers 33

Cellular-enabled watches and subscription costs 37

AT&T devices (Filip watch, Martian watch, Fitbit Flex) 38

NTT Docomo’s Move Band 2 39

Limmex emergency watches offered by Swisscom 40

Smith Optics I/O Recon connected goggles 40

Apple S1 SIP and Qualcomm TOQ Smartwatch 41

MediaTek LinkIt overview 42

Manufacturer breakdown by type 45

Prices by segment: low, average and high 46

Yingqu InWatch One, Garmin Forerunner, Tomoon Fire 47

Sony Smartband Talk, Jawbone Up24 48

Filip, hereo and Tinitell wristphones for children 49

Samsung Gear Live, Timex Ironman One GPS+ 49

“How important are the following challenges that the industry must overcome to ensure mass market adoption of wearable devices?” 50

“How would you expect the user to interact with connected devices worn on the wrist?” 51

Product positioning: functionality and user interface 52

Android wear menu and user interface 53

Apple Watch designs 54

Smart watches with classic designs 55

Kairos smart watch has both a classic and a digital screen 55

Watch battery life 56

“How important do you think the following applications will be in driving wearable device adoption?” 57

Early Android wear applications by category 58

Product positioning 59

Wearable connectivity capability 60

“Please rate the importance of the following ways in which wearable devices connect” 61

Telefonica’s TU Go service 62

Apple Pay on an Apple Watch 63

Starwood Hotel watch app 64

Connected wrist-worn device shipments, 2013-2019 65

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Table of exhibits

“In five years time, what level of population penetration do you expect to see for wearable connected devices (in your country)? 66

“Which of the following new technologies have you heard of?” 67

“Which of the following statements do you consider to best represent wearable technology in 2014?” 67

Bands, cellular smart watches and smart watches launched 2012-2014 68

Segment market shares, millions of shipped units, 2013-2019 69

Connected band shipments and revenue, 2013-2019 70

Cellular smart watch shipments and revenue, 2013-2019 71

Smart watch shipments and revenue, 2013-2019 72

Wrist-worn device installed base and population penetration, 2013-2019 73

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Table of exhibits (cont’d)

End-user awareness: Across four countries in Europe

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According to Progressive Media’s consumer end-user technology survey in Germany, Italy, Spain and the UK, end-user awareness for wearable technology is highest in Spain and lowest in Germany.

Source: Canadean Consumer: Connected Consumer Tracker Q2 2014; UK, Spain, Italy, Germany

“WHICH OF THE FOLLOWING HAVE YOU HEARD OF?”

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

UK

Spain

Germany

Italy

Average

Wearable technology

Smart watch

4G

Smartphone

According to our survey, the biggest impact of high adoption of wearable devices would be on the use of services such as mobile data access, voice use (for interactivity), advertising and application downloads.

The impact on other hardware sales, such as traditional watches, tablets and smartphones, is less pronounced, but note that the impact on smartphone sales (and loyalty) is overall seen as positive, despite overlapping capabilities.

Conversely, traditional watch sales are expected to be impacted negatively and though this impact was expected to be small by the technology industry, the announcement of the Apple Watch hit traditional watch stocks such as Fossil, Richemont and Swatch negatively.

Communication, information, navigation and entertainment applications will all benefit with increased usage, but we expect that the area of fitness and health will be the most important growth area, driving application downloads and mobile data usage.

Smart watch ecosystem overview

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The proliferation of wearable devices will have the biggest impact on data usage, application sales, voice interactivity and targeted advertising.

“IN YOUR VIEW, HOW WOULD STRONG ADOPTION LEVELS OF WEARABLE DEVICES IMPACT THE FOLLOWING?” (N=178) (AVERAGE OF INCREASE, DECREASE, NO IMPACT RESPONSES)

-40% -20% 0% 20% 40% 60% 80% 100%

Mobile data

Voice interaction

Targeted advertising

App sales/downloads

Smartphone loyalty

Smartphone sales

Tablet sales

Watch sales

Source: Pyramid Research Industry Survey, August 2014

Product analysis: Interactivity and functionality

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More advanced smart-watch functionality requires more sophisticated user interface combinations; vendors must choose the best combination of user interfaces for the level of functionality they want to offer.

PRODUCT POSITIONING: FUNCTIONALITY AND USER INTERFACE

Limited functionality

Advanced functionality

High interactivity

Limited interactivity

Devices with more functionality require a more sophisticated user interface, and vice versa. Thus, at one extreme, the Apple Watch has very sophisticated functionality and allows the user to interact in several different ways: buttons, touchscreen (to swipe up only), voice as well as vibrations/touch and gesture.

Android Wear mainly uses touchscreens and voice for interaction but does support manual buttons also. Apple points out that touchscreen interactivity is not fitting for a watch because the screen cannot be seen, but it remains to be seen how this will develop in the future. It is still unclear whether users will be willing to use voice commands to interact with wrist-worn devices.

The traditional watch manufacturers’ smart watches, with their limited functionality, have stuck to the use of hardware buttons for interactivity. The most recent device from Casio lets users assign hardware buttons in the way they prefer. Simplicity is chosen over functionality, given the uncertainties highlighted above.

Manufacturers must therefore carefully decide which types of user interfaces should be used and combined to best access the functions and capabilities of their devices.

Source: Pyramid Research

Apple

Asus

AT&T

Casio

Citizen

Epic Systems

Fitbit

Fossil

Garmin

Geak

Google

HTC

Huawei

IBM

Jawbone

Kairos

LG

Limmex

LVMH Bulgari

Magellan

Martian

Mayo Clinic

Mediatek

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Companies mentioned

Microsoft

Motorola

Neptune

Nike

NTT DoCoMo

O2

Omate

Omron

Pebble

Qualcomm

Richemont

Rolex

Runkeeper

Runtastic

Samsung

Scosche

Seiko

Sony

Swatch

Swisscom

Telefonica

Timex

Tinitell

Tomoon

Toshiba

Yingqu

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Forecasts updated quarterly A premium version of Pyramid Research’s Mobile Demand Forecast, Mobile Data tracks current and future demand for mobile data services, within the context of overall mobile demand. This forecast includes all the same tracking as the standard Mobile Demand Forecast but breaks down mobile data ARPS, revenues and subscriptions at the service level.

CLIENT CONFIDENTIAL

© 2014 Pyramid Research. All rights reserved. No material contained in this report may be reproduced in whole or in part without the prior written permission of the publisher. Neither the information nor the opinions expressed in the report should be construed as a recommendation for the purchase or sale of any security. The information contained in this report has been obtained from sources we believe to be reliable, but neither its completeness nor accuracy can be guaranteed. Opinions expressed are based on our interpretation of the available information and are subject to change.

Sources and related research

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