Smartwatch market to grow 18% this year, Canalys says

Legacy watch vendors are threatened on both ends of the market. Basic connected bands are eating into sales of inexpensive watches, while complex devices with more functionality are beginning to be a drag on sales of high-end watches.

The worldwide smartwatch market will gain incremental traction this year, according to Canalys, growing 18% to reach $10 billion.

And traditional watchmakers should consider getting on board.

The smartwatch market remains a tiny segment, and—thus far, at least—has been dominated by Apple. Canalys said last month that Apple Watch had its best quarter during the recent holiday season, shipping 6 million units and accounting for nearly 80% of total smartwatch revenue during the period.

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Apple sold 11.9 million of the devices in 2016, according to Canalys estimates, claiming roughly half of the global market for the full year. Those figures echoed estimates issued by IDC late last year that pegged Apple’s share of the worldwide smartwatch market at 41% in the third quarter.

But Apple's share of the broader market for wearables was only 4.9%, IDC said, highlighting the fact that sales are being driven primarily by fitness bands as smartwatches continue to struggle.

Manufacturers of traditional watches are dipping their toes in the new wearables segment with connected devices to offset declining sales, however. But Canalys said manufacturers should take a longer view and embrace high-tech watches as the market begins to get legs.

“Connected watches appeal to buyers who want a watch first and a basic band second,” Canalys Analyst Jason Low said in a prepared statement. “With fewer people wanting to buy traditional watches, connected watches with limited functionality risk ending up like basic bands: Being taken over by smartwatches by 2018. Watchmakers yet to take action need to switch their focus to smartwatches for long-term growth.”

Legacy watch vendors are threatened on both ends of the market, Low continued. Basic connected bands are eating into sales of inexpensive watches, while complex devices with more functionality are beginning to be a drag on sales of high-end watches. High-tech gadgets may not be a mortal threat yet—the smartwatch market remains very small thus far—but traditional manufacturers should begin developing strategies to compete in the smartwatch segment, Low said.

“Forming partnerships with technology companies will be the first step,” he said. “A well-formulated strategy to sell a watch will play a larger role as watchmakers have to appeal not only to watch fans, but consumers who are yet to buy a wearable.”

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