Eric Migicovsky had his a-ha moment while biking along the canals of the Netherlands. The Canadian engineering student kept missing calls on the BlackBerry tucked into his pockets. So as soon as he got home, the then-22-year-old entrepreneur began work on an accessory that would help him know when he was getting a call.

His brainchild, the inPulse Smartwatch, relays text messages and caller information from the BlackBerry onto its owner's wrist, reducing the chances of missing an important call. Migicovsky says advance orders for the $149 device are twice what he expected and that he's already devising a similar gadget for smartphones that run Google's (GOOG) Android software. "No one is building intelligent accessories" for smartphones, Migicovsky says.

At least they weren't. Until recently, there wasn't much variety in accessories for smartphones. Users could choose from the basics: charger, headset, carrying case. And even those didn't vary much from the accessories that could be used for plain old cell phones. Yet lately, as smartphones have become more commonplace—these advanced handsets will account for 43% of all mobile devices sold in 2013, according to consultant Gartner (IT)—related accessories are taking a big leap forward.

New Capabilities A new generation of accessories is emerging that promises not only to keep a phone charged up and protected from scratches but also to extend its capabilities in a big way. Gaming accessories for the Apple (AAPL) iPhone are expected to make their debut in 2010. A dock released by Motorola (MOT) in November turns the Droid into an alarm clock and digital picture frame. Due in December, a new projector will let LG's eXpo phone project video and photos onto walls and other surfaces. A slew of smart cases due to be introduced at the January Consumer Electronics Show in Las Vegas will turn phones into remote controls for operating home electronics, such as TVs and stereos.

ISkin, which has long made colorful cases for Apple and Research In Motion (RIMM) smartphones, in January plans to release a case with built-in communications capabilities. The case will tap into the iPhone's internal software and let users more easily control other devices. "We got the idea of a smart case three years ago, but there was no way to bridge with the phone," says Andrew Ackloo, CEO of iSkin. Then, Apple made available more of the phone's software to developers, and "it opened up a whole new world for accessories manufacturers," he says. "Now, the accessory is going to integrate with the phone, not just be on it."

The new devices may help bring the accessories market out of its recent slump. Worldwide revenue from cell-phone accessories is expected to slip 4%, to $54.9 billion, amid gloomy handset sales and tighter consumer spending, according to consultant ABI Research. But sales of accessories are expected to rebound next year, ABI says. "Smartphone customers tend to be more affluent, and are more likely to spend on accessories," says Ross Rubin, director of industry analysis at consultant NPD Group.

Vital Revenue Stream Buyers of the T-Mobile myTouch 3G buy twice as many accessories as the average cell-phone owner, says Andrew Sherrard, a vice-president at T-Mobile USA. To take advantage of the opportunity, T-Mobile co-designed with its suppliers some 40 accessories for the smartphone's August launch; until then, T-Mobile had typically launched smartphones with no more than a dozen accessories apiece. "We are getting more deeply involved in creation and design," Sherrard says. Accessories can carry margins of 30% to 90%, says Michael Morgan, an analyst at ABI Research.

For carriers and handset makers, accessories increasingly represent an important revenue stream: As competition intensifies, prices for wireless plans and smartphones are declining. Accessories "help differentiate the product and make up more revenue," Rubin says.

Some companies are looking to accessories to bolster sales of their other products, such as smartphone applications. In October, TomTom (TMOAF:US) announced its car kit for the iPhone, which affixes to the windshield or dashboard, making it easier for iPhone owners to operate TomTom's iPhone navigation application, released months earlier. The kit sells for $120, and the app for $100. TomTom is about to release a version of the dock for the iPod Touch, and it's working on versions for other smartphones as well. "We are seeing quite a bit of demand," says Tom Mirray, vice-president for market development at TomTom.

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