Why Apple Watch Is Losing to Fitbit
Just two years ago, smartwatches -- especially the Apple Watch -- were expected to kill off simple fitness bands that only measure physical activity. Instead, fitness trackers are growing at smartwatches' expense. That makes sense: Users don't want to pay extra for unnecessary or duplicating functionality.
On Dec. 5, the tech market analytics company IDC released a report on wearables showing that Apple Watch's share of unit shipments was down to 4.9 percent in the three months through September. It was 17.5 percent in the same quarter of 2015. Apple sold 1.1 million of the gadgets, down from 3.9 million. Samsung almost caught up, selling 1 million smartwatches. All the other major wearable makers produce fitness bands, cheap smartwatches or both, rather than upscale, made-to-impress watches like Apple's or Samsung's.
Apple has contested the data, claiming that Apple Watch's sell-through -- actual retail sales, as opposed to the number of units the company gets into stores -- is at a record high. Coupled with IDC's numbers, though, that can only mean that Apple flooded retailers last year, and that's why it didn't have to supply as many units in 2016.
Although Apple, which makes the most expensive smartwatches, is capturing a much bigger share of the wearable market's monetary value than of its unit shipments, the Apple Watch and other premium watches are becoming niche products. Otherwise, Apple would be releasing sales data, which it has refused to do.
The wearables market leader in terms of unit sales, Fitbit, sells seven products -- all wristbands or clip-on activity trackers. Fitbit doesn't believe in watches. Bloomberg News reported this week that Fitbit is close to a deal with the smartwatch-maker Pebble -- one of the market's first movers, initially crowdfunded on Kickstarter.com. But Fitbit isn't interested in any of Pebble's products, just in its software and the part of its team that works on it.
As recently as last summer, when there already were signs of trouble for smartwatch makers, the tech consulting firm Gartner put fitness wristbands close to the "trough of disappointment" in its "hype cycle" for wearable and smartwatches. Gartner believes that any innovation goes through a quick phase when expectations rocket, then underperforms, then moves up a "slope of enlightenment" to a "plateau of productivity." It appears Gartner was behind the curve on wearables, as are investors. The share price of Fitbit, a profitable company now unchallenged at the top of the market, is the lowest for the year, about $8.12 -- down from more than $32 a year ago.
Fitbit appears to have had the right idea from the start. It is geared toward a particular use -- exercise. Its most expensive device sells for $250, and it has GPS tracking, music controls and message notifications, but all its other functions are fitness-related. Most of the company's other products are about half the price or less. A Fitbit gadget doesn't pretend to be anything else than what it is, nor does it have hundreds of apps and various cute watch faces like the Apple Watch. It doesn't require a user to learn anything because it's simple and intuitive. An Apple Watch needs you to get used to it and learn some new moves. And its price range starts just about where Fitbit's ends.
It's possible that the smartphone has done irreparable damage to the good old watch. The Swiss watch industry is in freefall this year, and that's not because of the Apple Watch, as many predicted: That product is doing even worse. Market factors such as the strength of the franc and a decrease in European tourism are partly responsible, but, most likely, it's just that a watch is no longer a necessity, even for people who wear suits. It's normal to pull out a smartphone to find out the time.
To a growing number of people, the watch is a quaint accessory. And even though Apple's version (and Samsung's several versions) have all the activity-tracking functions of a Fitbit, many buyers see no point in all the extras -- nice design, pretty strap and a bunch of apps. A smartphone doesn't do what a fitness band does -- but it beats the smartwatch as a communication device and a portable computer.
Besides, many people buy wearable gadgets as gifts. That's where the price differential comes in. Call me cheap, but I'd rather buy a friend a $120 gift than a $350 one.
Even in this day and age, people sometimes still care about strict functionality and a low price. That resilient part of human nature will probably wreak havoc on hyped tech products in the near future. The so-called Internet of Everything is most likely to suffer: Smart faucets and light bulbs are not as functional to the average person as their makers and evangelists may think.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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