With only a week left until Apple's spring event, AirPods 2 is expected to be the biggest highlight, especially given the news that it will include health data tracking features.
According to some Apple fans, AirPods are arguably Apple's most powerful innovation since the iPhone 4. Ming-Chi Kuo, who frequently speaks out in the tech media, claims that AirPods sales are expected to grow from 16 million in 2017 to over 100 million in 2021, making it Apple's most popular accessory ever.
IDC also wisely revised the definition of ear-worn devices: wireless earphones that can be activated by pressing a button or saying a wake word to activate a smart assistant. This expands the scope of wearable devices from wristbands and watches to wireless earphones, and at the same time released some impressive data: global wearable market sales reached 172.2 million units in 2018, a year-on-year increase of 27.5%.
Around the same time, after wearable device company Garmin released its Q4 2018 financial report, its stock price surged by 17%. Fitbit, Fossil, and domestic wearable concept stocks such as Universal Scientific Industrial and Yaohua also saw their stock prices rebound to varying degrees.
Since 2013, the year of wearable technology, a long winter seems to have given way to the scent of spring.
Wearable devices remain popular
Kai-Fu Lee once recalled his career experience at a forum: In 1980, he first worked on natural language processing, in 1982 on computer vision, in 1983 on speech recognition, in 1985 on human-computer chess, and in 1996 on VR/AR... He concluded that it was "a very bad and wrong career choice".
Then, changing the subject, Kai-Fu Lee expressed a consensus among many entrepreneurs: "Those top entrepreneurs were born at the right time," a helpless and somewhat regretful explanation.
The same applies to the wearable market. Most of the entrepreneurs who went crazy around 2013 have already left the market, and most of the investors who were ambitious about smart wearables have lost money. Even consumers who bought smart bracelets in the early days complain about the immaturity of the technology back then. The principle of "being born with the will of Heaven and not going against it, and following the timing of Heaven after birth" still plays tricks on a large number of people thousands of years later.
Unlike projects that quickly faded into obscurity after becoming wildly popular, the wearable market has never lacked excitement.
At CES 2019, wearable products, both reliable and unreliable, covered almost the entire head and toe: some small startups showcased more than ten smartwatches; even before foldable phones, someone demonstrated a smart wallet with a flexible screen; smart underwear that could track breathing, heart rate, sleep quality, and stress; and head-worn devices equipped with bone conduction headphones; Sony, Xiaomi, and even Pizza Hut all contributed to the hype surrounding smart sneakers through cross-industry collaborations…
Just like the atmosphere during the "first year", a large number of entrepreneurs and designers are trying out their ideas in the wearable field. Apparel and health-related companies are using wearables as a testing ground to find the next growth point, while some traditional devices such as smartwatches and smart bracelets, with slight modifications to their designs from a few years ago, are moving from one exhibition to another.
The difference is that the early wearable device story was limited to health management. The emergence of concepts such as artificial intelligence, edge computing, and blockchain has greatly enriched the story's plasticity: the products themselves have more intelligent and personalized features, and have also laid the groundwork for building an IoT ecosystem.
Back in late 2018, IDC had already made a forecast for global wearable device shipments in 2018. At that time, ear-worn devices were not included in the forecast. The figure given was that shipments in 2018 were expected to reach 125.3 million units, an increase of 8.5% over 2017. It also stated that smartwatches would continue to grow in the next five years, while smart bracelets would almost stagnate.
To understand why this situation has arisen, we need to start with the new mission of wearable devices.
Trends, dividends, and uncertainties
The key to solving the problem lies in Apple CEO Tim Cook's letter to investors in early 2019.
In addition to acknowledging the weakness in the Chinese market, Cook also intended to promote new growth engines to investors: despite the less-than-satisfactory performance of the iPhone product line, the overall revenue of services, Mac, iPad, wearables, smart home, and accessories businesses increased by 19% year-on-year, with Apple Watch and AirPods driving wearable devices to grow by 50% year-on-year.
Apple's problems are clearly not an isolated case. Looking at reports from Sino and IDC on the Chinese smartphone market, the market size declined by more than 10% year-on-year in 2018, with only a few brands achieving year-on-year growth. Wearable devices seem like a viable option for finding new growth opportunities outside of smartphone product lines.
Indeed, in the two years since its launch, AirPods have staged a remarkable turnaround in reputation and sales, overcoming initial ridicule. Many Chinese mobile phone manufacturers have seized the opportunity to launch similar products, with prices almost on par with Apple, while maintaining sufficient profit margins. It is possible that under the pressure of mobile phone sales, they may further shift their focus to wearable devices.
The industrial dividends such as 5G and eSIM may offer another explanation.
For example, in November 2018, Mobvoi released a smartwatch that supports eSIM. The public relations statement was: "The eSIM function is a watershed between fully smartwatches and sports watches. With independent and high-speed interconnection capabilities, the door to the rapid growth of the AI application ecosystem has been opened."
According to forecasts from McKinsey, IHS, GSMA, and other third-party organizations, eSIM will experience explosive growth in 2018, reaching an estimated 5 billion connections by 2021, and a market size of $5.4 billion by 2022. Beyond market trends, what excites wearable entrepreneurs is that both the belated innovation of eSIM and the massive industry benefits of 5G, by solving the problem of independent connectivity, offer the possibility of ecosystem development.
However, uncertainties also exist. BAT (Baidu, Alibaba, Tencent) and leading mobile phone manufacturers are all building IoT ecosystems and trying to dominate the formulation of relevant standards. Even giants with a market value of tens of billions of dollars find it difficult to build an interconnected ecosystem, which will undoubtedly be more difficult for entrepreneurs.
The choice is either to survive independently or to align with a giant; both options require time to prove themselves. With the market still in its infancy, the uncertainties of the wearable market are immeasurable. It may be just one step away from explosive growth, or it may take another step into a black hole.
Opportunities for entrepreneurs
The dilemma for wearable entrepreneurs is that while countless new products emerged between 2013 and 2018, the key to unlocking user demand remains elusive.
As evidence, Apple and other smartphone manufacturers eliminated the 3.5mm headphone jack before smart headphones like AirPods became wildly popular, capturing a quarter of the wearable market in 2018 alone. Even though companies like 1MORE, Little Bird, and Mobvoi have launched similar products to seize market share, this passive follower situation is unlikely to be reversed in the short term.
On the other hand, according to a report released by IDC, the top five companies in terms of market share—Apple, Xiaomi, Huawei, Fitbit, and Samsung—accounted for 65.7% of the market share in the fourth quarter of 2018, compared to only 61.1% in the same period of 2017. This is consistent with the trend of market share concentrating on leading brands in the smartphone industry.
Mobile phone manufacturers dominate user demand, control sales channels, and possess inherent brand advantages, making this competition inherently unfair from the outset. If entrepreneurs cannot find profitable technologies within this market, wearable technology will remain the domain of giants, and the so-called "second spring" is undoubtedly a false proposition. To answer this question, we only need to focus on the current state of affairs in three dimensions:
1. Use Cases for Wearables. The popularity of smart wearables has put mobile phone manufacturers in a difficult position, facing competition from rivals while also guarding against being overtaken by these new intelligent products. However, smartwatches and smart bracelets have not been able to break away from smartphones. The heavy-duty scenario for AirPods is still phone + headphones, and the light-duty scenario is watch + headphones. At least before the large-scale commercialization of eSIM and 5G, wearable devices have virtually no chance of surviving independently.
2. User Demands in Wearables. 2015 was arguably the peak of the wearable market, with many products targeting health management as their primary user need. This proved to be a serious misconception. Jawbone, once a rising star, saw its fortunes decline after its failed transformation into a clinical service provider. Conversely, products with strong sales, such as the Apple Watch and Xiaomi Mi Band, focused on fashion and price advantages, without prioritizing health management as a core selling point. In contrast, many entrepreneurs were blindly rushing into the market, a trend that persists in the past and continues to this day.
3. The Market Landscape of Wearables. If we further segment wearable products, smartwatches, smart bracelets, and headphones account for over 90% of the market share. Products such as apparel, headbands, and modular devices are mostly only seen at various exhibitions. Given this market structure, it's easy to understand why capital investment has cooled down. Compared to five years ago, the wearable market hasn't fundamentally changed, even with the emergence of new concepts like artificial intelligence and IoT.
Thus, the recovery of the wearable market seems more like a game orchestrated by the giants themselves. If any entrepreneur sees the stock market rebound and declares that spring has arrived, they'll probably have to lament that they were "born at the wrong time."
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