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INSIGHT: Why Apple Watch could earn Apple extra NZ$22.5 billion revenue by 2020

INSIGHT: Why Apple Watch could earn Apple extra NZ$22.5 billion revenue by 2020

“Affordability and better quality of service for smarter wearable devices will be key drivers in the shift from activity trackers to multipurpose wearables such as the Apple Watch."

The wearables market will be worth in excess of NZ$37 billion in 2020, with almost 400 million wearable devices sold in the year.

Industry analyst firm Ovum, along with a host of other research organisations, expects sales of wearable devices to reach 394 million units in 2020, up from 24 million units in 2014, corresponding to a CAGR of 60%.

Revenues generated from the direct sale of wearable devices to consumers will reach NZ$36.6 billion in 2020, up from around NZ$4 billion in 2014.

Keeping in line with the trend, multipurpose wearables such as the Apple Watch will account for 31% of the installed base, with simple activity trackers and smart clothes making up the rest of the market.

But according to Ronan de Renesse, Ovum lead analyst for consumer technology, volume does not equal value.

Renesse predicts that multipurpose wearables will account for 62.3% of total retail revenues in 2020, equivalent to NZ$22.7 billion in sales.

Wearables, according to Renesse, also offer additional software revenue opportunities via a dedicated app ecosystem that will serve up to 176 million installed devices by the end of 2020.

“Affordability and better quality of service for smarter wearable devices will be key drivers in the shift from activity trackers to multipurpose wearables such as the Apple Watch,” he says.

“Currently, the market is overcrowded in comparison to demand. Supply chains and marketing investments need to be tightly controlled.

“Larger vendors able to sustain investments for longer stand a better chance of establishing a market lead.”

Renesse believes wearables will become much more capable and “smart” over the next five years.

Ovum has designed a smartness index to quantify this evolution, based on whether a wearable features a screen, supports third-party apps, and/or operates autonomously.

Recent product releases such as Microsoft Band, Fitbit Surge, and Pebble Steel show that activity trackers are becoming smarter.

“We expect the average smartness index for activity trackers to grow from 1.27 in 2014 to 1.88 in 2020,” Renesse adds.

“More than 60% of the installed base of activity trackers in 2020 will have a smartness index above 1.”

Smartness index definitions:

Index 1 (basic): Only sensory capabilities; no screen; no apps; needs secondary device to function like a smartphone.

Index 2 (smart): Has a screen but with limited capabilities; no third-party apps; needs secondary device to function like a smartphone.

Index 3 (super smart): Has a screen; can install apps; needs secondary device to function like a smartphone.

Index 4 (autonomous): Has a screen; has own app ecosystem; can function completely independently.

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