The holidays are here, but smartwatch companies should not hold out for any Christmas miracles. Recent signs point to a struggling period for the wearables and smartwatch markets, which after being hailed as tech's next big thing are now struggling to attract new customers.
Earlier this week, it was reported that Fitbit will be acquiring fellow wearables maker Pebble for a reported $34 to $40 million. That price tag--chump change in Silicon Valley--is a humbling moment for the investors of Pebble, once considered one of tech's most promising new companies. The purchase points to a market that may be hitting saturation and entering a period of consolidation.
More dauntingly, smartwatch sales across the board -- which include those of the much-hyped Apple Watch -- have fallen drastically. After shipping 5.6 million units during the third quarter of 2015, the smartwatch market saw just 2.7 million units shipped for the same period in 2016, down nearly 52 percent, according to data from the International Data Corporation.
This decline has prompted several key companies to either hold off on new wearables or kill their product lines altogether. That include Lenovo's Moto, which has put its smartwatch products on hold indefinitely due to lack of demand. Similarly, Microsoft last month said it had no plans to release new versions of its fitness band, while Jawbone ended production of its fitness tracker back in May.
"As they stand today, wearables are dead," said Eric Bleeker, senior technology analyst for The Motley Fool. "They need to develop into something more useful to re-accelerate growth."
How did wearables go from revolutionary advancement to major flop?
After their arrival in the mid 2000s, smartphones saw unprecedented, hyperfast growth. Once they became ubiquitous, the tech industry began looking for the next great line of products, and it discovered wearables. But after years of trying, wearables and smartwatches have simply been unable to grow at the same rapid rate as that of its tech predecessors.
"Like any new technology there was a lot of hype around wearables in the beginning, but we're now at an inflection point where we need to prove their worth and long term value," said Frederik Hermann, head of sales and marketing for Huami, the second largest manufacturer of wearables globally.
Early on, wearables were able to find a foothold among early adopters and health nuts. Fitness trackers, in particular, brought new high-tech excitement to the world of exercise: they could count your steps, track your heart rate and let you listen to music on the go. It also didn't hurt that Silicon Valley types obsessed with personal optimization had finally found a gizmo that could wire them with a performance tracking device.
Unfortunately, the technology has failed to evolve much more beyond that.
Costing between $75 to $350 for what some might consider a glorified pedometer, "the price point is too high for what the consumer gets," says Andrea Perez, consumer analyst at 50 Park Investments. The lack of innovation with these devices, adds Lucas Lu, founder and CEO of secondary mobile marketplace 5miles, has resulted in a category that isn't essential to consumers. "Simply put," says Lu, "the novelty may have worn off."
Since August, Lu has seen a 50 percent increase in the number of Apple Watch listings on 5miles. "Secondhand marketplaces like ours have become a destination for shoppers looking for good deals on wearables they want to try, at prices they can justify," Lu said.
Wearables makers are not without hope. As they consolidate, they may begin to develop devices that offer users a larger plethora of features that could attract new consumers beyond fitness freaks. "Think about opportunities for wearables to make life easier -- what if you no longer had to carry your transit card, your office key or credit card?" said Huami's Hermann, who was also previously the director of growth at Jawbone.
"The game for wearables will be an incredibly long one, and we're only on generation two," said Johnny Won, founder of Hyperstop, a tech consulting firm. "Only the strongest manufactures today will be able to succeed."