This is the latest in Localogy’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here, and its origin here.
A clear trend is emerging among tech giants: investment in wearables. This includes hearables, which are increasingly-intelligent earbuds that deliver audio in subtle ways directly to your ears. Today that’s phone calls; tomorrow it’s deeper integration with voice assistants and other sensor-informed audio.
This is important for local commerce as it’s another content channel to reach consumers. Given Airpods’ prevalence for example, wearables could be the next battleground for direct touchpoints to users. And they’re conducive to local discovery, given the “audio AR” use case we’ve examined.
After recently covering major tech giants’ respective moves in wearables, evidence continues to roll out for the growth of the category. This includes Gartner’s recent projection that consumer spending on wearables will exceed $52 billion this year, a 27 percent increase over last year.
But more important are current market signals such as Apple’s motivation to cultivate wearables. In its recent Q1 earnings, the breakout performance of wearables indicates that it could be Apple’s heir apparent product category to diversify revenue and lessen dependence on a maturing iPhone.
By the Numbers
To put some numbers behind that, Apple’s fiscal Q1 saw iPhone sales of $55.96 up from $52 billion year-over-year. This reverses the trend towards declining year-over-year sales, but growth is still slowing as the smartphone market matures. Globally, there’s smartphone saturation and longer replacement cycles.
Meanwhile, the story is the opposite for wearables, as that division is on its way up. It exceeded $10 billion in quarterly revenue for the first time, up $3.7 billion year-over-year. This falls short of the iPhone’s $4 billion year-over-year jump but is a greater percentage jump from a lower base.
Moreover, Apple’s wearables division by itself is now the size of a Fortune 150 company. Demand is greater than Apple can even fulfill, as it’s supply-constrained for the Apple Watch Series 3 and AirPods Pro. This is a good problem to have and indicates long-term strength in the category.
Perhaps most interesting and less-discussed, 75 percent of Apple Watch purchases were users that are new to the device. Given Apple’s penchant for platform lock-in and increased ARPU through multi-device ownership, new users at the beginning of that journey are music to its ears.
The reason these numbers are important is that they establish intent. Seeing success in wearables, Apple is now motivated to double down on the product category. And that means a lot in terms of Apple’s market influence and halo effect. It can move markets based on what it decides to innovate and emphasize.
Follow the Money
This “follow the money” exercise is a tenet of our Skate to Where the Puck is going series. The thought is that directions in tech markets can be extrapolated by examining the motivations of its market movers. And it’s not just Apple: other tech giants are embracing wearables, motivated to future proof their businesses.
Just as Apple’s motivation to cultivate wearables traces back to its core business of selling hardware, the same can be said — though different endpoints — for other players. Google’s Pixel Buds are a vessel for Google Assistant and its longstanding efforts in the smartphone era to channel users into search.
Amazon is doing similar. As we examined in light of its hearables play, it wants to gain direct touchpoints with users to drive eCommerce. Hearables are particularly interesting for Amazon as smartphone maturity means it can leapfrog the technology (Fire phone) that it once failed to market.
Meanwhile, Microsoft got into the hearables game recently. Like the above moves, its hearables create a direct touch consumer touchpoint as a vessel for its core products. For Microsoft that’s enterprise productivity like controlling Office apps (think advancing .ppt slides) in sleek ways.
Based on all of these signals, and most recently shown in Apple’s earnings, we stand by our prediction that wearables could inflect in 2020. We’ll keep following the money to see how that shakes out. And we’ll return here to report what we see, and break down the strategic implications.