Smartwatch Market Trends Through the Lens of eSIM

Apple Watch Series 3 introduced eSIM support, prompting many smartwatch makers to offer both Bluetooth versions and LTE versions equipped with eSIM. Apple also hoped this would distinguish Apple Watch from iPhone, establish the smartwatch as a standalone product, and create another business opportunity. These developments have drawn considerable market attention to the progress of eSIM and its potential to drive growth in the wearables market.

 

Apple Watch remains the dominant smartwatch

Although fitness bands still account for the largest segment of the wearables market, the growing range of smartwatch applications and features has created a clear distinction between the positioning of smartwatches and fitness bands, driving significant growth in smartwatch shipments. Smartwatch shipments are projected to reach 62.63 million units in 2019, narrowing the gap with fitness bands.

Apple Watch shipments have grown rapidly since the launch of the second generation, making it the leading smartwatch product. It is projected to account for approximately 40% of the overall smartwatch market in 2019, far ahead of competitors such as Fitbit, Samsung, Xiaomi, and Huawei. However, as more brands enter the market and launch new watches, the distribution of market share is expected to change in 2020.

Apple Watch’s firm hold on first place stems not only from its brand value but also from Apple’s consistent focus on smartwatches as a key product category. Alongside improving hardware specifications, Apple has actively developed applications and services, with the aim of separating Apple Watch from iPhone and establishing it as a standalone product.

 

eSIM smartwatches have yet to become mainstream

Apple hopes that equipping Apple Watch with eSIM will help establish it as a standalone product. However, market acceptance of eSIM smartwatches remains generally low, with consumers preferring less expensive Bluetooth models. The main reason is limited demand for direct internet access on a smartwatch: small amounts of data can be transmitted through a smartphone’s network connection. Consumers also face substantial charges for these limited connectivity features, almost equivalent to paying for another mobile subscription, which naturally reduces their willingness to adopt them.

Meanwhile, telecom operators derive their main revenue from communication charges. Unless watch brands are willing to provide subsidies, operators are unlikely to reduce their own profits to lower the cost of purchasing an eSIM smartwatch and increase adoption. In addition, Apple is currently the only brand actively promoting eSIM smartwatches. Although other brands have introduced relevant hardware, they have not pursued its development actively, which is another key factor limiting adoption.

For these reasons, Apple’s current strategy begins with software measures, including separating Apple Watch’s App Store and introducing dedicated apps, to cultivate the habit of using smartwatches independently and, in turn, encourage demand for standalone internet connectivity.

Developments among major eSIM smartwatch makers

Apple

Apple is launching its next generation of Apple Watch in 2019. Beyond performance upgrades, however, major changes to hardware specifications and design, including screen size, are unlikely. The main reason is the smartwatch’s limited power supply. Apple’s focus on developing smartwatches with standalone connectivity also means it is unlikely to make extensive changes to sensors and other hardware components that would shorten battery life. More product changes are expected on the software side, using existing sensors to deliver additional sensing functions. Apple Watch already includes MEMS components, optical sensors, and ECG sensors; combined with suitable algorithms, these could support additional functions such as monitoring sleep, breathing, and blood glucose. The timing of their introduction will depend on Apple’s strategy and specifications, as well as whether FDA approval is necessary.

Beyond sensing functions, the biggest change to Apple’s smartwatch comes from the operating system update at WWDC in May 2019.watchOS 6 updates a range of watch faces, adds the Taptic Chimes timekeeping feature, enhances health applications, and formally gives Apple Watch its own independent App Store.

Interchangeable bands and a choice of watch faces have always been major smartwatch features, allowing consumers to customize the appearance to suit their preferences. This is also one reason most smartwatches use OLED screens. Taptic Chimes adds another everyday function designed specifically for the watch, giving Apple Watch more distinctive features and separating its product positioning from iPhone. Health features include Cycle Tracking, the Noise App, and Activity Trends, which strengthen its fitness and health capabilities. These changes are continued updates in areas Apple was already developing, but an independent App Store represents an important strategy for the company.

The launch of the LTE Apple Watch represents Apple’s attempt to establish the smartwatch as a standalone device. However, the market response so far suggests that hardware changes have failed to attract consumers, with higher prices proving particularly discouraging. Separating the smartwatch’s App Store from the phone therefore offers a software-based way to encourage consumers to use their watches independently.

An independent Apple Watch App Store means users no longer need to download watch apps through iPhone. Although the watch still currently uses the phone’s network connection, encouraging consumers to access a dedicated store directly from their watches will increase future demand for standalone internet access. It also means that Apple Watch apps and iPhone apps will be completely separated, helping developers create functions better suited to Apple Watch usage scenarios and deliver a better user experience. In particular, the small smartwatch screen makes touchscreen interaction unsuitable as the primary method of control, increasing the importance of voice-driven applications. These functions require some degree of cloud support, further strengthening demand for Apple Watch to connect independently.

Samsung

Samsung was actually the first manufacturer to launch an eSIM smartwatch. Its Gear S3 series, introduced in 2016, already included an LTE version equipped with eSIM, preceding the 2017 launch of Apple Watch Series 3. However, the LTE Gear S3 was supported in only a few markets, including the United States and South Korea. Apple Watch’s adoption of eSIM brought attention to the technology in smartwatches, and Samsung’s Galaxy Watch, launched in 2018, also offered an eSIM version.

Although Samsung introduced eSIM smartwatches early, it has been less active than Apple in developing this area. Despite respectable sales of Samsung smartwatches, the overall wearables market has not expanded as rapidly as expected to create another market as large as smartphones. Samsung has therefore slowed its development efforts and shifted its strategic focus to supporting its mobile payment service on wearables, Samsung Pay. In this context, whether a watch includes eSIM makes little difference to mobile payment use. Since Samsung mainly added eSIM to compete on specifications, it is not expected to immediately develop a range of dedicated eSIM applications in the short term.

Xiaomi

Xiaomi watches are supplied by companies in its ecosystem and mainly fall into two categories: Huami’s Huami watches and Xiaoxun’s Mi Rabbit children’s smartwatches. Huami watches target the general consumer market, competing with Apple Watch and Samsung Galaxy Watch. However, their focus on health and fitness puts them close to Mi Band in terms of product positioning. Combined with Mi Band’s price advantage, this has prevented Huami watches from gaining market traction quickly.

To differentiate its watches from Mi Band, Huami equipped its new 2019 AMAZFIT 2 with eSIM for standalone internet access. However, Huami has not provided more applications requiring an internet connection, continuing to focus on simple functions such as sports sensing. Even consumers who purchase AMAZFIT 2 therefore have few opportunities to use eSIM connectivity. Meanwhile, Mi Band 4’s features are moving closer to those of a smartwatch while its price remains unchanged at just half that of a Huami watch, making it more attractive to consumers by comparison.

Children’s smartwatches are another niche market attracting attention from Chinese manufacturers. Their functions differ from those of general consumer smartwatches, focusing on location tracking, calls to designated numbers, parental monitoring, children’s social networking, and other features. They therefore depend heavily on network access and must connect through 2G / 4G. Although most children’s smartwatches currently use conventional SIM cards, the development of eSIM in smartwatches and smartphones is expected to gradually encourage telecom operators to accept eSIM and develop corresponding service plans. Children’s smartwatches are consequently highly likely to adopt eSIM in the future.

Huawei

In 2017, Huawei added eSIM support to WATCH 2 Pro. China Unicom piloted eSIM services in areas including Shanghai, Tianjin, and Guangzhou. China Telecom subsequently began eSIM trials in seven cities, while China Mobile joined in offering eSIM services in 2019.

Since the 2018 WATCH 2, Huawei has not introduced a new eSIM smartwatch, instead continuing to launch sports watches and fitness bands. Its reasons are similar to Samsung’s: smartwatches currently lack a clear, important application to drive rapid market growth. Most manufacturers are also less ready than Apple to transfer some smartphone functions to smartwatches and establish them as standalone devices, naturally slowing their development strategies for general consumer smartwatches. Sports watches and fitness bands, meanwhile, focus on fitness and health sensing functions that attract a different group of consumers, encouraging continued active product launches.

The market specifications and distinctive applications of children’s smartwatches have also attracted other watch manufacturers, including Huawei. However, China’s children’s smartwatch market is currently dominated by brands such as BBK and Xiaomi, making entry difficult for other manufacturers. The teenage market, between children and adults, has therefore become another target manufacturers are eager to explore.

Watches for this market resemble children’s smartwatches, offering location tracking, calls, and parental monitoring, but place greater emphasis on appearance and fashion features. This has attracted manufacturers such as Huawei to try launching products. These devices also incorporate eSIM because they require internet access and calling functions, making them the next development target for eSIM smartwatch manufacturers.

 

Original article URL: https://bit.ly/2peboib