There is an ongoing debate in the industry about whether or not head-mounted computing devices will outshine their wrist-worn counterparts in the long run.
Wrist-mounted devices like smart watches and fitness trackers have dominated the wearables market until now, with Fitbit and Apple being the two leading players in this space. According to Tractica’s analysis, Fitbit and Apple are estimated to make up two-thirds of the $15 billion market for fitness trackers and smart watches in 2016. By 2020, we forecast that this market will grow to $57 billion. Meanwhile, according to Tractica’s forecasts, head-mounted devices including smart glasses and virtual reality (VR) and augmented reality (AR) headsets are expected to reach $10 billion in annual revenue by 2020, up from $2.8 billion in 2016. In summary, Tractica sees a much bigger market opportunity for wrist-worn devices, at least during the next 5 years.
Smart watches are the main reason for this gap in market size. There is already a significant amount of ecosystem activity in the smart watch market, with traditional watch manufacturers, smartphone manufacturers, and small and mid-sized watch manufacturers commoditizing smart watch hardware and software. As a result, we have seen $50 ”shanzhai” smart watch models become available in the backstreets of Shenzhen. Apart from the shanzhai market for knockoff smart watches, there is a well-established ecosystem in Shenzhen that can create and manufacture white label smart watches, and do it in volume. As a result, we are seeing a number of Tier 2 and Tier 3 smart watch brands emerging. The fitness tracker category has long been commoditized, with established Chinese companies like Xiaomi selling $15 trackers. The commoditization and mass-market commercialization of wrist devices is already evident, with shipments for wrist-devices having grown 500% between 2013 and 2015.
For VR or AR headsets, we are long way off from either the hardware or the software getting commoditized. Also, VR and AR headsets have a higher bar for quality than a smart watch. High-end optics and sensors are at the heart of the value proposition, as they are key enablers of image quality, body tracking, pixel ratio, field of view, and so forth. These are not necessarily areas of expertise for Shenzhen hardware manufacturers at the moment. It has taken 2-3 years for smart watches to get to this point, and the expectation is that with VR headsets only hitting shelves in 2016, at the earliest it will be 2018 before we see a shanzhai VR or AR headset. Most likely, it will take a couple of years beyond 2018 to get a decent quality VR headset from the shanzhai ecosystem, as the hardware optics and sensor integration are much harder than building a smartphone or smart watch.
Another reason that wrist-based devices are likely to experience faster market growth is because the wrist is the most attractive real estate on the body, from a wearable perspective. It is convenient for checking time, notifications, tracking heartbeat, and monitoring other vital signs like galvanic skin temperature and others. The watch is a well-understood form factor that is unobtrusive and relatively easy to design, with many years of expertise in the traditional watch manufacturing industry. Even if the idea of a smart watch for notifications fails in the long run, the healthcare and fitness capabilities of wrist-worn devices are enough to keep the market going strong for many years. Wrist-worn devices also go beyond just trackers and smart watches to include such devices as elderly fall trackers, payment bands, kids’ watches, and many others.
On the other hand, VR and AR headsets are a new category of devices, with the use cases being limited or largely unclear. The failure of Google Glass as a mass-market consumer device has led to a lot of skepticism among industry observers, and AR glasses have been mostly relegated to niche enterprise and industrial uses. Newer mixed reality (MR) headsets like Microsoft HoloLens and Magic Leap have yet to be commercially released, with current versions having limited field of view (FOV) or being too heavy to wear for prolonged periods. VR headsets hold much more promise, with Samsung Gear VR, Oculus Rift, HTC Vive, and Sony PlayStation VR all hitting the market in 2016. Gaming is the primary application today, but enterprise and industrial applications for VR are likely to come into the market gradually.
There is the possibility that, beyond 2020, head-worn devices will grow into a much bigger market than wrist-worn devices. This will depend on a number of elements falling into place, including the commoditization of hardware and software including the optics and sensors, an active developer ecosystem that is pushing innovative use cases, media and entertainment companies producing compelling content, and a genuine push by Microsoft, Apple, Dell, HP, Lenovo, and other PC and laptop manufacturers toward creating the next computing platform that is head-worn and is AR or MR based. Or, we could see Magic Leap leapfrogging the rest of the computer industry and creating a new head-worn device category. The key for VR lies in how successfully Samsung (and soon Apple) are able to leverage their smartphone platforms in their pursuit of VR, or even AR. The mass-market potential of VR lies in being a standalone headset, which is smartphone-based, rather than being physically tethered to a high-end PC platform. Overall, while the end goal of VR and AR seems clear, the journey and timeline of how we get there remains uncertain.