What did the past 10-years teach us about Wearables?
By James Hayward, principal analyst, IDTechEx, Cambridge, UKElectronics Wearable Technology wearables
IDTechEx reviews old forecasts to help predict the future
Including the upcoming holiday season, IDTechEx expects wearable technology products to generate over $90-billion Euros in revenue in 2021. In this article IDTechEx will do something that is relatively unusual for a market research company to do: publicly compare old forecasts with what actually happened.
There are several clear reasons why this is not usually done. Primarily, it is because market forecasts represent a viewpoint from a moment in time, governed by significant assumptions, with product or sector definitions that may change over time, and with a finite amount of knowledge and resources behind the forecast. As such, they are rarely perfect (particularly on longer timescales), but a good forecast should capture the major themes within a sector, the broad direction of travel for an industry, and critically, the core story behind the numbers.
2021 data and forecast
However, in looking back at old forecasts for this article, IDTechEx hopes to learn some lessons, both about the wearables industry and about market forecasting in general.
To start, the image here shows both the 2016 market data and forecast (left), and the 2021 data and forecast (right, with x-axis inverted for ease of comparison). The following article examines each part of these datasets and discusses the accuracy across each part and the reasons behind it.
Reviewing the forecast
The general big picture story throughout the forecasts is consistent throughout. The market for wearable electronic products has grown significantly over this period of time, maintaining many of the core themes around health & wellness, style, comfort, and practicality. The overall message about the benefit and potential of wearable products being maintained over time.
Nearly all major sections have grown to some extent, even where the inflection points and growth rates have differed slightly. Over this time, the number of product types being assessed within this forecast has increased from 35 to 55, including separating out distinct areas such as hearables as they have matured. we have also seen the “other” product sectors become more distinct, moving from generic terms such as “other wearables” to more specific sectors such as “wearable cameras” as overall confidence in each sector and estimate improves.
Smartwatch prices remained high
However, the forecasted market size for several of the key sectors, as well as the overall shape of the growth does differ fairly significantly from the initial 5-year predictions. For example, whilst the general projections for sales volume forecasts in smartwatches as a sector perform relatively well when collated, IDTechEx also expected the price per unit to drop, as they had seen happen with more basic fitness trackers.
This did not happen, and smartwatch average sales prices have remained high, keeping the total revenue strong. IDTechEx also initially anticipated a trend that would see more devices become increasingly independent from the smartphone. This narrative has been around for a while, but many products and companies are recognizing that this is perhaps a longer-term project that some initially suggested.
Expanding hearables coverage
The largest discrepancy of all has come in hearables. In Q2 2016, hearables as a term had been coined, but the trend was largely limited to a couple of early start-ups and early prototypes. As such, the report at that time contained basic data for headphones and hearing aids, but little more. By the end of 2016, Apple launched Airpods and achieved almost unprecedented success with this new product type. Other vendors followed, and the entire industry has been transformed to a point where TWS headphones are now the dominant product.
As this trend unfolded, IDTechEx updated their datasets, expanding the hearables coverage to look at many more companies and device types, including adding sections covering cochlear implants, different categories of wireless headphones, and more. The report now also looks at the potential for disruption into the future, including the imminent changes in the hearing health industry as over-the-counter hearing health devices become more prominent.
Still many limitations with the hardware
The final larger section in the original forecast which shows a significant difference to the data is in virtual and augmented reality devices. This sector has been one of the hardest to predict, with billions of dollars of investment each year from the largest players, and aspirational forecasts from other vendors over time often being astronomically high (often easily into the hundreds of billions of dollars). In this case, IDTechEx always maintained a fairly conservative forecast; 2016 saw the launch of the first mainstream wave of consumer VR headsets (Oculus Rift, HTC Vive, PlayStation VR), but IDTechEx still anticipated initial uptake to be modest, predicting that it would take time to develop content for this new format and that there were still many limitations with the hardware platforms.
IDTechEx had also seen AR come through the first wave of hype around Google Glass, which was being branded “a failure” by many in 2016. Fast forward to 2021 and the sector still feels in relative infancy; billions have been invested over time. The momentum is now being driven by Meta, who have focused their whole corporate rebranding from Facebook on a vision of the future based around the metaverse. Other companies continue with varying levels of commitment, including larger players like Microsoft, Sony, Alphabet, Snap, and others.
Just as in 2016, the community is still looking to Apple and speculating when they may launch something in this area, hoping that this will help the products take the final step into more aggressive growth. As such, the narratives in the forecasts here are nearly identical to in 2016 but come with the uncertainty of an industry that is fuelled by billions of dollars but is still trying to reach its inflection point.
Lessons from looking back
The numbers in the forecasts are far from perfect, but generally speaking the stories behind how growth will be achieved in each sector have held firm. The collated values of each line tend to balance out and the overall industry outlook remains consistent. This period of time included many new product launches from large players in new sectors, a major global pandemic, and many other significant events which would change the direction of the forecast, so it is difficult to feel too disappointed in the deviation, but it is also useful to look at the major lessons IDTechEx would take on board when looking back. Some ideas for these are as follows:
1. The power of the largest players
In the case of wearables, this could be rewritten as “the power of Apple”. In the past 5 years, Apple has launched two key products which have been industry-defining for wearables – the Apple Watch and Airpods. Each transformed the product sector which they lead, and together they contribute to Apple’s 36% revenue share of the entire wearables space.
As much as a start-up can gain significant funding and momentum around a new product type, the existing brand and infrastructure (from the supply chain to retail stores, to complimentary devices, to software, and more) of the largest players have a huge impact on their ability to scale and maintain a new product. As such, significant launches from larger players are far more likely to cause a step-change in a market trajectory than nearly any other driver. In itself, this is perhaps not surprising as a conclusion, but the extent to which this has been true for each product sector is the real lesson.
E.g. in wearables specifically, perhaps the hardest and most significant challenge for any ongoing forecast is predicting a potential Apple entry to VR/AR.
2. The sustained power of the smartphone
The ubiquity of the smartphone and its ability to communicate to other peripheral devices was the single biggest enabler for wearables. Wearables continues to benefit as part of the “peacetime dividend of the smartphone war”, where technology developed for the smartphone still underpins all of wearables today.
Periodically, IDTechEx integrate predictions that have predicted a decreasing reliance on smartphones, and/or a move in the centre of gravity of personal computing away from the smartphone to another type of device. Each of these predictions has been significantly premature, and despite plateauing sales, the importance of the smartphone as the personal node as part of a computing infrastructure cannot be understated. This may eventually change, but these forecasts have shown that it will more likely be on a time period of decades rather than years.
3. The drivers, infrastructure, and fundamentals behind technology development
Different technology areas in wearables have moved on at different rates over this 5 year period. In areas like hearables, core technology improvements around radio communication and energy have been fundamental to the creation and growth of that sector. In other sectors such as AR & VR, core technology around optics and displays has been discussed for far longer and seen much larger investment and has progressed technically in many areas, but still remains in relative infancy commercially.
The lesson here is that technology development is not like-for-like in terms of progress. Each different area of technology has different trajectories, infrastructure, and fundamental challenges which they must work with.
If the infrastructure is huge, well established, and has a clear focus on a key short term development that will be critical for a new product (e.g. low power, latency-managed radio communication for TWS headphones), then it can make a significant change to a product landscape in a relatively short space of time. However, if the infrastructure is not as well established, or the key drivers behind the technology development are not well understood, or there are fundamental scientific barriers to development, then the technology will not progress as reliably, and longer-term projections with more uncertainty are necessary.
4. Knowing what you don’t know
All forecasts are built on assumptions, and each assumption varies in magnitude. In a sector like wearables, there are potentially hundreds of different product types ranging from the mainstream examples listed to everything from smart tattoos to smart clothing and beyond. To cover every single example of every single product would be impractical, so assumptions are built-in for sectors that are either too relatively small to cover in detail, or are not as interesting to the overall narrative.
However, as these may change, such as a new product launching from nothing or a peripheral area becoming far more relevant to the core narrative, these assumptions and definitions need to change. Assumptions around levels of detail and inclusion have changed in the majority of sectors, so being very clear about the level of detail being used for each sector in each iteration of a forecast is very important. This is a major reason why companies do not publish historic forecasts, but it equally must be understood and managed by all forecast users and developers over time.
Each of these lessons is not particularly groundbreaking in its own right. However, with each case, the extent to which they have proven to be true across the wearables sector is easy to underestimate. IDTechEx were certainly aware of each of these factors historically, but all of the major deviations between the 2016 forecast and the 2021 dataset come from underestimating one of these points.
Conclusions and outlook
Hopefully, the reflections in this article have been useful in explaining the process and limitations of forecasting, as well as helping to contextualize the datasets which are developed and published by IDTechEx.
Whilst they are rarely perfect considering the relatively long-term outlooks, each forecast and report aims to provide a concise but heavily researched and detailed summary of the industry. They involve dedicated full-time research into each market, including hundreds of primary interviews, attending major industry events, working with long-time customers in the space, and constantly iterating each report based on feedback. The aim each time is to provide the grounding of industry knowledge that it may take years to develop naturally in the duration of time that it takes to consume the report content.
Looking forward in wearables, the narratives where step change is likely in the next 2-5 years are the most compelling and also the most uncertain. In hearables, OTC hearing aids have been incoming for several years, but launch dates have been delayed and the momentum has stalled. However, if launches proceed and leaders like Bose or Apple successfully address this market, then it has the potential to transform the hearing health market indefinitely.
In AR/VR, the likes of Meta, Microsoft, Sony, and Google have already been in for a while, but with some now ramping up funding, the judgment must be made as to if/when a company like Apple or another leader will enter with a major product launch. If this is within the next 2-5 years then it could transform the industry very quickly, based on the product choices they make. Similar step-change narratives have been discussed in IDTechEx reports on electronic skin patches (e.g. related to RPM, non-invasive diabetes, and others), on smart clothing (e.g. pickup by a major sports brand, or otherwise), and more. These are the hardest to forecast but are also potentially the largest opportunities for companies looking to disrupt the status-quo in an industry.
To find out more about the portfolio of industry research produced by IDTechEx in wearables and a wide variety of related topics, visit www.IDTechEx.com/Research/WT