The wearables market will be worth US$27bn in 2020, with almost 400 million wearable devices sold in the year, according to research agency Ovum.
Ovum expects sales of wearable devices to reach 394 million units in 2020, up from 24 million units in 2014, corresponding to a CAGR of 60%.
According to Ovum, revenues generated from the direct sale of wearable devices to consumers will reach US$26.6bn in 2020, up from US$3bn in 2014. Multipurpose wearables such as the Apple Watch will account for 31% of the installed base, with simple activity trackers and smart clothes making up the rest of the market. But volume does not equal value: Multipurpose wearables will account for 62.3% of total retail revenues in 2020, equivalent to US$16.5 billion in sales. Wearables also offer additional software revenue opportunities via a dedicated app ecosystem that will serve up to 176 million installed devices by the end of 2020.
Wearables will become much more capable and "smart" over the next five years. Ovum said it has designed a smartness index to quantify this evolution, based on whether a wearable features a screen, supports third-party apps, and/or operates autonomously (see definition at the bottom of this release). Recent product releases such as Microsoft Band, Fitbit Surge, and Pebble Steel show that activity trackers are becoming smarter. We expect the average smartness index for activity trackers to grow from 1.27 in 2014 to 1.88 in 2020. More than 60% of the installed base of activity trackers in 2020 will have a smartness index above 1.
Ronan de Renesse, Ovum lead analyst for consumer technology, said: "Affordability and better quality of service for smarter wearable devices will be key drivers in the shift from activity trackers to multipurpose wearables such as the Apple Watch. Currently, the market is overcrowded in comparison to demand. Supply chains and marketing investments need to be tightly controlled. Larger vendors able to sustain investments for longer stand a better chance of establishing a market lead."
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