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Smartwatches: Wave of the Future or Over-Hyped Failure-in-Waiting?

Yahoo! Finance
The Exchange

By Kevin Chupka

It wasn't long ago that many were declaring the wristwatch dead, killed by the rise of cellphones. The logic: Why would you need a time-tracker on your wrist when you have a smartphone that provides this service – and so much more?

According to sales data from NPD Group, in the two-year period from 2008 to 2010, casual watch sales in the 18-24 demographic fell a whopping 29%, even as overall growth was at 4%. Given this downtrend in sales to an emerging generation of consumers, it might seem counterintuitive that all the big tech companies have either announced plans to release a “smartwatch” or are at the center of rumors about them.

The Wall Street Journal recently reported that Microsoft (MSFT) would enter the space with a Windows watch. Microsoft joins the likes of Google (GOOG), Apple (AAPL) and Samsung, who, according to speculation across the industry, are all in some stage of development regarding smartwatches.

The idea is not new. Sony (SNE), Casio, Timex and Fossil (FOSL) all have iterations of watches that are labeled “smart” or “connected.” As of now, however, the traditional watchmakers seem to remain focused on devices that tell time first and do other things second.

New kid on the block

Enter new kid on the block, Pebble. Pebble began shipping smartwatches earlier this year after a very successful Kickstarter campaign. The gadgets give users even more functionality through various apps that work in harmony with Apple’s iPhone and the Google Android platform.

Among its features, Pebble broadcasts text messages and missed calls on its face and gives users the ability to control music apps such as Pandora (P) and Spotify on their smartphones. Pebble has become the gold standard – if there even is one – among smartwatches already available to the public.

“It came about because I wanted to know what was going on with my phone without having to take it out of my pocket,” Pebble’s founder, Eric Migicovsky, says. “I first had the idea when I was cycling and wanted to check in on text messages and caller ID but not drop my phone while riding.”

While Pebble has caught on with the techie set, it remains to be seen if the broader watch-wearing public will take to the new technology. Migicovsky believes they will. “People are accustomed to all of the ways their smartphone keeps them informed and in touch," he says, and "they've accessed apps that serve their interests. Pebble is simply an extension of that.”

So wearable technology could be the wave of the future – but can any of the innovative "little guys" survive in this space? If, for instance, Apple and Google release a watch that better integrates into their ecosystems, will Pebble become a distant memory?

"Great demand and opportunity"

“Seeing more companies enter the smartwatch market just reinforces that there is great demand and opportunity,” says Migicovsky. “For now, we're just focused on delivering the things we think make Pebble great, including platform flexibility and software development that enables third-party developers to create all kinds of interesting apps.”

The existence of a true competitor such as the “iWatch” or “Google watch” in any stage of development is still unproven and, until that changes, Pebble remains leader of the pack.

The Pebble watch was recently reviewed by Zach Honig, senior associate editor at Engadget. Being constantly connected to the Web for his job, Honig says the watch makes him more likely to reply to an email quickly and offers him direct access to key information he needs throughout the day.

He doesn’t, however, envision wide adoption of the technology because it represents a “financial and physical commitment” that smartphones have largely filled. He even notes that he “would be surprised” if Apple ever actually releases any sort of “iWatch.”

Another key barrier to entry for consumers will be price point. Honig thinks Pebble has hit the right cost; at $150 it is a relatively small investment. If Apple, Google and others don’t hit that low price point, Honig sees even less potential for broad adoption of the technology.

For his part, Migicovsky thinks the “death of the wristwatch” talk has been greatly exaggerated.

“People started saying the wristwatch was dead around the time smartphones came about,” he says. “Who needed a watch? Now that people have been using smartphones for a while and understand all of the ways they can be both useful and cumbersome, the idea that you could use an accessory on your wrist to receive all of those same kinds of information is novel. We've come full circle. Now a 'watch' can be much more.”

Your move, Apple…