Maybe Google Can Save the Smartwatch Market

By Evan Niu, CFA Markets Fool.com

Image source: Google.

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I wouldn't go so far as to say that Apple (NASDAQ: AAPL) has failed in catalyzing the smartwatch market over the past year and a half, but I also wouldn't say that Apple Watch has been a blockbuster success. Sure, Apple Watch is easily the most successful smartwatch to date, but that doesn't actually say a whole lot since it's one of the first wearable devices in the nascent category. There isn't much competition to begin with.

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) technically beat Apple by a few months, with Android Wear devices becoming available in late 2014. Since then, Apple has taken over and Android Wear has hit a wall. The search giant just re-acqui-hired some smartwatch engineers in preparation of its big 2017 push, as Android Wear 2.0 was recently delayed until next year amid lack of hardware partners. Meanwhile, just days after Google unveiled the Pixel, the first smartphone that it fully designed, rumors surfaced that the search giant was working on its own flagship smartwatches.

It turns out those rumors were at least partially true.

A tale of two flagship smartwatches

In an exclusive interview yesterday with The Verge, Android Wear product manager Jeff Chang confirmed that the company has two flagship smartwatches in the pipeline for the first quarter. The wearable pair will be the first devices to run Android Wear 2.0. Despite the smartwatch market's recent hesitation, Google still wants to show consumers that smartwatches are viable products that can add value to people's lives. Simply put, Google wants to save the smartwatch market.

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However, Google isn't designing the smartwatches entirely by itself, nor is it manufacturing them. Instead, Google is taking the same approach that it did with the Nexus phones of yore, where it collaborates with a third-party original equipment manufacturer (OEM) to develop the devices, which will primarily carry that OEM's brand. Chang declined to specify which OEM it is partnering with, beyond noting that it is a current Android Wear partner. That's a sprawling list, but more than likely it'll be one of the familiar Android OEMs like Huawei, Samsung, LG, or Motorola, among a few other candidates. Notably, HTC has not released an Android Wear device (yet), so although it is manufacturing the Pixel, we can safely rule out the Taiwanese company.

2017: The year of the smartwatch?

The key to unlocking the smartwatch market's potential will be to empower devices for general purposes. Thus far, manufacturers have focused heavily on fitness functionalities, given wearables' natural applications for tracking activity metrics. Whether or not Android Wear 2.0 can deliver this remains to be seen, although it has potential. The major headliners of the update will be stand-alone apps, additional user customizations, and requisites like messaging and notifications.

While Google can't singlehandedly save the smartwatch market, the subsequent and persistent competition will inevitably improve all products within the category, and that may do the trick.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.