Smartwatches: a ticking timebomb for watchmakers?

Samsung recently unveiled its own Galaxy Gear, getting in ahead of Apple, which is due to release its iWatch next year Keystone

Forty years after Japanese quartz watches brought the Swiss watch industry to its knees, the sector faces a new challenge in the “smartwatch”. The new products are booking record sales, but the industry is divided as to the potential threat posed.

Encouraged by the phenomenal success of smartphones, global tech giants are now betting on internet-connected smartwatches to be the next big thing. In September, Samsung (Galaxy Gear) and Sony (Smartwatch 2) both launched smartwatch products while Apple is set to release its iWatch next year and, according to the Wall Street Journal, Google is also about to begin production of its own smartwatch.

But while different estimates put the value of this new market at between CHF5 billion and CHF14 billion ($5.46 billion and $15.3 billion) over the years to come, many Swiss watchmakers remain calm in the face of the avalanche of products.

“The Swiss watchmaking industry is not in danger. Smartwatches will not replace Swiss watches, they are complementary. Consumers are used to wearing several different watches in one day, depending on their activities,” Jean-Daniel Pasche, president of the Swiss Watch Industry Federation, tells swissinfo.ch.

Nick Hayeck, the head of the world’s largest watchmaker, Swatch Group, is also unconcerned.

“Since smartphones, iPads or iPods have existed, we have sold more mechanical watches than ever before. It shows that emotion rather than precision is more important for the consumer,” he told the Frankfurter Allemeigne. In the same interview, Hayek revealed he had “good discussions” with US-based tech giant Apple but “we do not have a fixed collaboration”.

From intelligent watches to connected watches

The first so-called “intelligent” watches appeared on the market in the early 1980s. Very basic, they had functions such as a calculator or limited storage for telephone numbers. Then, during the 1990s, Microsoft coproduced a watch that was capable of receiving data from a computer.

In 1999, Samsung released the first watch which could connect to the internet. At a cost of $700 (CHF656), it had a battery life of 90 minutes usage and 60 hours on standby. But it took another 10 years for the smartwatch market to really begin to develop.

Combining design with portable technology, smartwatches could become the newest must-have fashion items.

“High-tech is everywhere, visible and no longer confined to just a few enthusiasts. The large tech companies, starting with Google and its Glass headsets, are putting an enormous effort into removing the stigma that has traditionally stuck to this kind of product,” explains Amanda Prorok of swissnex San Francisco.

The small screen size and battery life remain the main obstacles to the large-scale take-up of smartwatches.

“An online watch with a battery life of less than a day does not fulfil a useful function. But considerable investment has been made in this area and the technology is advancing quickly,” she says.

Source: rtsinfo.ch/swissinfo.ch

Turning down Apple

According to independent journalist Grégory Pons, Swatch Group, “sure of itself and of its outrageous domination”, has turned down the idea of a working collaboration with Apple.

“It’s a fundamental strategic error that the Swiss industry will pay for in one way or another,” Pons tells swissinfo.ch.

And business-based news agency Bloomberg has been forthright in its analysis that smartwatches could pose a similar danger to Swiss watchmakers as the destruction wreaked by Asian quartz watches in the 1970s.

Then, the Swiss completely underestimated the Japanese competition, an attitude which provoked one of the most serious crises in the industry’s history. The industry survived by switching to production of watches destined for the mass market, notably the Swatch Watch, before moving on to target the lucrative luxury market.

Today, Swatch Group is the only Swiss company which possesses the technical and industrial tools to compete with the giants Apple and Samsung, according to several observers. Still, the directors at Swatch Group believe that smartwatches will be nothing more than a fad, says François Courvoisier, a professor at the University of Applied Sciences in western Switzerland. 

“If Swiss watchmakers had wanted to take on the smartwatch sector, they should have done it a few years ago. They would be ill-advised to enter the market now with imitation products,” Courvoisier tells swissinfo.ch.

War of the wrist

According to a survey conducted by auditors Deloitte, two-thirds of directors at Swiss watch companies think smartwatches are not a threat to their business. Courvoisier is convinced that Swiss mechanical watches in the future will remain a status symbol, and perhaps even a financial safe haven, like a work of art.

But he stresses that “the industrial base of the Swiss watch industry is fragile because it is producing fewer and fewer watches that are more and more expensive. Mass production is becoming more difficult for Swiss companies”.

It is precisely this phenomenon that concerns Grégory Pons. He predicts the number of Swiss watches sold over the next ten years will decline by between 15 and 30 million.

“It will be the low- to mid-range brands, mostly owned by Swatch Group, that will be the most affected. Why would a consumer be happy to buy another Tissot or Swatch which tells only the time, when for the same price, a couple of hundred francs, he can buy something more fun that connects him to the entire world?” he says.

Pons suggests that a “war of the wrist” is in the making.

“Consumers won’t wear a smartwatch on one wrist and a traditional watch on the other. Swiss watches will be collateral damage in the battle between the giants of technology.”

Geneva start-up targets 1% of the global market

“When consumers buy a watch, they don’t necessarily want an antique: we have a place to take on the wrist of any person who checks the time on their mobile phone,” says Arny Kapshitzer, founder and head of the Geneva start-up Hyetis, which will launch the “Crossbow” in 2014, “the first Swiss online watch”.

Almost all of the 500 watches in the first series have found a buyer. Hyetis has ambitious plans, targeting 1% of the global market and revenues of tens of millions of francs in 2014. Sold with a price tag of around $1,500, the Crossbow is aimed at a high-end international market.

Featuring a Swiss-made automatic movement, the Crossbow’s primary function remains time-telling, “contrary to the electronic giants that sell wrist computers,” says Kapshitzer. But the watch also has a camera and biometric captors. “Other applications can be developed according to the client’s needs.”

Intended for Swiss watch brands, the project was rejected out of hand by the industry, says Kapshitzer, who subsequently decided to launch the company with the help of a Geneva-based investor.

“The Swiss watch industry … is making a dangerous choice by remaining apart from the smartwatch market,” Kapshitzer says.

Capturing emotions

Pons is certain the smartwatch will become as indispensible in the future as our smartphones are now.

“The wrist is a magical thing where it is easy to become attached to something. But more importantly it is where all our vitals pass: you can measure blood pressure, oxygen and cholesterol levels, etc.,” he says.

But such alarming predictions don’t seem to rattle Jean-Daniel Pasche.

“The consumer doesn’t buy a Swiss watch simply to read the time but because it’s a beautiful product that arouses emotions, a vehicle of know-how and tradition.”

Contrary to a traditional watch, the smartwatch will not become a status symbol because it will quickly become out-of-date, suggest several experts.

Ernst Thomke, one of the fathers of the Swatch, said it more directly in Le Temps: “In Switzerland, we prefer to concentrate on watches which are more onerous, even inaccessible for common mortals – that everyone wants but that nobody actually really needs. […] certain people need a Mercedes or a Porsche and a luxury watch on their wrist to feel superior, so the future looks rosy.”

(Translated from French by Sophie Douez)