The days of fishing in your pants or purse every time your smartphone beeps or buzzes will soon be a thing of the past. Here’s a Foolish overview of why wearable technology will transform mobile computing, and which company is best positioned to profit from this new category.
The Increasing Flood of Information to Your Smartphone
Smartphone users are already familiar with the problems of keeping up with push notifications: text and email messages, social media updates, phone calls, stock and sports updates
The situation will only get worse. With the cost of sensors and controllers coming down, more everyday devices and services are being connected to the internet and accessible from your smartphone. The result? Push notifications will increase, and user search will become more frequent.
Wearables tethered to smartphones are seen as a solution to the increased information flow. With a quick glance, wearable users could review, reply, store, or ignore push notifications without fishing around for their smartphones. At the same time, ongoing improvements in voice recognition would allow wearables to become an easy access point for mobile search.
The Wearable Warriors
So what companies are likely to profit from wearables? I’ve taken a look at both Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) based on the following criteria:
Assets: Does the company have the technology to provide a compelling wearable solution?
Materiality: Is the wearable business likely to drive sizable, incremental profits?
Risks: What are the key risks facing successful implementation?
Google Inc (NASDAQ:GOOG) is the undisputed leader in online and mobile search. With its existing apps (Gmail, Google Maps, Google Search and Google Now) and excellent voice recognition technology, Google Inc (NASDAQ:GOOG) is able to provide a compelling, integrated wearable product. (Google has already launched a wearable beta product, Google Glass
, and there are recent reports of the company’s plans to launch a smartwatch
However, it’s been reported
that Google plans to allow manufacturers to use Android in their own wearable devices. Previously, only smartphones and tablets could be promoted using the Android name. Google’s willingness to open Android to wearable manufacturers is clear sign that the company plans to extend it’s mobile Android strategy into wearables. (Android is free to OEMs, while Google collects mobile ad and search revenue from Google Inc (NASDAQ:GOOG) search on the Android platform.) Hence, as in mobile, wearable hardware sales for Google are likely to be too small to affect the company’sbottom line.
estimates that mobile advertising and search will increase from $11.4 billion in 2013 to $24.6 billion in 2016. With a dominant position in mobile search, Google Inc (NASDAQ:GOOG) likely views wearables as another way to protect its share of mobile advertising and search. Since much of this anticipated growth in mobile advertising and search is already built in to Google’s valuation, wearables are unlikely to have a large impact on the company’s stock price.
The primary risk to Google Inc (NASDAQ:GOOG) in wearables, is the same it faces in smartphone/tablets. Android OEMs can modify Android as a way to capture advertising and search revenues. (Amazon.com‘s Kindle was built on Android, but operates as a separate platform, shutting Google out from search, advertising and service revenues. And, the majority of Android advertising and search revenue in China is being captured by Baidu.com, Inc. (ADR) (NASDAQ:BIDU))