Sony’s First-Mover Disadvantage in Smart Watches

Sony’s First-Mover Disadvantage in Smart Watches

By Mariko Yasu, Grace Huang, and Olga Kharif on May 02, 2013

With growth slowing in the $358 billion smartphone and tablet market, Apple (AAPL) and Samsung (005930) are said to be developing digital watches that allow users to make calls, check map coordinates, or monitor physical activity. They might want to talk to Sony (SNE), whose feature-laden SmartWatch, on sale for more than a year, isn’t exactly mesmerizing the masses.

Priced at $130, Sony’s 1.3-inch touchscreen watch wirelessly connects to Android (GOOG) smartphones using Bluetooth technology. The gadget alerts users to incoming calls and allows them to reply to e-mails or texts with an array of prewritten messages. It even connects to Facebook (FB) and Twitter and controls a wearer’s phone-based music library. The SmartWatch, about the size of an iPod nano, is a slightly smaller successor to Sony’s LiveView watch. Introduced in 2010, LiveView had more limited features and was hobbled by kinks.The newer model is more stylish, but users can’t enter messages and it sometimes requires daily recharging and a stable connection just to tell time reliably. “Sony was ahead of its rivals to release a watch, but it takes more than an idea to create a hit product,” says Mito Securities analyst Keita Wakabayashi. “It’s about bringing a product that has functionalities that people would want and marketing the product in the right way.” Technology market research firm ABI Research estimates that 1.2 million smart watches will be sold globally this year, generating roughly $370 million in sales. By 2015, ABI projects, sales will increase more than twentyfold.

Sony’s promotion of its watch has been tentative. “It is an accessory for smartphones and not a product we expected a huge shipment” of, says spokesman Yu Tominaga, who declined to say how many watches the company has sold. He says sales “haven’t been bad at all.” The company expects sales to grow as Sony and other developers add to the watch’s library of 200 apps. Its appeal is limited because it’s only compatible with Android devices. Roger Kay, the president of market researcher Endpoint Technologies Associates, says the SmartWatch is too expensive for an add-on, too power-hungry, and was too buggy at launch.

Sony’s failure to gain traction with the SmartWatch is the latest in a long line of first-mover advantages the electronics giant has squandered. The Walkman and Discman dominated the global portable music player market for decades before the advent of the iPod in 2001. A year earlier, Sony began selling the Clié, a Palm OS-based personal digital assistant that allowed users to listen to music, play games, and watch videos. The Clié didn’t catch on, and Sony pulled it in 2005. Despite owning the distribution rights to thousands of popular songs and films, Sony failed to rival Apple’s iTunes on smartphones and tablets.

Sony released its first e-reader, the Portable Reader System, in 2006, a year ahead of Amazon.com’s (AMZN) Kindle. In 2009, Sony’s e-book library carried 600,000 titles, more than twice as many as Amazon’s, but the PRS wasn’t a hit with consumers. Shoji Nemoto, a Sony executive in charge of technology strategy, said last August that the company’s research has been too inward-looking and deliberative and should focus more on customer feedback. “I don’t think the brand carries as much weight as it used to,” says William Stofega, a program director at market researcher IDC. “They don’t really market it as well as they should.”

The first companies to win over consumers with smart watches could lock users into their platforms, boosting sales of phones, tablets, apps, and TVs. Citigroup analyst Oliver Chen estimated in March that Apple alone has a $6 billion opportunity in its iWatch. Other competitors include Italian I’m Watch, which is selling a $399 smart watch it says has access to hundreds of apps, and Pebble Technology, which has raised more than $10 million on Kickstarter for a $150 watch compatible with both Android and Apple’s iOS. By the end of March, Pebble had shipped nearly 55,000 watches ordered over Kickstarter. ABI senior analyst Michael Morgan says that Sony’s watch would benefit from heart-rate measurement and other biometric capabilities, and adds that the market leader will have to be more than an accessory. “We expect them to do things a smartphone does not,” he says.

The bottom line: Analysts expect about 1.2 million smart timepieces to be sold this year. Sony’s SmartWatch, though first to market, is struggling.