In its January 2014 issue, Wired magazine's cover story was all about wearable smart devices and the inevitability of their ubiquity. Somehow, I am not yet a believer that is what lies ahead anytime soon. Before Steve Jobs conjured up the iPod, the iPhone and the iPad, nobody knew such simple and elegant devices could disrupt our world in the way they have in the last decade. Jobs was convinced that people might not know what they really wanted to buy for sure, but if you gave them a choice of something spectacular, they would line up outside your stores all night to be the first to buy it.
At first Apple owned the high end smart phone market with a dominant share. Now it is Google's Android that is dominating the space with multiple vendors that have driven it to a market share that exceeds 70%. Now Apple's share has fallen to 15-20% as others have followed its lead. Apple boosted ATT in a most dramatic fashion when T had the exclusive rights to offer Apple's phones for the first year after their introduction. Eventually, even as it was apparent that Apple phones were peaking in their allure, poor also ran Sprint was so desperate to stop hemorrhaging customers a couple of years ago that it was willing to pay $600 per handset to Apple, adding up to billions of dollars in a long term contract. Since customers will not pay $600 to own a phone these days, it meant that for the life of that terrible contract, Sprint is forced to provide major subsidies to its customers who still want iPhones. I expect right now Sprint is happy that interest in the iPhone has now shrunk to only about a 15% market share. Other brand offerings require much smaller subsidies. I personally own a Nokia Lumia 920. Nokia has now recovered to about a 4.5% share with its Windows phone after being dethroned as the market leader just a few years ago. Nobody seems to stop at the top for long.
The smart device market has clearly matured. One or another brand seems to surge and then recede in popularity in each succeeding quarter. Three years ago HTC devices had become very popular. Now HTC is struggling to remain relevant. Samsung has a dominant share but is also struggling now and recent profitability was disappointing. Blackberry has come perilously close to going over the cliff but at the moment seems to be reviving. To fortify Android's own position in the patent wars, Google bought Motorola's very strong patent portfolio a couple of years ago. Now it is selling off the remnants of Motorola Mobility, which is no longer a very viable competitor in the market place. It has been a sad comeuppance for both Motorola and for Nokia in the last few years. Both companies played a key role in the invention and development of the cellular communication industry but now are, or shortly will be, owned by others.
Thus far in 2014, we have had the Consumer Electronics Show and now the Mobile World Congress is underway in Barcelona. In an effort to resume growth, Samsung has tried to present wearable devices to the marketplace. However, they are offering products that are connected to your phone by blue tooth but you must still carry a phone nearby in your pocket or purse. The wearable portions offer things like your blood pressure readings or a pedometer. These are not the types of functions Dick Tracy was wearing on his wrist decades ago.
Now for a little glimpse of "back to the future" look at the device pictured here.
This Motorola wearable pager was offered 20 years ago and cost the company $200 million
The device shown in this article was a real live product that Motorola offered 20 years ago. It looks very similar to some of the new devices currently being explored by Samsung and supposedly by Apple, judging from various patent applications that make their way into print every now and then. This device was a pager that MOT offered at about the same time that cell phones weighed 10 pounds and were carried around in a canvas bag. According to former insiders who provided me with this photo some while ago, Motorola took $200 million in write-offs on this product, Motorola learned a lot about what consumers do and don't want to wear on their wrists. My guess is that the list hasn't changed much in the intervening years.
1. Most men don't wear a lot of jewelry. They might indulge in some cuff links, but for most, a wedding or college ring and a watch are about the extent of the jewelry they wear. Therefore, the richer you are, the more your watch is a statement of accomplishment. If you follow politics at all, you know that in January 2014, former Governor Bob McDonnell of Virginia and his wife Maureen McDonnell were charged in a 14 count indictment of receiving gifts from an individual seeking favors for his company that operated in their state. Among the specifically named items in the indictment was a Silver Rolex watch engraved on the back "71st Governor of Virginia." The watch wasn't a plastic pedometer heart monitor. It wasn't a Dick Tracy two way wrist radio. It was a good old fashioned high priced wristwatch that people without money covet when they want to show off. For some it is flashy bling and for others it is a Rolex. So, to the extent that a wristwatch is a fashion and luxury statement, a wearable mobile device is just not going to compete.
2. Whether you are texting someone or trying to make a phone call, you need the keys on the device to be accessible so you can type with accuracy. The only way around that is a really excellent speech recognition product but that would not be Apple's Siri, the much ridiculed attempt to make calls by voice command that Apple first offered a couple of years ago.
3. And then there is the issue of a screen on the device that you can actually read. As you age and you need more magnification, that too becomes an issue.
Wired also explored things like Google glass but if hands free driving is now mandated in many states, one wonders how you drive and read stock quotes off your glasses and not drive off the road if some stock you own is having a bad day.
Samsung has displayed more gadgets this week in Barcelona and it is keeping up its efforts to create good wearable products. So far, Apple has been silent. Perhaps had Steve Jobs still been alive, he would have conjured up something exciting by now but so far, neither Apple nor any other firm has been able to bring to market anything that comes close to the two way communicator Dick Tracy was wearing years ago. Maybe the solutions are still years into the future.
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Joan E. Lappin CFA Gramercy Capital Mgt. Corp.
Of the companies mentioned in this article, Mrs. Lappin, Gramercy Capital and their clients own shares in Nokia at this time. To follow her on Forbes, click on the button on the top of this article. To follow Joan on Twitter: @joanlappin. For help with your investment portfolio or information about Gramercy Capital write to: info@gramercycapital.com
