Smartwatch prices drop as war for market rages

The competitive landscape within the smartwatch sector mirrors the dynamics of the smartphone market following the entry of Chinese brands into the Indian market in 2014.

According to industry insiders, the razor-thin profit margin on smartwatches raises concerns over the long-term viability of many brands. Even those that manage to survive this might struggle to woo budget-conscious customers into transitioning to more lucrative premium products, they said.

Three industry executives said the lowest-priced smartwatches in the market yield minimal margins, ranging from just Rs100-200. While the margins are higher on more expensive products, the average selling price of smartwatches was at an all-time low in the June quarter. According to an International Data Corp. (IDC) report on 10 August, smartwatches are priced at an average of $25.6 or a shade over ₹2,100. This suggests that most smartwatch sales driving sector growth are at the lowest price bracket.

Boat co-founder and chief marketing officer Aman Gupta said there “is a price war now". “Brands are aggressively vying for a bigger stake in the market, with some making unwanted noise and also striving to attract funding by showcasing their market share. This approach seems unsustainable, pointing towards an inevitable need for consolidation. Well-funded players from Peak XV’s portfolio and even Titan (from the Tata Group) have entered. The upcoming period will be very interesting to watch out for," he said.

A senior executive of another smartwatch brand, requesting anonymity, said with two top smartwatch brands consistently slashing prices, it has become “difficult for competitors to sustain higher prices, which has made the market difficult ."

However, the drop in prices has helped the market surge ahead. IDC India said smartwatch shipments doubled to 12.8 million units in the June quarter from 6.4 million units a year ago. While this indicates significant growth, there are challenges ahead. IDC data for the corresponding periods showed shipments rose fourfold to 6.4 million in the June quarter of 2022 from 1.6 million in the year earlier. However, this growth came on a much smaller base.

However, industry insiders said a slowing growth rate is not the real challenge. “The bigger threat comes from the operating margins for most brands in this category," a senior consultant said, requesting anonymity since he works with multiple smartwatch brands.

Navkendar Singh, associate vice-president at IDC India, said: “Smartwatch prices in India have dipped to a very low base, as companies look to gather market share by driving volumes. It could pose a critical challenge in the long run once the number of new users these brands can acquire falls. A slim margin business also means that brands may eventually struggle to sell high-priced devices, but now they are operating on the hope that the buyers will eventually upgrade to high-end devices in the long run, and that would yield better margins, thus, profitability."

Boat, India’s third-largest smartwatch brand with 19.7% market share, as per IDC data, sells its base model for Rs1,299. The base models of Noise and Fire-Boltt, which are category leaders with 24.8% and 28.5% market share, respectively, are priced at Rs1,099 and Rs1,349, respectively, according to product listings on their websites.

Some brands, however, remain upbeat. Gaurav Khatri, chief executive of smartwatch brand Noise, said that the company continues to expect steady growth. “We are already seeing growth in high-priced smartwatches as well, even as first-time buyers continue to enter with the budget models. Overall, there is plenty of growth potential, and we have also started focusing on offline sales. While this contributed around 6% to our overall smartwatch sales last year, we’re already touching 15% this year," Khatri said.

Bloomberg reported on 28 May that Noise is in talks with investors to raise up to $50 million in its maiden funding round. Noise declined to comment.

Boat’s Gupta said a part of the industry’s growth strategy is to expand offline stores.

IDC’s Singh said brands are looking at more physical outlets to attract first-time buyers and ramp up shipments. “There will, however, be challenges—the growth potential beyond the next two years will be limited. Whether upstart brands manage to survive beyond this remains to be seen," Singh added.