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Are smart watches a smart move for Samsung and Sony?

Now that Samsung Electronics Co., Ltd. (Samsung) has officially unveiled its Galaxy Gear smart watch at IFA 2013, and with new offerings from other major manufacturers, such as Sony Corporation (Sony), also set to hit shelves within the next couple of months, it appears that wearable technology is about to step into the limelight. Whether the smart watch will enable such tech players to genuinely diversify their product offering, however, remains to be seen.

Crucially, Samsung’s Galaxy Gear is only compatible with its own-branded line of smartphones and tablets, and will not be able to pair with other manufacturers’ devices, unlike Sony’s latest offering, the Sony SmartWatch 2. Notably, Sony’s device is compatible with any Android device running version 4.0 or higher, a major selling point in the eyes of the average consumer. The question of why Samsung has chosen to ostensibly limit the compatibility of the Galaxy Gear therefore comes to mind.

The reason behind the two differing strategies becomes clear when taking the two companies’ positions within the smartphone market, and their respective financial health, into account. Samsung is currently the clear leader in the Android market, dominating its competitors. Meanwhile, Sony is still playing catch-up: despite the success of its flagship Xperia Z smartphone, its share of the Android market is still dwarfed by that of Samsung.

Essentially, Samsung is at the stage where it has everything to lose when it comes to smartphones, and its primary concern is to hold on to its leadership position by establishing its own ecosystem within the Android market. The decision to limit the compatibility of the Galaxy Gear to its own range of smartphones is a clear indicator of this. In fact, the Galaxy Gear can even be seen as a pseudo-flanker product, intended to bolster the company’s already magnificent smartphone sales in order to maintain its leading position.

By way of contrast, Sony does not have as much to lose with its smartphone business: although it is a key player in the space, poor performance in other areas of its business has led to record losses in recent years. It is therefore under enormous pressure to diversify its revenue stream in order to offset poor performing product types, such as TVs and cameras, areas which it has also lost market share to Samsung. The decision to make its smart watches compatible with other manufacturers’ handsets suggests that Sony is more interested in the top and bottom line benefits the new products could have on its business, rather than the impact it would have on its own smartphone sales figures. The same reasoning can be applied to another of Sony’s recent product announcements, the QX 10 and QX 100 smartphone camera attachments, which are also compatible with other manufacturers’ products.

The success of the smart watch therefore has different implications for the two companies: Samsung will see it as a brand building and protection exercise, as it looks to maintain its dominance of the smartphone market. Sony, meanwhile, will be hoping that the market takes off in order to provide it with a much needed additional revenue stream. It will therefore be very interesting to see what the consumer reaction to smart watches will be over the coming months.

Read more on Sony’s struggles in the MarketLine case study, Sony: Losing the battle in the television division.

For more updates on the technology and telecoms sectors, follow me on Twitter:@Matt_MarketLine

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