$43.6B U.S. agency revenue
Here's a not-too-distant future Eric Franchi imagines: You order a movie ticket on your phone, then decide to stop at a convenience store to buy snacks. As you stand in the aisle, your wrist vibrates. The company whose candy you were eyeing has sent you a discount.
Mr. Franchi is co-founder of Undertone, a digital ad network based in New York, and one of an ambitious few in adland testing "wearable" products. In three years, he believes, smartwatches will be pervasive -- and a booming business for advertisers.
At the Mobile World Conference in February, the world's largest smartphone manufacturer Samsung unveiled two sleek products in the second generation of its watches with internet capabilities. The Samsung Gear 2 and Gear 2 Neo will land on the market April 8. LG and Motorola have unmasked their own devices. Qualcomm also has its own. So do a gamut of companies, from hardware veterans Sony and Intel to Pebble Technology, a small, scrappy company financed by the crowdfunding site Kickstarter. (And then there's China, where one analyst said "hundreds" of manufacturers are in the mix.)
The potential for advertising on such devices ratcheted up in March when Google -- which earns 90% of its core revenue from ads -- released Android Wear, a software-development kit for wearables. Google is tying up with HTC, LG, Motorola, Samsung and Asus, along with chip-makers Broadcom, Intel and Qualcomm, among others. (Gear 2 will run on Tizen, Samsung's own operating system, but a Samsung representative said the company remains open to supporting various operating systems.)
At the moment, Android Wear looks to be the Google Now, or the intelligent personal assistant, on a watch. In Google's short video demonstration, users activate the device with a simple command: "Okay, Google."
Agency insiders suggested that any effective advertising with Android wearables would need to be on native applications. Ian Schafer, CEO of Deep Focus, believes smartwatch ads will combine Google's capabilities with Waze (which knows where you are and where you're going) with the predictive power of Google Now. Advertisers could then invest in cross-screen buys once ads come to Google Now.
But some advertisers are skeptical that ads will leap onto Android smartwatches -- or even that they should. "Wearables are so personal, and so intimate, that [advertising] can easily be construed as an invasion," cautioned Jonathan Greene, VP-mobile and social platforms at R/GA. "My guess is that Google will be careful turning on access to it." Ads, he said, "will be limited at best."
For now, Google is bunching its wearables venture into its non-advertising arm where futuristic products are born, with business models to be determined. This is also where, at least publicly, the company is shelving Google Glass.
In February, at South by Southwest, Undertone debuted Future Proof Labs, a platform for the exploration of digital advertising on wearables. Undertone views beacons, which are miniature positioning systems that can link to a phone's bluetooth, as key. Beacons have been deployed in single-brand retail stores and stadiums, and soon may be moving to retail megastores. They can trace phone purchases and apps and then theoretically link to an ad on a smartwatch. "It ends up being applicable to every category," said Sal Candela, Undertone's VP-mobile strategic sales.
Some speculate the technology could work in reverse: Watches collect data---spending habits, location, even health---and the notifications strike the wearer on their email or phone.
Marketers salivate at wearables' data-collection potential. Wearables first took off with the "quantified self" trend, devices that track exercise metrics, giving sports brands a major new market. Nike was one of the first major marketers to move in with Fuelband, which was released early in 2012. With the Gear 2, Samsung is unveiling its entrant, the Gear Fit; on March 25th, HTC partnered with Fitbit to pre-install software for the wired bracelets on its new phones.
For Undertone, wearables are just a first step toward "The Internet of Things," where a plethora of screens and appliances are plugged in and soaking up data. The firm sees itself swimming ahead to test this wider world for digital advertising.
Meanwhile, everyone -- marketers, ad networks, brands and wearable makers -- is watching Apple.
Speculation is rife that the Cupertino giant is building an "iWatch." Apple recently expanded its own beacon technology and has been reportedly courting Swiss luxury watchmakers. In March, images leaked of Healthbook, a native application Apple is allegedly building to aggregate health and wellness information. The images featured data points similar to those gathered by other wearables like Fitbit. (When asked about Healthbook, an Apple spokesperson said the company does not comment on rumors.)
No one is sure if a future iWatch would be an iOS device, open to outside applications, or merely an extension of an iPhone, or even its own insular device. Yet, clearly, Apple is the only company with the scale to rival Samsung. (Samsung spent $62 million in measured media for smartwatches in 2013, a tenth of its overall measured-media spending, according to Kantar Media. Samsung reported that its initial Gear model nailed 800,000 sales in its first two months.)
It is Google, however, with its dominant Android platform and vast data tentacles, that might have the better shot at breathing life into smartwatches. "Apple is best placed to build one of these devices," said Benedict Evans, a partner and mobile analyst at venture capital firm Andreessen Horowitz. "But Google is better placed to light them up."
Agency leaders stressed that any ads would need to show immediate, tangible value. For example, Mr. Schafer said he envisions watches pushing a discount on a latte when you're near Dunkin Donuts. Any ads must have a utility "that will enhance what you're doing," he said.
Mr. Schafer is a target wearable customer -- he uses Google Glass, and is on his second Pebble watch. But, unless digital ads evolve, he'll draw a clear line in the sand. "I'm not going to buy wearables if they have advertising in its current form," he said.