Creative Strategies wrote about two possible scenarios for the smartwatch market.

Scenario #1 – like MP3 players where Apple dominates market share

Apple will easily strongly influence the smart watch category in 2015 and 2016. It is hard to argue against Apple’s vertical advantage and tight control of their entire ecosystem. This advantage undoubtedly will give them a dominance in the early stages of a category. If a number of things play out, we can see them command the category for the long term.

Apple had a near monopoly on the iPod/MP3 market. We can see a similar scenario playing out where Apple effectively “iPods” the smart watch category, maintaining dominant share over the next five to seven years. While the early success of the iPod was driven by Apple releasing iTunes for Windows, we don’t see the need for Apple to support other platforms in order to hold sway over the smart watch category. Apple’s existing iPhone customer base is large enough to keep it the foremost smart watch vendor and their smart watch platform as the reigning one in the smart watch category.

Scenario #2 – like smartphones where Apple dominates profit share

Another possible scenario is the smart watch category shapes up very much like the smart phone category. Apple succeeds at their goal to acquire the top 20% of the market and rake in the majority of the profits. While Android Wear, or another third party licensable smart watch OS, provides the software platform to the vast majority of hardware companies making smart watches.

In this scenario, the vast majority of Chinese and Hong Kong produced smart watches adopt Android Wear (or something else) and flood the market with very low cost smart watches. Also in this scenario, Swiss watch makers competing in the sub $1000 watch market start making smart watches because Apple Watch cannibalized nearly all the sales of Swiss-made watches in that price range.

In both scenarios, Apple earns a lot of money.