Market research company Canalys believes that 2014 will be the year of the smartwatch, with global market shipments expected to surpass the 5 million milestone over the course of next year.

The data analytics firm estimates that more than 330 000 smartwatches were shipped during 2012, with shipments led by Sony as well as Motorola. Canalys anticipates smartwatch shipments to increase to more than 500 000 units this year.

Sony has already showcased its third generation wearable technology device in the Smartwatch 2. Kickstarter-backed Pebble Technology also added its name to the smartwatch OEM (original equipment manufacturer) list this year.

Canalys asserts that the smartwatch market will grow exponentially by the end of 2014, increasing tenfold thanks to the anticipated arrival of a plethora of new OEM arrivals including Apple, Google, Microsoft, and Samsung.

Smartwatch set for evolution

Most of the smartwatch devices released thus far act as second screen unit for a user’s smartphone, pairing with a mobile device over Bluetooth to provide functionality such as displaying social networking notifications and controlling music playback.

According to Canalys, next year’s new generation smartwatches will deliver much more sophisticated software as well as hardware and designs that are a lot more eye-catching.

“An effective smartwatch won’t just be a second screen for a smartphone. Creating a competent developer platform specifically for the form factor will be an enormous challenge,” said Canalys Analyst James Wang.

“Google and Microsoft must execute more successfully than they have done with their tablet platforms and will have to adapt their business models appropriately,” Wang added.

To the point

Beyond being the most accessible form of wearable technology, smartwatches also have the potential to disrupt the highly lucrative traditional watch industry. Canalys estimates that more than a billion wristwatches were shipped around the globe during 2012.

This, as these devices will boasts a lot of added functionality above and beyond the functionality of a multifunction wrist watch. OEMs will however, face a number of challenges in making these kind of wearable technology more appealing for general users. The primary challenge is finding the right balance between offering plenty of must-have software features, whilst limiting cellular technology and sensor usage so as to allow for a longer battery life.

“Smartwatches will be the most important new product category in consumer electronics since the iPad defined the market for tablets,” said Chris Jones, Canalys VP and principal analyst. “Software platforms tied to smartwatches will also be a tremendous opportunity for developers to write apps in categories such as health and wellness or sports and fitness,” added Jones.

In other market research related news, Strategy Analytics recently revealed that the global smartphone applications processor market grew by nearly 50% year-on-year during Q1 2013, as market leader Qualcomm snapped up 49% market revenue share.