Wearables market set to soar, worth billions by 2020.

The wearables market will be worth US$27bn by 2020, with almost 400 million wearable devices sold in the year, according to technology research and advisory firm Ovum.

Ovum expects sales of wearable devices to reach 394 million units in 2020, up from 24 million units in 2014, corresponding to a CAGR of 60%. Revenues generated from the direct sale of wearable devices to consumers will reach US$26.6bn in 2020, up from US$3bn in 2014.

Multipurpose wearables such as the Apple Watch will account for 31% of the installed base, with simple activity trackers and smart clothes making up the rest of the market.

But volume does not equal value: Ovum says multipurpose wearables will account for 62.3% of total retail revenues in 2020, equivalent to US$16.5 billion in sales. Wearables also offer additional software revenue opportunities via a dedicated app ecosystem that will serve up to 176 million installed devices by the end of 2020.

Ovum predicts wearables will become much more capable and 'smart' over the next five years. Recent product releases such as Microsoft Band, Fitbit Surge, and Pebble Steel show that activity trackers are becoming smarter.

Ronan de Renesse, Ovum lead analyst for consumer technology, says "affordability and better quality of service for smarter wearable devices will be key drivers in the shift from activity trackers to multipurpose wearables such as the Apple Watch.

"Currently, the market is overcrowded in comparison to demand," he says. "Supply chains and marketing investments need to be tightly controlled. Larger vendors able to sustain investments for longer stand a better chance of establishing a market lead.