Question time: If the Apple Watch loses its buzz, does that mean the smartwatch craze was never really a craze? And does that logic apply to the ‘wearables’ business in general? And does that in turn mean that all the effort that’s gone into developing apps for this market—well, maybe not with banking apps just yet—was a waste of time and money?

That’s a topline view of the quandary now facing the select group of folks in the business who have spent time in this field. It has to do with the latest developments in the Apple Watch market, and the news is not good. Specifically, according to market researcher IDC, Apple Watch sales fell to 1.6 million in the most recent quarter, which is only a year removed from the first quarter.  That’s a whopping 55 percent year-over-year fall, and that’s after a price cut.

But before moving on from this market, we should look at the bigger picture. Apple Watch was categorically not the first product in this category (which is actually true of many Apple products), but the accompanying cachet turbo-charged the introduction, leading to immense hype, a big backlog of pre-launch orders, and 3.6 million units shipped in the first quarter. In fact, even after the disappointing new numbers, the company still has 47 percent market share. That’s far ahead of nearest competitor Samsung, which has maybe 16 percent, and Lenovo with 9 percent. However, some of those other companies—Motorola and LG Electronics are also in the mix—are seeing sales growth, which should worry Apple.

But rather than dwell on competitive brands, we should focus on the category instead. Is the smartwatch space truly viable in its own right, or is it just a country cousin of laptops and tablets? Does it truly have potential, or are we wistfully wishing for something that isn’t really there?

It’s there. As we’ve noted on this blog before, the potential is real. We know the advantages, just as we know the obstacles. But as with the laptop, the phone and the tablet, we have to first figure out what’s unique about it, and play to those specialties.

For a start, the smartwatch is tiny. . .and that’s the point. The laptop seemed pretty small once, but the tablet is a lot smaller, and gets more done. The phone was always around, but it was only when we realized it could be used for more than just talking that it gained such incredible value—who would have thought we’d be way past two million applications by now?

More to the point, more than just a mobile device, the smartwatch is also in this amorphous category known as wearable computing. This needs to influence our view of the capabilities. It’s not a device that’s extracted when needed, as with the phone or tablet; it’s always at hand, literally. As diminutive as the space seems, the content is more easily viewed than any mobile device. Sure, it can’t say much, but it can urge the user to access related content on the mobile device.

Finally (and this is vital) new form factors don’t gain adoption in a technology vacuum; they builds on other events and trends in the zeitgeist. This is one reason why the iPad has enjoyed such wild success, while its predecessor from Apple, the much-hyped Newton, was a bust. The market wasn’t ready for that one back in 1993.

So what’s different now? Well, for one thing, try geo-location. We’ve looked at this broad capability in many different ways, most recently with the explosive popularity of Pokemon Go. This is a two-decades-old game that originated on a video game platform, but the new variant has taken the world by storm precisely because it builds on newer capabilities related to augmented reality and, inevitably, geo-location.

We know the endgame here. Apps building on rich data sets will target consumers at exactly the right time with the right message to drive transactions without seeming invasive. For example, as we’ve discussed before, the credit card issuer or other financial services provider can know when the customer has entered an auto dealership, scour their financial history, and make a proactive offer. The smartwatch can play a crucial role in this arrangement by alerting the customer to the details available on the mobile device.

Sounds simple, but of course it’s not. Indeed, a lot of things have to happen for that kind of activity to become routine. First, there have to be other smartwatch-specific apps that gain popularity, easing the way for finance-driven functions. That in turn will likely follow the development of a better operating system than the one in place, which is an early iteration.

And by coincidence at all, Apple Watch 2 (or whatever it’s called) is set to launch this fall, possible alongside the next iPhone. This one could—we really don’t know yet—feature video conferencing and other upgrades. This could jump-start the development of an entirely new category of applications.

It’s always foolhardy to make predictions about the next wave of technologies, but here’s what we can say: The smartwatch is just as rich with potential as when it first arrived. The fact that it hasn’t taken off as fast as previously expected doesn’t mean it won’t. And if/when it does, the financial services institutions that can deliver the no-brainer apps first—the kind we haven’t even thought about yet—will win big.

Written by Jack Dougal