The fitness-focused company suffered a serious drop in popularity this year, according to Canalys, plummeting 30 per cent and selling just 2.9 million devices.
By comparison, Apple claimed top spot with 3.8 million Apple Watch sales, up 25 per cent on the same time last year.
Canalys analyst Jason Low said additional fitness technology, phone features, and even fashionable accessories were making a smartwatch upgrade more attractive to buyers.
"Water resistance, Bluetooth music streaming, and built-in GPS are becoming more relevant as runners and other fitness enthusiasts forgo the bulk of a smartphone," he says.
"Just as we continue to see feature phone users upgrading to smartphones, basic band users find smartwatches to be a justifiable upgrade because of their additional (features)."
Telsyte managing director Foad Fadaghi says Australians bought more than two million wearable gadgets last year, and 37 per cent of those were smartwatches.
He predicts that percentage will grow to half of all wearable devices this year at the expense of fitness trackers.
One of the biggest drawcards of using a smartwatch in Australia, Fadaghi says, is its ability to be used like a credit card at the checkout.
More than half of Apple Watch users have used Apple Pay, according to Telsyte's survey of 1060 Australians, and more than 70 per cent use it often.
"Once users get over the initial barrier of raising a smartwatch to a payment terminal, they start to use it regularly, indicating it might be a critical application for smartwatch retention," he says.
But Apple is not the only company to see a rise in smartwatch fortunes.
Strategy Analytics found Samsung claimed 19 per cent of the smartwatch market between January and March, narrowly beating Google's Android Wear watches for the first time.
But even the most pessimistic analysts aren't counting Fitbit out yet.
The company is reportedly preparing to launch its own smartwatch in spring, codenamed Higgs, with leaks suggesting it will have a square screen, GPS chip, heart-rate monitor, payment technology, and four days of battery life.
Rumours suggest it has struggled to introduce waterproofing and initially had problems with its GPS antenna, however.
CCS Insight wearable technology analyst George Jijiashvili says pitting itself against the vast resources of Apple and Google will be a big ask, and Canalys research analyst Mo Jia says Fitbit's smartwatch will need to be something special from day one.
"Its new smartwatch will need a good reception if Fitbit is to turn its fortunes around and return to growth in 2017," he says.
