I think the design flaw is in the pictures you provided, but that's just my opinion as a user. The text/readout is much smaller and I find it more difficult to read the small scrunched up text than the huge text on the Fit's screen.
What's funny to me is that in the pics you provide the user has to bend his arm towards his body to read the readout, then of course you have the smaller text and trying to fit in things like text messages, notifications, missed calls, emails, etc into a vertical space, what a huge DOH. With the smaller text you not only have to move your arm to have the fit in line with your eyes, you most probably also have to lift it closer to your eyes to read the smaller text. With the Fit's orientation you don't have to lift your arm towards your body, you can leave it where you had it and just glance down and with any tiny modicum of intelligence your brain can handle the very slight angle the text is at. I don't know what kind of work out you do, but when I work out very hard and the last thing I want to do when sprinting top speed is have to lift my arm out and up close to my eyes and squint them to see my readout.
But most likely users wouldn't bother lifting their arm up anyhow, and aligning it vertically as you show would result in reading the text at a slight angle anyway, but now with smaller text and scrolling vertical notifications. Man, what an awful solution. In terms of the real world does anyone really lift their current watch up and in to line up with their eyes before reading the time?
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I think it depends on what you are displaying on the screen, there could be pros and cons with each orientation. I would think if you are looking at a lot of text, like notifications, text messages, emails, missed calls, etc then the vertical solution would be AWFUL, just utterly useless. For small stuff, like heartrate, time, steps, etc it should be ok, but you are still going to get smaller text squeezed into a smaller space, or you are going to get elements which are stacked vertically and it might not make sense that way.
I wonder if Samsung will update it to flip like the Gear 1 does. I'm assuming people who got hands on time with it reported the display doesn't flip? I'll bet Samsung will have the display flip eventually, if it doesn't already.