Boss Jim Magilton felt his side were second best throughout as Watford ended Town's 19-match home league unbeaten run with a 2-1 victory at Portman Road.
Magilton said: "The best team won. They started better than us, dominated us physically and didn't allow us to play.
"We were second best all afternoon. Watford are a good side and any team that finishes above them in the table will get promoted.
"They did a very professional job and we didn't have enough courage in our conviction.
"We didn't have enough people believing we could win the game or wanting to get on the ball. I was so disappointed with our tempo, quality and passing.
"We were sloppy and played against a resilient, dogged team that capitalised on it. To lose our home record like that was very disappointing.
"Our two front players struggled to get into the game in the first half, whereas their front two never stopped working.
"Both goals were poor from our point of view, especially the first one which I'm sure our keeper will put his hands up to.
"It was only when Schumey came on that we started to get people on the ball. He wanted the ball and tried to get us going.
"I'm expecting a reaction when we travel to Crystal Palace on Tuesday night. It will be another difficult game and we will have to be a lot better than we were today to get something from the game."
Watford boss Aidy Boothroyd said the Blues were a stern test for his side: "Jim Magilton is a great lad who's doing really well and they've got a wonderful record at home.
"He's at a good club with a fantastic philosophy and it was always going to be extremely hard.
"We had to defend for long periods and be resilient and, thankfully, we managed to hang on.
"We scored at the right time and it was important that when we had decent spells in the game we used them well.
"The players I've got here have got fantastic strengths and work exceptionally hard for each other. Everyone knows what everyone else is doing.
"In terms of winning, this was a 10 out of 10 effort. In terms of style, it was probably a five."