Predicting the Potential of Apple Inc.'s Alleged iWatch Isn't Easy

Investors beware: Predicting the success of Apple's iWatch may be downright impossible.

Jun 24, 2014 at 6:08PM

In a new report from Piper Jaffray (via AppleInsider), Apple (NASDAQ:AAPL) investors get a closer look at the potential for the company's alleged iWatch -- or do they? While the results are intriguing, can the study be trusted as having any predictive power? Probably not. The most important takeaway of all from the study is simple: Guessing the potential of Apple's iWatch is an very difficult task.

Iwatch

iWatch concept design (as seen on the right) shown next to iPad Air, iPad mini, and iPhone 5s. Image source: 9to5mac, used with permission.

Getting the major drawback to this Piper Jaffray survey out of the way, it's important to note that only about 100 individuals were surveyed. The irrefutably small sample size obviously limits its application.

Then, of course, there is the other limiting major factor in any survey of Apple's upcoming iWatch. While Apple-branded smartwatch rumors have certainly been turned up a notch in recent weeks, even the ever-active Apple rumor mill is still fairly clueless on what the device will look like or even what sensors exactly the device will sport.

Sure, the iWatch may end up matching the description of some of the recent reports to surface about the device. For instance, it may have more than 10 biometric sensors, work with Apple's HealthKit app by piggybacking the iPhone, and have a 2.5-inch touch display -- all recent reports. But even if all of these claims end up being true, there is still too much up in the air to enable investors to envision how compelling (or not) the device's value proposition could be.

$350 or less?
Summing up the results to Piper Jaffray's survey, 14% of a fairly high-end group of individuals, with an average household income of $130,000, would buy an iWatch priced at $350.

Taking the study further, Piper Jaffray surveyed the buyers who said they wouldn't buy at $350 to see how they felt about iWatch pricing in general. At what price would this subset consider buying the iWatch? It would be far more popular if it were priced under $200, the results suggested. Thirty six percent of these respondents said they would buy in the $100 to $200 price range -- a higher percentage than any other surveyed category.

Unfortunately, the anchoring bias, in which an individual irrationally "latches" on to the first piece of information (in this case, $350), could have had a large influence on these results.

But combining the fact that only 14% of individuals who were interested in the iWatch initially at $350, and only 36% of the at-first-uninterested consumers would pay between $100 to $200, the study may have a sliver of a chance of indicating Apple will have to do an exceptional job in educating consumers on why they may want to pay up for the device.

Apple Store Tmf

iWatch pricing? No clue.
Guessing the pricing of Apple's products, however, is incredibly difficult. Going into the iPad launch, it was a common guess for the entry-level version of the device to be priced at $1,000. As we know very well today, the entry level pricing for the flagship iPad has been $499 from the beginning -- and remains so today.

Iphone

iPhone 5c. Image source: Apple.

There was also incredible confusion going into Apple's alleged low-cost iPhone 5c launch. The most common guess for the phone's pricing was around $400. Instead, the phone was priced at a premium-like $549, only $100 less than the flagship 5s.

Apple investors should take studies that try to predict the success of an upcoming Apple product with a truckload of salt -- especially one that only surveys 100 individuals. Piper Jaffray, of course, shouldn't be blamed. No matter how exhaustive a study, predictive power for an entirely new product in a nascent category will be lacking in unforgivable overabundance.

Perhaps this is why Piper Jaffray doesn't see the need to survey thousands of consumers. After all, Steve Jobs has said, "People don't know what they want until you show it to them."

The best indicator we have is Apple's historical record of entering new product categories. The last three major new products in new categories were the iPod, iPad, and iPhone. Does the iWatch have potential to be a success? Absolutely.

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Daniel Sparks owns shares of Apple. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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