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Why Apple, Inc. Pre-Announcing the iWatch Months in Advance Would Be Smart

It seems increasingly likely that Apple's (NASDAQ: AAPL  ) expected iWatch won't ship this year. At the same time, reports suggest that the company is still planning on unveiling the device at its media event next Tuesday. If true, that would represent one of a handful of times that Apple has pre-announced new products well in advance of the actual launch.

In some cases, pre-announcing products too early can have disastrous consequences, causing consumer purchase delays in anticipation of the new products. The phenomenon is now affectionately known as the Osborne Effect, named after the most prominent example from the early 1980s. Most of the time, Apple is very good at minimizing the time between announcement and launch, in some cases, making products available the same day.

Apple marketing chief Phil Schiller unveiling the MacBook Pro with Retina Display for the first time in 2012, which began shipping the same day. Source: Apple.

Apple is quite used to its rumor mill causing purchase delays, but market speculation is very different than official announcements. Here's why pre-announcing the iWatch months in advance would be smart.

Pre-announcing would cause purchasing delays -- for competitors
If the iWatch is indeed being delayed until early 2015, then that would put its launch after the busy holiday shopping season. While no consumer electronics company wants to miss out during the holidays, Apple will still have plenty of other gadgets to sell, and it likely wants to perfect the iWatch before releasing it to the masses.

The market for smartwatches is small, but growing, and a slew of competing devices are starting to hit the market. Google's (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Android Wear will likely power most of the smartwatches sold this holiday shopping season. But beccause this market is nascent, there is a lot of lingering consumer uncertainty that's holding back adoption, as people aren't even sure if smartwatches offer a compelling value proposition as a product category.

Sure, there will be some who are intent on buying a smartwatch this year; but there are also plenty of potential buyers who are on the fence. If Apple pre-announces its iWatch, it could cause potential buyers to hold off for the time being, including those in the market for a competing smartwatch.

A new product category is different than an existing product category
Most of the time, when pre-announcing has negative effects, it's because the subsequent purchase delays hurt the existing business. That was the case for Osborne Computer Corporation. It's entirely different, however, if the pre-announced product is for an entirely new category, because hype for the new product should not affect sales of existing products.

It's not as if iWatch hype will hurt iPhone sales. In that sense, there's very little risk associated with pre-announcing the iWatch at next week's event. Additionally, if Apple shows off the device this year, CEO Tim Cook may technically be able to fulfill his promise to investors that Apple will enter a new product category this year, even if its shipment date falls into 2015.

It wouldn't be the first time
It's worth noting that Apple has pre-announced products on rare occasions before. For instance, the original iPhone was unveiled in January 2007, but didn't ship for another six months. Likewise, it unveiled the new Mac Pro in June 2013, but the new version didn't ship until December 2013.

At the time, the iPhone was obviously Apple's entry into a new product category, as it had never made smartphones before, so it wasn't putting any of its existing businesses in jeopardy. Technically, pre-announcing the Mac Pro was a risk, but the Mac Pro is a small portion of Apple's overall business. Additionally, professional users had already been waiting an extended period of time for a Mac Pro upgrade, so presumably, they could wait just a little bit longer.

"Take the time to get it right"
At the end of the day, spending the extra time to get the product right has always been Apple's strategy. Consider this quote from Tim Cook from a Wall Street Journal interview earlier this year discussing new products.

You want to take the time to get it right. Our objective has never been to be first. It's to be the best. To do things really well, it takes time. You can see a lot of products that have been brought to market where the thinking isn't really deep and, as a consequence, these things don't do very well. 

If the iWatch turns out to be the best smartwatch, and pre-announcing it can hurt rivals while creating iHype, Apple will be the one doing well.

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  • Report this Comment On September 03, 2014, at 11:40 PM, Zendwell wrote:

    Thanks tesla

  • Report this Comment On September 04, 2014, at 9:22 AM, clarkma wrote:

    I remember the Osborne in the stores, those that bought it, and I interviewed someone in the 80s that had worked on the Osborne design.

    Osborne went out of biz because they lost current product sales when they announced a future product. They were so leveraged that a cash flow hiccup put them out of biz.

    That disaster is not possible for Apple.

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Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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