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

Reports suggest that Apple will unveil its iWatch at its media event next week, but that the new wearable device may not ship until next year. Here's why that strategy would work.

Sep 3, 2014 at 4:00PM

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.

Screen Shot

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.

Leaked: Apple's next smart device (warning, it may shock you)
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Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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