On Aug. 4, two significant pieces of information about Apple's (AAPL 1.02%) upcoming smartwatch, which will presumably be marketed as the Apple Watch Series 3, leaked out from two reliable sources.
The first bit of information came from a report in Bloomberg, which said the Apple Watch Series 3 will include cellular capability built directly into the device. The inclusion of a cellular subsystem in the device will "free" the next Apple Watch from the iPhone.
Image source: Apple.
That's big news in and of itself, but there's more. John Gruber, who runs the website Daring Fireball, says he's heard that this year's Apple Watch models will sport an "all-new form factor."
A cellular Apple Watch is great, but...
Getting a cellular connection should allow the Apple Watch to be a much more robust, standalone device. This could be particularly useful for runners, as well as individuals who like to listen to music while at the gym.
I'm sure Apple and the wide array of app developers will be able to come up with many more compelling use cases for an "always-connected" Apple Watch, too. However, I think tApple might have a difficult time driving adoption of the cellular-enabled models.
First, buyers of a cellular-connected Apple Watch would, presumably, need to pay for data plans for such devices. That's an extra per-month cost that might be unappealing to many prospective Apple Watch buyers, particularly as a smartwatch is nowhere near as important to the average consumer as a smartphone is. This problem, however, could be mitigated if Apple works with the carriers to offer low-cost Apple Watch-exclusive data plans, for example.
Another issue is simply the added cost. Adding a cellular subsystem to the Apple Watch will increase manufacturing costs because of the inclusion of an LTE chip and associated radio frequency chips. Furthermore, cellular-capable devices typically bear royalties to major wireless patent holders. That royalty is often calculated based on the selling price of the device, which in the case of the Apple Watch, would probably be quite significant, particularly for higher-end models. So for Apple to price hypothetical cellular-capable Apple Watch models at levels that generate similar gross profit dollars to their Wi-Fi-only counterparts, it'd need to increase prices substantially.
You can see this with Apple's iPad models. The base Wi-Fi-only iPad Pro tablet sells for $649, while the same cellular-capable model goes for $779 -- a 20% increase in cost. That cost increase isn't due solely to the costs of the additional components to enable cellular functionality -- it's all the royalties associated with selling cellular devices, too.
Significantly higher selling prices for the cellular-capable Apple Watch models could ultimately reduce demand and slow adoption of the platform.
New form factor sounds nice
As far as the second piece of news goes -- the new form factor -- I think this will be most welcome. The current Apple Watch doesn't look bad, by any means, but the design is a bit tired at this point, and I'm sure it could be made to look much sleeker than the current design does.
Considering the Apple Watch is a wearable device, aesthetics matter, and I think to the extent that Apple improves on those aesthetics, its device sales should benefit, too.
