Apple iWatch Price More Important Than Features for Buyers

The rumored Apple (AAPL 1.27%) iWatch has been the Loch Ness Monster of technology products. There have been alleged sightings and lots of stories, but no confirmation. If an Apple watch is coming, nobody other than a select few know when, what it might do, and how it will look.

Regardless of what it turns out to be, interest in the iWatch will be based not on features or appearance, but price.

According to a survey published by investment firm Piper Jaffray, 31% of respondents would be willing to pay between $100 and $200 for an iWatch. Only 15% would be willing to pay more than $300. Considering that the respondents skew affluent, with an average household income of $130,000, the willingness to pay is likely even lower in the general population. 

About 35% of respondents aren't interested in an Apple watch regardless of price, and that's to be expected. But the low willingness to pay for the possible device could become a cause for concern for Apple. 

It seems unlikely that the iWatch -- which is rumored to have all sorts of health functionality -- will come to market below $200. The watch also won't be subsidized by the mobile phone companies the way the iPhone is. Whatever Apple charges for its watch will be the price customers must pay. That likely means Apple will sell the device for pretty close to cost and make money selling apps.

Where is the watch market now?
The market for smart watches is in its infancy. Though there are a number of brands being sold, 78% of the roughly half-million smart watches purchased since October 2013 are made by Samsung (NASDAQOTH: SSNLF). Pebble holds 12% of the market, while the rest of the industry splits 10%, according to NPD, which started tracking the market in October 2013. 

Total revenue for the industry since October 2013 was $96 million. As of June 11, a third of all smart watches were sold during the 2013 holiday season.

What do current watches cost?
Since NPD began tracking the market in October, the selling prices for the various smart watches have fluctuated due to promotions and new models making older watches cheaper.

Average prices have gone as high as $257 and dropped as low as $160. This was primarily driven by Samsung bundling its Gear smart watches with purchases of its Note and Galaxy smartphones. The average price of a smart watch was $189 as of June 11, according to NPD's Weekly Tracking Service.

With prices averaging below $200 for the established leaders at this early stage of the game, it seems like Apple will have to price its device in that range in order to compete.

Young consumers are at least somewhat interested
NPD reports that 20% of consumers say they are interested in purchasing some type of smart watch, with younger consumers expressing the most interest. Among those 16-24 years old, 30% said they were interested, while 25% of those 25-34 years old reported interest. Cost was cited as the No. 1 barrier to adoption.

In order for a smart watch to be a hit and grow the category, it will have to appeal to older demographics as well. The rumored health functionality on the iWatch might offer a wedge into a much older user base, especially if the device can track things like blood pressure that are now somewhat inconvenient to measure. If Apple can build a medically useful device, doctors could end up recommending it for patients and extending the appeal far beyond those in their teens and 20s. 

Will an iWatch work?
In the past, Apple created the categories it then dominated. While MP3 players existed before the iPod, none were as robust a platform. The same can be said of the iPhone and smartphones. There were some Palm and Windows-based offerings, as well as BlackBerry (NASDAQ: BBRY) phones, but Apple essentially created the smartphone market. Apple most certainly created the tablet craze. It's possible that the same people who say they don't want an iWatch or a smart watch in general will want one once they see what Apple creates.

Right now, smart watches are at best a niche with very limited appeal. Apple could easily change that if it offers a device with features people did not even know they want. If that's not the case, and the iWatch is merely Apple's take on what Samsung and Pebble are doing, then price will play a major factor in whether the category grows into more than a novelty.

In the past, Apple has been early to market and suffered for it. The Newton paved the way for the iPad, but it's remembered as little more than a punchline now -- if it's remembered at all. For the iWatch, it feels like the timing is perfect. Samsung and Pebble have set the table and now it's time for Apple to step in and try to reach the masses.

There is no guarantee of success, but if smart watches are going to be a big thing, Apple seems the likely company to make it happen. And now seems like the ideal time to try.