Last week, Apple (AAPL +2.59%) unveiled its highly anticipated smart watch, the Apple Watch, in a move that was widely expected. Apple certainly isn't first to the party, with plenty of other smart watches already available, but Apple's strong brand and cult-like customer base give the company an enormous advantage.
Certainly, when the Apple Watch is released next year, it will sell in huge numbers. But success for Apple is relative. The iPhone brings in so much money for Apple that even 10 million watches per year would barely move the needle. Apple needs to sell tens of millions of these watches for the new product to have a meaningful impact on the bottom line, and there are a few reasons to believe that this may be easier said than done.
Source: Apple.
It doesn't solve a problem
The iPhone, and smartphones in general, solve a real problem: They put meaningful computing power into a device that's small enough to carry around at all times, yet large enough to be useful. Before smartphones, a laptop was the most portable form factor available.
The Apple Watch, and all smart watches, are only truly useful when using a smartphone is inconvenient -- a rare circumstance. When the Apple Watch is released next year, a Facebook app will allow wearers of the watch to scroll through news feeds. But the size of the watch limits how much can be seen at once, and the ability to post updates will either be unavailable, or extremely dumbed down, given the form factor. It seems silly to scroll through Facebook posts on a watch when the smartphone in one's pocket is far better suited to the task.
Of course, the Apple Watch is a fashion product as much as it is a tech product. People still buy expensive watches -- even though they don't really need them -- to tell the time. Apple will try to capitalize on this market by offering versions of the watch with 18-karat gold, along with the steel and aluminum versions, with the former likely to cost far more than the $349 base price.
Who's going to buy it?
For those who already spend hundreds, or even thousands, of dollars on high-quality watches, the price of the Apple Watch isn't a barrier. According to Statista, in 2013, a total of 28 million Swiss watches were exported. While this is a tiny fraction of the unit volume of worldwide watch shipments, Swiss watches represent a little more than half of the market, based on revenue.
The Apple Watch will be vying for a part of this lucrative market, but while Apple's brand is powerful, so are those of luxury watchmakers. Another issue: The bulk of Swiss watch volume consists of watches priced below $200. Even if Apple captured a significant portion of the high-end watch market, which will be no easy task, it wouldn't boost revenue by very much at all.
Apple needs its watch to be a mass-market device, like the iPhone. For that to happen it's going to need to convince a lot of people who don't currently wear a watch, or those who wear inexpensive watches, that the high price tag of the Apple Watch is worth it. Given that the base price is one-and-a-half times the cost of the lowest-priced subsidized iPhone 6, it's hard to imagine tens of millions of iPhone users spending that much money for a device that largely replicates the iPhone's functionality.
Little new on the fitness front
One area where wearable devices are truly useful is fitness. The Apple Watch includes a heart-rate monitor, and it tracks the user's physical activity, much like existing fitness bands like those from Fitbit and Jawbone. Unlike competing fitness trackers, though, the Apple Watch is not a stand-alone device, and it requires an iPhone to function.
What wasn't covered in Apple's unveiling was exactly how useless the Apple Watch will be if an iPhone isn't nearby. The Apple Watch will rely on Wi-Fi and GPS in the iPhone, so it's unclear if the watch can be worn on a jog without the iPhone tagging along, and still accurately track distance -- or do anything at all.
Most fitness trackers don't have GPS built in, either, so this isn't an Apple-specific shortcoming. But most fitness trackers also cost a fraction of what the Apple Watch will cost, and they work with platforms other than the iPhone. Fitbit sells its Flex wristband for $100, for example, and Jawbone sells its UP24 wristband for $150. Both of these are strictly fitness trackers, not watches.
The Apple Watch includes a heart-rate monitor, which many competing fitness bands lack. Whether that's worth the extra cost is an open question.
Fitbit's and Jawbone's products also track sleep, which is made possible by battery lives that are measured in days. Battery life was not talked about by Apple when it introduced the Apple Watch, but if the device needs to be charged daily, this kind of functionality is out of the question. It would also introduce yet another device that needs to be plugged in each night.
Final thoughts
I'm not convinced that the Apple Watch makes sense as a product. A $349 device that takes some of the functionality of an iPhone and crams it into a watch -- all while requiring an iPhone to be present -- doesn't sound very appealing. It will still sell, because people buy Apple products not because they're the best, but because they're Apple products. However, I doubt the Apple Watch will sell in large enough quantities to meaningfully affect Apple's bottom line.
