Source: Apple.
The moment of truth for Apple (AAPL 0.01%) is now just days away. There's no denying that Apple's "spring forward" event on March 9 will be about releasing the Apple Watch that was unveiled in limited fashion late last year.
Rumors of production delays and battery life concerns appear to have been addressed, and the class act of Cupertino is now ready for its closeup. Naturally there is going to be some serious buzz whenever Apple enters a new product category, and the tech tastemaker's foray into wearable computing is long overdue.
However, in a problematic development, some reports are starting to surface detailing the stiff price points that these high-tech wristbands will be packing. Citi analyst Jim Suva put out a note detailing his expectations for the March 9 event, including price points of $350, $550, and $950. These are price points that seem closer to the iPad -- where Apple sales have been slipping over the past year -- than the lower carrier-subsidized iPhone prices.
It isn't really a surprise to see Apple tackle the high end of a market that has been slow in developing. It's a maker of premium products. However, there are a few reasons why Apple could price itself out of the market before it really has a chance to play.
Sticker Shock
Eyeing the list of Amazon.com's best-selling smartwatches shows items priced at $250 or less, with more than half of the devices available at price points in the double digits. This may seem to pave the way for Apple to plant itself at the high end of the market, but that's a dicey proposition given the cheaper options.
Apple's iPad had a good run for a couple of years before the tablet market was overrun with cheap alternatives. We're already there in the smartwatch space, and that's before Apple has even had a chance to enter the playground.
Bulls will naturally be hoping that the Apple Watch appeals to the growing base of iPhone owners. This is where Apple rocks, accounting for more than two thirds of Apple's sales during the holiday quarter. There isn't much of a choice here. With iPad and iPod sales falling this is a company that is all about the iPhone. Revenue in its holiday quarter rose 30%, but it would be a 7% decline if you back out the iconic smartphone. That should come as a sobering revelation to those that believe simply slapping the Apple name on a product will make it a hit.
The good news here is that the Apple Watch naturally works seamlessly with the iPhone. Citi's Suva sees the features including iPhone notifications, Apple Pay, fitness tracking, and hundreds of apps available by the launch date that it estimates will be April 16. The target market will be huge with Apple selling a record 74.5 million iPhones during the holiday quarter alone. Even if the Apple Watch is tethered exclusively to the iPhone -- unlike many operating system-agnostic smartwatches that work with both iOS and Android -- we're talking about a large and expanding market.
Know your potential potholes
There could still be a few setbacks. We've already touched on price, but that's a biggie. Wireless carriers in this country are willing to shave $300-$400 off the price of new iPhones in exchange for customers committing to two-year wireless contracts. It's a different story with the Apple Watch, likely to follow the iPad and iPod to be at the mercy of folks paying full price.
There's also the nature of the upgrade cycle. If you pay $199 for a subsidized iPhone 6 it's not a big deal to do the same thing again in two years, trading it in for a new model. It will be a far more taxing decision to keep upgrading your high-tech timepiece every two years at $550. Some have argued that this is why folks aren't upgrading their iPads at the same frequency as their iPhones, even with petite-sized Apple tablets at price points closer to what the cheaper Apple Watch devices will likely be fetching.
Some will argue that the Apple Watch doesn't have to be a financial hit to be considered a victory for the tech titan. Even if it sells modestly it will be a success if it keeps more people on the iPhone. After all, if you spend $950 for the high-end Apple Watch that only works with the iPhone you're not going to go Android anytime soon. As an iOS retention tool the Apple Watch could be a success before it even hits the market.
We'll find out soon enough how this all plays out. We'll see if there's a market for the Apple Watch beyond the early adopters. We'll see if the bar-raising and potentially game-changing smartwatch is more iPhone than iPad. Apple bulls enjoying the recent all-time highs are obviously hoping that to be the case.
