With its fiscal Q4 now in the books, it's safe to say we may never know just how many Apple (NASDAQ:AAPL) watches have been, or will be, sold now that the much-anticipated wearable device is on the shelves. CEO Tim Cook has been mum on sharing specifics, but he quickly pointed to the Watch as an important aspect of fiscal Q4's record $51.5 billion in revenue.
Watch sales numbers from last quarter have been estimated by a host of analysts and range anywhere from a low of 2.5 million units to as many as six million. The cost for an Apple Watch starts at $350 and goes up from there, so relative to its total revenue, it's safe to say the impact of the new wearable device is relatively minor, regardless of which estimate investors choose to believe.
The bigger problem going forward is how Apple maintains -- let alone grows -- Watch sales after the initial rush, considering the overall reason consumers purchase a wearable device makes much less expensive alternatives like Fitbit (NYSE:FIT) and even Microsoft's (NASDAQ:MSFT) newly released Band viable alternatives.
According to a recent study of U.S. adults, the vast majority purchased a wearable device like a Watch, Fitbit device, or Microsoft Band to get in shape. Of those surveyed, 25% said they bought a wearable as "an experiment," which doesn't exactly bode well for sustained growth. A mere 14% cited "social reasons" for dipping their proverbial toes in the wearable market.
Becoming more active and losing weight were far and away the top reasons for buying a wearable, and they are the primary drivers of eMarketer's forecast for a 57.7% jump in sales this year compared to 2014. At first glance, total wearable sales estimates would appear to be good news for Apple and its Watch. The potential problem, however, is price.
As a fitness-oriented consumer, the question is: Why spend $350 or more for a Watch to track health related results when a $100 Fitbit or $250 Microsoft Band will accomplish what the vast majority of users want? Sure, there will always be the iFans who will wait in line for the next great iThing, but to truly make an impact, Watch sales need to move beyond the diehards and go mainstream.
Where to from here?
The popularity of the iPhone mitigates concerns that the Watch is fairly useless without its matching smartphone. Sure, the Watch isn't entirely void of uses if an iPhone isn't handy -- many of the health tracking features will work without the need of an iPhone -- but to justify the higher prices, the Watch's market is limited to iPhone owners.
The real answer to a potential slowdown in Watch sales is to develop its functionality to the extent that it becomes an actual, stand-alone device worth the extra cost. Until Apple and other wearable device manufacturers develop a watch able to manage the day-to-day functions of today's digital world -- much like smartphones -- the wearables market will continue to be driven by health-conscious consumers, and Fitbit couldn't be happier.
Last quarter, Fitbit sold just shy of 5 million devices, and that followed its Q2 sales of 4.5 million units. Whether those sales results kept Fitbit on the top of the wearable heap is anybody's guess thanks to Apple not revealing its own sales, and Microsoft's new Band just hitting the streets following its introduction last month, but most signs point to "yes." And given the recent study of what's driving wearable sales, Fitbit's success isn't surprising.
Could Apple introduce a lower-cost version specifically targeting the health and fitness crowd, sans the few bells and whistles its Watch currently offers? Based on Apple's track record of avoiding entry-level markets by manufacturing a low-end device, its base $350 version isn't likely to change anytime soon, if ever. Which means until the Watch and other devices like it offer a more clearly defined cost-benefit proposition, the Fitbits of the world will likely rule the wearable roost.
Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool owns shares of Microsoft. 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.