CHILL

It’s far too soon to give up on the Apple Watch

The absence of official numbers for the Apple Watch leads to speculation that the device is a flop—why else would Apple hide the numbers? But the company’s penchant for secrecy shouldn’t prevent us from looking at a few facts, and from thinking about the company’s long game.

Apple products excite imaginations. I’d even venture that iDevices are psychotoxic and drive unbalanced members of the kommentariat to cast off their moorings. And of all of Apple’s devices so far, the Watch has induced the most extreme symptoms of the affliction. This was due, in part, to expectations that were set by the iPhone, which rose from 2.3 million units in its first holiday quarter in 2007, to 74.8 million units in the 2015 Christmas period. Surely, Apple is positioning the Watch to be the next stage in the personal computer rocket, a belief that yielded unhinged first year sales forecasts of 10 million, 20 million, 24 million, 30 million, 40 million, even 60 million units! All before the first unit shipped.

The company’s deep-seated secretiveness may help explain these excesses. Lacking “guidance” from Apple, pundits’ imaginations run wild. With the Watch, there’s an added element of secrecy: Unlike Macs, iPhones, iPads, and even the newly emphasized “services” revenue category (second only to iPhones), Apple doesn’t report Watch units or dollars. Instead, the Watch is lumped into the “other” category aside the now-lowly iPod (which, remember, once generated more revenue than the Mac).

Soon after the Watch started shipping in April last year, the customary backlash began. The Apple Watch is disappointing, underwhelming, a failure… Absent official numbers, the methods used to estimate sales ranged from reasonable samplings to the amateurish harvesting of gossip from the internet echo chamber, such as this mid-July 2015 observation from Forbes [as always, edits and emphasis mine]:

unlike Google Glass, there still doesn’t seem much about [the Apple Watch] that will help you be quicker, better and wiser.

This is a bizarre condemnation when laid next to the opening of the piece:

Do you know anyone, specifically anyone not in the tech industry, connected to Apple or a gadget geek, who owns an Apple Watch? I don’t.

One has to wonder how many in the author’s circle are so-called glassholes… (To be fair, I expect that the currently-disappeared Google Glass will have a useful future in vertical/technical applications, but among normal humans…)

The author’s reaction is classic negative projection: “I don’t like it, I have no use for it, ergo it is a failure.” In a similar vein, owners of classic watches, many of which are genuine and timeless mechanical marvels, proclaim that they shall never don a smartwatch, Apple or other. These attitudes, which are usually stated loudly and repeatedly, in an offended tone, may be personally defensible, but they’re not helpful in reckoning the Apple Watch among those who aren’t genetically predisposed to reject it.

So, given the lack of official numbers, just how do we measure the Watch’s present success, or estimate its future? For a start, we can turn to sources such as Bernard Desarnauts’ Wristly research which surveys the opinions, usage patterns, likes, and dislikes of actual smartwatch owners. Some of Wristly’s output is for paying subscribers or consulting clients, but the free published insights section contains reports such as “One year in and only now are we getting to know Apple Watch owners,” which slices and dices the demographics, psychographics, previous experiences, education, income levels, and more of Watch users:

demographics-of-apple-watch
(Provided by author)

Customer satisfaction, the word-of-mouth engine, and predictor of success or failure, is high:

satisfaction-with-apple-watch
(Provided by author)

Now, consider the first year sales comparison chart from Wristly’s “Happy birthday Watch“:

sales-of-apple-products
(Provided by author)

Wristly’s estimate of 12 to 13 million units sold is echoed and amplified by the Wall Street Journal, which pegs first year Watch sales at 15 to 16 million units for about $6 billion in revenue—that’s $1.5 billion more than Rolex for the same time period (original WSJ article, behind a paywall, is here). For calibration, sales of traditional Swiss watches have suffered significantly over the last year, according to the Federation of the Swiss Watch Industry:

12-month-average
(Provided by author)

That the Watch’s impressive numbers—even as estimates—and owner satisfaction levels can be taken as an indication of failure is, to be polite, puzzling. There is, of course, the enduring “Apple is doomed” meme, but, again, I think the primary cause lies in Apple’s secrecy: It leaves a blank screen onto which anyone can project their views.

That being said, I’ll project mine.

Moore’s law and Apple’s SOC (system on a chip) design skills will inevitably yield a Watch with a more powerful processor. This more powerful hardware will allow, among other desired features, independence from the iPhone including autonomous phone calls. I’ve had the opportunity to preview an upcoming Wristly report that, indeed, places cell connectivity at the top of customer wishes.

A more powerful processor will also be a boon to software developers. The Watch’s current S1 processor delivers adequate battery life, but a more robust one will support faster, more powerful, more responsive apps.

But these are just the safe speculations, along the lines of “The Watch is like an iPhone, only smaller.” Of course the Watch will become more powerful, incorporate cell service, support more useful apps… it’s simply a matter of time (no apologies for the pun). The more interesting advances will be in areas where the Watch isn’t at all like an iPhone.

For example, from day one, Apple has insisted that the Watch will be beneficial in the Healthcare domain. It’s tempting to predict the addition of features such as blood pressure monitoring or—why not?—blood glucose measurement. (Of course, such extensions of Watch capabilities could make it a “medical device” according to the FDA and thus require heavy-duty scrutiny before approval.)

The Watch is unusual in its fashion component. Fashion isn’t a comfortable fit for most of the tech industry, but it’s a natural one in the watch space, hence the fashion luminaries involved at and after the launch, the profusion of interchangeable and individualizing bands, and the visuals and sounds of TV ads (sometimes reminiscent of old iPod promotions). I expect we’ll continue to see new colors, bands, faces—perhaps from an ever-expanding stable of well-known designers.

When will all of this happen? Given the sudden barrage of Watch ads on Valley billboards, I’ll speculate that the next phase of the game will reveal itself at Apple’s upcoming developer confab (WWDC) starting Jun. 13th. If not then, an announcement could come later, in time for the holiday gifting season.

In the end, the “when” may not matter: I think Apple is playing its usual long game. Interpreting any short phase doesn’t give a reliable view of the future. Perhaps we’ll start to hear more about the game plan when the Watch climbs above the $10 billion revenue level—something like 5% of Apple sales. At that level, accounting practices may drive Apple to lift the Watch out of the “other” revenue category where the iPod now rests in peace, and report actual numbers.

PS: In last week’s Monday Note, commenting on the new Union Square Apple Store, I saw Apple now at the crossroads of technology and fashion. “What, fashion?,” questioned readers. In Steppenwolf, Literature Nobel Prize winner Hermann Hesse has this to say about “playthings” and “mere trifles”:

Before all else I learned that these playthings were not mere idle trifles invented by manufacturers and dealers for the purposes of gain. They were, on the contrary, a little or, rather, a big world, authoritative and beautiful, many sided, containing a multiplicity of things all of which had the one and only aim of serving love, refining the senses, giving life to the dead world around us, endowing it in a magical way with new instruments of love, from powder and scent to the dancing show, from ring to cigarette case, from waist-buckle to handbag. This bag was no bag, this purse no purse, flowers no flowers, the fan no fan. All were the plastic material of love, of magic and delight. Each was a messenger, a smuggler, a weapon, a battle cry.

This post originally appeared at Monday Note.

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