Apple 180: The iWatch Is At The Center Of A Whirlwind 6 Months For Cook And Company

Posted: Jun 08, 2014

Source and photo credit:
by Mark Rogowsky


Apple's product will be the best available thus far, but leads to the usual temporary digital divide: the haves will have access to enhanced digital and wearable health tools, and the have-not-as-much majority will have a lesser degree of options and features on their wearables. The plus is that it pushes Samsung and the rest to add more wearable intuitive and meaningful use features, and to keep improving. -JS


Earlier this month, at Apple’s Worldwide Developers Conference, the company made a series of announcements that many considered an “about face” from prior practice. In some fundamental ways, Apple has opened up its mobile operating system to more customization and modification than at any time in the prior 7 years. This new philosophy coincides with a yet-to-be-seen product lineup that Apple’s senior vice president Eddy Cue has called the best in his 25 years at the company. The intersection of the new openness with Apple’s forthcoming devices is the most important shift of the Tim Cook era. It will determine whether Apple is poised to retain its spot as the world’s most valuable company and, in some ways more importantly, its reputation as the leading innovator in the mobile era.

In the spirt of the company’s proclamations, this space will look at the “Apple 180″ in two senses. First, to acknowledge the turnabout that will finally allow third-party keyboards on the iPhone, more sharing apps in apps, and a generally deeper integration of apps into iOS than has been possible. Second, to note that with the calendar already well into June, Apple’s product releases will all be complete within the next 180 days as anything that hasn’t been delivered by around Thanksgiving isn’t part of what Cue could reasonably consider “this year.” The first product worthy of examination in the Apple 180 is the heavily rumored “iWatch,” which most analysts have pegged for a launch around October of this year. Here’s a rundown of what’s expected:

The background

Apple never comments on unreleased products and its much talked about entry into the smartwatch category is no different. But last year, Cook did weigh in a bit on the idea broadly. Speaking at the AllThingsD conference, he said, “I think the wrist is interesting. I’m wearing this (Nike Fuelband) on my wrist, it’s somewhat natural. But as I said before, I think for something to work here, you first have to convince people it’s so incredible that they want to wear it.” Consider the gauntlet thrown.

The device

Whether Apple is planning something that resembles a traditional watch or more of a wristband like Samsung’s Galaxy Gear Fit has been the subject of intense speculation. The popular Apple site posted a concept image of a band-like design some months ago that’s included here. While the design is elegant, it doesn’t mesh with other rumors that Apple is planning on shipping its smartwatch in two sizes, with displays of 1.3 and 1.5 inches, likely sourced from LG.

Significantly, the smartwatch product — which even money says won’t be called the iWatch — will use OLED displays. Cook has trashed the technology on a couple of occasions, even calling it “awful.” But OLED has been used on a number of great products, including the Samsung Galaxy S5 and DisplayMate said it has the best screen ever. OLED will be used because it allows for thinness that LCD can’t match as it requires a separate light source. And while both display technologies can be curved, it’s much easier to pull that off with OLED. So don’t be shocked if the display is contoured a bit to conform to the wrist.

If Apple does ship the product in two sizes, that will mark a significant departure from the way competitors have approached the market to date. Products from Sony, Pebble and others have featured chunky, male-centric designs in a single size. No smartwatch to date could be called female friendly nor especially subtle. Apple’s famous design sensibilities give it a big opportunity to differentiate here.

The applications

As for what you’ll be able to do with the “iWatch,” look first to the burgeoning fitness-tracker market for ideas. Products like the Fitbit have been tracking your steps, miles and stairs climbed for a few years now. While the iPhone 5s can do that, too, expect Apple to double-down based on the announcement of HealthKit at WWDC. To keep the watch slim, it won’t possibly be able to do everything people have discussed: measuring pulse, blood pressure, glucose, oxygen levels, et al. But it’s likely to do at least some of those. And it’s nearly certain to work invisibly in tandem with the iPhone. If you have an app on the phone that tracks activity, it should transparently use whatever data it can, whether that comes from the iWatch or the built-in M7 processor.

As for what else you might be able to do on such a small screen, think primarily about notifications that come to your phone now. Here, Ewan Spence took a brief look in his Apple Loop column, but the key takeaway is that iOS 8 allows for interactive notifications. One easy example is when you get a friend request on Facebook on the iPhone, imagine just hitting accept within the small pane atop the screen. Developers were very excited about these interactive notifications at WWDC, so innovation here is very likely. But translating the user experience to the watch won’t be trivial for everything. Visuals will have to be tailored for the screen and some things won’t work on the smaller display.

Still, there’s an important point here: Everyone believes Apple will open the platform to third-party “apps” of some kind, even if those apps are merely companions to something that runs on your iPhone. This is significantly different from the way the AppleTV works, where apps only get added through a negotiation process with Apple.

The market

Just how many smartwatches Apple can sell has been the subject of intense speculation. The wearables market is currently small, with a combination of just 2.8 million Fitbit-like devices and smartwatches sold in the first quarter, according to ABI. Half a million of those were watches, though the total is expected to grow to 7 million this year, per ABI’s forecasts.

Others are more bullish, however. Japan’s Nikkei reported Apple plans on making 3-5 million smartwatches per month. With speculation centering on an October launch — about a month after the iPhone 6 — that come mean 10 million this year alone. AppleInsider points out that the iPad sold 14.8 million units in its 12 months, which was considered hugely successful. If the company comes anywhere close to 10 million by year end, the iWatch could be a blockbuster.

Keith Bachman of BMO Capital Markets agrees, forecasting that at least 10% of iPhone owners will buy one by the end of next year. He puts the number of iPhones currently in use at 335 million (which I think is a bit low) and suggests 33-67 million watches will find their ways onto owners’ wrists before 2015 is over. “We think a key driver of adoption will be meaningful applications,” Bachman wrote. “We believe that the initial focus will be health and fitness applications, but to reach 20% adoption levels, Apple will need to have more applications than just health and fitness, to include applications for professional/work usage.”

Bachman is betting the average price will be around $250, which is consistent with rumors suggesting a starting price as low as $199, with options pushing that to $299 or perhaps significantly higher. Ming-Chi Kuo of KGI Securities, who has the best recent track record among Apple analysts, is only slightly less bullish than Bachman, pegging next year’s numbers at 30-50 million.

If either of them is close to right, the launch of the iWatch will be a blockbuster by all reasonable metrics. That said, it will still have a modest effect on Apple’s bottom line. At a price less than half the average selling price of the iPhone — and a fraction that of Apple’s Macintosh computers — with significantly lower sales volumes, the iWatch might boost Apple’s earnings by 5-10% in the coming year.

Still, the value of something that continues to encourage iPhone usage and repeat purchases is immense strategically. And as the first brand new product launched in the Cook era, the iWatch will be scrutinized especially closely. In March, an analyst absurdly told CNBC Apple would “disappear” if they didn’t launch a watch within 60 days. A month past the deadline, Apple is unsurprisingly still here. It’s also a few weeks into what promises to be one of the most dynamic 180 periods in the company’s history. Stay tuned for more in this space soon.