Wearable Device Now, iWatch Later

John Paczkowski over at Recode is reporting Apple will announce a wearable device in two weeks. Tim Bradshaw over at FT is saying Apple’s new wearable won’t be called iWatch. While things can obviously change, and Apple product naming is notorious for being kept close to one’s chest, both journalists have solid track records.

I have three observations. 

1) No Leaks Suggest Delayed Launch. We have seen no leaks of a new Apple wearable device. While it certainly is possible that Apple doubled down on secrecy, I highly doubt that we would have no leaks of any kind for a brand new product that had entered mass production (2-4 million+ units) weeks ago.  I suspect this new Apple wearable device, if announced in less than two weeks, will not go on sale anytime soon. I still would expect demos to be available at the event as Apple is fully capable of producing a few hundred devices internally. While the new Arizona sapphire plant certainly is intriguing and may play a role with wearables, there would be too many other partners involved in a wearable device for there not to be any leaks.  While I still wrestle with the exact timing of shipping (I fully expect Apple to announce the ship date or at least a somewhat narrow timeframe), I think there is a low probability of an immediate launch.  

2) Sharing the Stage. If Apple introduces a wearable alongside iPhones, I think the “wearable as an iPhone accessory” mantra makes a lot more sense that having a huge iWatch-only event, similar to the first iPad, where a wearable device can stand alone on its own merit and not require another iOS device. If a wearable device requires an iPhone to function, it makes more sense to announce alongside new iPhones.  Over time, I expect wearables to become fully capable of moving beyond accessories, but we are only talking about the first version of a still unannounced product.  

3) iWatch vs. Wearables Category. Apple may view the wearables category as requiring training wheels as consumers may not understand or connect with a full blown “iWatch” right out of the gate, so an in-between wearable device would be required to make the learning curve more manageable.  For example, an iPad introduced in 2005 probably would not have done as well since people wouldn’t have been familiar with a touch interface - not to mention the lack of an app ecosystem.  It is possible Apple will initially sell a wearable device similar to a fitness band, but focused on the much broader and mainstream subject of health, only to expand the lineup in subsequent years with various editions, price points, and styles.  I have a growing suspicion that Apple’s wearables category will not be comprised of just one or two models but an array of devices as wearables will usher the era of fashion into personal technology. Apple’s recent retail hires support my thesis that a new way of thinking is required to sell a range (maybe up to dozens?) of wrist devices.

At this point I expect a “wearable” device to be introduced in two weeks, with the goal of getting users acquainted with this new wearables product category, while the more powerful and much more important “iWatch” is kept for 2015 or later.

Here's My Platform. Vote for Me.

The first half of 2013 felt weird.  Even though plenty of phones and tablets were sold, as well as several laptops, the excitement level seemed less inflated compared to last year.  Consumers are content with their gadgets and remain busy uploading personal information to a dozen or so social and messaging networks.  Nevertheless, there were some stories in the first half of 2013 primed for riveting Twitter debates. To sum up my stance on these issues, I came up with an easy to remember platform, akin to a politician. I am pro-iWatch, pro-expensive cheap iPhone, anti-Glass, and pro-Schiller.

Pro-iWatch.  Wearable gadgets interest me and I think there is something there.  Back in February, former Apple designer Bruce Tognazzini began what turned into a multi-month parade of chatter related to Apple developing its own smartwatch. I still think Bruce’s piece is the best words on the device and I have a feeling that a few years from now most of his post will have become reality. My conspiracy theory is that Bruce was frustrated with iWatch progress and released some of the work Apple had already done as a bribe to get Apple to finally decide to give the project the green light. In reality, Apple probably has been working on a gadget for the wrist for years (yes, that would make it a Steve project) and there was enough chatter floating around for Bruce to collect into a post. 

I suspect Apple did give the iWatch a green light as seen by numerous talent acquisitions and other signs including industry and management chatter. I think consensus is unsurprisingly naive, if not downright clueless, when it comes to thinking of how an iWatch would look and function. People need to stop picturing a classic watch when rethinking the watch.  I am not a fan of today’s smartwatch as the genre fails to answer many questions that the 21st century has placed on the classic watch; primarily purpose and functionality. The current smartwatch market isn’t seeing massive adoption and the industry lacks a cash-rich leader. Samsung and other giants are quickly rushing to market with their own smartwatch, but I am not optimistic that much will come from these early efforts. Instead, I would look more towards Nike’s Fuelband for signs of reinventing the watch. Add in device independency and fashion conscientiousness, and we start to peel the skin to iWatch’s core. 

Pro-Expensive Cheap iPhone. Apple continued to show healthy iPhone sales last quarter with 20% unit growth. Average selling price (ASP) fell as consumers continued to buy the discounted iPhone 4 and iPhone 4S. It seems fairly certain that Apple will release two new iPhone models next month; a “5S”, or the latest iteration to the iPhone 5, and a less expensive iPhone (think iPhone 5 only with a plastic casing and I suspect lacking the ability to support iOS 7 features exclusive to the iPhone 5S). Price points remain a controversial topic, boiling down to two schools of thought; the cheap iPhone will be priced closer to $200 in order to gain traction in emerging markets where phone subsidies don’t exist versus priced closer to $399-$499 as Apple continues to gradually move downmarket, attempting to create demand in the $399-$499 no-man’s land of new phone pricing.  Even though Apple may be able to manufacture a phone for $200 and still make an “ok” profit, I suspect Apple’s larger strategy is to make sure that all profit layers are captured as the iPhone moves downmarket. If the strategy backfires, Apple can discount the one-year old iPhone 5C for $299 next year and give it another try.

I also think a new $399-$499 iPhone fits well within a possible pro-forma iPhone lineup of iPhone 5S for $650, iPhone 5C in various colors for $450, and iPhone 4S for $350. Such a line-up could be sold across the world, including subsidy land. While a $450 “cheap” iPhone does not address the army of Android phones selling for $99, I wonder if that target is something Apple needs to even shoot for in the near-term. 

Anti-Glass. I summed up my Google Glass angst in a prior AAPL Orchard post, largely questioning the product on poor industrial design. Having a product on my face, during both usage and non-usage, strikes me as terribly inefficient and ineffective, not to mention obtrusive. Regardless of design, I also suspect the widespread popularity of contact lenses represent a strong case that glasses aren’t exactly a desirable body modifier. Sure, Google Glass represents something new, but new is not the same as good. Many pundits are hedging bets with assertions that Google Glass may find its niche audience. In retrospective, such a statement can be said about any new product as long as the company making that product remains committed to funding the project. Instead, I think Google Glass will largely be ignored once wrist devices flood the market.  

Pro-Schiller. This is the pro-freedom part of my platform, the idea that probably isn’t too controversial yet often goes unnoticed. I consider Apple SVP of Marketing, Phil Schiller, as the embodiment of Apple’s culture. Yes, Jony is Apple’s soul, but Schiller represents the hard work that occurs at Apple HQ, along with the fun, jokes, and general love for the journey taken. Any quick YouTube search would reveal plenty of clips showing wacky Schiller during Apple keynotes. Earlier this year, Schiller made headlines for pumping a bit of Apple PR before Samsung’s keynote unveiling the latest version of its flagship phone. In retrospective, Schiller didn’t need to say anything as Samsung relied on racist and sexist undertones to unveil a phone that didn’t live up to Apple-like expectations.  Looking ahead, Schiller’s input on product pricing placement and marketing will continue to take the spotlight.