Expectations surrounding Apple Watch continue to decline. Given slowing sales growth at some of the leading wrist wearable companies, including Fitbit, there is a feeling that the wrist wearable category has been one giant head fake, a fad that just doesn't contain much potential beyond tech enthusiasts. This view not only ignores reality given the number of Apple Watches sold to date, but also fails to understand the path wrist wearables will follow. The Apple Watch's future will not be found just with better Watch cases updated on an annual schedule like an iPhone. Instead, Apple Watch bands deserve more attention going forward as they begin to incorporate technology and gain additional importance for wearable computing. A smarter Watch band will play a crucial role in Apple Watch's future as a personal technology device.
Apple Watch's First Year
Apple sold approximately 10 million Apple Watches during the first eight months on the market, placing the Watch as the second best-selling new product category in Apple's history. For perspective, Apple sold 15 million iPads during its first three quarters on the market. The majority of Watch sales occurred in the U.S., and the lowest-priced Watch Sport collection, which was responsible for a majority of the sales, had seen significant customer interest around the holidays given Best Buy and Target sales promotions. In terms of Watch bands, the Sport Band has proven to be the clear choice with consumers.
The Apple Watch has undergone an expectations reset over the past year. The device was initially positioned as a mini iPhone on one's wrist. The expectation was that we would use a series of apps positioned in a honeycomb pattern on a small piece of glass worn on our wrist to get through our day. After only a few weeks of use, it became clear that this vision was not going to be the primary use case for most people. The introduction of watchOS 2 in September didn't change the trajectory.
Apple contributed to these initial Watch expectations in the way they unveiled the device in September 2014 and yet again in March 2015. While Apple's positioning of the Watch as a great way to display small amounts of text and information was on point, management's broader focus on third-party apps hasn't materialized. While some may attribute lackluster developer interest as the primary reason app usage has trended differently than expected, the much bigger reason was that Apple likely tried overselling the Watch. In reality, consumers saw value in a few simple daily tasks like receiving notifications from their favorite apps. Instead of involving searching and then interacting with apps like we would on an iPhone, the Watch required a new, much simpler way of interacting with apps.
The Watch's future is not found by simply taking the way we use our iPhone and putting it on a smaller screen on our wrist. Instead, the Watch will gradually handle tasks we used to give to our iPhones. We already see this taking place in terms of sending and receiving messages and paying for things in stores. In addition, the Watch is beginning to handle new tasks like tracking our health. The commonality among all of these tasks is the need for evolutionary updates and improvements in order for Apple Watch to be positioned to handle many more tasks as time progresses.
Apple Watch Bands
While Apple Watch app usage has trended differently than Apple initially positioned, watch bands were one aspect of the Watch that Apple seemed to get right from the beginning. The wide variety of available Watch bands has contributed significantly to Apple Watch's success. As it is a personal device worn all day, every day, the ability to add personality to one's Watch with different bands has proven popular. Tim Cook recently pointed out that one third of Apple Watch owners regularly change their Watch bands. This amounts to more than three million people buying at least $150 million of what amounts to an Apple Watch fashion accessory. While this may pale in comparison to revenue from Apple's other products, early trends contain much promise.
As a sign that Apple expects Watch bands to play a crucial role in Apple Watch's future, Apple had a new range of Watch bands ready for sale only five months after launching Apple Watch. At the same time, the Hermès partnership was announced, positioning luxury leather bands as the centerpiece of a new Watch collection. Last month, Apple unveiled additional Watch bands for its "Spring collection." The motivation behind these moves was clear: New Watch bands add a sense of freshness to the product category. A new phenomena developed and instead of buying different Watches from more than one collection, consumers were buying multiple Watch bands and switching them on and off depending on the occasion. It was difficult to miss Jony Ive coordinating his Watch band selection with whatever he was wearing at various Apple keynotes and events. There was something with Watch bands that caught consumers' attention much more than even the Watch cases themselves.
Over the past 12 months, my Apple Watch experience has reflected many of these larger themes that sum up Apple's entry into the wrist wearable category. The Watch's value proposition has revolved around three primary items for me: notifications, timekeeping and fashion.
- Notifications. Apple positioned sending and receiving notifications as a key Apple Watch attribute from the start and with only a few exceptions, this has largely proven true. There is value and convenience in being able to easily see iMessages, incoming phone calls, tweets, and other short reminders without having to retrieve my 5.5-inch iPhone 6s Plus from a pocket or nearby room.
- Timekeeping. Even though it sounds comical, I use my Apple Watch for timekeeping. As there is convenience found with receiving notifications on my wrist, there is value in not needing to find my iPhone to see the time. However, as a sign that Apple Watch is something more than just a watch, I never used my traditional watch to tell time. This may be attributed to the fact that I prefer Apple Watch faces over a traditional watch face.
- Fashion. There is no question that the only reason I wear my Apple Watch every day is because of the Sport band. There is value in forgetting I am actually wearing the Watch thanks to the Sport band's comfort and design. Watch bands play an important role in positioning Apple Watch not just as a personal technology device, but also as a fashion accessory. This was the primary reason I previously wore a traditional watch - not because of its usefulness, but to simply put something on my bare wrist.
When combined, these three use cases help show not only how effective the first edition Apple Watch has been in serving as an iPhone accessory, but also where Apple can push to bring the device to the next level. One obvious next step involves looking beyond just the Watch case and instead, thinking about my entire wrist.
It's All About Wrist Real Estate
After looking at my three primary Watch use cases, a few things stood out to me. I enjoy having some type of display on my wrist that is capable of showing me more than just the time. Simple plastic wrist bands or pieces of smart jewelry not having the capability to display text, pictures, and yes, even emoji, don't represent the future of wearable computing. Instead, these devices will forever remain accessories to other screens in our lives.
The need for some type of display with a clear line of sight means Apple Watch's rectangular display sitting on top of the wrist will remain for the foreseeable future with periodic updates that include faster processors, improved sensors, and evolutionary design changes. I think the Apple Watch case is still a bit thick. The eventual inclusion of GPS and cellular connection will likely represent significant shifts in trajectory for Apple Watch adoption.
Expectations currently point to the first major Apple Watch case revision being unveiled in September. However, instead of looking at these periodic Watch case changes as the extent of Apple Watch's future, there is actually more potential found with Apple Watch bands.
Success for wrist computing involves taking the finite amount of real estate on our wrists and using it to make technology more personal. This doesn't mean just taking technology and putting it closer to our bodies, but rather it means using a device's design to introduce new capabilities. Wearables make it possible to extract additional power from technology without having it take over our lives. One example is paying for an item in a store by using Apple Pay with just an arm swing and double press of a button. Another is turning a gentle tap on the wrist into a form of communication. This quest for making technology more personal has been Apple's singular mission over its 40-year history.
In terms of wrist real estate, as shown in the picture below, the Apple Watch Sport band takes up nearly four times as much wrist area as a Watch case.
Obviously, this ratio will change depending on the user, but the primary point is that simply utilizing the top of our wrist is not optimal for wrist wearables. While the top part of the wrist is ideal for viewing data, the rest of our wrist can still be used for other purposes.
Including additional sensors, battery volume, and other components directly into Watch bands will better utilize wrist real estate. Instead of having the Watch case be the only "smart" piece, Apple will likely begin selling Watch bands that go much further than just representing pieces of fashion. The fact that thinner Watch cases would seem to stand at odds with the need for additional battery space and the eventual inclusion of GPS and cellular connection may further stand as motivation for pushing certain components into Watch bands.
We likely got a glimpse of this future when looking at the New Yorker's profile of Jony Ive which mentioned that he admitted much of Apple's Watch R&D was focused on the bands and not the rectangular Watch case.
There are a number of ways Apple could incorporate technology into Watch bands, including even a modular approach, which Apple has patented. One real-world example of this type of setup is consumers' ability to swap out Watch bands for ones with built-in battery, extending the Watch's usability. The user would then be able to further refine the band, adding or removing links containing extra battery. The same can be done for health-related bands containing certain sensors that require a cuff-like product to work properly. This is where Apple could theoretically apply for FDA approval for specific Watch bands marketed to treat or diagnose various diseases and conditions. In this scenario, Apple would avoid putting the entire Apple Watch through the FDA approval process.
Sales and Price Implications
The addition of smart Watch bands will have major implications for Apple Watch financials. One likely scenario is that customers will use Watch cases for an extended period of time. Meanwhile, smart Watch bands would be positioned as items worth upgrading more frequently. In fact, Apple has already begun positioning Watch bands as something worth purchasing multiple times a year based on the season.
This would suggest that the number of Apple Watch users would be a much more important metric to track than the number of Apple Watches sold. As the number of Apple Watch users increase, the addressable market for various smart Watch bands will expand. In a few years, selling a $199 smart Watch band into an Apple Watch installed base of 30 to 40 million users will lead to much success even if a small fraction of Watch owners buy the band.
In terms of pricing, instead of highlighting three Watch collections based on Watch case materials (aluminum, stainless steel, gold), Apple could position Watch bands as the primary pricing variable. It appears Apple is already moving in this direction based on their new Watch interactive gallery available on Apple's website (shown below) where there isn't much distinction between the Sport and Watch collections.
While a rectangular piece of glass sitting on the top of the wrist is an adequate way to to display data today, the Watch band itself will likely one day be able to display data. Over time, Apple Watch could be nothing more than a smart wrist band with a flexible AMOLED display containing a mix of personal technology and fashion. As with its Hermès partnership, Apple could work with existing luxury companies to build Watch bands that contain precious metals and minerals. If watch manufacturers were already concerned about Apple Watch, the move away from dedicated watch cases and to flexible bands capable of displaying information would represent even greater anxiety.
A Hybrid Approach
It is easy to think of Apple Watch case development in terms of iPhone and iPad. Each year, or in the case of iPad, approximately every 18 months, Apple releases an evolutionary update containing various amounts of hardware and software improvements. However, the iPod may end up serving as a better example for how Apple Watch bands will evolve. Comparing the very first iPod released in 2001 to today's iPod touch conveys the message that the product saw not only incremental design changes, but also fundamental shifts in feature sets based on new technology. This would suggest Apple Watch will likely take the hybrid approach. Watch cases will retain much of their familiarity and see more evolutionary changes while Watch bands will become much smarter over time and capable of eventually replacing even Watch cases. While the Apple Watch continues to be underestimated, Watch bands rather than Watch cases will prove to possess the larger amount of surprise.
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