Something has changed inside Apple Retail stores. On a recent trip to my local Apple Store on a Sunday afternoon, it was actually difficult to get up close to the Apple Watch tables. People were looking at and buying various Apple Watch models and bands. It brought back memories of the early hoopla found when trying out iPad for the first time. Just two years ago, the lack of crowds around the Apple Watch tables led people to wonder if the Apple Watch was a misfire. Something is changing when it comes to the way people are thinking about Apple Watch.
My recent Apple Store observation is not an isolated incident. More people are buying Apple Watches these days. During the three quarters leading up Apple's FY1Q18, Apple Watch unit sales have been up at least 50 percent year-over-year. From a unit sales perspective, this works out to Apple Watch sales trending at a little less than 20M units on an annual basis. In what will come as a surprise to most people, Apple Watch likely outsold Amazon Echo during the holidays despite Apple Watch selling for nearly 10x more money.
Based on unit sales, the Apple Watch business is currently about the size of the Mac business. When considering that the Apple Watch is less than three years old, for the product to be nearly outselling Mac on an annual basis is quite the achievement. As seen in the chart below, assuming Apple is able to maintain Apple Watch sales momentum, the sales gap between Apple Watch and iPad will continue to narrow.
There is currently no legitimate wrist wearables market. Instead, there is only an Apple Watch market. Android Wear continues to be a nonfactor. Samsung and Fossil haven't been able to put all of the pieces together. Garmin has been able to carve a nice niche for itself in the endurance sports space, but there is no obvious path for the company to take to broaden its appeal. Meanwhile, the former leader of wrist wearables, Fitbit, is quickly fading away.
Why is Apple Watch sales momentum growing? My theory is that consumers are starting to see a place for Apple Watch in their lives. While Apple's revised Apple Watch marketing campaign around health and fitness has led to a clearer sales pitch, I think the health and fitness messaging ends up being Apple's way to get its wrist in the door. People aren't buying and using Apple Watch just for its health and fitness monitoring features. There is something more at play here.
Close to 20 million people bought an Apple Watch in 2017 because the device has become a bridge between the present and future. By including a screen, Apple Watch retains the familiarity found with smartphones, tablets, and laptops/desktops. At the same time, Apple Watch is giving wearers a glimpse of the future by introducing new ideas around how artificial intelligence, voice, digital assistants, and smart sensors can come together to produce a new kind of experience.
We are witnessing nothing short of a revolution with Apple Watch. The device holds the potential to become more disruptive to the current computing paradigm than even Apple may want to acknowledge. This potential is becoming easier to see as time goes on.
Apple Watch is designed to initially pick the low hanging fruit from the iPhone and iPad trees in terms of handling relatively simple use cases like receiving notifications, checking the time and weather, and tracking our daily activity. The device handles these tasks by approaching touch screens in a unique way. Apple Watch is designed for glances instead of prolonged viewing or watching.
For companies with business models based on grabbing as much of our attention as possible, Apple Watch does not represent a preferred revolution. This is likely one reason why Android Wear has failed to amount to much for Google. There just isn't much incentive for Google to put Android on the wrist. Apple Watch will also likely end up being quite disruptive to Apple's existing ecosystem. Apple management doesn't mind this future. Instead, they are embracing the unknown.
The same can't be said for a segment of the iOS developer community that ranges from indies to multinational companies. This group is becoming nervous about Apple Watch because it's not clear how the device will support the existing app ecosystem. In fact, this explains why a small portion of the Apple community has been so dismissive of Apple Watch from the start. News of major companies backing away from Apple Watch support has led this community to think that Apple Watch is in trouble. In reality, this is backwards. The current app ecosystem, not Apple Watch, is in trouble.
While Apple sees what the Apple Watch can become, management likely isn't sure of the exact path that will be taken to get there. For example, the honeycomb pattern of apps on Apple Watch is likely based too much on the present state of technology. Meanwhile, Apple's ongoing quest to figure out what to do with the Apple Watch side button is another sign of the company trying to capture the genie in the bottle in terms of how we will use apps on the wrist.
The reality is that Apple Watch likely won't support the same kind of ecosystem that we are accustomed to with iPhone and iPad. Apple Watch ends up being designed more for what may come after the App Store. Instead of relying on a collection of apps on my wrist, most of my interactions with services and features on Apple Watch end up being through the Siri watch face and various cards featuring glanceable amounts of information and data chosen for me by a digital assistant. These cards are personalized for me based on the time of day and my schedule. The implications of this computing experience are immense. We move away from pulling data from various apps and getting pushed mostly useless notifications to being pushed a curated feed of data that is always changing and tailored to the day at hand. Every app developer will be impacted by this dynamic.
Given how Apple Watch is playing such a crucial role in Apple's product vision, one assumes the product is gaining importance and priority within Apple. A closer look at Apple's product strategy confirms Apple Watch's growing influence within the company.
The Apple Watch-centric feel to Apple's recent product strategy is becoming hard to miss. While AirPods are a pair of wireless headphones that work with a plethora of devices, including iPhone, Apple is positioning them as an Apple Watch accessory more than anything else. The subtle references to AirPods in the following ad make it difficult to know if it's an Apple Watch or AirPods ad. (It's actually an Apple Watch & Apple Music ad, and it's pretty great.) The ad is meant to highlight the ability to listen to music on the go with Apple Watch and AirPods.
New accessories for Apple Watch won't stop with AirPods. Apple's upcoming stationary speaker, HomePod, will likely turn into a useful Apple Watch accessory as Watch wearers get additional music controls on their wrist. In one of the animated videos on Apple's HomePod website, the only Apple product shown in the room other than HomePod is Apple Watch. There is no iPhone, iPad, or Mac in sight. For some companies, this can be brushed off as a simple oversight, but not for Apple. It's intentional.
When it comes to thinking of a product or feature that may one day serve as a legitimate iPhone alternative, there is a small but passionate group who thinks a paradigm around voice is the answer. In this voice world, screens and keyboards still exist, but their value will have been greatly diminished. Everything from hardware to the app ecosystem is expected to be disrupted in this voice-centric world. Meanwhile, there is another group who doesn't think it's a good bet to assume screens will lose value in our lives. While voice may be a useful input mechanism, screens and user manipulation on screens will remain a valuable way to consume data for the foreseeable future.
Apple has a vision for how we will use the combination of voice and screens in the future. Unlike Amazon and Google, who are desperately trying to position voice as a way to leapfrog over the current smartphone/tablet and app paradigm, Apple is approaching things from a different angle. Instead of betting on a voice interface that may push some information to a stationary screen, Apple is betting on mobile screens that are home to a digital assistant. Apple is placing a bet that consumers will want the familiarity of a touch screen to transition to a future of greater AI and digital assistants. In addition, Apple thinks user manipulation via screen (fingers, hands, and eyes) will remain a crucial part of the computing experience for the foreseeable future.
Here are Apple's priorities for Apple Watch in order for the device to become a more desirable bridge between the present and future:
- Independency from iPhone. Apple Watch's largest new features since launch have been related to achieving greater independency (GPS in 2016 and cellular connectivity in 2017). The writing has been on the wall since 2014. Apple Watch will eventually become completely independent of iPhone. We will likely be surprised at how quickly this independency will be achieved.
- Powerful screen. The most useful and powerful screen in our lives will be the one that is on us. For most people, that screen is currently our smartphone. In the future, Apple Watch and a pair of AR glasses will have a good chance of holding that distinction.
- Powerful camera. The most useful and powerful camera in our lives will be the one that is on us. For most people, that camera is currently found in our smartphone. In a world where we may begin to leave iPhone behind, there is logic found in giving Apple Watch a selfie camera with Face ID.
- Superb health monitoring. It's difficult to think of another device that will be on our body as much as a wristwatch. According to Apple, the Activity app is the most used Apple Watch app. This doesn't come as a surprise given the wide range of notifications and reminders delivered to Apple Watch wearers throughout the day.
- Home to our digital assistant. Creating a device that can both listen to our voice and provide visual context is a powerful way to quietly place a digital assistant in our lives. The Siri watch face on Apple Watch is the embodiment of this intelligent assistant. Apple believes an intelligent assistant that is always on you, and comes with a screen, is more powerful than one that is just confined to four walls. Amazon's urgency to bring its voice assistant, Alexa, to wearables adds validity to Apple's stance.
The Big Question
One question facing Apple is how the company plans on taking the app ecosystem that turned iPhone and iPad into juggernauts and use it to push Apple Watch and future wearables (i.e. Apple Glasses). Apple's product strategy has been receiving criticism given Amazon's push to get Alexa into as many third-party products as possible. Even if Amazon's advantage is in perception only, which I think there is truth to, such perceived notions can prove to be a danger to Apple.
It appears that Apple's strategy of building a new wearables ecosystem consists of two overarching themes. The first is establishing a platform of first-party hardware, software, and services. For example, AirPods and Apple Music will end up being great marketing tools for Apple Watch (and vice versa). The same will likely be said about HomePod.
Apple also has invested significantly in getting the health, fitness, and medical industries to embrace Apple Watch. Items like GymKit allow Apple Watch wearers to pair their device with fitness equipment. Third-party products like AliveCor's KardiaBand, which takes a clinical grade EKG, are literally being built for Apple Watch. Meanwhile, the list of medical and heath devices that work with Apple Watch is growing while ResearchKit and CareKit gain influence in the health and medical industries. This is where Apple's sheer dominance in wrist wearables helps the company appeal to third parties looking to offer health and medical services.
Later this year, there will be more than 40 million people wearing an Apple Watch on a daily basis. As competition for our attention moves away from smartphones and tablets, it will soon become evident that Apple holds immense power in being the largest wearables software provider in the world. This power will manifest itself in Apple's digital assistant occupying a growing role in hundreds of millions of users' lives. Apple Watch is becoming Apple's bridge to this new world.
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