Apple Watch + AirPods: Show Me the Magic!

Carolina Milanesi / February 8th, 2017

Last week, Apple released its Q1 FY2017 earnings and announced its highest quarterly revenue yet as well as all-time revenue records for iPhone, Services, Macs and Apple Watch. During the quarter, Apple sold 78.3 million iPhones prompting, once again, a discussion on Apple’s strong dependency on the iPhone. While this comment is fair and one Apple is well aware of, the comments that Apple has failed to bring to market another product with the same broad appeal of iPhone, commanding the same premium, is less so. It is less fair, not because it is not true but because such commentary fails to account for the fact no other single device is likely to have the impact smartphones have had on technology and, more broadly, on our lives.

Another common argument shared by some Apple critics is that the inability to deliver a killer product rests solely with Tim Cook. When we consider the two new lines of products Apple brought to market under Cook — Apple Watch and AirPods — I struggle to see how people could honestly believe Cook is failing.

Apple Watch and AirPods are very different products that have a lot to offer Apple as a brand, both as standalone products but, even more so, when they come together.

Apple Watch Gives Back What You Put In

I have been wearing an Apple Watch every day since it first came out. Yet, whenever people ask me if I love it, I hesitate to say I do because it is hard to explain why. Apple Watch gives back what you put in. You need to invest some time in setting up your preferences when it comes to notifications, pick your apps, buy into fitness, and add your credit cards. Most importantly, you need to trust Apple Watch to pick up some of the responsibility you have given to your iPhone for so long. When you do so, Apple Watch becomes a trusted companion you will not easily go without.

The problem Apple Watch is facing is that it did not reinvent the smartwatch category — it improved it. And, as consumers remain unclear on what role smartwatches play, it is hard for many to understand the value Apple Watch could bring to their connected life. In a recent study we ran at Creative Strategies, we asked US consumers if there was a tech product they purchased or received as a gift they liked more than they thought they would. When we looked at what device Apple Watch owners mentioned, if any, we found 53% said Apple Watch, proving there is certainly a return on investment in the product. Across all early tech consumers, however, only 9% mentioned Apple Watch as the device they liked more than they thought.

Over the past few months, with the arrival of Apple Watch Series 2 and watchOS 3, we have heard Apple compare Apple Watch’s performance to the watch industry and not just because it makes the numbers look better. Apple understands the real magic is what mainstream consumers find in Apple Watch as an upgrade from a traditional watch rather than what early tech adopters might find in comparing Apple Watch to previously owned wearables as the above data suggest. Data aside, if we consider how Apple is dominating the smartwatch market and how competitors are moving more and more to make their smartwatches look like a traditional watch, it seems natural to use that market as a measure of comparison. As John Gruber said: it is time to consider Apple Watch as a watch.

Apple AirPods, Practically Magic!

This is the slogan of Apple’s AirPod commercial and, if you ask anyone who has tried them, they will agree. The feeling of magic is not because the user is aware of Apple’s unique approach of having two separate streams of music play simultaneously into each AirPod. The magic is delivered as soon as you pair your AirPods by simply taking away any pain previously inflicted by Bluetooth-enabled headphones requiring you to pay attention to flashing colored lights while pressing odd buttons. The initial ease of use carries over into everything you do as you let Siri work its way into your ears.

In the study mentioned earlier, among the early tech adopters who said there was a product they liked more than they thought, 38% mentioned Apple AirPods. This number is even more telling when you consider they refer to early tech buyers where most of the purchases (91%) are occurring today.

While overall performance is great, I do strongly believe most users are buying first and foremost into the magic and will strongly recommend AirPods based on their visceral experience. The AirPods magic is also what has prompted some commentators to say Apple got its groove back and AirPods are the kind of product Steve Jobs would have done. So does magic sell more?

Magic Might Be Short-lived, Usefulness Rarely Is

No, magic does not necessarily sell more products but it makes it easier to sell. Instant magic will make for a product that sells itself but such products might have to be conceptually simpler in the experience it delivers in order for the magic to work. You know how to use headphones. There is very little you need to learn in order to appreciate AirPods and what is appreciated is common across the user base. This helps tremendously with user promotion, something consumers look for more and more when researching what products to buy. Other products, like Apple Watch, are more complex in the value they deliver because users will appreciate different features. What I might see as magic, someone else might not. This makes for a more complex sales process in the store as well as in the marketing message. Yet, the engagement the user will have with the product will not be in any way less meaningful. A way around this complexity could be to focus on a feature with broad appeal and turn that into magic. Apple is currently doing exactly quite successfully with the “depth effect” on iPhone 7. Most iPhone users use it as their main camera and get a visceral gratification from the depth effect.

What is particularly fascinating about Apple Watch and AirPods is that using them together allows them to feed off of each other’s strength to deliver a whole new kind of magic. I strongly believe more and more of Apple’s future success will be built on the magic of devices working together at home, at work or in the car.

Carolina Milanesi

Carolina is a Principal Analyst at Creative Strategies, Inc. She focuses on consumer tech across the board. From hardware to services she analyses today to help predict and shape tomorrow. In her prior role as Chief of Research at Kantar Worldpanel ComTech she drove thought leadership research. Prior to her ComTech role, Carolina spent 14 years at Gartner, most recently as their Consumer Devices Research VP and Agenda Manager. In this role she lead the forecast and market share teams on smartphones, tablets and PCs.
  • Apple Watch gives back what you put in. You need to invest some time in setting up your preferences when it comes to notifications, pick your apps, buy into fitness, and add your credit cards.

    Maybe. Or maybe Apple Pay isn’t ubiquitous enough for the consuymer to justify the expense of an Apple Watch. Or maybe a FitBit does a lot of the what the consumer wants but at lower cost. Or maybe consumers are tiring of notifications — especially while driving — and don’t care for an expensive annoyance device.

    When I consider what an Apple Watch does against it’s current price, I just can do not see the value.

    • Jared Porter

      The key to using Watch for smart notifications management is to use settings to limit (email and text) messages from select friends, family, coworkers only.

      Anyone who regularly uses headphone/earbuds will love AirPods once they try it. No more untangling cords. They’re so light you forget you’re wearing them. They leave commuters’ hands free and don’t fall out — ever (for me). Three years from now, wired headphones will be a relic of the past.

      • obarthelemy

        All you say about the iBuds was true of the first BT headphones I bought 15 yrs ago…

        • jfutral

          Most of what Airpods do has always been around. And if reports of dropping calls and latency are to be believed, Apple doesn’t really do it any better, either. And they suffer from the main reason a good number of iPhone users buy third party, they just don’t fit all ears. Within _seconds_ of opening a new pair, David Pogue totally blows off the fact that he LOST an Airpod while he beamed his positive review. IIRC, even saying they were not easy to lose. :-/

          That said, there are two really compelling innovations, the easiest pairing across devices of any bluetooth headset, and apparently a remarkable mic that can hear through noise exceptionally well. I still won’t buy a pair since the design never stayed in my ears to begin with, and I prefer in-ear noise isolating earphones. But those are two above the morass features. If I were in the market and they could fit, I would consider them.

          Joe

          • Space Gorilla

            EarSkinz are working on a version for the AirPods.

            https://earskinz.com/

            It is supposed to ship within a few weeks. I’ve never tried them but they get good reviews for comfort and audio quality.

          • obarthelemy

            I’m sunsure how much better the mic is compared to similarly-priced competition. Apple users have a tendency to compare $160 stuff to $20 stuff… Plantronics has has excellent noise-cancelling mics for years.

    • puggsly

      Ya, FitBit probably eats into some AppleWatch sales but with AppleWatch on sale for $200 regularly, I don’t see cost as a big push back for the additional benefits people in the Apple ecosystem will experience.
      One of the biggest missing features as I see it for fitbit is Microphone for phone calls and Siri use.

    • Space Gorilla

      You might be interested in this article about the ‘bad product fallacy’.

      http://andrewchen.co/bad-product-fallacy/

  • obarthelemy

    I think botch smartwatches and wireless earbuds in general suffer from questionable utility. They’re nowhere near as universally helpful (nothing is more helpful than a PDA+Media player+phone+computer), nor as versatile (they do precious little), nor as unique (pretty much everything they do can be done on the phone itself, except fitness tracking, which is done better by… fitness trackers, and of interest to few).

    It’s hard to justify the cost and bother, and has been for some time. Whatever Apple’s devices qualities, neither are terribly original in concept, not so much new products as Apple’s vision of pre-existing stuff.

    Maybe that’s where we’re at now. Incremental additions to the ecosystem for rather niche use cases (not really mainstream, nobody as asking me about that stuff, and precious few are buying let alone using), providing a bit extra revenue and lock-in. Not a failure per se, but not a huge avenue for growth.

    Me, I still want smartglasses. Nice looking and with no camera.

    • Jurassic

      “Me, I still want smartglasses. Nice looking and with no camera.”

      Smart glasses are pointless without the camera, since AR depends on using a camera, and if you are not using AR there is no point to wearing a computer on your face.

      It is unlikely that Apple will produce smart glasses, due to the fiasco that Google experienced with the failed Glass. People simply don’t want to walk around with a computer on their face, and others find “glass-holes” repellant.

      • obarthelemy

        I see a point, several actually:
        1- they hide the earbuds+mic while giving more room for battery
        2- they can display a lot more info than a watch, maybe even more than a smartphone
        3- or a lot less (say, an info/alert ticker)

        all while being hands-free.

        I think the main social issue with Glass was the camera, and maybe the distinctive look too a bit. Oh, and so oh-so-easy pun. Even if I have to limit my uses to when I’m alone or not really socially engaged (on the bus, not in a café with friends), I’m fine with it, I have glasses close by at all times anyway, my eyes are fragile and there’s always either sun or wind ^^

        I think I’d get good use out of basic alerts + earbuds + personal assistant, mostly because as opposed to all other current devices, glasses are hands-free are really always there.

        • jfutral

          I read an article a couple months ago of a couple theatres’ front of house staff using Google Glasses to help with customer service (especially with season ticket holders) and real time stats of ticket sales. Seemed like an expensive system, but they loved them. I don’t remember the specifics, but I do recall it was quite interesting.

          Joe

          • Space Gorilla

            Google Glass et al are like the Segway, great for a lot of specific use cases but I doubt very much they’ll go mainstream. As someone who wears glasses to see well, if I didn’t have to wear glasses, I wouldn’t.

  • Space Gorilla

    With Apple Watch, AirPods, Siri, iPhone, and a few other services/apps, we’re seeing the start of what I’ve been calling the Apple Network of Things, essentially a mesh of devices and accessories/sensors, distributed computing in a way. It’s not going to be obvious how successful this will be for quite some time yet, hence a lot of naysaying will occur (we’re already seeing that in the comments here). Apple has probably ten years of work to do yet on this, including folding in AR/VR. Should be an interesting next decade.

  • Jurassic

    “… prompting, once again, a discussion on Apple’s strong dependency on the iPhone.”

    The iPhone accounts for about 60% of Apple’s business. It’s odd that some “analysts” try to present that as a problem, yet no one seems to be concerned that Alphabet/Google is 95% dependant on advertising revenues, or that Amazon is also about 95% dependant on online sales revenues, or that Microsoft is at least 80% dependant on software sales.

    Even ignoring Apple’s 60% reliance on iPhone sales, the remaining 40% revenues and profits are still greater than the entire revenues and profits of Alphabet/Google or Amazon or Microsoft. In other words Apple is a huge company even without the iPhone, yet some analysts will ignore that fact.

    One more thing. Until about 2001, Apple was almost 100% reliant on Mac sales for its revenues and profits, but no one complained about that! Now that Apple is a much more diversified company, with several very strong product divisions (iPhones, iPads, Macs, Services, Apple Watch, Apple TV, accessories, professional software, etc.) those same “analysts” are acting as if the company is on the brink of doom because the iPhone makes up 60% of the business.

    • obarthelemy

      ???? You equate “iPhone” to “Software” in general (MS has tens of apps, hundreds if you count the different licenses) and “online sales” (Amazon has tens of thousands of products) in general ? The iPhone is a single product (in 2 sizes), the equivalent would be Windows (which actually has 4+ versions ^^), and the loudspeaker Alexa lives in, not MS’s or Amazon’s whole product ranges.

      As for he remaining 40%… a) actually, it’s 30%, and b) a lot of it is directly linked to iPhone: AppleCare, AppStore, earbuds, even some (most ?) Macs and iPads.

      So in the end, 70% + maybe 15% = 85% of Apple’s business is pure iPhone and ancillaries. Not 60% The danger with that are multiple: a product misfire, a QA issue (there are systematically small problem these days it seems, though nothing has exploded yet), a sudden drop in demand (see China).

      • Jnorton

        LoL, Apple has been selling macs for over 30 years so yes most of them are bought because iPhone! Just as most cars are bought because McDonald drive thru restaurants.

        • obarthelemy

          Well, you might have missed the “some (most ?) Macs and iPads”.
          Since you seem unaware, here goes:
          – up until recently, you needed iTunes on a Desktop to use an iPhone. iTunes never really worked well on Windows, so that meant a Mac.
          – all iOS devs must buy Macs
          – iOS has 50% share in some countries, you don’t think that sells a few Macs ?
          – bit of mathematical literacy: iPhone is 70%; services and others is 15% (ie, iWatch which requires an iPhone, iBuds pretty much so too, AppleCare…). How much do you think I counted “linked” Macs and iPads for ?

  • There are many ways to understand the AirPods. It might not be revolutionary in and of itself. It might not be useful beyond a regular Bluetooth headset. However, I think these approaches miss the point.

    Just think how many AirPods will be sold. Estimated Amazon Echo sales are in the millions as are Apple Watch sales. AirPods on the other hand are a not so subtle replacement for the analog headphones that came with iPhones that have an estimated half a billion installed base. Even though they are expensive, Apple enthusiasts are going to buy AirPods in droves.

    And the interesting thing about AirPods is that they just beg (or force) the user to use Siri. Seeing it this way, AirPods are an ideal Trojan horse to get more users to use Siri.

    Of course, it is up to Siri to deliver the experience that will hook users.

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