Apple Watch will finally move the needle on smartwatches

on September 11, 2014

A few weeks ago, partly in anticipation of Apple’s big event this week, I published a report on market prospects for smartwatches, and wrote a companion piece here on Tech.pinions on the topic. The title of the piece was “Grading on a Curve: Smartwatches in 2014” and it reflected my frustrations with smartwatches as they exist today and their limitations, both in imagination and execution. The conclusion of my smartwatch report read:

For all the above reasons, current market prospects for smartwatches are poor, and a few million sales per year are likely to remain the norm for the foreseeable future, with Samsung dominant and other vendors picking up scraps of the overall market. We don’t see smartwatch penetration exceeding 10% of the population in the near future, and it is likely to be considerably smaller in many markets for some time to come. However, all of this is subject to there being no major catalysts to drive growth above current levels.

Two major things could catalyze demand in this market: a player overcoming the significant technological challenges associated with the current smartwatch model, or a player which breaks the model and reinvents the category. Apple seems the likeliest company to do either of these things, and we believe that its entry – likely in late 2014 or early 2015 – will catalyze the market and drive much more rapid growth.

Given the announcement of the forthcoming Apple Watch, I thought I’d revisit some of my thoughts from my earlier piece and report with a view to answering the key question of whether Apple can indeed move the needle on the smartwatch market with its entry, based on what we know now.

Grading on a curve, revisited

I’ll start with the diagram that summarizes my frustrations with the current market, which is based on the Verge’s reviews of major smartwatches. I’ve updated it to include two smartwatches released and reviewed since I originally did the chart (the Moto 360 and Meta M1):

Updated Grading on a Curve chartAs you can see, a number of the smartwatches receive scores around 8 out of 10, putting them above the Galaxy S5, Nexus 5 and HTC One Mini in the smartphone category, and the Galaxy Tab S, Surface Pro 3 and Kindle Fire HDX in the tablet category. For the record, here’s my own rating (from that report) of some of the major smartwatches in the market at the time, with a possible total of five points available in each category for a total of 35 points overall:

Jackdaw Research smartwatch grades

As you can see, I’m a significantly harsher critic than the Verge is and I’m not grading on a curve. Interestingly, at least some at the Verge seem to share my frustrations with the smartwatch category as it currently stands, although there’s a disconnect between that frustration and the scores the Verge is dishing out. The point here is the existing smartwatches fail to deliver on the things smartwatches need to do well. (Incidentally, the Moto 360, which I’ve been testing for the last few days, wasn’t out when I did the report and so wasn’t included. Based on my initial testing, I’d give it a 23, so slightly better than the others in the list above.)

How does Apple Watch stack up?

Of the smartwatches I graded in the report, the only one I didn’t have significant hands-on time with was the Meta M1. I did get to see, touch and compare the Apple Watch at the launch event, but haven’t had significant experience with it yet, obviously. In addition, there are key things we don’t yet know about the watch, including the detailed pricing list and perhaps most importantly, battery life. However, we can have a go at rating the watch based on what we know. Here are the scores I would give the Apple Watch on the same seven categories, based on the limited information we have available:

  • Attractiveness – the Apple Watch immediately jumps to the front of the pack on this element. it’s smaller, more polished, and comes in a far greater variety of SKUs than any other smartwatch out there. Score: 5.
  • Bulk – the Apple Watch comes in two sizes. Neither is as small as the smallest analog watches out there, but both are an improvement in both size and shape over other smartwatches. Score: 4.
  • Display – like several of the other smartwatches out there, the Apple Watch has a high resolution, high quality display. It seems on a par with the Samsung devices in this respect. Score: 4.
  • Battery life – this is the wild card at present, since we have no official word from Apple. But based on some of the leaks ahead of time, the size of the device and what it’s capable of, I suspect battery life will be on par with the Moto 360, i.e. very short. Score: 2.
  • Charging – like Motorola, Apple seems to have moved beyond the awkward charging cradles most of the competition uses and created a beautiful and simple charging mechanism. It’s not wireless charging at a distance, but it’s the next best thing. Score: 4.
  • Functionality – the Apple Watch does far more than most smartwatches, which are predominantly notification centric and tend to do fitness tracking as an afterthought, if at all. It’s impossible to know based on brief, controlled demos how good the watch will be at these things, however. Score: 4.
  • Interaction – this in one area where Apple has put significant investment in innovating and I think its paid off in a big way. Interacting with most other smartwatches, especially those based on Android Wear, is a real pain in the neck, aside from those times when voice control is helpful. Apple’s “digital crown” based approach seems to be a big leap forward here. Score: 4.

If you add those scores together, you get a total of 27 out of 35. I’m grading harshly on an unknown – battery life – and holding back the 5s in most categories simply because I haven’t tested it yet. But that’s already better than the other watches out there. That’s a good thing and may well help move the needle. If the functionality and interaction are as good as they seem, that would immediately take the device to a 29 out of 35. If the battery life is better than I’m expecting it will be into the 30s, putting it head and shoulders above the others.

Solving the problem of weak demand

The other major issue I highlighted in my report and in my piece here on Tech.pinions is not only is the supply of smartwatches weak, but it’s attempting to meet pretty weak demand too. Even as most smartwatches cater to notifications and to a lesser extent fitness tracking, the demand for both is low among the general population. Most people don’t make extensive use of push notifications and only 10% of the population uses a fitness tracker. Meanwhile, the devices in the market largely fail as useful watches, and fail to provide much additional functionality.

Apple’s watch does attempt to tackle both fitness tracking and notifications, but I don’t sense that either is central to the appeal of the device. Though Apple eschewed the idea of shrinking a smartphone down to make a smartwatch, in many ways that’s what its done in creating the Apple Watch. I think the key point Apple was making here was actually not about functionality but the interaction paradigm. The fact is the Apple Watch will – when tied to an iPhone – do many of the things your smartphone can do. It will allow you to communicate, to read, to navigate, to check your messages, email and calendar, and listen to your music. As such, Apple’s vision of the smartphone is not so much about extending notifications to the wrist as it is about extending a far greater set of smartphone features to the wrist, of which notifications are only one part.

This expanded vision of what a smartwatch should do should help Apple expand the addressable market for smartwatches beyond fitness fanatics and notification nerds to a much larger slice of the general populace. If the job of the smartwatch is now, to a great extent, the same as the job of the smartphone, it should appeal to most of the people who have a smartphone, and especially to most of the people who have an iPhone.

Price is the major barrier

Given what we know now, the biggest single barrier to the Apple Watch moving the needle on the smartwatch market is price. These devices will start at $349 and go up from there (in the case of the Apple Watch Edition, presumably by a significant amount). As with other Apple products, price will dramatically limit the addressable market, and especially at well over 50% above the price of many current smartwatches. To be sure, if there’s an audience that’s willing to pay a premium for quality and a job done right, it’s iPhone owners, but this device isn’t going to suddenly turn the smartwatch into a mass market device for that reason alone. Yes, it will likely sell well among iPhone owners and will become a significant new revenue stream for Apple, but at this price it won’t achieve majority adoption even among iPhone owners in the next few years.

Of course, prices tend to come down over time even as functionality expands and Apple has a long history of providing significant incremental upgrades over time with its major product lines. At the same time, Apple’s focus on the iPhone ecosystem and its high pricing will provide an umbrella under which other vendors can continue to compete. Just as the iPhone has achieved high share in the premium smartphone market while leaving large chunks of the market to others, so will the Apple Watch. The availability of the Apple Watch will drive awareness of and interest in the category, and many Android owners may consider their first smartwatch as a result. Competitors will no doubt quickly mimic some of the Apple Watch’s key features and functionality, at least on paper, though as with the original iPhone, it may take considerable time for them to truly compete in practice.

A big boost for the smartwatch market

For all these reasons, the Apple Watch will be just the kind of catalyst I talked about in the conclusion to my report. It won’t drive majority adoption of smartwatches any time soon, but it promises to fix several of the key demand- and supply-side barriers to smartwatch adoption, and will be a huge hit for Apple. At the same time, it will provide a boost to other vendors, who will have to compete largely around the Android opportunity and the lower end of the market. Exactly how big the boost to the market will be is hard to estimate until we know more about the watch as we approach its release. But we could easily go from single digit millions of shipments per year to tens of millions in the wake of its launch.