How Apple Watch will create new winners and losers in the wearables ecosystem

Photo Credit: Apple Media Release.

Photo Credit: Apple Media Release.

Apple released news about their new Apple Watch today and overall I have to say I’m fairly impressed.

In the smart watch category, there are a couple of key things that have to be handled in order to secure a large total addressable market and these have been major failings of every other entrant.

  1. watch designs are personal
  2. watches need different watch face sizes
  3. they get used in all environments from fancy to sweaty
  4. they have a long history that you can’t ignore

Apple managed to navigate the first four of those points by building 6 different cases, 2 different face sizes, 6 watch bands (12 if you consider the two sizes) and then a plethora of watch faces. While this could get out of control from a supply chain perspective, they constrained that problem set by clustering. For example, the sport bands clustered with the high durability aluminum cases that have the hardened alumina-silicate crystal. The net result? Watches for any person of any size or any sex that make them feel “unique”. This is a massive supply chain issue that only a major watch supplier….or Apple with its core competence…could have orchestrated.

All of the above helps Apple do one key thing: increase their total addressable market. When they can sell to anybody, any sex, with any suitable fashion combo, now they can aim at all segments at once. While this is the kiss of death for an undercapitalized company, this is the right play for a company with as much cash on hand as Apple has. This is a land grab to all customers of all ages and as many segments as they can reach in as many countries as they can get to. Segment-wise this means everything on the spectrum that is in green (although they’ll miss a small chunk at the extreme end).

  • X Hospital grade medical
  • √ Consumer Medical
  • √ Lifestylers / Move Mores
  • √ Couch to 5K crowd
  • √ Beginner to advanced runners, cyclists, and other non-water sport athletes
  • X Triathletes and other water-sport athletes
  • X Industrial athletes
  • X Adventure Athletes / Backcountry athletes / Ultrarunners
  • X Military Athletes

Admittedly I’m making an assumption here about the waterproofness of the watch. Waterproofing devices like this is very very hard and very expensive. It automatically adds another $50-100 to the watch retail price. My bet is IPX7, although Apple has not divulged anything. They did mention a “water-resistant” speaker which doesn’t bode well. It may not even manage to hit IPX7 which would be a shame.

So where does it fit into the ecosystem and what does it potentially threaten (or augment?). I’ve overlaid the iPhone 6 / Apple Watch / Apple Fitness App / Apple Workout App on top of my market map to show where it plays. Essentially it overlaps the existing (vast) Apple fitness application ecosystem but I think it augments them more than threatens them. It also basically wipes out the dedicated 3d accelerometer trackers like Nike Fuel Band. And so now we finally see why Nike killed that piece of hardware. They obviously had advance notice of what was in the pipeline from their long-standing partnership with Apple in the fitness space.  So we have:

  • Winners: fitness app users who get a great piece of hardware to extend their app to.
  • Losers: Fitbit, Jawbone, Garmin, Polar, Timex, Casio, Pebble.


Wearable Device Market Map 5.0

Wearable Device Market Map 5.0

I for one can’t to get my hands on one to test and beat up. As soon as I do I’ll put it through the usual stress tests and let everybody know what I think about its durability.

(4) Comments

    • Troy Angrignon

      Just like Samsung Gear only works with Samsung. No surprise there. I think if any team can crack the code on the HR, it’s Apple. The sensor in the Scosche and the Mio are now pretty good and reliable although they suck battery. I can imagine that is what’s killing the battery on this watch. But they’ve hired some serious talent to finally crack the code on HR and I’m bullish that they’ll do it.

  1. Avatar

    So, quick question Troy. Like you, I can’t wait to get my hands on it. In the category that this watch lives soon, smart watches, it appears to have superior design and functionality. What’s your thoughts on how the competition will respond and with the deep thinking and detail and tweaking that Apple Watch appears to have developed, will they respond with “copying” or with different solutions?

    • Troy Angrignon

      Well, I think we’re only going to have a couple of viable platforms. WatchKit will be one. Google Android Wear will be the other. Samsung’s proprietary Tizen will be the third. All the others will fall away or stay in their tiny little niche. I think it’s likely to parallel what we saw with phones. iPhone selling as one product to 100+ countries. Samsung chasing it as the anti-iPhone option in Android. And then the other vendors all scavenging on the edge using the free Android (or in this case Android Wear), dominating in market share (as a group) but entirely unprofitable (as a group) building a bunch of ugly me-too products.

      Apple will maintain their gross margin superiority as always (I’m betting that the watch is in the 50% gross margin range), Samsung will make terrible gimmicky awful product (have you seen their most recent entrant? Ugh) as a way of competing and then a whole bunch of others will build Android Wear watches – but only one per vendor like the Moto360 – maybe one or two case/band options.

      Like I said in the post above, the big issue with this market is that watches are personal and that requires a certain matrix of options in order for people to individualize their device. With Apple Watch having 2 sizes, 6 bands, 6 case designs, and 15+ faces, the permutations are relatively endless and anybody will be able to find one they like.

      Ultimately the things we can count on because of historical precedent are:

      – Apple will launch in as many countries as possible in order to maximize land-grab
      – They’ll continue to focus on margin (they do this better than anybody else in the business) and that will continue to bolster their war chest
      – they’ll sell to their existing 200M iPhone 5 or higher customer base plus hope to attract more 6+ customers and maybe even cause customers to switch and join the Apple ecosystem
      – They’ll have the broadest appeal because of the design/size permutations
      – Everybody will make Android Wear based rip-offs and make no profit from them (like in phones)
      – Apple will build on this v1 by adding in some of the more complex biometric data that they acquired talent to do but that isn’t feasible in v1 because of power and technology constraints.

      I think that we can pretty much count on the above. I also think that like when the iPhone came out and they had a roughly 2.5 year lead on any competitive response, I see the same here, although the lead time may be less. But this category requires a cross-disciplinary set of skills encompassing fashion, global cultural knowledge, hardware, software, services, supply chain optimization, power management, materials engineering…the list goes on. There are few companies better positioned to dominate this but I think since most markets devolve to three competitors there has to be a number 2 and 3 here and I’m betting on Samsung and then a boatload of smaller Android Wear companies.

      I also think that guys like Pebble that shipped 400,000 units last year (Apple was forecasting something like 5M PER MONTH) will sit at the periphery and slowly die off along with all the Kickstarters in this space.

      Below this tier there will be a TON of other less capable watches or more niche-specific watches that will be better off focusing on their niche (group workout tools, or high-end sport watches for industrial athletes, or medical devices.) I think Apple’s going for the fat part of the market and there will be lots of room around them for other players who stay focussed.

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