I don’t normally dabble in speculative writing as it is nothing more than guessing what someone will do; instead I focus more on what they should do. The following post is an anomaly.
The rumor mill on the internet is abuzz with information about Apple’s upcoming iWatch.
Spurred by the recent success of Pebble - a wearable smartwatch which connects to your smartphone via bluetooth - the rumors suggest that Apple is set to enter the market with it’s own competitive product offering. The following are reasons why it simple cannot be a simple ‘Smartwatch’ and if anything, it is a band using flexible display technology.
Apple cannot afford a dud
Perhaps more so than it should be. Apple’s stock (AAPL) has been taking a financial beating in the past few months, which has seen it’s market capitalization drop by more than $100 billion dollars since December 2012. All this despite delivering record-breaking sales quarter over quarter. Ironically, everyone agrees that Apple is still a grossly undervalued stock.
Why? The simplest explanation is that Apple trades less on financial’s and more on market sentiment. This means that in addition to exceeding sales expectations, investor’s expect Apple to deliver breakthrough innovation and disrupt new markets; an unfair expectation, yet a completely self-created one.
For the first truly new product category to emerge under Tim Cook’s stewardship, Apple cannot afford for it to be a failure.
Apple’s dabbled in watches before; sort of.
People loved the old iPod nano and the ability to wear it as a watch. iPod owners who had no need for another iPod were buying the Nano. Third party manufacturers were starting to release products for it in the shape of straps etc. Pebble’s existence, and success are a nod to the iPod nano wearable watch.
Apple is better than any other hardware manufacturer at reducing the footprint of their devices in every iteration.
A new iPod Nano watch could have been thinner and sleeker the following year.Rather than putting Siri on it and letting geeks the world over live out their James Bond fantasies, Apple changed the design and murdered the momentum.
Perhaps it was intentional and they didn’t want to have to cannibalize their own sales when they released their iWatch, but had Apple built on the foundation laid at that time, they would have been regarded as the first in wearable computing. Now it looks like someone is scrambling to keep up. It doesn’t bode well as a watch alone.
People already have watches.
Apple banks billions every quarter by refreshing it’s hardware line annually. This makes people upgrade every annual cycle, or alternate year. Software revisions ensure that the hardware is rendered obsolete. Even as a companion to an iPhone, a watch makes little or no sense.
People spend anywhere from hundreds, to thousands of dollars on watches that they simple would not want to replace for a multitude of reasons. As a standalone watch, it would be a niche product with varying adoption rates. Every industry Apple has disrupted has been as a replacement device with the software layer (iTunes) fueling the demand in the form of installable apps.
The iPod replaced mp3 players, the iPad replaced netbooks, the iPhone replaced Blackberries. The iWatch is not going to replace a Rolex or an Omega.
Some people say Apple is perfectly happy entering business areas without being pervasive, while touting the Apple TV as an example.
This is a false construct; Apple holds that stance more as a threat than anything else. Apple has not been able to solve the content puzzle, and that is why you don’t have the glowing Apple logo mounted on a wall in living rooms across the world. As a standalone TV with unparalleled industrial design, Apple could launch a TV tomorrow, but that doesn’t really jive with how they make their money.
Apple is used to selling replacement devices to it’s own products every one to two years. Customer’s aren’t going to replace a TV every 2 years. Apple could make money selling content, but it’s role would be limited to being an aggregator and a reseller of existing content, which could easily be controlled into making Apple’s foray into the TV industry a failure.
TV’s need access to captivating content. Netflix and Amazon realize that and have started investing in content production, as well as started paying for either timed, or complete exclusivity, for it’s streamed content sourced via production studios. This may represent a paradigm shift in the industry, but it underscores a bigger issue; one which might be insurmountable.
Getting into content and distribution without augmenting, or exponentially increasing, the revenue stream will dilute the profitability. Additionally, if this does become the norm, then how are they going to compete with the likes of Google, Microsoft and Apple, who have much, much deeper pockets and are also vying for consumer interest in those areas.
Strategic alliances only get so far and the precedent for that is ugly; Netflix’s renegotiation efforts with Starz disintegrated months before the contract was supposed to be renewed, resulting in the loss of a significant portion of it’s premium catalog choices, including streaming titles from Disney and Sony.
So now, Netflix has produced it’s own content in the form of House of Cards, which reportedly costs $100 million for it’s 26 episodes spread across 2 seasons. Apple won’t deviate from it’s core business to start producing it’s own content; not just yet.