Full disclosure: I like mechanical watches, and have since I was a little kid. My Uncle Fritz had an Omega Speedmaster that he let me wear a bit when I was eight and living in Germany. I own a couple of nice automatics: both beautiful, wildly inaccurate, and daily doses of non-digital “old” tech.
Having now digested the watch’s introduction and read a fair bit of very smart analysis (in particular @Gruber, @GTE’s Debug Podcast, Horace’s War of Attrition, Benjamin Clymer’s great post on Hodinkee) a few things strike me about Apple’s massive new play:
- I want one, even though it will be a Version 1.0 of something for which I have adequate substitutes. At this point it’s not 10x better than anything, so congrats Apple.
- I like the stainless line the best, even though when I jog the weight will feel like I’m running with a Rolex. On the other hand, since I’ll need to bring my iPhone to have GPS and Spotify, maybe I’ll just leave the watch at home. Will Beats introduce a BT headset before the watch arrives?
- As the reigning priests of “focus” and saying no, Apple may have managed to do something incredible: appeal both to watch snobs and to young people who haven’t felt compelled to put a clock on their wrist. The expensive materials and finishing; the slightly-visible-when-worn engraved text on the bottom; the super high quality bands; the moon phase and solar system watch face “complications”…all nods to fashion and mechanical nerds and important to people who like to express themselves with watches. Apple Pay with a wrist wave; heart beat messaging; Taptic engine; Camera View Remote; health sensors…all tech nerd certified, and perhaps enough to get young people wearing watches. Nice pincer move.
- Did they actually “miss” the holidays? On one hand, this seems like something they would have avoided at all costs, given that the watch is the most purely consumer device they’ve created since the iPod, and the holidays will be the dominant selling season. On the other, maybe they think Holiday 2015 is the big blow out, and they want to take the time necessary to have a sense of demand by “edition”. Why build 10,000 rose gold watches if you may not sell them? But all that said, I bet they did miss their original plan.
- To the extent there is a native watch app business for iOS and Android, I think this may widen the fragmentation gap between iOS and Android.
- Listening to Horace Dedieu’s Critical Path podcast, the watch’s likely margin structure is very robust. I guess this should be no surprise. Apple revenue is ~$40B a quarter right now, and attractive markets — that are both big enough to matter, and where they can differentiate — are rare. Why jump in with a strategy that’s low margin?
- Apple left a lot of open questions of course (ahem, battery life). But I think perhaps the single biggest question mark for me is the extent to which people will buy accessories, and whether the device will be upgradeable.
- Apple has never been shy about charging shocking amounts for plastic accessories, and I’ve no doubt that their bands will have healthy margins, across all price points. I bet the “Milanese Loop” will go for $399 at 80% margin. The “elastomer” bands will yield nice margin (I’m guessing a $79 price at 90% margin).
- My curiosity about upgrades is driven by the fact that a hunk of gold shouldn’t be obsolete in two years:
1) Why would they have a completely “resin coated” system on a chip if it wasn’t designed to be handled and swapped out by somebody who doesn’t need jeweler’s tools? In two years, you go into the Apple store, and simply swap your S1 for the S3.
2) Do we think that the industry and Apple will improve sensors, or invent new ones, within the next few years? I do, and wonder whether the whole sensor pack can be swapped out. This is more of a reach, but it seems like a pretty core piece of the platform that people are writing to.
- If you believe that there will be an upgrade business, then Tim and team had to make a really nervy call on the shape/dimension of the watch two plus years ago, knowing they’d be constrained by it for years.
- And if you believe this, Angela will have her work cut out for her to reengineer the Apple retail experience. I guess it’s possible that Apple would leave the distribution of $10K gold watches to luxury retailers: it would seem weird and awkward to have this bling being sold side by side with what are essentially tools. On the other hand, I’m not sure that Apple would want to sacrifice the hundreds of dollars of margins needed to feed the Wempe and Tourneau’s of the world.
From a financial contribution standpoint, it could be remarkable. Here’s a very amateurish estimate of prices, costs and resulting margins:
If one assumes low single-digit, but growing, penetration of the current iPhone base, then we might see something like this on the top line:
Tim Cook is fond of pointing out that “only Apple” can do the kind of hardware:software integrated design and business model that’s distinguishes its product line these days. The Apple Watch strategy may be far and away the best expression of this to date.
- Silicon design to yield 24-hour battery life well ahead of the competition
- Form factor discipline in screen size, sensor uniformity, watch housing, etc. to enable upgrades, accessories and a homogeneous platform for app developers to target
- Retail innovation, including online configuration, that allows for efficient delivery of an incredible variety of offerings
Even if upgrades are not in the plan, I’m excited to see if they can execute this incredibly ambitious strategy.