The biggest issue around the Apple Watch is less about the software and more around the hardware. Specifically, what happens when new hardware is released? Smartphones have a short turnaround thanks to mobile contracts typically one or two years long, and people are happy to replace their phones on a regular basis.
Looking at the tablet market, the same fever to keep upgrading a tablet is not present. The life of a tablet is much longer than the corresponding smartphone. In that sense they are more like laptops than smartphones, even though there is far more code continuity with the smaller communications device.
One of the big unknowns around the rise of smartwatches over the last two years remains the question of what happens in regards to the length of the upgrade cycle? While the majority of smartwatch wearers in the current generation will be part of the connected geekerati who are likely to buy every generation of every product line that comes out, any expansion in smartwatch adoption will have to come from the general public.
Are they going to be ready to update a smartwatch every year or two (like a smartphone) or will it be seen as a more long-term purchase like a laptop or tablet? How can companies ensure the former rather than the later?
The ability to update the firmware and functionality of smartwatches should help reduce the clamour from existing users when a new watch is released with more features and increases capabilities. It is not enough to completely silence it. The expectation that someone is going to buy a new smartwatch each year is not only going to slow down the adoption numbers of smartwatches in general, but it will also depress the revenue and profit that be generated by this new hardware line.
Here lies the problem of the smartwatch. It's a product expected to command a high premium in the market, deliver new income streams, and make a notable positive contribution to the bottom line of manufacturers. But many smartwatches are entering a market where the expectation of watches that sell for multiple hundreds of dollars will last for many years, and be seen as family heirlooms.
Pebble's answer is to pitch its range of smartwatches not against the luxury market of TAG Heuer, Rolex, or Omega, but against the sporty lifestyle business model of Swatch. It has never made a point of running the 'latest' hardware, instead relying on software, features, and social marketing to keep it in contention in the nascent market.
At the other end of the market you have TAG Heuer and its recently released Android Wear powered smartwatch. That is priced at $1,500 and comes with a curious guarantee... after two years, when the product functionality is likely to be waning, you can pay another $1,500 to 'upgrade' to a TAG Heuer Carrera mechanical watch (which has a retail value of around $5,000).
And so, to the elephant in the room... the Apple Watch. It's pitched as a luxury timepiece and marketed as such, it commands high prices, and has been bought (presumably) by millions of users. And the expectation of the geekerati is that Tim Cook is going to announce 'Apple Watch 2' in March 2016.
How can Apple sell this watch outside of the geekerati who would buy anything, and give the consumer market the confidence to make the purchase?
Next: Apple already has a solution...
I think it's natural that Apple will want to transition as many users of the Apple Watch to the 'iPhone' model of replacement rather than the 'iPad' model, but it needs to offer more assistance. The biggest advantage the iPhone has in terms of retail presence over the iPad is the available is the subsidy market. The small down-payment is seen as the actual cost, while the true value of the $700 smartphone is tucked away through the monthly carrier billing,
If Apple could work out a 'carrier like' model for the Apple Watch, it would be in a much better place to profit from the smartwatch revolution, as well as taking the lion's share of the profits from the market - just as it does with smartphones. A closer look at Apple's portfolio shows that it already has a tool that can make this a reality.
Apple's iPhone Upgrade Program spreads the cost of a new iPhone over twenty-four months (with the iPhone 6S 16GB coming in at $32.41/month at the time of this article). On top of the normal financing arrangements, Apple will allow users to upgrade to a new iPhone after twelve months, on the proviso that the financing is extended out for another twelve months. The user gets a new iPhone, the monthly payments stay the same, the true cost of the upgrade is hidden, and Apple gets a 'new' sale to add to the score sheet... plus the older handsets come back to Apple for reconditioning.
Now translate that model to the Apple Watch. Instead of purchasing the new Apple Watch outright, you could sign up to the Apple Watch Upgrade Program. Every year, when the new model is released, the option is there to trade in the old Apple Watch for the new Apple Watch. The cost stays hidden, users have the confidence to buy into Apple Watch confident they will never be left behind, and Apple has command of the luxury smartwatch space.
As for the lower 'budget' end of the market (in the sub-$200 space) Apple has not shown any intentions to move the Apple Watch into that space. Just as Android's voluminous market share is driven by the high-turnover low-margin budget smartphones, the low-end of smartwatches can be left to Pebble, Android Wear, and the fitness and activity trackers looking for extra functionality.
The smartwatch space is still evolving, and consumers may not yet be confident enough that Apple has the 'right' answer in terms of the approach to smartwatch. That lack of confidence could be stopping them adopting a smartwatch. TAG Heuer has its solution and its smartwatch is now on back order until May 2016. Apple has a solution ready to go. When will it be activated?
(Now read my interview with Pebble's CEO, and a look at the Pebble Time Round).
