Apple – Dazzling Banalities

Great eye candy hides the missing spark of genius needed.

• Apple launched its first product in the wearables space along with new iPhones that were exactly in line with expectations.
• Apple also launched a payments solution incorporating both BLE and NFC but while this remains an Apple-only solution, it is likely to remain limited in its market traction.
• The new product category is called Apple Watch, will be available early in 2015 and will start at $349.
• The launch of this product took me by surprise as Apple typically does not launch devices until they are imminently about to ship meaning that they have already gone into mass production.
• The Apple Watch will not hit the shelves for four months explaining why there was no chatter regarding the mass production of a device.
• This is usually the key signal that a device will be launched rather than remain a prototype.
• The device itself comes with a whole array of glitzy innovations and functions but critically, it lacks the spark of genius that will allow it to define a new product category for the technology industry.

The Good

• First: Apple has done as much as it can with the user experience with the Digital Crown, App. Cloud UI, movement triggered screen and the glances function.
• This optimises the device to be as useful as possible when it is on the wrist.
• A number of Apps have been ported to the device and optimised for the use case and here Apple has done well in terms of thinking of fun to use, albeit pointless functions.
• Second: Pressure sensitive screen, haptic feedback, heart rate monitoring all enhance the functions of the device such that the user experience is more interesting.
• I am assuming that Apple has cracked the heart rate monitoring problem that has made continuous heart rate monitoring unreliable and inconvenient for the user.
• If this proves to be a problem, I can see very high return rates for this device.
• Third: Apple has done as much as it can to address the fashion element of the wrist watch industry,
• The Apple Watch comes in two sizes, three different case options and a dizzying array of innovative and easy to swap options for the strap.
• This makes the Apple Watch far more customisable than its peers and this will be appealing to potential buyers.

The Bad

• First: While it is new and funky, the Apple Watch adds very little to the overall smartphone experience.
• The key spark of genius that transformed the smartphone industry is completely missing meaning that only the Apple fan club are going to buy this product.
• Second: It is square and fat. 85% of wristwatches sold in the market are round and in pure looks, I think the Moto 360 and the LG G Watch R are much better.
• Third: It requires an iPhone to function making it very clear that this is an accessory rather than a new product category in its own right.
• Fourth: There was no mention of battery life which combined with the array of functions and sensors, implies that it will be short.
• Charging is effected with a magnetic cable that adheres to the back of the watch and charges via induction.
• This means the user will have to take off the device for 1/3 of his life as well as carry an extra cable around with him.
• This will make it impossible for health functions that analyse any type of sleep monitoring as well as being a pain for the user.
• Fifth: at $349 it is significantly more expensive than its better looking competitors (Moto360 $249, LG G Watch R $230).
• It certainly has more functions than its competitors, is much more customisable and comes with a much more powerful brand but price is likely to be a limiting factor when it comes to volume.

The Bottom Line

• The limitations of this device are likely to keep its appeal limited to the die-hard Apple fan base.
• Consequently, I am sure it will outsell all of its competitors by miles but critically, I think it will fall short of bullish expectations.
• This will prevent the Apple Watch from moving the needle meaningfully when it comes to revenue and profit generation
• The recent rally in Apple’s share price is much more predicated on the new iPhones which look very capable of taking the fight to Samsung which has utterly dominated the large screen smartphone segment for some years.
• In this vein, I can see some market share gain by Apple with the iPhone 6 and 6+ and continue to think that the short term outlook remains reasonably healthy.
• This does little to address the issues that Apple faces with its Digital Life services where the offering continues to look very weak when compared against Google and even Microsoft and Yahoo!.
• This is why in the long term I remain pretty sanguine regarding the outlook for Apple.