As Apple’s chief executive, Tim Cook, prepares to reveal the few details not yet known about the Apple Watch – the price, the battery life, when it will hit the shops – some are already predicting a flop.
It will weigh the company down, they argue, and the solid gold
version aimed at the very rich will tarnish a brand that promises
“affordable luxury”, turning it into the preserve of rich fashionistas
who wouldn’t be seen dead with last season’s $2,000 handbag – or $5,000
smartwatch.
“Apple needs a new product to reduce its reliance on one core
product, the iPhone,” David Goldman, CNN’s technology editor, said in
February. “It won’t find that with the Apple Watch.”
At a mooted starting price of $350, he argues, it’s pricey – but not
truly beautiful, uncompelling and, in any event, likely to be updated in
a year.
In fact, that $350 price tag makes it the cheapest new category Apple
has ever introduced – the original iPod, in 2001, was $399. (There was
the $299 Apple TV set-top box, but that was always something of an
afterthought.)
But the watch has also seen an intensive PR and marketing effort,
including recent lengthy interviews with head designer (and Briton) Sir
Jony Ive in the New Yorker and the FT’s How To Spend
It section (in which he murmurs that the watch is “clearly the most
personal product we’ve ever made”), and a 12-page set of ads in the
March edition of Vogue at an estimated cost of $2.2m.
It connects to an iPhone, and displays – or taps your wrist with
notifications from – apps about all sorts of things (sparking a new
goldrush). It’s watch-like, but more of an extension to a phone.
Doubters have focused on the battery life (about a day); enthusiasts on
its potential to save you pulling your phone out of your pocket for maps
or train times.
The launch of the watch isn’t the first time Cook has faced doubters. In spring 2013 there were calls for his head
when Apple’s market capitalisation was $366bn, far below an earlier
peak of $658bn in September 2012. Now it has passed $750bn, Cook is
still in place, new products are on the way, and analysts are beginning
to wonder: could Apple soon be worth $1tn? And how much of a part will
the new watch play in that?
Katy Huberty, an analyst at Morgan Stanley, suggests the shares could
be worth $160 in a year’s time (on Friday they were at $126), which
would value the company at $934bn.
“Apple has the world’s most valuable technology platform,” she
argues, with customers who are loyal and willing to pay more for its
products and services than users of Google’s Android phones. “A strong
platform becomes a virtuous circle, as many users buy multiple devices
and more software and services, which in turn attracts more developers,
merchants and partners.”
Not only that, but Apple has plenty of room to expand into, she
argues: its current products and services are useful for a third of most
people’s day, but it could increase that to three-quarters by getting
into TV and even cars. The latter, like the former, so far remains only
rumour, but enough circumstantial evidence has appeared – such as
hirings from a car battery company (which is suing) and word of an
internal project – that analysts now think it’s only a matter of time.
“I’ve read the rumours. I can’t comment on it,” Cook said when asked
about an “Apple car” last week. However Steve Jobs would deny the
existence of products right up to their unveiling; I saw him laugh at
the idea of a phone in 2005.
Despite the pundits, on Wall Street and in the industry it is hard to
find anyone to agree that the watch could flop. James McQuivey of
Forrester Research said last week that “20 million people in the US
alone are inclined to buy something new from Apple, giving Apple an easy
shot at converting 10 million people to buy one between the US and
international markets. We stand by our initial assessment that 10m units
sold by year-end is likely.” McQuivey sounds like a pessimist compared
to Huberty, who forecasts 30m, and Robert Leitao of Braeburn Group, who
suggests 40m by the end of the year. The most pessimistic is Gene
Munster, a stock analyst at Piper Jaffray, who reckons 8m.
The lowest of those numbers would dwarf the existing smartwatch
market, where the biggest player, Pebble, has shipped just over 1m units
in two years, and devices using Google’s “Android Wear” from companies
including Samsung, Motorola and LG shipped just 720,000 in 2014. In all,
6.8m smartwatches shipped last year, according to research company
Smartwatch Group, at an average price of $189, creating a market worth
$1.3bn.
Simple maths suggests Apple will crash through that if it gets
anywhere near the middle of analyst estimates of about 22m in the first
year. Estimates are that the watch will add about $10bn in revenue, and
an unknown amount of profit, during 2015.
Neil Cybart, a former stock analyst at investment bank Keefe,
Bruyette & Woods, who has set up his own company, Above Avalon, to
analyse Apple, says Huberty is one of the more bullish on it. “[Her]
theory about Apple products serving user needs one-third of the day, but
that it can increase to 75%, is maybe the most important takeaway from
the note and I think it essentially describes Apple’s future,” he says.
Apple has often faced critics, but time and again it has proved them
wrong. When Steve Jobs launched the colourful iMac computer designed by
Ive in May 1998, Apple was a deadbeat in the PC market, with about 3%
sales share. The iMac helped revive it. When Jobs unveiled the iPod in
October 2001, the first comment on a gadget site was that it had less
storage than existing players, and no Wi-Fi connectivity, making it
“lame”. More than 400m have been sold. Microsoft’s Steve Ballmer laughed
at the iPhone in January 2007; Apple has trounced Microsoft in the
mobile market. Though the iPad has seen sales begin to shrink, Apple is
still by far the biggest vendor in that market, and now aims to sell the
tablets to businesses through a deal with IBM. And in the final quarter
of 2014 its iPhones outsold Samsung’s smartphone range, giving it a new
high of 15% of all mobile phone sales.
The real question is whether the watch can become an unstoppable
money-maker like the iPhone rather than a shorter-term fizz like the
iPad – which nevertheless generated $27.8bn in revenue in 2014.
Ben Thompson, who runs his own Stratechery consultancy, thinks so:
“The biggest initial benefit of the watch will be the addition of far
more ‘small conveniences’ than most people expect (and, on the flip
side, the removal of small annoyances),” he notes. Cybart points out
that Apple has long been valued below other competitors based on its
profits: it trades on a price-earnings ratio of about 10, compared to 17
for many tech companies. “The overall [stock] market has a market cap
of $19tn, so finding $250bn is not an impossible task,” Cybart says.
“There is nothing technically stopping it reaching $1tn.”
