Apple Watch sales strategy needs to be different for Apple

Anthony Caruana
21 April, 2015
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Apple-Watch-FAQ-macworld-australiaTechnology analyst Carl Howe has estimated the Apple Watch will sell over three million units and generate about $2B of revenue for Apple in its first month of sales. Those are big numbers that make most other product launches seem insignificant.

For Apple, this is clearly their most challenging product release. While the iPhone and iPad have been incredibly solid products, they typically only come in a few variations. Three colours, three capacity options and two screen sizes for the current iPad and iPhone product lines. But the Apple Watch comes in almost 40 variations with two screen sizes, three main models and dozens of different band options.

As a wearable product, buyers aren’t just buying the Apple Watch as a tool, like the iPhone and iPad – they’re buying it because it’s a fashion accessory.

Apple has been caught out with sales of the iPad falling below their expectations. This is because they misunderstood the market they were selling into.

With the iPhone, most people are accustomed to replacing their phone every year or two when their carrier contract expires. Typcially, as the handset cost is built into the monthly fee, a replacement is essentially “free”. Although they’re paying for it the cost is invisible.

The iPad and the Apple Watch are different. Because people pay for those items in cold hard cash they actually see and feel the expenditure. So, rather than buy a new item every year or two, they will hold on to the products a little longer.

With the iPad, the surge of sales into corporate and education clients is tempered by depreciation cycles and lease periods. Many companies and schools plan to use their iPads for three years. That has had an impact on iPad sales.

With the Apple Watch, we suspect most buyers – you can exclude hard-core Apple fans that buy the newest version of everything and anything engraved with “Designed in Cupertino” from this – will buy an Apple Watch with the expectation it will work perfectly for many years. I have a drawer with several watches – I choose the one I want to wear each day to match my mood, clothes and the occasion.

The challenge for Apple will come with deciding when to release Apple Watch 2. Do they expect people to upgrade to a newer model every couple of years, like the iPhone? Or will they work on a longer product cycle and release a new model every three years or so?

A look at the actual product probably gives a few hints.

Firstly, the Apple Watch Sport needs two new features – integrated GPS and waterproofing. A sports watch that can’t get wet isn’t a real sports watch in our view. Given Apple has made all three major Apple Watch versions functionally identical it’s probably reasonable to expect those features to span all three product variables.

However, it’s hard to imagine Apple releasing Apple Watch 2 in less than a year. We feel that two years is probably more likely in order to ensure early adopters aren’t annoyed and to let the dust settle on the new operating system and so more app developers can get on board while the platform is stable.

Given the pricing – the least expensive Apple Watch in Australia is the Apple Watch Sport with a 38mm screen costs $499 – it’s unlikely buyers will be in a position to purchase a new model every year. Even the investment in different straps for personalisation is expensive. While new Sports straps come in at $79, other straps cost as much as $679.

For these reasons, we suspect Apple Watch 2, with GPS and waterproofing, will come in about 18-24 months with subsequent releases coming every three years after.

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