A Flop Unlike Any Other…

The amazingly underwhelming Apple Watch

Last year, Rolex did $4.5 billion in sales. A solid year for the premium watchmaker. Of course, it was no Apple Watch. That business did roughly $6 billion in sales, if industry estimates are accurate.

The point here isn’t to compare the two devices — an Apple Watch is just about as comparable to a watch as an iPhone is to a phone. But it does provide an interesting context for Apple’s fledgling business — a new product category which has come under a lot of scrutiny since its launch a year ago. Many have called it a “flop,” which, again, is interesting in context.

For even more context, The Wall Street Journal notes today:

So far, the numbers appear solid. Apple doesn’t disclose sales, but analysts estimate about 12 million Watches were sold in year one. At an estimated average price of $500, that is a $6 billion business — three times the annual revenue of activity tracker Fitbit Inc. By comparison, Apple sold roughly six million iPhones in its first year. As a new entrant, the Watch accounted for about 61% of global smartwatch sales last year, according to researcher IDC.

Believe me, I too am full of Apple Watch gripes. The main issue, in my view, is that I simply never use the apps. And wasn’t that supposed to be the point of the thing? Instead, I use the device almost solely for push notifications, which, don’t get me wrong, are still useful. In fact, some, like the notification you get when an Uber is arriving, are extremely useful. But I’d be lying if I said I wasn’t disappointed in terms of overall experience thus far.

And yet, one year later, I’m still wearing the thing every day.

Maybe I’m delusional. But I don’t think so. I feel like I still see a ton of people wearing them around as well. And actually, increasingly so. Yes, I live in San Francisco, so maybe I’m in a bubble (but not the Bubble). Then again, as overcrowded as it may be, I’m pretty sure 12 million people don’t live in San Francisco. Or even the entire Bay Area.

Again, if the numbers are to be believed (Apple doesn’t break out Apple Watch sales), the Watch is hardly just a Silicon Valley thing. And given the average selling price, there’s no question that it’s a pretty great business — bigger than most businesses, in fact.

But this is Apple. This is the company where selling 300 million iPads in five years isn’t good enough for many, because it doesn’t match the iPhone. Never mind that the iPhone is the greatest business in the history of ever. The bar has been set extremely high, and the reality is that a $6B business doesn’t move the needle much for Apple.

But it also doesn’t have to. At least not yet.

Because the Watch can only work when tethered to an iPhone, it’s just an additive business right now. That is, it makes the iPhone business more valuable. Or, at the very least, it creates slightly more lock-in to that product. This may change if/when the Apple Watch gets its own cellular antenna. But presumably, that’s at least a couple years out.

This points to what really matters here. In framing the Apple Watch sales in the context of first-year iPhone sales, WSJ seems to be suggesting the Watch could be on the verge of breaking out. Of course, in an info graphic further down the page, they note that the iPad also blew away iPhone sales in its first year — to the tune of 19.5 million sold.

So will the Apple Watch be the next iPhone (slow to start, then nearly exponential) or the iPad (explosive growth to start, then trickled off)?

Impossible to say right now, of course. But it seems entirely unrealistic to think it will match the iPhone’s trajectory. Because, again, no other business ever has. If I had to guess, I’d imagine the Apple Watch lands in between the two product categories in terms of how it progresses. I think it will be more upgrade-worthy than the iPad, but less so than the iPhone has been thus far.

The caveat here is that it has to get better than it is right now. But if history is any guide, this is always what happens with Apple products. I happen to believe Apple Watch is a bit more “v1” than a lot of other products the company has put out there. But that may just mean that it has more opportunity to grow into something truly unique, useful, and worth upgrading for as iterations come.¹

If this doesn’t happen, the Apple Watch may turn out to be an actual flop. Again, that’s clearly not the case right now. But if the value proposition isn’t consistently raised, this first year of sales may be the equivalent of a movie that opens to huge business, then falls 60% in its second weekend in release, then even more in its third weekend…

So let’s see what this fall has in store in terms of iteration. Then we should have a better sense of the staying power of the device. Let’s give it… time.