Understanding Apple’s Watch Approach

Though, we got some time after the launch of the Apple Watch to talk about; I feel it is worth looking at what seems to be Apple’s approach and long-term goals concerning this product.

If you talk about the comments and perspectives of people around, they’re quite mixed. I think this would be a significant novel hardware product for Apple and it possibly will be a big hit, at least with a burly segment of their users. Well, in order to realize this approach, one has to stare narrowly at the way Apple looms the design and ecology of any new product it revealed. Fascinatingly, it is just subsequent to a formula that started with the beginning of the PC and yet works today.

As an analyst, my first duty was of covering mini-computers. IBM had just released a PC, when I joined Creative Strategies in 1981, and asked to cover up the group as part of my job. One of the reasons why IBM even got into the personal computer business was because of a product called VisiCalc that twisted the Apple II into an efficiency workhorse through this remarkable spreadsheet. Surprisingly, CFOs and auditors were buying Apple II computers and using them to mock-up their financials. I knew, at the personal level, VisiCalc was a game changer as I saw its progress from the inside because my wife was in the HR department of VisiCorp, the company that formed VisiCalc. IBM was a computer company, so it concluded that IBM should bring the PC to business once it saw VisiCalc. Since, to IBM, the Apple II was just a hobbyist machine and as their name oblique, they were all about business.

More notably, credit goes to the Microsoft SDK, software developers who given the tools to make apps and this is the time when real novelty began. Apple has essentially followed this formula although with adding up a lot of services tied to its software ecology. I still reminded of a discussion with Phil Schiller, Apple’s senior vice president of marketing, when he first showed me the iPhone in 2007. He put down the iPhone on the table in the off position and asked what I saw. I said I saw a piece of glass in a metal frame. He whispered I was right and then turned it on and told that the actual “magic is in the software and what it can do for a person.” He went on to explain how apps prepared the iPhone sing and dance and I memorize saying to him that Apple was moving the software revolt to a handheld device.

One of the major differences from the software rebellion of the 80s to Apple’s approach today is back after that hardware was owned by OEMs or vendors. The Operating System was owned by Microsoft followed by third-party apps that worked on top of them. However Apple is in a distinctive place to own the hardware, OS, software development platform and the connected services. It means that it can make hardware especially to get full benefit of its software and craft the environment for these apps and services to thrive.

This eventually is the best of Apple’s short and long term approach with any new product or category it enters. With the introduction of the iPod this overall approach really took form. The iPod was just a nice piece of hardware, but when added in iTunes store, the iPod became an amazing music tool that helped Apple reinvent the MP3 player.

This approach became even more refined with the iPhone. Apple did not invent Smartphone but it reinvented them by launching a great piece of hardware, and services that have aided to drive the Smartphone revolution. Apple also did not invent the tablet, but using this same formula of hardware, software, and apps and services, it reinvented tablets and brought them to the mass market.

Currently it tried the same thing with wearables via a smart watch. The Apple Watch is a good idea of product that includes stylish design, a new UI and OS designed just for this appearance factor and an SDK to give software developers the opportunity to create innovative apps.

Apple watch could be questioned by many people but its wild card is the apps, and payments could be the killer app, we should never underestimate the creativity and innovation that could come from the app community to create the kind of apps that push this well beyond the early adopters.

This is the potential success of Apple’s Watch. There are four pillars of the heart of Apple’s Watch approach. The first is using the apps and their ecology to drive innovation to this new hardware platform. The second pillar is its link to home automation via HomeKit. Apple only demonstrates one example of a connected home app, but since the Watch has Bluetooth and NFC it will be interesting to see how the home automation folks create apps that work with the Apple Watch. The third pillar is health related. The various sensors in the Watch and the new iPhone will be another driver for many users. And the best app could be the payments and represent the fourth pillar in this strategy.

The price of the Apple Watch would keep it from the mainstream market. Certainly, $349 it is quite costly and being tied specifically to the iPhone is quite limiting. On the other hand, it could persuade many to the iPhone platform, too.

The iPod was $499 when it first came out and over time Apple drove the price down noticeably. Apple’s approach seems to start at the finest market to cover its initial R&D costs for the first two years or so before dropping the price. Apple will ultimately settle the pricing into mid and premium categories and do quite well.

Whereas it will not be as big a hit as the iPhone, the Apple Watch could still be a good profit center and bring smart watches to the mass market. Think of this version of the Apple watch as 1.0. It will be interesting to see what 2.0 and 3.0 will be as Apple change its watch stage.