Quick Thoughts: The Emperor’s New Watch


The Apple Watch – Everybody has an opinion. Here is mine.

So how is the new Apple Watch doing after its first three months? Two weeks ago, market research firm Slice Intelligence roiled the waters with a report which, based on its analysis of e-mail receipts sent to its 2.5 million US panel members, suggested a 90% drop off after the first week of sales. Last week, CNN reported that the search volume for the Apple Watch, as reported by Google Trends, was a tiny fraction of that for iPhones and iPads, and even below that for the moribund iPod. Meanwhile, Wristly, a new web site launched specifically to examine the Apple Watch phenomenon, is just out with a survey of 800 self-selected members of its panel showing that they LOVE their Apple Watches to the tune of 97% satisfaction. These are the three data points that we have. Unlike most products in this internet age, the distribution of Apple Watch is closely controlled by its maker, and Apple isn’t talking.

This information drought on a relentlessly promoted new product leaves analysts uncomfortable. Analysts don’t like to look stupid, and over the past two decades no company has made more TMT analysts look more stupid than Apple. Over the past 15 years, it has blindsided the investment community with the periodic introductions of audacious new products and then again, as the consumer response to those products came harder and faster than even the most bullish voices had predicted. iMac, iPod, iPhone, iPad – these have been hero products and woe be the broker, journalist or pundit that staked their reputations on the bear side. The big screen iPhone 6, though not really a revolutionary new product concept, sold like one, taking Apple stock on another leg up as the most valuable company in the world. After all of this, when Apple so much as hints at a product, analysts take it very seriously – hence the annual hype cycle around the mythical Apple TV set and the respect paid to the potential of an Apple car in every iPhone user’s garage.

In this spirit, analysts and market pundits have been struggling for relevance on the new Apple Watch – hinted about for months, acknowledged with a vague announcement last September, and thrust into the market with a shock-and-awe marketing wave in April. Confronted with a real product with real specs but no real visibility into the actual sales, the pressure to have something to say about the product rose. An intrepid few went big early, forecasting that the Apple Watch would be a significant factor for the company in its first year – a tall order given Apple’s $200B plus in annual sales. A few others went the other way, mostly asserting skepticism over the addressable market or the learning curve rather than the quality of the product. Most hedged their bets.

In the absence of information, the prevailing hedged perspective on the Apple Watch has held that 1) the product concept is a paradigm shifting stroke of genius in the tradition of the iPod, iPhone and iPad; 2) near term demand may be muted due to consumer unfamiliarity with the use cases, a narrow library of early apps, and narrow distribution – issues also observed in the slow ramp for the iPod and iPhone; 3) the 2nd generation Apple Watch will resolve many unforeseen issues with the original model, while new apps begin to exploit the real potential of a wrist mounted computing platform; and 4) by 2017, the Watch will be another tent pole product for Apple, delivering significant contribution to the company’s top-line and bottom-line growth on its own, while also adding further advantage to the iPhone vs. rival products and thus, driving growth there as well. Ultimately, this is a faith-based argument, turning on the belief that Apple’s exemplary track record leaves it above question. It also protects the analyst from looking stupid – at least for the next year or two.

When the Slice Intelligence data point popped up on July 7, the market reacted to it, sending the stock on a three day 4% drop. Bloggers, many well respected tech market observers, were vigorous in defense, pointing out that Slice’s methodology of examining e-receipts received by its 2.5 million person US panel ignored many important segments of the Apple Watch market. A week later, the Google Trends data point hit, reported by CNN and others, right in the midst of and ignored by a NFLX/GOOG inspired tech rally that took Apple back to test its all-time highs. This week, the Wristly customer satisfaction report comforted Apple bulls, even though it carries similar methodological weaknesses as the Slice Intelligence report that had been so derided a week earlier. These data points may mean something or nothing, and Apple Fanboys are going to love and haters are going to hate.

As I sit in this same information void, I definitely lean to the skeptical side. I note a few media voices are beginning to talk more boldly about their own Apple Watch doubts. The always provocative Bob Lefsetz recently wrote a piece suggesting that Apple has lost its way in the aftermath of losing Steve Jobs, and that the Apple Watch was poorly conceived, designed and executed. You can read it here (http://lefsetz.com/wordpress/index.php/archives/2015/07/10/apple-4/). The Information’s Jessica Lessin wrote of feeling almost self-conscious with her Apple Watch, and her surprise at how few of the movers and shakers at Paul Allen’s Sun Valley conference wore one – she counted just 4 others, including Apple CEO Tim Cook. (https://www.theinformation.com/articles/Lonely-with-the-Apple-Watch) When I read these accounts, by writers that I consider thoughtful and honest, my confirmation bias kicks in and I feel my own suspicions rise. I have also been surprised at how few of my iPhone loving friends have sprung for the Watch and the fairly lukewarm praise from the ones that have. There are no real facts to support my position – or refute it – but I don’t really believe that the use cases, form factor, or price will captivate most consumers, even in a 2.0 version.

Maybe everyone is just waiting for Christmas. Maybe the market for Apple Watches is on fire in China. Maybe this is just normal, and sales will ramp steadily over the next few years the way that most analysts say that it will. Maybe – but I’m thinking probably not.

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