How Apple could release a really expensive iWatch and prime the market for the wearable...

Just as they were late getting into the smartphone game, Apple has not rushed into the wrist race with iWatch. Check out Smartwatch Fans and you'll find no less than 14 smartwatches that are either available now or will be early this year. Some are from major companies like Samsung, Sony and Qualcomm. Others are from startups like Pebble and Neptune that are hoping to compete wrist to wrist with the big boys and win. So how could Apple capture not only the mind share, but make the market?

From my observations, 2013’s most highly regarded smartwatch was the Pebble. The most marketed — and the one that has hit the most wrists to date — is the Samsung Galaxy Gear. The Gear is also the one that’s probably been returned the most.

• Listen to: Vector 10: Kevin Michaluk and smart watches
  

Prior to 2007, the smartphone industry had already been plodding along for years. Predictions were that within a few years every phone would be a smartphone. Smartphone sales began moving from the early tech adopter, enterprise customer and prosumer to mainstream consumer, and the companies selling smartphones on the market began to see their sales spike. BlackBerry’s share price skyrocketed as the company saw massive quarter over quarter growth in sales and revenue. BlackBerry was on the hockey stick ride to riches — they had passed the inflection point and could barely keep up with the growing levels of demand.

Then Apple announced the iPhone, and the rest as they say, is history. The success of the iPhone as a tech product is, to date, unrivaled.

Will the same be true for the wearables market if Apple announces an iWatch as as early as this year? Well, the mainstream demand for smartwatches has not yet hit that same inflection point as the demand had for smartphones when Apple entered the market. In other words, we’re still on the blade and haven’t hit the handle.

Browse around the web and you’ll find plenty of people suggesting that smartwatches are just having a moment of glory, but that it’s just a fad and it will soon fizzle out. That the demand will never move beyond the early tech adopters who are the ones reading this with a smartwatch already on their wrist. The average person who owns a smartphone doesn’t yet know why they’d want a smartwatch, and even if they understood its full benefits, may still be reluctant to go out and buy one.

I firmly believe Apple has the ability to accelerate the mainstream demand for smartwatches, pushing it from the few million early adopters who want a smartwatch now to the 10+ or even 100+ million who are going to own an iWatch in just a few years.

Personally, I think a bracelet or band-style device makes the most sense and neatly sidesteps the entire watch and fashion debate. However, I also think the idea of a premium, high-end iWatch is also worth considering.

The Pebble retails for $150, the Gear for $299. Whether you personally consider those prices expensive or cheap, they are prices affordable to most people who really want to own one. In other words, this is mainstream consumer pricing in a product category still in the early adopter phase.

In the case of Samsung, they’ve put their marketing might behind the Gear as they would their latest Galaxy S phone. There have been some great commercials (some awkward ones too) and they have blanketed their advertising around the globe. As a Pebble owner, I get asked frequently if it’s a Gear on my wrist. Despite the awareness for the Gear, the mainstream demand just isn’t there yet. It’s selling, but it’s not flying of the shelves. And the new and improved Gear 2 and Gear Fit won’t likely change this.

Apple however, has the ability in two product generations to build incredible mindshare and marketshare for their iWatch, especially if they cater the first generation of iWatch to early adopters who are willing to spend more money than the average mainstream consumer. In doing so, the first iWatch will become the marketing tool that creates the demand to sell the second iWatch to the masses.

If Apple created an iWatch that sold at a high price point — say $1000, or $1500, or heck, even $3,000 or more (think of it as wearing a Mac Pro on your wrist), it would be difficult to justify and be priced out of reach for the vast majority of people. Yet, people would definitely buy it, and everybody would want it. Luxury watch aficionados may at first scorn such a watch, but there’s still a large contingent who would run out and buy it. The tech fiends. All of the Valley. Everybody who’s made their money in tech. And then even the luxury watch crowd will go out and buy one, because they’ll just have to try it.

The iWatch would instantly, overnight become the most recognizable and sought after wrist watch on the planet (sorry Rolex). People who get spotted with one on their wrists will get stopped on the street — "Is... is that an iWatch?"

At a high price point, the iWatch goes from being a tech product to being an aspirational product. An object of desire. A luxury item. And people love luxury items. Apple has experience with this too. Look no further than the gold iPhone 5s. It wasn’t even real gold — just change the color to gold and limit supply and you have schmucks out there (like me!) willing to pay $1500 or more just to get their hands on one.

Unlike a gold iPhone 5s, however, Apple could definitely build a wrist-wearable product worthy of a high price tag. People have often likened the precision and design of Apple’s latest generations of iPhones to that of luxury Swiss watches. I’ve never been a fan of that comparison, but do agree that Apple has the ability to create great hardware with extremely tight tolerances and elegant finishes. There is no doubt they could develop amazing hardware around an iWatch.

Looking at the luxury watch market as a proxy, there is a lot that can be done to a watch to build value into the hardware, from both a design and functionality perspective. Apple wouldn’t go all Virtue and bling up the iWatch with gold or diamonds, but they could put a sapphire crystal on it (makes it scratch proof) or create an iWatch that is submerssible to 300 meters. They could, finally, do something amazing with LiquidMetal.

Of course, an iWatch could take sensors to another level as well. Looking at what Apple has done with Touch ID, it’s not hard to imagine the bottom of the iWatch monitoring temperature, pulse, etc. in addition to all the usual motion trackers you’d expect.

Apple’s CEO Tim Cook made the point that if you asked a room full of teenagers to raise their hands, that you wouldn’t see many watches being worn today. That’s true. The first iWatch won’t be for a teenager to wear though. It will be a watch that Jony Ive would want to wear.

The software will have to be good, but since Apple will own the software end to end from iPhone to iWatch, you know the integration will be better than anything a third party company can do that works with iOS.

With the success and learnings from their first iWatch, and with the mainstream market now educated about what the iWatch can do and everybody wishing they too could have an iWatch like those limited people who had the first one, Apple will take the experience in their next iWatch mainstream with a less expensive version.

It's not dissimilar to the iPod model. A high-end starting point that appeals only to the high-end aficionados, but with less expensive and more mainstream models following on.

Will it play out this way? I have no idea. What I do know though is is that a person who’s spent more on their luxury watch collection than they did their university education, if Apple did release an expensive iWatch I’d be standing in line to buy one the day it goes on sale.

Continue reading...