COMMENTARY | COLUMNISTS | PHIL BAKER

The Apple Watch bubble

Two months ago we were bombarded with news of the introduction of the Apple Watch. Everywhere we turned, another article, blog, preview or TV personality was talking about the product. And with it came the usual exaggerations — from Apple about how the watch is life-changing and from the analysts and writers, prognosticating about the collapse of the Swiss watch industry and the decimation of other smartwatches.

The buildup to this fever pitch was orchestrated by Apple’s expert PR campaign, which has been estimated to have cost as much as $100 million. Apple slowly leaked news of the watch beginning last year and, after teases, showed the product to the press and public at an event that was broadcast live over the Internet to a worldwide audience.

Simultaneously, it permitted a small group of reporters from the major national publications and blogs to publish their reviews in concert on the following day, based on being lent a watch several days earlier.

While it’s hard not to admire Apple’s prowess at rolling out new products, there’s also a sense of Apple manipulating the tech industry and its fans by exaggerating the importance of its new products. It’s as if they created a huge bubble that we all were inside. Of course, the industry and reporters allowed themselves to be manipulated.

Now that things have settled down and the bubble has deflated, just how is the Apple watch doing and have any of the predictions come true?

The reviews have been generally positive, but the watch requires quite a bit of effort to set up and manage the constant alarm interruptions from mail, messages and calendar, and its tie to an iPhone limits some of its flexibility as a stand-alone device.

The consensus is that it’s a work in progress, but a product that beats the competition because of its attractive design and excellent interface. It doesn’t score a 100, but perhaps an 88, while the competition is in the 70s. So while it’s a very good product, it’s not likely to be a huge game changer.

As for sales, Global Equities Research analyst Trip Chowdhry estimates that Apple has sold more than 7 million watches. Compared to other Apple products, that’s an excellent start.

The iPhone, originally an exclusive with AT&T, sold 1.1 million in its first quarter, and the iPad sold 3.3 million units in its first quarter in 2010. So by the standard of previous rollouts, the Watch is doing quite well. But it benefited by a much larger PR campaign. And unlike the iPad and iPhone, where word of mouth was nearly all positive from its early users, we are now getting more negative reviews and reports of early fans returning or no longer using the Watch.

Some thought that the Apple watch would damage the Swiss watch industry, similar to the impact of the quartz watch from Japan in the ’70s. But many analysts like to write about how one product will become the “killer” of another, which rarely happens.

So far, there’s been very little impact, and I personally don’t think there will be much of an effect. The strength of the high end-market for Swiss watches is driven by the mechanical watches that have great appeal to watch aficionados for their tiny gears, levers, springs and workmanship that can cost from $3,000 to more than $75,000. Some are truly works of art. That’s an audience that’s quite different from those interested in the electronic Apple Watch whose inside is filled with electronic circuitry.

Based on a recent article in the Swiss newspaper Le Temps, Switzerland in 2014 sold just 1.7 percent of the world’s watches by volume, 29 million, but 57.5 percent by value.

Switzerland’s success has come less from the lower and midprice watches selling from $600 to $1,000, but from those watches selling above $3,000, many from manufacturers around since the late 1800s.

The report goes on to note that, “Exports of entry-level watches have dropped by 19.3 percent since the turn of this century, while lower-level watches have increased by 58.9 percent and midlevel ones by 9.6 percent. But the real change has come in the high-end category, where sales have increased by an astonishing 236 percent.”

While Apple will likely sell more watches than all the Swiss watchmakers combined, that’s still a tiny percentage of the worldwide watch market.

As to the volume of production, the Swatch brand leads with a yearly production of 12 million units, followed by Tissot at 4.2 million. In the midrange, Longines leads with 1.3 million, followed by TAG Heuer at 650,000.

In the high-end category, Rolex leads with 780,000 units, followed by Omega at 720,000. Patek-Philippe, one of the most revered brands of all high-end manufacturers, sells just 58,000 watches each year.

So, Apple watch sales will have very little impact on the high-end market for mechanical watches, those that contain the complex technologies developed over centuries.

What will its impact be on other smartwatches? That’s where Apple will make an impact, taking market share from Pebble, Basis Peak, Motorola, Samsung and LG. None of these can match the attractive design and overall user experience of the Apple Watch.

I recently tested Basis Peak’s latest model and, while I found it very functional and an improvement over its first model, it’s more utilitarian. But unlike the Apple Watch, it works with Android and the iPhone and doesn’t need to be charged as often.

What’s the lesson in all of this? Don’t believe the exaggerated reporting and the wild predictions that are generated from big PR campaigns. Things are often much less than they seem.

Still, graduations are coming up this month.


Baker is the author of "From Concept to Consumer," published by Financial Times Press. Send comments tophil.baker@sddt.com. Comments may be published online or as Letters to the Editor.

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