Why Massive Apple Watch Revenue Won’t Mean Mass Wearable Adoption
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I want preface this post with the following: I love technology, I’m an Apple fan, I buy Apple products, and I will probably buy an Apple Watch.
After reading the WSJ article about the Apple Watch I had two thoughts — 1) they are going to make a ton of money selling these things and 2) does that mean wearables will finally become main stream?
The money aspect of the Apple Watch is easy to understand, even if we don’t have exact production specs and price points. Apple is going to sell three variations of the watch — Sport, which Apple has stated will cost about $350 USD, what I’m calling Basic, which is the mid-tier watch and could cost around $1,000 USD, and the most expensive version, the Edition which will have a price point around $5,000. Note, the price points on the Basic and Edition are not set, so they are pretty much SWAG predictions on my part. The WSJ article also points our some production estimates, which probably came from Apple’s suppliers. Apple has reportedly placed an order for 5 to 6 million units, with 50% of those being for the Sport and 33% being for the Basic edition. After some grueling algebra, we see that leaves 17% of the product run for the Edition edition (that sounds stilly, but okay). Loving MS Excel, I create the following chart to show how much Apple stands to make:
On the smaller production estimate of 5 million units, Apples is going to make around $8.7 billion USD with the first run of the Apple Watch — not too shabby. But looking at this you start to notice something. Nearly 60% of that $8.7 billion USD is going to come from selling the most expensive Apple Watch. We’re not quite in an 80/20 situation here, but to me, that doesn’t sounds like a good from a wearable adoption standpoint.
Most people will think something along the lines of, “Apples is making a ton of money off of the Apple Watch. People have finally accepted wearables and they are here to stay!” But here is the problem — in this situation, revenue is a terrible sign of adoption and attitudes. This isn’t a case where the majority of consumers will be voting with their wallet. 60% of Apple Watch sales could come from less that 20% of the units produced. Indeed, how many ‘normal’ folks, or even Apple fan boys, are going to drop $4,000 on an Apple Watch? Don’t get me wrong, I think Apple will sell each and every Apple Watch Edition them make, but that isn’t going to mean that people have accepted wearables as commonplace. I think the better gauge of the Apple Watch’s success, and the adoption of wearables in general, is going to be how many of the mid and lower tier units they are able to sell. These products have a more mass-market appeal and will provide a greater sense of people attitudes towards wearables. If demand for the lower tier products is strong, this will be a good sign that wearbles’ time may have finally come.