4Q22 Apple Watch Installed Base, Apple Watch Adoption Figures (Daily Update)
Hello everyone. Happy Wednesday.
One quick follow-up to yesterday’s update regarding the Pixel 7 and 7 Pro.
When it comes to assessing Google’s odds of finding traction with the Pixel 7 and 7 Pro, the following screenshot of AT&T's website highlights a big obstacle:
AT&T's bet on Apple is nothing new. Instead, the mobile carriers have been placing even bigger bets on iPhone and Apple in recent years. The logic is straightforward. Consumers want iPhones and carriers don't want customers to look elsewhere for the best iPhone deals. The lack of carrier support/promotion leaves Google appealing to die-hard Android users who have become disenchanted with Samsung hardware. At least in the U.S., that's not a huge market.
4Q22 Apple Watch Installed Base
It's been a year since we went over my estimates for the Apple Watch installed base. Given different definitions of user bases and installed bases, my definition of the Apple Watch installed base is the number of people wearing an Apple Watch on any given day.
Unlike the iPad and Mac, we don’t have to worry about shared settings where one Apple Watch is shared among a number of people. We also don’t have to be concerned with the very small number of people who wear or use multiple Apple Watches.
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Apple Watch Is Now Worn on 100 Million Wrists
More than 100 million people wear an Apple Watch. Based on my estimates, Apple surpassed the important adoption milestone this past December. The Apple Watch has already helped usher in a new paradigm shift in computing, and Apple is still only getting started with what is possible on the wrist. New services designed specifically for Apple Watch (such as Fitness+) are being released. The wrist’s utility continues to be unveiled thanks to new hardware and software features revolving around health monitoring.
The Numbers
It took five-and-a-half years for the Apple Watch installed base to surpass 100 million people. As shown in Exhibit 1, the installed base’s growth trajectory has not been constant or steady over the years. Instead, the number of people entering the Apple Watch installed base continues to accelerate. The 30 million new people that began wearing an Apple Watch in 2020 nearly exceeded the number of new Apple Watch wearers in 2015, 2016, and 2017 combined.
Exhibit 1: Apple Watch Installed Base
The next exhibit takes a look at Apple Watch adoption as a percentage of the iPhone installed base. Since an iPhone is required to set up an Apple Watch, the iPhone installed base is a good proxy for the size of Apple Watch’s addressable market. There are a few exceptions to this such as Family Setup, which allows family members who don’t have iPhones to get set up with their own Apple ID and cellular Apple Watch.
Exhibit 2: Apple Watch Adoption Percentage (Global)
As of the end of 2020, approximately 10% of iPhone users were wearing an Apple Watch. This is a high percentage given the diverse technological wants and needs of those in the iPhone installed base.
Since the U.S. has been an Apple Watch stronghold for years, adoption in the country has trended materially high in comparison to global figures. At the end of 2020, approximately 35% of iPhone users in the U.S. were wearing an Apple Watch. This is a shockingly strong adoption rate that should serve as a wake-up call to Apple competitors interested in the wearables space. Apple Watch turned Fitbit from a household name as the wearables industry leader into a company that will eventually be viewed as an asterisk when the wearables story is retold to future generations.
(The calculations and methodology used to reach my Apple Watch installed base estimates is available here for Above Avalon members.)
Installed Base Comparisons
At 100 million users, the Apple Watch is Apple’s fourth-largest product installed base behind the iPhone, iPad, and Mac. At the current sales trajectory, the Apple Watch installed base will surpass the Mac installed base in 2022. Surpassing the iPad installed base will take longer and likely be measured in a number of years based on the current sales trajectory.
Growth Potential
While Apple Watch adoption figures point to a product gaining acceptance and appeal around the world, the same numbers also speak to the product’s sales growth potential. There is nothing stopping Apple Watch from grabbing much higher adoption over time. Stronger adoption will serve as an Apple Watch sales growth engine for years.
Running with a few simple calculations, if 35% of iPhone users around the world one day wear an Apple Watch, the same adoption percentage found in the U.S., the Apple Watch installed base would exceed 350 million people. That’s 2.5x larger than the current installed base.
Of course, a 35% adoption figure when looking at the iPhone installed base may end up selling the Apple Watch far short. There is nothing preventing Apple Watch from being worn by an even higher percentage of iPhone users. More importantly, the Apple Watch’s future is one of true independency from the iPhone. Opening the Apple Watch up to non-iPhone users would expand Apple Watch’s addressable market by 2.5x overnight. A 10% adoption figure among all smartphone users around the world would amount to 350 million people wearing an Apple Watch.
What’s Driving Adoption?
As for the factors behind Apple Watch’s steady growth in adoption, there are four primary ones:
Wearables Fundamentals. Leveraging new form factors and design (how we use the products), wearables are able to make technology more personal. People are attracted to Apple Watch’s ability to handle some tasks currently given to more powerful devices like iPhones and iPads as well as entirely new tasks. Given its design, there is nothing inherently found in wearables that limits its addressable market to the point of making it smaller than that of mobile devices. Instead, wearables are one of the rare product categories that can have an even larger addressable market than smartphones - a difficult feat given such high smartphone adoption figures.
Wrist’s Appeal. Everything from a great line of sight for displaying snippets of text and data, to an opportunity to successfully monitor activity and vital signs makes the wrist a valuable space for bringing utility to the body. By selling intangibles like prestige and wealth on the wrist, the Swiss watch industry ended up missing the wrist’s true value. Wrist real estate was being underpriced, and Apple capitalized on the mispricing with Apple Watch.
The Cool Factor. People want to be seen wearing an Apple Watch. The Apple Watch brand has evolved to become cool yet approachable. The device has wide appeal across gender, age, occupation, and social status. Apple Watch wearers are able to add customization to the wrist through various Watch band, case, and face / complications combinations. Thanks to Apple Watch’s comfortable bands, it’s easy to wear the device all day, every day.
Apple Ecosystem. One of the Apple Watch’s secrets to success is how it ends up being just one part of a much larger Apple ecosystem - an ecosystem that is unmatched in the industry. The ability to work seamlessly with other Apple wearables like AirPods as well as other devices ranging from iPhones to HomePods gives Apple Watch additional appeal and staying power in our lives. The ability to consume Apple Watch Services like Fitness+ on other Apple products helps to solidify Apple Watch’s positioning within the ecosystem.
Future Roles
When assessing Apple Watch’s future roles within Apple’s product line, three in particular jump out:
Identity Checker. Wrist detection allows the Apple Watch to maintain one’s identification chain as long as it remains in contact with the wearer’s skin. This is something that is difficult and cumbersome for other Apple devices to handle since they aren’t likely to be physically in contact with our bodies throughout the day. We already see Apple embrace this functionality by allowing Apple Watch to unlock Macs and most recently, iPhones. Going forward, the Apple Watch’s ability to serve as an identity checker can end up being used throughout our day as we interact with different devices, rooms, and objects.
Digital Health Purveyor. The Apple Watch is able to seamlessly monitor our health and alert us to things that we should know without overwhelming us with lots of data and information. This gives the Apple Watch a key role in our lives that would be difficult for other devices to handle.
Support Device for Face Wearables. While the face is home to some of the most valuable real estate on our bodies, it’s not an ideal place for storing a lot of technology. In order for face wearables to go mainstream, devices as light, thin, and comfortable as a regular pair of glasses are needed. Not surprisingly, this is proving to be a difficult engineering problem to solve. The Apple Watch allows technology required for computing on the face to be placed in a far more convenient location on the body.
A Successful Bridge
Back in early 2018, I called the Apple Watch a bridge to the future - a device that was still very much based on our current user interface repertoire but beginning to lay the groundwork for the future when it comes to greater reliance on voice, audio, and digital identity. At the time, in the Above Avalon article, “Apple Watch Is a Bridge to the Future,” I wrote the following:
“Apple has a vision for how we will use the combination of voice and screens in the future. Unlike Amazon and Google, who are desperately trying to position voice as a way to leapfrog over the current smartphone/tablet and app paradigm, Apple is approaching things from a different angle. Instead of betting on a voice interface that may push some information to a stationary screen, Apple is betting on mobile screens that are home to a digital assistant. Apple is placing a bet that consumers will want the familiarity of a touch screen to transition to a future of greater AI and digital assistants. In addition, Apple thinks user manipulation via screen (fingers, hands, and eyes) will remain a crucial part of the computing experience for the foreseeable future.”
Three years later, I wouldn’t change a word in that paragraph. This scenario has materialized. In addition, the fact that Apple Watch is not a futuristic device struggling to handle tasks that we currently have has given the device a good portion of its appeal and momentum over the past five years. With Apple Watch now worn on more than 100 million wrists, Apple can turn to the next Apple Watch adoption goal: 200 million wrists.
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For additional discussion on this topic, check out the Above Avalon daily update from January 16th.