Deconstructing Apple’s Product Event (Apple Watch)
Hello everyone. We will continue our Apple event review.
Yesterday’s update was focused on the big picture.
My preference is to go deep into one section (Apple Watch, AirPods, iPhone) before moving on to the next section. For today, we will focus on the Apple Watch part of the presentation. Tomorrow, we will talk about AirPods. That discussion will end up including something of a State of AirPods section that extends behind just what was announced this week. There has been a lot going on with AirPods sales. Monday will be focused on everything iPhone.
Let’s jump in.
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Apple Pushes Apple Watch for Kids, Apple Watch SE 3 Rumors, Apple Watch New User Trends
We begin by examining Apple’s new minisite: “Apple Watch For Your Kids.” The discussion then turns to Apple Watch SE 3 and its connection to Apple’s sales pitch to parents. The update concludes with a look at my Apple Watch unit sales growth figures, new user totals, and adoption figures.
Hello everyone.
It’s good to be back after a mini vacation. Over the coming days, we will gradually get back into the swing of things. Fortunately, the tech news flow has been rather light. This gives us time to pursue a few topics that grabbed my attention over the past week or so.
Apple Pushes Apple Watch for Kids
Last week, Apple launched a new minisite, "Apple Watch For Your Kids," dedicated to pushing cellular Apple Watches for children.
Here’s Apple:
“Set up any Apple Watch with cellular for your kids, even if they don’t have their own iPhone. Easy to call and text. Know where they are. Great ways to keep them active. It’s independence for them. And peace of mind for you."
The minisite is accessible via the Apple Watch SE page (shown below).
Although this is not entirely new messaging from Apple, it is a rebrand. Apple Watch For Your Kids is the new name for what was previously called Family Setup (introduced in 2020). Family Setup was billed as a way for “kids and older family members” without iPhones to use a cellular Apple Watch.
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Measuring Apple Watch’s Sales Potential, Apple Contemplating Apple TV Ad Play, ByteDance Planning Spotify Battle (Daily Update)
Hello everyone. We will kick off today's update with one follow-up to yesterday's Apple Watch discussion.
Measuring Apple Watch’s Sales Potential
Yesterday, we talked about Apple Watch sales and adoption trends up to the end of September 2022.
As for looking forward, there is no near-term ceiling as to the percent of iPhone users who will embrace Apple Watch. The Apple Watch ushered in a paradigm shift in computing, even if consensus still isn't willing to acknowledge the shift. Since wearables are capable of making technology more personal, there will be a natural evolution involving consumers gradually finding spots in their lives for wearables.
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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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Deconstructing Apple’s “Far Out” Presentation (Part 1) - Daily Update
Hello everyone.
Welcome to a new week.
We will continue my Apple event review. Last Thursday, we went over the event highlights that jumped out at me. Our attention will now shift to more granular topics.
In today’s update, we will focus primarily on Apple Watch. In tomorrow’s update, we will talk about iPhone, AirPods, and any other remaining topics that deserve to be talked about. Instead of just going through the laundry list of announcements, we will focus will on the why behind Apple's announcements.
Prioritization
Over on Apple's Events page, the company listed the following products/features unveiled at last week’s “Far Out” event:
iPhone 14 Pro (Dynamic Island / safety features / upgraded camera)
iPhone 14 (new Plus size model and better battery life / safety features / low-light photography)
AirPods Pro (ANC and adaptive transparency / personalized spatial audio / better battery life)
Apple Watch Ultra (rugged / capable)
Apple Watch Series 8 (“future of health” = advanced cycle tracking / Crash Detection / Workout app enhancements)
Apple Watch SE ("more capability and an even lower price")
Apple Fitness+ (will be available to all iPhone users)
For iPhone, cameras and processors were not positioned as the most important new features for this year’s flagships. Instead, additional screen real estate with the new Plus model and changes to Pro screens with Dynamic Island were the two big new features. Apple positioned
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Apple's Missed Opportunity at WWDC
For the third year in a row, Apple held an impressive WWDC (worldwide developers conference). The breadth of announcements across various product categories speaks to how Apple is successfully pulling away from the competition. No other company is able to match Apple’s ability to push so many distinct platforms forward yet simultaneously keep an eye on ecosystem cohesiveness. It was this ecosystem focus that ended up being one of the major takeaways from Apple’s WWDC 2021, as outlined in my WWDC review (available here for Above Avalon members).
With that said, it was hard to shake the feeling that Apple missed a big opportunity at this year’s WWDC to push its most personal product even further than it already has. There were three specific instances in which Apple had the chance to add functionality to the Apple Watch but instead chose to puts its focus on less robust alternatives. It is in Apple’s best interest to expand Apple Watch functionality in order for the device to handle an increasing number of tasks currently given to smartphones and tablets.
Focus
Along with unveiling revamped notifications, Apple announced a new initiative aimed at helping users avoid unwanted distractions. With Focus, users can now match their device usage to activities and mindset. Positioned as a type of enhanced Do Not Disturb, setting up a Focus gives users more control over how involved they can become with their devices at any given time. The features sure seem to be a direct result of Apple employees struggling with work from home directives over the past 15 months during the pandemic.
While some people will undoubtedly benefit from Focus, Apple missed a big opportunity to position the Apple Watch as a solution for iPhone information overload. Apple Watch wearers are already able to put down their other Apple devices but still feel connected by receiving important notifications or reminders. It was odd how Apple didn’t draw attention to such utility and look to add new controls to Apple Watch that allow us to engage with our other devices without becoming overwhelmed. Instead, Apple went so far as to imply the Apple Watch contributes to information overload. The entire Focus segment of the keynote came off as not fully thought out.
Smart Home
The smart home remains the Wild West. It is simply too early to declare winners or losers in the space. Companies are now reconfiguring their smart home strategies to focus on verticals seeing some kind of traction (security in the form of video cameras and video entertainment in the form of streaming video boxes and speakers).
During WWDC, Apple unveiled a few updates to its smart home strategy. One of the more strategic changes involves expanding Siri support to third-party smart home devices. Voice queries will be run through a homeowner’s HomePod or HomePod mini. While the feature may become popular with some users, Apple missed another opportunity to position the Apple Watch as a key differentiator when it comes to grabbing territory in the home.
At one point during the WWDC keynote, Apple’s Yah Cason said the following: “We believe Siri is most powerful when it’s available throughout your house.” Apple is right in making such a claim - a digital voice assistant is indeed more powerful and valuable when not confined to a stationary device. However, is having more stationary devices in the home the best solution for always having Siri nearby? Apple seemingly ignored how nearly 110 million of its users already have Siri always on them when at home by wearing an Apple Watch. Having Siri always available on one’s wrist via the Apple Watch means there is no need to worry about where a Siri-integrated device may be found in and outside the home. In addition, Apple Watch wearers have a screen to display Siri answers which is useful for things like weather queries, sports scores, and seeing how much time is left on a timer. Apple could be giving the Apple Watch a much larger role to play in its smart home strategy. We saw hints of this potential when Apple unveiled an updated Home app for Apple Watch. Much more could have been done.
Siri Watch Face Forgotten
For the third year in a row, Apple acted as if the Siri watch face didn’t exist. While Apple can technically use its fall event for unveiling new Apple Watch hardware to also announce updates to the Siri watch face, such a scenario doesn’t seem likely.
Unveiled at WWDC 2017, the Siri watch face pushes snippets of information and data to an Apple Watch wearer throughout the day. This information is contained in “cards” that change based on the time of day, location, and upcoming schedule. Apple announced a major update to the Siri watch face in 2018 when third-party cards and Siri shortcuts were made available. In a disconcerting development, Apple hasn’t announced any updates to the Siri watch face since.
Interestingly, despite no updates to the Siri watch face, Apple did bring similar functionality to the iPhone in 2020 via the Smart Stack widget. Even the design of the Focus app shares some functionality with the Siri watch face. Given these developments, the lack of updates to the actual Siri watch face ends up being that much more of a head scratcher.
Why?
It’s easy to write a blog post or record a podcast / video about how Apple is making a mistake and needs to adjust strategy. The value is found in understanding the “why” behind a particular Apple decision, which involves weighing both sides of a decision.
Why didn’t Apple push Apple Watch more when it came to reducing notification overload on iPhones and helping Apple users throughout the home? Why does Apple continue to ignore the Siri watch face?
There are two possible explanations for Apple’s actions:
1) Apple believes wrapping the Apple Watch around health makes the device an easier sell with consumers. Some of the biggest watchOS announcements unveiled at this year’s WWDC were once again related to health. This follows Apple’s multi-year strategy of adding health sensors to the Apple Watch. While Apple management knows that most Apple Watch wearers use the device for more than health monitoring, those other use cases are not used to anchor Apple Watch marketing. As seen with the following images from Apple’s Apple Watch webpage, it’s all about heath. Even fitness, which is more niche than health, takes a secondary position to health when it comes to selling Apple Watch.
There may be a “if it ain’t broke, don’t fix it” mentality at play with Apple Watch product marketing. Apple’s current Apple Watch strategy involving health (and fitness) seems to be connecting with customers as seen by Apple Watch unit sales (the following are my estimates):
2018: 22 million units
2019: 26 million
2020: 31 million
Accordingly, Apple may be bypassing certain features for watchOS that would fundamentally move the Apple Watch away from being an intelligent health companion device.
2) Apple is close to announcing its entry into face wearables. Apple may not want to spend years positioning Apple Watch as a certain kind of device only to have it be surpassed by a pair of lightweight smart glasses (AR / mixed reality). Instead, Apple is focused on pushing Apple Watch in a direction that it is confident will complement a pair of smart glasses. This results in Apple making a notable push on the health front from both a hardware (sensors) and software perspective while other functionality is kept on the back burner with the intention of having it show up in face wearables.
A Different Approach
Just as it’s easy to say that Apple is doing something wrong, the claim is worthless if counter suggestions aren’t given. If Apple needs to make a change with Apple Watch, what should that change be?
One issue that is starting to become noticeable is Apple not expanding Apple Watch’s functionality fast enough. Using health to anchor Apple Watch marketing may indeed be a good way for Apple to grab new Apple Watch users. For some, the Apple Watch makes for a great health / fitness companion and nothing more. Those users should be able to continue using Apple Watch for health monitoring without needing to mess or deal with extraneous software or features.
However, Apple is not pushing Apple Watch enough from the perspective of being an iPhone alternative. The Siri watch face is a bridge to the future and yet all signs point to few people using the face. The lack of updates certainly hasn't helped in improving adoption. There are signs of deeper issues at play. According to Apple, Photos is the most popular watch face. That may seem innocent enough. However, Apple Watch watch faces were once positioned as apps. This turned to watch face complications. Why then are Apple Watch wearers using the most simplistic and data-free watch faces such as Photos? This may be a sign that Apple needs to reexamine the concept of watch faces as apps. Users likely don’t want to interact with various complications or even watch faces. This doesn’t mean that users do not want additional functionality from Apple Watch. A more likely answer is that users like the ease and simplicity found with the Photos watch face. (With this, they are still able to receive all of their notifications, messages, and alerts).
Instead of pushing increasingly complicated Watch faces, legacy watch faces, or bringing a version of multitasking to Apple Watch, the additional functionality given to Apple Watch would materialize in the form of machine learning pushing more information and context to the wearer throughout the day. The only information one would need to see on their wrist would be based on one’s:
Daily habit (provide the upcoming weather each morning at the same time given prior habits, give driving time information to the local coffee shop frequented each morning).
Current activity (push news alerts while seated at the coffee shop).
Location (suggest items that may be of importance to the wearer’s current location).
Schedule ( provide information that is relevant to an upcoming meeting, reminder, or event).
Notice how all of those items involve action verbs - provide, give, push, and suggest. That is Apple Watch’s future - an intelligent assistant that helps people get through their day.
With an Apple Watch installed base quickly approaching 125 million people, even if only a portion of Apple Watch users are interested in this additional functionality, we are still looking at tens of millions of people, and that number will prove to be conservative over time. It’s not enough to anchor watchOS releases around new health features, a new portrait photos watch face, and GIF support in messages.
The Apple Watch already has the pieces required for handling additional functionality:
An always-on screen with superb line of sight for the wearer.
A smart digital assistant that increasingly knows more about the wearer’s past, current, and future activity. (This is where having an ecosystem of devices that is also home to the digital assistant will help.)
A developer base that is increasingly embracing Apple Watch and watchOS.
As for the idea that an eventual Apple Glasses launch should dictate how Apple positions the Apple Watch in 2021, a pair of lightweight glasses from Apple is likely still a few years away. It’s odd for Apple to put the Apple Watch on the proverbial ice when it comes to non-health initiatives in response to a product that is still years away. Even in a world with Apple Glasses, it is not a given that Apple Watch will even be a competitor. Glasses may not be the best form factor to push information to the wearer throughout the day, even if it’s through peripheral vision. Instead, Apple Glasses would be aimed at helping the wearer navigate the world while the Apple Watch would be more of a digital assistant / monitor focused on providing granular information throughout the day. Also, the Apple Watch is well-positioned to help power a pair of Apple Glasses given the amount of real estate available on the wrist for storing technology and sensors.
Giving the Siri watch face a much-needed reboot in watchOS 9 would be a great start at unleashing a new layer of Apple Watch functionality. Such a reboot can be wrapped around a series of new Watch faces that amount to pushing different kinds of information to the user throughout the day while retaining much of the simplicity found with the Photos face. Apple can increase the number of available cards in the Siri watch face and push card development as a key priority for watch developers interested in getting in front of users. In addition, a more concentrated focus on selling Siri on your wrist and enhanced notifications control will go a long way. This could set Apple up for eventually including a front-facing camera on Apple Watch for FaceTime calls (with software that auto-centers the subject so that one can’t tell you are using an Apple Watch to make calls).
One lesson from this year’s WWDC is that Apple isn’t just pushing individual product categories forward but rather using devices and services to push an ecosystem forward. For a product like Apple Watch, Apple’s goal should be positioning the device as both taking advantage of its unique design attributes while also helping to add value to other Apple devices. The Apple Watch is the most popular watch in the world. It’s time for Apple to begin unleashing more of Apple Watch’s potential.
Listen to the corresponding Above Avalon podcast episode for this article here.
Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (3 stories per day, 12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.
For additional discussion on this topic, check out the Above Avalon daily update from June 24th.
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.
Listen to the corresponding Above Avalon podcast episode for this article here.
Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (3 stories per day, 12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.
For additional discussion on this topic, check out the Above Avalon daily update from January 16th.
Apple Watch Momentum Is Building
In a few months, the number of people wearing an Apple Watch will surpass 100 million. While the tech press spent years infatuated with stationary smart speakers and the idea of voice-only interfaces, it was the Apple Watch and utility on the wrist that ushered in a new paradigm shift in computing. We are now seeing Apple leverage the growing number of Apple Watch wearers to build a formidable health platform. The Apple Watch is a runaway train with no company in a position to slow it down.
Mirages and Head Fakes
We are coming off of a weird stretch for the tech industry. As smartphone sales growth slowed in the mid-2010s, companies, analysts, and pundits began to search for the next big thing. The search landed on stationary smart speakers and voice interfaces.
Companies who weren’t able to leverage the smartphone revolution with their own hardware placed massive bets on digital voice assistants that would supposedly usher in the end of the smartphone era. These digital voice assistants would be delivered to consumers via cheap stationary speakers placed in the home. Massive PR campaigns were launched that attempted to convince people about this post-smartphone future. Unfortunately for these companies, glowing press coverage cannot hide a product category’s fundamental design shortcomings.
At nearly every turn, Apple was said to be missing the voice train because of a dependency on iPhone revenue. Management was said to suffer from tunnel vision while the company’s approach to privacy was positioned as a long-term headwind that would lead to inferior results in AI relative to the competition. Simply put, Apple was viewed as losing control of where technology was headed following the mobile revolution.
There were glaring signs that narratives surrounding smart speakers and Apple lacking a coherent strategy for the future were off the mark. In November 2017, I wrote the following in an article titled, “A Stationary Smart Speaker Mirage”:
“On the surface, Amazon Echo sales point to a burgeoning product category. A 15M+ annual sales pace for a product category that is only three years old is quite the accomplishment. This has led to prognostications of stationary smart speakers representing a new paradigm in technology. However, relying too much on Echo sales will lead to incomplete or faulty conclusions. The image portrayed by Echo sales isn't what it seems. In fact, it is only a matter of time before it becomes clear the stationary home speaker is shaping up to be one of the largest head fakes in tech. We are already starting to see early signs of disappointment begin to appear…
I don’t think stationary smart speakers represent the future of computing. Instead, companies are using smart speakers to take advantage of an awkward phase of technology in which there doesn’t seem to be any clear direction as to where things are headed. Consumers are buying cheap smart speakers powered by digital voice assistants without having any strong convictions regarding how such voice assistants should or can be used. The major takeaway from customer surveys regarding smart speaker usage is that there isn’t any clear trend. If anything, smart speakers are being used for rudimentary tasks that can just as easily be done with digital voice assistants found on smartwatches or smartphones. This environment paints a very different picture of the current health of the smart speaker market. The narrative in the press is simply too rosy and optimistic.
Ultimately, smart speakers end up competing with a seemingly unlikely product category: wearables.”
Three years later, I wouldn’t change one thing found in the preceding three paragraphs. The smart speaker bubble popped less than 12 months after publishing that article. The product category no longer has a buzz factor, and despite the hopes of Amazon and Google, people are not using stationary speakers for much else besides listening to music and rudimentary tasks like setting kitchen timers.
The primary problem found with voice is that it’s not a great medium for transferring a lot of data, information, and context. As a result, companies like Amazon have needed to dial back their grandiose vision for voice-first and voice-only paradigms. Last week’s Amazon hardware event highlighted a growing bet on screens – a complete reversal from the second half of the 2010s.
Betting on the Wrist
As companies who missed the smartphone boat were placing bets on stationary speakers, Apple was placing a dramatically different bet on a small device with a screen. This device wouldn’t be stationary but instead push the definition of mobile by being worn on the wrist.
Jony Ive, who is credited with leading Apple’s push into wrist wearables, referred to the wrist as “the obvious and right place” for a different kind of computer.
When Apple unveiled the Apple Watch in 2014, wearable computing on the wrist was more of a promise than anything else. Apple created an entirely new industry – something that isn’t found much in the traditional Apple playbook.
After years of deep skepticism and cynicism, consensus reaction towards Apple Watch has changed and is now positive. Much of this is due to the fact that it’s impossible to miss Apple Watches appearing on wrists around the world. According to my estimates, approximately 35% of iPhone users in the U.S. now wear an Apple Watch. This is a shockingly high percentage for a five-year-old product category, and it says a lot about how Apple’s intuition about the wrist was right.
Apple Watch Installed Base
The number of people wearing an Apple Watch continues to steadily increase. According to my estimate, there were 81 million people wearing an Apple Watch as of the end of June. According to Apple, 75% of Apple Watch sales are going to first-time customers. This means that 23 million people will have bought their first Apple Watch in 2020. To put that number in context, there are about 25 million people wearing a Fitbit. The Apple Watch installed base is increasing by the size of Fitbit’s overall installed base every 12 months. Exhibit 1 highlights the change in the Apple Watch installed base over the years.
Exhibit 1: Apple Watch Installed Base (number of people wearing an Apple Watch)
(The calculations and methodology used to reach my Apple Watch installed base estimates is available here for Above Avalon members.)
Deriving Power
From where is Apple Watch deriving its momentum? The answer is found in The Grand Unified Theory of Apple Products.
One of the core tenets of my theory is that an Apple product category's design is tied to the role it is meant to play relative to other Apple products. The Apple Watch is designed to handle a growing number of tasks once given to the iPhone. Meanwhile, the iPhone is designed to handle a growing number of tasks given to the iPad. One can continue this exercise to cover all of Apple's major product categories.
Apple Watch is not an iPhone replacement because there are things done on an iPhone that can't be done on an Apple Watch. This ends up being a feature, not a bug. The Apple Watch’s design then allows the product to handle entirely new tasks that can’t be handled on an iPhone. This latter attribute goes a long way in explaining how Apple Watch has helped usher in a new paradigm shift in computing. Apple Watch wearers are able to interact with technology differently.
(More on The Grand Unified Theory of Apple Products is found in the Above Avalon Report, “Product Vision: How Apple Thinks About the World,” available here for Above Avalon members.)
A Health Platform
In January 2019, Tim Cook surprised many by saying Apple will be remembered more for its contributions to health than for any other reason. Here’s Cook:
“I believe, if you zoom out into the future, and you look back, and you ask the question, ‘What was Apple’s greatest contribution to mankind?’ it will be about health.”
Many assumed that Cook’s comment hinted at Apple unveiling a portfolio of medical-grade devices that would go through the FDA approval process. Such thinking was based on a fundamental misunderstanding of Apple’s ambition and approach to product development.
Apple’s health strategy is based on leveraging hardware, software, and services to rethink the way we approach health. This means Apple wasn’t going to just launch a depository for our health data – something that is needed but which ultimately falls short of being truly revolutionary. In addition, Apple wasn’t going to just offer health and fitness services that amount to counting steps or keeping track of miles run.
By the time Cook gave his bullish comment about health, Apple had already placed its big bet on health four years earlier by unveiling the Apple Watch. In what ended up being one of Apple’s best decisions, the company avoided going the route of medical-grade devices requiring government agency approval to reach consumers. Instead, Apple framed its health platform as a new-age computer that ultimately is an iPhone alternative.
Health monitoring is one of the key new tasks that the Apple Watch, not iPhone, handles. To be more precise, Apple Watch is handling the following four health-related items:
Proactive monitoring (i.e. heart rate and blood oxygen)
Well-being assistance (i.e. sleep monitoring including the runup to sleep)
Fitness and activity tracking (i.e. Activity and Workout apps)
Fitness and health activity (i.e. Apple Fitness+)
With Apple Fitness+, Apple didn’t just release a virtual fitness class service. Instead, Apple Fitness+ is an Apple Watch service. In some ways, Apple Fitness+ reminds me of Apple TV+. A future in which Fitness+ workouts are available on third-party gym equipment displays including on treadmills and stationary bikes is not a stretch. In addition, classes from other companies such as Nike could further elevate Apple Fitness+.
Competition
If the Apple Watch is a runaway train, there is no obvious candidate in a position to stop or even slow the train. While other companies are slowly waking up and seeing the momentum found with Apple Watch, there is still much indifference, mystery, and misunderstanding as to why people are buying wearables. Too many companies still think of wearables as glorified smartphone accessories. Such thinking makes it impossible for competitors to see how Apple Watch is ushering in a paradigm shift in computing by making technology more personal in a way that other devices have failed to accomplish or replicate.
One of the main takeaways from Apple’s product event earlier this month is how Apple is its own toughest competitor. The Apple Watch’s most legitimate competition is found with older Apple Watches and non-consumption (i.e. empty wrists). While this introduces its own set of risks and challenges, there is still no genuine Apple Watch competition from other companies after six years. This is an indication of the power found in controlling your own hardware, software, and services in order to get more out of technology without having technology take over people’s lives.
Listen to the corresponding Above Avalon podcast episode for this article here.
Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members in both written and audio forms. To sign up and for more information on membership, visit the membership page.
For additional discussion on this topic, check out the Above Avalon daily update from October 1st.
Above Avalon Podcast Episode 163: A Revolution on the Wrist
In addition to being a sales success, the Apple Watch has ushered in a paradigm shift in computing. In episode 163, Neil discusses how the Apple Watch is fundamentally changing the way we use technology. Additional topics include paradigm shifts, Apple Watch sales, Apple’s new Apple Watch Connected initiative, stationary smart speakers as extensions of existing products, and Neil’s new framework for recognizing paradigm shifts in computing.
To listen to episode 163, go here.
The complete Above Avalon podcast episode archive is available here.
Apple Watch and a Paradigm Shift in Computing
Despite being only four years old, the Apple Watch has fundamentally changed the way we use technology. Due to the sheer number of Apple Watches now seen in the wild, those claiming the device is unpopular have been silenced. However, there continues to be a good amount of cynicism thrown at the computer found on 65 million wrists around the world.
Many tech analysts and pundits continue to look at the Apple Watch as nothing more than an iPhone accessory - an extension to the smartphone that will never have the means or capability of being revolutionary. Such a view is misplaced as it ignores how the Apple Watch has already ushered in a paradigm shift in computing.
Paradigm Shifts
The idea of paradigm shifts was born in the sciences to describe a scenario requiring a new way of thinking in order to explain the world. One of the more fascinating aspects of paradigm shifts is the accompanying social component. Due to the discomfort found with letting go of legacy thinking, society has a built-in aversion to acknowledging when a paradigm shift has occurred due to the discomfort found with letting go of legacy thinking. This makes it likely that paradigm shifts will often be born wrapped in skepticism and doubt.
In terms of computing, no one now questions the shift that took place from desktops and laptops to mobile devices. However, reality was messier as it took nearly a decade for consensus to view the smartphone as a laptop or desktop alternative. For years, smartphones were viewed as merely laptop and desktop extensions. What was initially viewed as a superior email machine for executives marked the start of a paradigm shift in the making.
We are seeing a similar dynamic take place with Apple Watch. Legacy thinking is masking Apple Watch’s transformational attributes. The product is misunderstood as Apple competitors are unsure of the answers to basic questions such as, why are consumers buying Apple Watches?
A Wrist Revolution
While pundits and analysts question what an Apple Watch is for, tens of millions of consumers around the world have recognized how the device can improve their lives. The product category is a sales success.
Apple has sold more than 90 million Apple Watches to date with 29 million sold in calendar year 2019. With an average selling price of more than $400, the Apple Watch is bringing in $12 billion of revenue per year, and that total is growing by 30% per year. After taking into account upgrade trends, the number of people wearing an Apple Watch has crossed 65 million. Based on my forward projections, the Apple Watch installed base will surpass 100 million people in 2021.
The preceding numbers are my estimates obtained by utilizing more than four years of financial clues and insights provided by Apple management in earnings calls, interviews, and presentations. More information on my methodology and the math behind these numbers is found in the Above Avalon daily update from December 11th. Above Avalon membership is required to read my daily updates.
Apple Watch and Paradigm Shifts
In addition to being a sales success, the Apple Watch has ushered in a paradigm shift in computing by making technology more personal in a way that other devices have failed to accomplish or replicate. The Apple Watch allows people to get more out of technology without having technology take over people’s lives. The device is able to accomplish this in three ways:
Seamless tracking and monitoring. The Apple Watch tracks one’s fitness and more importantly, health, in a nonintrusive and intuitive way that isn’t possible with non-wearable devices.
Intelligent assisting. Wearing a computer on the wrist has shown the value found in having a digital assistant push small amounts of information and data to the user throughout the day instead of having the user pull data from pieces of glass (smartphones and tablets).
Contextual awareness. A device that is always on us can enhance our surroundings by utilizing our location and activity to deliver contextual experiences. This is a valuable proposition when developing new experiences.
These three items combined allow Apple Watch to handle some tasks that we already give to existing devices like smartphones and tablets as well as jobs and work that cannot be supported by mobile devices.
Apple Watch Connected
Apple Watch’s ability to usher in a paradigm shift in computing isn’t about what ifs or hypotheticals. It's something that is already taking place. We have a growing list of ways Apple Watch is a different kind of computer, the likes of which we have never seen. The latest example is an initiative Apple soft launched two weeks ago with four fitness brands called Apple Watch Connected.
The initiative originated out of feedback shared with Apple from health and fitness clubs looking to better connect the Apple Watch with their own customer experiences.
There are four requirements for a health club or gym to be part of Apple Watch Connected (which is free for both the health club and Apple Watch wearer):
Support Apple Pay. Apple Watch wearers must be able to purchase items like water, classes, or even personal training on the wrist with Apple Pay.
iOS and watchOS Apps. Businesses must have apps that allow for things like signing up for classes.
Earn with Watch. Businesses must offer rewards and incentives to Apple Watch wearers for remaining active. Such incentives have proven to be an effective way to motivate Apple Watch wearers.
Support GymKit (if applicable).
Apple Watch Connected ends up being a tool that enables third-party gyms and health clubs to build stronger relationships with customers. This is accomplished when businesses leverage seamless activity and fitness tracking on the wrist to reward their customers for staying active.
The key ingredient for getting this initiative off the ground is having people wear an Apple Watch throughout the day. Trying to recreate this type of comprehensive experience on a dedicated fitness tracker used only during workouts, or even on a smartphone or tablet, would be the equivalent of trying to use a laptop or desktop to accomplish tasks that are simpler and more intuitive on an iPhone. There is no good or easy way to track our daily activity with a large piece of glass that may sometimes be in our pocket or strapped to our arm. Having to grab and hold this piece of glass when using mobile payments or checking location-based notifications and reminders would lead to an overall experience that is subpar.
The most intriguing aspect of Apple Watch Connected is how entrepreneurs can use Apple Watches to launch new business models. With legacy gyms, the idea was to have people pay for monthly memberships but then not show up so that fewer workout machines would be needed. Apple Watch Connected turns that idea on its head by allowing a gym or health club to establish a new kind of long-term relationship with customers that encourages continued workouts and activity. This kind of business model shift is an example of the new paradigm shift unleashed by Apple Watch.
Instead of simply taking the existing app model and applying it to the wrist, a new way of consuming “apps” has developed. Subscriptions are naturally more applicable to something like an Apple Watch as customers find value in long-term targeting, monitoring, and data curation.
A New Framework
I’m introducing a new framework for recognizing paradigm shifts in computing. This theory borrows heavily from my Grand Unified Theory of Apple Products which positions a product category's design as tied to the role it is meant to play relative to other Apple products.
More information on the Grand Unified Theory is found in the Above Avalon Report Product Vision: How Apple Thinks About the World. Reports are available to Above Avalon members at no additional cost.
Paradigm shifts in computing can be determined by monitoring the degree to which products are able to make technology more personal. This framework positions design (i.e. how we use products) as the catalyst for paradigm shifts in computing.
Over the past few decades, we have seen two such primary paradigm shifts in computing:
Laptops/desktops to smartphones.
Smartphones to wearables.
Neither shift was about a new product replacing an older product. Laptops and desktops are still used by hundreds of millions of people in a mobile world. Similarly, there will be billions of smartphones found in a wearables world.
Instead, the move from desktops and laptops to smartphones and tablets was ultimately about using design to remove barriers that existed between the user and technology. One way this was accomplished was using multitouch as a new way to interact with a device. However, mobile devices are not able to remove all barriers. Increased smartphone and tablet usage has revealed an entirely new set of barriers that we never knew existed. A device like Apple Watch relies on design to remove some of those recently discovered barriers.
One reason this new computing shift has not been universally accepted is because the Apple Watch still uses “training wheels” in the form of requiring an iPhone to set up. This iPhone reliance has led some to view Apple Watch as nothing more than an extension to the iPhone. However, such a claim focuses too much on the technology and not enough on how design is leveraged to alter the way we use technology.
As for an example of a genuine extension of the smartphone, stationary smart speakers are at the top of the list. Grand prognostications of stationary smart speakers ushering in a new era of computing have faded (which doesn't come as a surprise). The primary value found with a stationary smart speaker is being able to take up the physical space needed to house speakers for delivering better sound. In this way, the speaker ends up being a smartphone amplifier that comes in handy for consuming sound as a group activity.
Nearly every other task or role given to a stationary smart speaker could be given to an Apple Watch. The wrist ends up being a better solution given the presence of a screen. In addition, whereas stationary speakers are confined to a finite area (the inside of a room), Apple Watch has greater mobility than even smartphones and tablets as it is literally strapped to our wrist at all times.
Voice in and of itself is not a paradigm shift as the medium is incredibly inefficient for transferring large amounts of data and information. It also creates a massive wall that prevents us from getting more out of technology without having technology take over our lives. Meanwhile, the Apple Watch has become a bridge to the future by containing a screen.
Apple Watch in a Wearables World
Apple Watch isn’t alone in ushering in this new era of computing. Other wearable devices designed to leverage the unique attributes of the body (wrists, ears, and eyes) have a role to play. The attributes that have allowed the Apple Watch to flourish on the wrist are being translated to allow AirPods to become a platform for bringing augmented hearing to the masses. In the future, a pair of eyeglasses will be able to add visual context to our surroundings.
In each example, we have a fundamental rethink of how people use computers to improve their lives. The “training wheels,” or early technological bonds that may exist in the early reiterations of these devices should not be taken or viewed as permanent chains. Rather, they are early support systems designed to give wearables the power to change the way we use technology.
Listen to the corresponding Above Avalon podcast episode for this article here.
Receive my analysis and perspective on Apple throughout the week via exclusive daily updates (2-3 stories per day, 10-12 stories per week). Available to Above Avalon members. To sign up and for more information on membership, visit the membership page.
For additional discussion on this article, check out the daily update from February 6th: A Paradigm Shift on the Wrist. The update goes over an example of how the Apple Watch isn't just addressing tech barriers that have been around for years, but also newer barriers that only recently became visible.