- Apple is all set to reinvent and significantly upend the digital watch market with its Apple Watch.
- The Apple Watch, which will be closely tied-into the Apple ecosystem, and will also incorporate its latest healthcare and mobile payment offerings, seems ready to eat into the already limited market presence of existing smartwatch manufacturers like Samsung, Motorola and LG.
- However, it also poses a threat to Swiss luxury watch manufacturers like Richemont & Swatch, which are adopting a wait-and-watch approach and hope not to witness another version of the something they woefully refer to as the “quartz crisis”.
When Apple launches a new product, it does so with the intention to disrupt an entire industry, and Apple Watch will be no different (Tim Cook said earlier this year “Apple aims to be the best, not the first, with everything it makes”). Continuing its track record of innovation and disruption, Apple has launched its first wearable device – the “Apple Watch”, which is expected to be the new ‘game changing’ product in the wearable technology space. Just the way iPod crushed players in the MP3-player space, the iPhone became a game-changer for the smart phone industry, and the iPad created the tablet market, the Apple Watch is expected to disrupt the digital watch business.
The direct competition comes from existing smartwatch manufacturers, and the Apple Watch seems to have all the technological, design, and marketing components to beat the competition in the wearable technology market. With 70% of the smartphone market in developed nations being saturated, technology companies have been trying to diversify and create disruptive wearable technology (for example, Google Glass). Smartwatch is fast emerging as a hot product category, and most players have attempted to capture this market. Samsung, Motorola and LG have already launched smart watches, but they have received mixed reviews and moderate interest from consumers.
Latest reports from Forbes suggest that Microsoft is also planning launch a smartwatch within the next few weeks that will passively track a user's heart rate and work across different mobile platforms. Google has unveiled its smart watch software named "Android Wear." However, none of the existing smartwatches have been able to drive mass adoption so far, but Apple Watch is expected to change that trend.
The Three Versions of the Apple Watch
Here are the key reasons why we believe that the Apple Watch is likely to be more successful than others who have thus far attempted to capture the wearable technology market:
- Enabling new features/services: The Apple Watch offers several big features such as health monitoring and frictionless payments with Apple Pay. As the health and mobile payments industries are yet to embrace mobile internet; the Apple Watch is expected to have a significant impact on them.
- Innovative third-party apps: App developers are already waiting to build third-party Apple Watch apps, offering a robust ecosystem of messaging, social networking, and real-time information applications. For instance, the Apple Watch will have numerous third-party apps, including a Starwood Hotels (HOT) app that would let the user unlock a door with their wrist.
- Massive existing user base to tap into: Apple already has a huge install base of iPhones, iPads, and iPods. During last Apple Worldwide Developers Conference (WWDC), Apple boasted a total of 800 million shipments of iOS devices, thus offering Apple an outstanding customer base to sell its new products to.
- Extension of the iPhone: Yes, we have seen watches that check pulse, play MP3s, and check emails; however these watches are not functional extensions of the world’s most powerful smart phone. As the Apple Watch will use iPhone (which has higher speed, memory, and performance than the PCs of a few years ago) for connectivity, this creates a great advantage for Apple Watch.
- Innovation fits in an existing product category: Unlike Google Glass, the Apple Watch is an innovative product that’s socially acceptable to the general consumers and fits into an existing product category which consumers understand.
However, smartwatch manufacturers are not the only ones that face competition from the Apple Watch. With Apple’s track record of driving product adoption and displacing existing market leaders, the Swiss watch industry is keeping its fingers crossed and hopes not to witness another version of the something which they woefully refer to as the “quartz crisis”. The quartz crisis of 1960s involved the entry of inexpensive quartz movement-based watches from Asia to compete with the expensive mechanical watches that previously dominated the market. With Apple Watch about to hit the market, the biggest worry for watch brands (both luxury and non-luxury ones) is that consumers might forgo buying one of their products for an Apple Watch, as people become comfortable with features of a smartwatch and start wearing traditional watches less and less.
Apple Watch is expected to have the largest impact on the medium-low range of the two major Swiss watch companies’ brands, according to research conducted by Bernstein. The Swiss watch market is dominated by the two brands: Richemont — that has brands such as Piaget, Alfred Dunhill, Montblanc and Jaeger-LeCoultre; and Swatch — which makes timepieces under the Breuget, Tissott and Rado labels. According to a Bernstein report, “They could be exposed to revenue and EBIT (earnings before interest and tax) losses of around 3% if 20% of the addressable market is taken by smartwatches, but Richemont’s high-end brands look immune from any negative impact.” Indeed, in terms of pricing, only 1% of Richemont watches brands overlap with the Apple Watch market as most of its brands are high-end ones. But, Swatch, which owns a number of high-end watch ranges as well as its lower-end namesake brands, could be exposed to revenue losses. Also, Richemont generates about 46% of its revenues from watch sales; while Swatch relies on 90% from watches with 23% being generated by lower-end designs – the segment currently being targeted by Apple.
Further, to drive adoption, technological expertise is being complemented with the right marketing and hiring strategy by Apple, and should be treated as another indicator of the competition that awaits the Swiss watch manufacturers. Since 2013, Apple has been hiring leaders from the fashion industry, to position itself as a lifestyle brand, as opposed to being a technology brand only – the most significant one being Burberry’s CEO Angela Ahrendts’ entry as the SVP of Retail and Online Stores. Angela’s presence was felt in the design and launch of Apple Watch – with sizes for both men and women (42mm wide and 38mm wide) combined with a wide range of styles, Apple catered to the desires of watch lovers and the style-conscious consumers. Here is a list of all the positions at Apple that were filled by fashion industry top-shots since 2013:
While it may be too early to spell doom for the Swiss watch manufacturers, one thing is for sure – these brands will have to innovate at a much faster pace to retain and grow their customer base. Developing their own smartwatch won’t be a bad idea either, because if Apple is successful in driving Apple Watch’s adoption, it will likely expand the market for luxury watches (apart from smartwatches) among young consumers, thereby creating a large addressable user base for the Swiss brands.
In the end, it will be a toss-up between companies that only have better products, but also have the right marketing strategy to attract and retain their customer base.
May the best watch win!