The iWatch: Apple’s Next Big Thing

Apple’s long-awaited next big thing, its first wearable device: iWatch. Everyone knows it’s coming but nobody knows what it is. That’s par for the course at Apple (NASDAQ:AAPL). But the pressure is on like never before. And that’s definitely something new.

What’s at stake for the world’s most valuable technology company? Nothing short of the $260 billion of market capitalization the company has lost over the past year. Investors are justifiably concerned that Apple lost its innovation and growth mojo when it lost its iconic leader, Steve Jobs.

Apple may have beaten the Street’s muted expectations yesterday, but revenue was flat and profit was down versus the year-ago quarter. And that scenario is not likely to change much until the company launches one of its two long-awaited new products: iWatch or iTV. There is one other possibility, a wild card, if you will. But let’s not get ahead of ourselves.

Now, I don’t have a crystal ball and nobody who knows what’s going on inside the famously secretive Cupertino company is talking. Nevertheless, I know a few things about what Apple has to deliver for the iWatch to delight customers and investors like its last three blockbusters, and that’s as good a place as any to start.

What was it about the iPod, iPhone, and iPad that made them category killers?

For iPod, it was the iTunes service; the iconic design; the physical interface, namely that cool wheel; and the tight integration and ease of use. In short, you could find, buy, download, store, and play music like never before.

Apple’s iPod was the ultimate music player.

That iconic design, tight integration, and ease of use would be a hallmark of all Apple’s subsequent devices, including the iPhone. The breakthrough smartphone’s unique multi-touch display and virtual keypad made it easy to browse, text, and email without a physical keyboard or a big display. In addition, there were the third-party apps.

Apple’s iPhone was the ultimate smartphone.

The iPad essentially brought all of the above features, including iOS, to an all-in-one computer that could do most of what people use their PCs to do except on a simple, lightweight, easy-to-use tablet.

Apple’s iPad was the ultimate tablet computer.

Which brings us to iWatch. For iWatch to be a category killer, it has to be the ultimate hands-free device. Everyone talks about wearable computing, but the only reason I can think of to wear a computer is to be able to do all kinds of cool stuff hands-free.

I think that means being able to talk, FaceTime, text message, play music, GPS navigate, do limited web browsing, take pictures, and maybe watch videos. And you’ll have to be able to do all of that with limited multi-touch display capability and without a virtual keypad. The display simply won’t be big enough.

In order to accomplish all that, iWatch will have to include breakthrough voice command and recognition capability that’s tightly integrated with the operating system. In other words, it’s time for Siri to grow up and deliver on its significant potential, courtesy of Apple’s unique partnership with voice recognition innovator Nuance (NASDAQ:NUAN).

And I wouldn’t be a bit surprised if iWatch includes an Apple-branded Bluetooth Smart headset, as well.

When you put all that together, you’ll be able to do just about every native smartphone function, plus voice-to-text message and maybe even voice-to-email, all completely hands free. And here’s a bonus. What do you think of when you hear “hands free?” That’s right, driving.

Now let’s talk about money. Each of Apple’s previous success stories delivered a huge revenue and profit stream beyond the device’s selling price. Apple’s iPod launched with iTunes, which now has 500 million user accounts and is a huge profit machine.

And even though AT&T (NYSE:T) and Verizon (NYSE:VZ) customers pay $199-plus for an iPhone 5, Apple sells it to those service providers at upwards of $649. That’s what makes iPhone Apple’s most profitable product.

So, for iWatch to be a big financial success, it has to be subsidized by wireless service providers, offer a potentially lucrative service, or both. If it’s the former, then it risks cannibalizing iPhone sales. Moreover, that’s a lot of circuitry to fit in a smartwatch. More likely the iWatch will be tethered to a smartphone.

That leaves the service opportunity. So far, Apple has only dipped its toe in the mobile payment service waters, but analysts believe that’s the next big service opportunity for a company that probably has more credit cards on file, courtesy of iTunes, than anyone else. And Apple’s been filing all sorts of patents for a true digital wallet service it calls iMoney. That’s the wild card I mentioned earlier.

As for the security that will have to come with a robust digital wallet service, Apple recently bought AuthenTec, maker of fingerprint recognition and who-knows-what other biometric security technology. That should fit the bill, so to speak.

And while iMoney will surely be available on all iOS devices, I can think of no better way to rev up the “gotta have it” iWatch buzz than by launching it with a hot new service that means you can actually leave home without your credit cards. Sorry American Express (NYSE:AXP). Then again, Apple might launch iMoney with iPhone 6 just to spite me. 

Of course, Apple’s new smartwatch will have to have all the requisite iconic coolness and tight integration we’ve come to expect from all Apple’s devices. But since it’s wearable, it will need one more thing. It will have to be fashionable.

Did I forget to mention that Apple recently hired Yves St Laurent CEO Paul Deneve as VP for special projects. Wonder what “special projects” Tim Cook has in mind for Deneve, who also happens to be a former Apple sales and marketing manager? Looks like design chief Jon Ive will have some help in making sure iWatch is as cool to wear as it is to use.

So, those are my predictions for Apple’s iWatch. Did I miss anything? Oh yeah, wonder how it will do against Google Glass. Hmm. I have some thoughts, but what do you think?