Why Apple Watch Sales Forecasts Are Completely Unrealistic
This year, Apple announced the Apple Watch -- its first new hardware product category since the iPad in 2010. Rumors had been circulating about such a device for quite some time, but it was made official in September alongside the iPhone 6 and iPhone 6 Plus debuts. The device isn't slated to show up in customers' hands until early next year, but analysts are already making some pretty bold -- and totally and completely unrealistic --predictions as to how the device will sell.
24 million units in the first year? UBS (via Apple Insider) reportedly claimed in a research note that the Apple Watch could sell 24 million units and generate about $3.4 billion in revenue during its first year on the shelves. Interestingly enough, this number is based on an internal UBS survey of 4,000 customers in which about 10% of respondents claimed to be "very likely" to purchase a smartwatch over the next 12 months.
To get to its 24 million sales forecast, UBS' Steve Milunovich assumed that 10% of "eligible iPhone users" (i.e. owners of iPhone 5 or later) would actually go out and buy an Apple Watch. While there's obviously some basis for making this prediction, I think that this forecast will turn out to be completely unrealistic.
Some perspective on past Apple product categoriesWhen the iPhone came out, it fundamentally reinvented a device that many would consider a "must have" device: the phone. The iPhone (and smartphones in general) has become a device that integrates a lot of key functionality that previously required many expensive, discrete devices.
The iPhone is a communication device, a portable movie player, a music player, a camera, a camcorder, a timepiece, a photo album, a handheld gaming device, and so much more. There is a lot of utility and, ultimately, value that comes with the device, and each year just about every aspect of the iPhone's functionality is improved. Not only is it worth the price, but the improvements in aggregate are enough to drive relatively rapid upgrade cycles.
The iPad is less "indispensable," with its importance diminished by the advent of the larger iPhones. However, the iPad is still a great mobile computer that is, for many tasks, more convenient than a traditional laptop computer. The iPad doesn't sell nearly as well as the iPhone, and over the last several quarters has actually been in year-over-year decline, but the device still delivers value to the user because it is better for a number of common tasks/usage models than the iPhone is.
Where's the value here? But the Apple Watch? Yes, it does some very interesting things and is in general a neat gadget, but keep in mind that most of what the Apple Watch does can be done on an iPhone. It may be slightly less convenient in some cases, but given that the cheapest Apple Watch will come in at $299, with the more premium models rumored to be priced at a multiple to that, the value proposition seems iffy compared to even the most expensive unlocked 128-gigabyte iPhone.
Let's talk upgrade cyclesAn oft-cited reason for the iPad's weakness is that the upgrade cycles are far longer for iPad than for iPhone. Assuming this is true -- and I'm pretty willing to buy that explanation -- then that bodes very poorly for Apple Watch's longer-term sales.
The iPad is basically a full-fledged computing device, with relatively intense multimedia applications and, increasingly so, productivity applications. Apple has done well in advancing the product category, offering increasingly attractive industrial designs and eye-popping levels of computing power. And yet, even with all of these great innovations, Apple seemingly can't convince users to hasten their iPad upgrades.
If a full-fledged computing device like the iPad can remain "good enough" for years and years, then doesn't it make sense that the Apple Watch -- whose usage models will likely be far less intense on average than the iPad's -- will have an even longer upgrade cycle? Even if Apple sells a huge slug of Apple Watches initially, will it be able to convince customers to upgrade frequently?
Too much hypeWhile I applaud Apple for introducing what seems to be the best-looking and best thought-out smartwatch announced yet, I don't have a lot of faith in the category. Smartwatches seem like a desperate attempt by the mobile device players to try to recapture the "magic" that was the smartphone revolution.
The tablet market hasn't been anywhere close to as successful from a profit/sustainable growth perspective as the smartphone market was, and I think the various flavors of wearables will see much lower absolute sales and growth rates that fizzle out even faster than the tablet market's did.
The article Why Apple Watch Sales Forecasts Are Completely Unrealistic originally appeared on Fool.com.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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