In the $60 billion-a-year watch sector, most of the money flows to those who sell the most expensive devices: 0.6% of the watches shipped in 2012, with an average price of $4,285, were responsible for half the revenue of the entire industry.
That’s a big potential problem for aspiring smartwatch companies like Samsung, and eventually Apple. If they don’t tap into the ultra-luxury market, they’re going to miss out on most of the revenue and the healthiest profit margins of the industry that they’re invading.
There's one big fatal flaw with these comments. Apple is more than likely isn't going to enter the watch market. Back when they entered the phone market, they changed what a phone was. The phone became a personal computer that could also make calls.
Everyone is trying to determine if Apple can succeed in the watch sector. It really doesn't matter what the watch industry looks like today, because they aren't entering that market. Now I don't pretend to know what Apple is planning to do in the sector, if anything, but I know their history of entering new markets. They don't compete with current incumbents of the space, they create a whole new space which has similar functionality as the market they are entering.
“People buy watches for a variety of very complicated emotional reasons, of which telling time is often just a precept or an alibi,” says Bill Geiser, a former executive at Fossil and currently the CEO of smartwatch startup Metawatch. It’s a common refrain: watches are essentially fashion, a personal expression, and therefore useful as a mark of status or a gift.
To believe Apple is not going to make a watch that is a status symbol or a personal expression is shortsighted. Of course Jony Ive is going to design something desirable.
It’s hard to imagine Apple or Samsung selling a smartwatch for more than their “hero” smartphones—much less for $4,285. And if only 15% of the revenue generated from the global watch market comes from devices under $500, it’s a far smaller market than some analysts have argued.
One device has nothing to do with the other. A smartphone and a "watch" are two different things and I don't think Apple is trying to price items based on the phone prices. Also, going back to my argument before, the size of the current watch market does not necessarily translate to what Apple will do with their smart watch.
“The wrist is beachfront property,” says Geiser. “The watch market has been around for hundreds of years, and it’s going to be around for another 1,000. All we’re doing is taking this existing market and dragging it into the modern era… By and large a smart watch is still a watch.”
Of course this is what everyone said about the phone market when Apple entered into it. The phone market had nowhere near the history of the watch industry, however the incumbents learned very quickly that Apple was out to change the market, not compete in the current one.
Whatever Apple does I believe they will be trying to change what people think a watch is. They will surely not be trying to compete with the current watches of today.