iWatch... iFlop?

by Peter Leeds on April 28th, 2015


I'm biased against the iWatch, but at the same time am a huge fan of Apple's business and stock price outlook.  Comments here are simply an opinion that the iWatch is set to be the biggest technology flop since VHS destroyed Beta, and if you understand that reference then you probably are about my age.

In my social circles, I have encountered exactly 1 person who is a raving iWatch fan.  He works pretty high up at a big, multibillion dollar technology corporation (and it's NOT Apple). 
 
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Will my friend buy an iWatch?  Probably not, since his company will give him one for free, but don't quote me on that.  He is also planning on buying an electric vehicle (Tesla), and probably a hover car when they are available in 2099.

On the other side of the coin, everyone else I have spoken with says they will NEVER buy an iWatch.  This absolutely "unscientific" poll includes my immediate social circle, my groups of acquaintances, the Peter Leeds team, my nieces and nephews...  

(On a side note, my 13 year old niece laughed and swore to me that no kid will be caught dead wearing an iWatch at her school).

(Side note #2:  I just asked my Executive Assistant if she is going to buy an iWatch, and her quote to me was exactly this:  "Why would I buy an iWatch?  I can't even work my God-damned phone!")

My neighbor might buy an iWatch, because he buys everything trendy and new in technology right away, but what will he then do with his dozens of Rolexes and Omegas?  (Johnny, give them to your neighbor!)

I'm not saying millions of iWatches won't be sold - they will.  However, I am saying that expectations for sales and usage are astronomical, and the actual number of buyers might be shockingly less than the media and Apple's Public Relations machine is telling you.

One thing that the iWatch has going for it in a big way, is that it is a truly viral product.  Most consumers think that good word of mouth equates to "going viral" - it does not.  

A product is only viral if the actual act of using it engages further prospects.  For example, the iWatch will be viral.  Hotmail.com was Viral.  Facebook was viral.  Using these engaged others to potentially use them also.

The best Italian restaurant in town is not viral, it is just a great place to eat.  A wonderful book is not viral, even if you tell your friends about it.  A hilarious movie your co-worker told you about is not viral.

Apple will probably be the first corporation to reach a $1 Trillion market capitalization (barring an overall market meltdown), but it almost certainly will not be based on the iWatch.  In fact, imitations and directly-competitive smart watches will likely eat into market share long before the iWatch "becomes a thing."

CNBC states that the iWatch has had 1.7 million pre-orders so far.  The iWatch went on sale April 24th, but demand may keep it off store shelves until July in some cases. 

Technically, this is not demand, but rather brilliantly-executed supply constraints - every modern corporation purposely creates fewer of an item than they expect to sell, and then pretends like they are surprised by the overwhelming demand.  If you think this isn't purposeful, then explain to me how I already know that the next Apple "iWhatever" won't have enough supply to meet demand.  I must be psychic.  

RBC made a statement that Apple may sell 5 million units for the June quarter.  Definitely do-able, but does that mean they will see such impressive numbers a few quarters from now?

Here's the thing - no matter whether you are selling electric cars, iWatches, home 3-D screens, or Google Glasses, you will get 2 things, guaranteed:

1.  the media will talk up the products to a significant degree

2. early adopters, which is about 5% of the population, will buy whatever the newest thing is (this is not me saying this, but it's true, and you can read all about it in Positioning, which is the best book ever written, period).

Speaking of early adopters, many of the current customers are actually buying more than 1 iWatch, so the 1.7 million in units sold does not translate to 1.7 million people.  Of course, the real number is close enough.

Beyond logistics issues, for Apple to fulfill the "intentional demand," there are several warning signs for the iWatch.
  • The screen is tiny (even if it is great and life-changing), especially for anyone who doesn't like "finicky" things
  • Older people (which is mainly those who can more easily afford an iWatch) have a hard time reading any small text that will fit on an iWatch screen
  • Besides early adopters, the vast majority of people I've spoken to think smart watches look geeky when being used, even the coolest iWatch models
Just because the world went wild for iPhones (and ever-larger screen sizes) the world seems to be expecting that the iWatch will sell just as strongly.  It will not.  It almost certainly can not, especially on the cusp of what could be deflation or a significant slowing of consumer demand for ANYTHING.

In fact, the iWatch may become this generation's own version of "3-D in the home," or Beta videotape players, or even, "Google Glass."  

The problem for Apple will not be that the sales don't meet with outrageous expectations.  The problem will be that it may take years for society to accept the Smart Watch concept en masse. 
 
The market seems to be expecting that acceptance to manifest itself right now - just like electric vehicles and Amazon delivering by drone, which will take much longer for widespread acceptance than the majority believes.

Apple just released their financials, and the numbers are very solid, top line (revenues) and bottom line (earnings) are both beyond expectations.

I will admit that I am wrong plenty of the time.  In the early days, I even doubted that Twitter would take off.  I misunderstood the ways in which it could become a rapid-response communication tool.  Kanye West falls in the mud, I expect to hear about it before he stands back up!

I also get it right plenty of the time.  I was able to call the Facebook IPO down to the initial spike, followed by the drop, followed by the subsequent range-bound sideways trading.  Watch me explain it ahead of time to Russia Today.

My belief that the iWatch will be a flop needs only one caveat:  The iWatch will be a major disappointment compared to widespread expectations.  However, it will still sell in the millions, and Apple corporation may be the first trillion dollar corporation the world has ever seen.