Wearable

iWatch Thoughts

 

Unlike the almost forgotten Apple TV set, there might be a real product in the iWatch. But as rumors about the device intensify, the scuttlebutt conveniently skirts key questions about the product’s role.

As reverberations of Apple’s Developer Conference begin to die down, the ever-dependable iWatch has offered itself as the focus of another salvo of rumors and speculation. Actually, there’s just one rumor — a Reuters “report” that Quanta Computer will begin manufacturing the iWatch in July — but it was enough to launch a quick-fire series of echoes that bounced around the blogosphere. Not to be outdone, the Wall Street Journal added its own tidbits:

“Apple is planning multiple versions of a smartwatch…[that] will include more than 10 sensors to track and monitor health and fitness data, these people said.”

(“These people” are, of course, the all-knowing “people familiar with the matter”.)

The iWatch hubbub could be nothing more than a sort of seasonal virus, but this time there’s a difference.

At the WWDC three weeks ago, Apple previewed HealthKit, a toolkit iOS developers can use to build health and fitness related applications. HealthKit is a component of the iOS 8 release that Apple plans to ship this fall in conjunction with the newest iDevices. As an example of what developers will be able to do with HealthKit, Apple previewed Health, an application that gives you “an easy-to-read dashboard of your health and fitness data.”

The rumor that Quanta will soon begin “mass production” of the iWatch — the perfect vehicle for health-and-fitness apps — just became a bit more tantalizing… but there are still a number of questions that are left unanswered.

Foremost is iWatch “independence”. How useful will it be when it’s running on its own, unconnected to a smartphone, tablet, or conventional PC? My own guess: Not very useful. Unless Apple plans to build a monstrosity of a device (not likely), the form factor of our putative iWatch will dictate a small battery, which means the processor will have to be power-conserving and thus unable to run iPhone-caliber apps. Power conservation is particularly important if Apple wants to avoid jibes of the ‘My iWatch ran out of battery at the end of the day’ type. Such occurrences, already annoying with a smartphone, could be bad publicity for a “health and fitness” watch.

So, let’s settle for a “mostly dependent” device that relies on a more robust sibling for storage, analysis, and broad overview.

That raises another question: Will the iWatch be part of Apple’s ecosystem only, or will it play nice with Windows PCs or even Android smartphones? If we take Apple’s continued tolerance of the Android version of Beats Music (at least so far) as an example, the notion of an Apple device communicating with a member of the Android tribe is less heretical than it once was. Again, my own guess: Initially, the iWatch will be of restricted to the Apple ecosystem. We’ll see what happens if the device catches on and there’s a demand for an “non-denominational” connection.

As for what role the iWatch will play in the ecosystem, those of us ancient enough might recall the example set by the Smart Personal Objects Technology (SPOT) that Microsoft launched a decade ago. No need to repeat that bit of doomed history by targeting too many platforms, by trying to make “Smart Objects” omniscient. Instead, Apple is likely, as it insisted at its early June WWDC, to tout its Continuity ethos: Let each device do what it does best, but don’t impede the flow of information and activities between devices. In plainer English: Hybrid devices are inferior.

So, besides telling time (perhaps in Yosemite’s new system font, a derivative of Helvetica Neue) what exactly will the iWatch do? The first part of the answer is easy: It will use its sensors to collect data of interest. We’ve already seen what the M7 motion processor and related apps can do in an iPhone 5S; now imagine data that has much finer granularity, and sensors that can measure additional dimensions, such as altitude.

Things quickly get more complicated when we turn to the “other side of the skin”. Heart rhythm and blood pressure measurements look banal, but they shouldn’t be taken for granted, especially if one wants medically reliable data. Oxymetry, the measurement of your oxygen saturation, looks simple — you just slide a cap onto your fingertip — but that cap is actually transmitting lightwaves through your finger. A smartwatch can’t help the nearly 18 million US citizens who suffer from Type II Diabetes (a.k.a Adult Onset Diabetes)  because there are no non-invasive methods for measuring blood sugar. And even as the technical complications of collecting health data are surmounted, device makers can find themselves skirting privacy issues and infringing the HIPAA charter.

The iWatch will also act as a receiver of data from a smartphone, tablet, or PC. This poses many fewer problems, both technical and ethical, than health monitoring, but it also offers few opportunities. Message notifications and calendar alerts are nice but they don’t create a new category, and they certainly haven’t “moved the needle” for existing smartwatches. In a related vein, one can imagine bringing the iWatch close to one’s face and speaking to Siri, asking to set up a calendar event, or sending a text message… but, as with the trend towards larger smartphone screens, one must exercise care when fantasizing about iWatch use cases.

Then we have the question of developers and applications — where’s the support for iWatch app creators? When the iOS App Store opened in 2008, the iPhone became an app phone and solidified the now universal genre. What iWatch rumors fail to address is the presence or absence of an iWatch SDK, of iWatch apps, and of a dedicated App Store section.

Meanwhile, Google has already announced its Android Wear platform and has opened a “Developer Preview” program. Conventional wisdom has it that the Google I/O convention next week will focus on wearables. Samsung has been actively fine-tuning and updating the software for its line of Galaxy Gear smart watches (the watches originally ran on an Android derivative but now use Tizen – until next week).

Finally, we have the question of whether an iWatch will sell in numbers that make the endeavor worthwhile. As the previously-mentioned WSJ story underlines, the smartwatch genre has had a difficult start:

“[...] it isn’t clear how much consumers want the devices. Those on the market so far haven’t sold well, because most wearable devices only offer a limited set of features already found on a smartphone.”

The most ambitious rumors project 50 million iWatches sold in the first 12 months. I think that’s an unrealistic estimate, but if a $300 iWatch can sell at these numbers, that’s $15B for the year. This seems like a huge number until you compare it to a conservative estimate for the iPhone:  50 million iPhones at $650 generates $32B per quarter.

Taking a more hopeful view, let’s recall the history of the iPad. It was a late entrant in the tablet field but it coalesced and redefined the genre. Perhaps the the iWatch will establish itself as The Smartwatch Done Right. But even if it succeeds in this category-defining role, it won’t have the power and flexibility or the huge number of apps of a true trouser pocket computer. As a result, the iWatch will be part of the supporting cast, not a first order product like the iPhone. There’s nothing wrong with that — it might help make high-margin iPhones even more attractive — but it won’t sell in numbers, dollar volume, or profit comparable to the iPhone or iPad. The iWatch, if and when announced, might be The Next Big Thing – for the few weeks of a gargantuan media feast. But it won’t redefine an industry the way PCs, smartphones and tablets did.

JLG@mondaynote.com

 

Wearables Fever

 

While Google, Motorola, and Samsung seem eager to jump into the wearables market, Apple characteristically keeps its counsel – and wisely so: Smartwatches and other wearables produce more pageviews than profits.

Wearables are a danger to your health – your mental health, that is. Smartwatches and sensor-laden bracelets aren’t so new anymore — see Microsoft’s 2004 SPOT Watch — but the vernal equinox seems to have triggered a bout of Wearables Fever the likes of which we haven’t seen since the Tablet Fever of January, 2011, when 76 tablets were announced at the Consumer Electronic Show in Las Vegas. As so often happens with pandemics, there was a smaller outbreak, called the Dawn of the Tablet PC, days before the January 2010 iPad launch.

In this year’s derangement, we are witnessing the birth of another epoch-making class of product — the Wearable. As Wired sees it, for example, Jawbone Is Now the Startup Apple Should Fear Most.

In one respect, Jawbone’s devices are a lot like Apple’s. The company admires minimalism…[b]ut Apple’s minimalism is cold — all brushed metal and glass — while Jawbone’s is warm, squishy, and textured… There’s a chance Apple has designed itself into a corner. But for Jawbone, the future is full of possibility.

Then there’s this analysis, quoted and mocked by John Gruber [emphasis mine]:

Cadie Thompson, writing for CNBC, “Time Is Ticking for Apple to Announce an iWatch, Say Analysts”. Apple needs an iWatch sooner rather than later, or the company will risk losing its innovative edge to rivals, analysts say.

They only have 60 days left to either come up with something or they will disappear,” said Trip Chowdhry, managing director at Global Equities Research. “It will take years for Apple’s $130 billion in cash to vanish, but it will become an irrelevant company… it will become a zombie, if they don’t come up with an iWatch.

I’m guessing the ellipsis denotes when he paused for another line of coke.

Parenthetically, it would be wrong to imply that Mr. Chowdhry might be “incentivized” to shout from the rooftops by rewards more satisfying than pageviews — no allegations of stock manipulation complicity here — but I wonder about the games that he and other anal-ists play. As Philip Elmer-DeWitt pointedly noted in a CNN Money column last year, Mr. Chowdhry urged his clients to unload Apple stock for eight months and then blamed the CEO and CFO “for destroying Apple’s shareholder value”.

If you’re curious enough to look at Mr. Chowdhry’s spartan Global Equities Research site, you’ll see he claims to have Commission Sharing Agreements with Goldman Sachs, Merrill Lynch, Barclays, Jefferies, Morgan Stanley and JP Morgan. As the Wikipedia article points out, such agreements “ask that broker to allocate a portion of the commission directly to an independent research provider.” Here, one wonders what the word independent really means…

Back to Wearables: The announcements pile on.

Samsung tells us they’re moving their smartwatches away from Android to a version of Tizen, itself based on a version of the ubiquitous Linux.

Google announces Android Wear, a version of Android for smartwatches.

Motorola, soon to be a Lenovo brand, announces that its moto 360 smartwatch is “Coming Summer 2014 in a selection of styles” and provides these artful renderings:

Moto Wrist Edited

and…

Moto Modern

(I write renderings because, as the Android Wear intro video indicates, these are simulated pictures. This doesn’t mean that the final product won’t be better looking– but we’re clearly not there yet.)

Why the haste? Did Tim Cook succeed in misdirecting Apple’s competition when he pronounced wearables a “very key branch of the tree? Or is there a giant business to be had?

We have many unanswered questions.

First, paraphrasing Horace Dediu, there are the twin questions of For What and By Whom: For what job is a smartwatch “hired”, and by whom? If we look at phones as a model, we see two “employers”: Carriers hire smartphones to increase their ARPU; normal consumers use them as small, ubiquitous, always-connected personal computers.

Will this model work for smartwatches? We can almost certainly eliminate carriers from the equation: Subsidies are out of question because a watch is unlikely to generate carrier revenue.

For us users, a smartwatch collects sensor data, connects to our smartphone, displays alerts, responds to touch and voice commands… and even tells us the time. These are all worthwhile functions that make for neat promo videos, but to keep users interested after the novelty wears out, smartwatches will have to do more than log the miles we’ve run, give us weather updates, and show us the name of the person who’s ringing the smartphone in our pocket. Put another way: We’re willing to pay a premium for our smartphones (whether directly or by contract) because of the huge range of features they provide, the enormous number of apps in the app stores. Will we be as durably aroused – and willing to part with substantial amounts of money – by (yet another) pulse rate app?

Another batch of questions: Since we no longer need a dedicated timepiece to tell us the time — our smartphone does that — Who wears a (dumb) watch these days, How, When, and Why?

Simplifying a bit, younger people don’t wear watches at all and older generations use them as jewelry — and gender-specific jewelry, at that. Furthermore, how many veteran watch-wearers wear the same watch all the time? Many of us own more than one watch, and select the appropriate timepiece (or two — or none at all) for the occasion. These aren’t trivial issues, they’re uncharted territory for mobile device makers and marketers.

Next question: How will smartwatch makers handle the delicate equilibrium between computing power and battery power? As smartwatches evolve and offer more features, a better display, and a more responsive user interface, they’ll need more computing power — and more computing power means a quicker battery drain. Will we put up with watches that run out of power at the end of the day? Will designers retard functionality in order to extend battery life to 24 hours and beyond… or make a smartwatch so big it’ll look like a miniature phone?

The power equilibrium question is why Samsung moved to a dedicated (and pared down) version of Tizen, and why Google did the same for Android Wear. All without giving much information of battery life.

Finally: Is there a business, there? Here in the Valley, Pebble CEO Eric Migicovsky claims to have sold 400,000 watches since January, 2013. At around $150 each, that’s $60M in revenue — a real tribute to Eric’s long-standing belief in wearables (he’s been working at it for six years).

But even if you multiplied this number by 10, it would barely nudge the needle for a large companies such as Samsung, Motorola/Lenovo, or Apple, which means these devices will be confined to the role of smartphone companion. They’ll help make money by enhancing the main product; they’re not going to be a $10B business in themselves.

As Charles Arthur writes in The Guardian, there are fewer than half a million smartwatches in use in the UK: “Wearable computing faces an uphill battle breaking through to the mainstream…”. Similarly, the Register doesn’t see any good, large-scale answers to the question. It calls Google wearables “A solution looking for a rich nerd”.

These challenges might explain why Apple doesn’t seem to have caught this Spring’s Wearables Fever. Smartwatches are destined to be ecosystem extensions, not The Next Big Thing.

JLG@mondaynote.com

One last thought before we close: Not all Ecosystem Extensions are equal. The no-longer-a-hobby Apple TV now brings substantial revenue and growth:

“Sales of the Apple TV are estimated to have grown by 80 percent in 2013, reaching around 10 million units for the calendar year, or some $1 billion worth of set-top boxes sold to end users.”

Horace Dediu puts a “Fortune 130” label on iTunes. By itself, with yearly gross revenue of $23.5B and growing 34%, iTunes is large enough to rank #130 in the Fortune list of the 500 largest US companies:

On a yearly basis iTunes/Software/Services is nearly half of Google’s core business and growing slightly faster.”

While music sales are on the wane, apps and video (mostly Apple TV) show healthy growth. Compared to an Apple TV, how much would an iWatch add to the iTunes business? Apps? Content?

Apple seems wise to stay out of the game until it can make something more lasting than a novelty.