Is Untethering the Key to Unlocking Apple Watch Success?

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By Phil Sealy | 3Q 2017 | IN-4703

On August 4, 2017, Bloomberg announced that Apple’s next smart watch model, due for release later this year, would be equipped with LTE connectivity. In effect, this would allow usage to be completely untethered from the handset, enabling standalone functions including the ability to make and receive calls, stream music, download apps and songs, all achieved without an iPhone in sight. This is certainly a bold move by Apple, attempting to break the bond between handset and smart watch, in a clear effort to raise the smart watch bar from handset companion to standalone device.

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Relinquish Apple Watch Handset Reliance

NEWS


On August 4, 2017, Bloomberg announced that Apple’s next smart watch model, due for release later this year, would be equipped with LTE connectivity. In effect, this would allow usage to be completely untethered from the handset, enabling standalone functions including the ability to make and receive calls, stream music, download apps and songs, all achieved without an iPhone in sight.

This is certainly a bold move by Apple, attempting to break the bond between handset and smart watch, in a clear effort to raise the smart watch bar from handset companion to standalone device.  

What the Stats Say

IMPACT


Despite the arrival of the Apple Watch to the smartwatch segment, it hasn’t provided the spark that the market needed. Although the smartwatch market grew 13.6% year-on-year in 2016, it has fallen short of expectations over the past two years as volumes are still relatively low, sitting at under 20m units for 2016 with Apple holding around a 55% share. Moving into 2017, the market has grown steadily year-on-year for the opening two quarters with Apple now commanding over 60% of the smartwatch market. However, there is little to suggest the market is on the cusp of a boom in sales despite the arrival of Apple’s cellular-enabled smartwatch. This is symptomatic of a market where consumers are still trying to figure out what they actually need a smartwatch for, trying to put into context its added benefits in terms of functionality and necessity.

Let’s Talk About Something Other Than Battery Life

COMMENTARY


The media has focused largely on the possible limitations of the LTE smart watch, most notably centering on potential issues pertaining to battery life. The fact of the matter is that an LTE Apple Watch will likely be a daily charge device, but this is not necessarily a bad thing since many large screened handsets require a daily charge. In addition, chargers are usually one of the first items packed prior to a business trip or vacation and overnight charging of mobile devices has become the norm in many households. Society is already accustomed to limited battery life and has adapted accordingly. However, battery life is just one aspect under discussion and there are arguably more interesting points to explore and consider, some of which are outlined below.

The addition of LTE and further untethering from the iPhone in another calculated yet cautious step in the execution of Apple’s wearables strategy. Each Watch iteration has been launched with something new and shiny, in a baby steps approach, to ensure continued hype and interest. For example, the Apple Watch 2 allowed fitness and payments as standalone watch functions and the addition of LTE for the latest version is another step in relinquishing reliance on the handset.

Untethering from the handset could prove a smart, but risky, move by Apple. Apple’s total available smart watch market has been limited to Apple iPhone users, but untethering unlocks that limitation thereby widening its addressable market. In this instance, unlocking from the handset raises the smart watch bar from handset companion to standalone device and breaking that bond could negatively affect its handset business. However, Apple will be looking towards iOS, apps and the seamless transition of content between different devices as the foundational glue to ensure continued consumer stickiness. This has worked for iPads and there is no reason to suggest that the same wouldn’t apply for an LTE enabled Apple watch.

Ultimately the success of an LTE Apple watch will depend on two primary factors: price points and data packaging. Traditionally cellular connected devices are sold at a higher price point than their non-cellular counterparts. With the Apple Watch already a premium product, any additional price increases for the LTE version will likely lock out a large proportion of the market. The other factor is outside of Apple’s control and rests with the mobile network operators (MNOs). Here, the MNOs need to address these types of devices as subscription companions, enabling the sharing of data from one singular subscription to multiple devices and not as a new subscription package. A business model focused on the latter will significantly hinder sales.

Finally, it’s ABI Research’s belief that the addition of LTE functionality into the next Apple Watch is a good indicator that an eSIM will not make an appearance in the next iPhone iteration. Other original equipment manufacturers (OEMs), including Samsung and Huawei, have adopted similar strategies, looking to not only improve the functionality of their smart watches to increase sales, but to also provide a range of newly connected devices which largely remain untapped from a subscription perspective. Newly connected devices with eSIMs, which MNOs are yet to monetize, will be met with less resistance than that which has been experienced from an eSIM handset point of view.

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