Originally published on July 28, 2014.
These days, our feeds are flooded with iWatch analysis that is preoccupied with the viability of Apple (NASDAQ:AAPL) opening a new vertical in the fashion industry. However, many who speculate excitedly about the coming of iWatch temper their statements by saying sales will not move the needle on Apple profits significantly. I think analysis like this is aimed anywhere but at the real target.
We may wear wearables, but they are not about fashion or gadgets. Wearables are about putting everyday people in constant contact with data in easily digestible bits so they can ultimately free their minds from thousands of mundane details and live safer, more efficient lives. Wearables will also increase the efficiency of systems using technology that will permeate to the smallest of businesses and most personal and interpersonal of tasks.
When you consider the implications, this new relationship with data will be transformational. While Apple is certainly not the first and only to develop wearable technology, its combined R&D capabilities, ethos, track record, OS X/iOS ecology, customer base and working capital put it in prime position to quickly offer elegant systems on a massive scale. The release of an iWatch would be just a first step. The key to success would be to create ubiquity of data connections via a proliferation of iOS devices across many consumer product channels and industry sectors.
The most common iWatch refrain is that, even if it is popular with consumers, it will not drive an appreciable increase in Apple's stock price. Apple has a long history of analysts nitpicking and downplaying its product strategies. The iPod and the iPhone both received wide criticism from finance and tech industry analysts who missed the point and ended up with egg on their faces as growth driven by these products became the story of the decade.
Despite the original iPod's great ergonomic design and instant popularity, many analysts downplayed it for being just an overpriced MP3 player. Its days were numbered if Apple couldn't make it cheaper, they said. But once iTunes and the full strategy came into play, it became obvious that Apple had provided music companies with a viable and ethical pay-per-download structure that reversed industry decline and changed the way we consume entertainment forever.
The iPhone faced similar criticism, especially about the lack of a BlackBerry-style keyboard. But the iPhone did not just compete against other cell phones, as many analysts first thought. It was also something more: the first pocket computer with a high-resolution screen and intuitive operating system to pass the usability test with customers - an unqualified success.
After seven years of development, iOS is finally beginning to hint at its full potential vis-á-vis cloud computing, an iDevice ecosystem and partnerships. Apple will likely come out with its own iWatch or wristband for general consumers, but given the variety of brand partnerships already coming to light, it's easy to envision iOS wearable technology exploding outward through additional brand relationships.
After all, we mainly wear watches as jewelry today largely because they have been rendered redundant by ever-present mobile devices that are automatically attuned to world time. Using a watch to introduce biometric data through mobile cloud computing makes no sense unless people will immediately gravitate to it as a luxury fashion statement. But people have widely varied and deeply ingrained tastes - especially in the luxury fashion world.
Under these circumstances, why wouldn't Apple let established luxury brand partners do the heavy lifting? And why wouldn't the likes of Omega, Tag Heuer or Rolex be happy to partner with Apple, a brand with a huge following and world-renowned for top flight engineering and quality, to introduce new luxury timepiece models? Considering the fact that the market for luxury timepieces has been flagging since 2013, this might be just the new product boost these companies are looking for.
This possible strategy offers an additional explanation for the hiring of Burberry's CEO Angela Ahrendts and Tag Heuer's VP of Sales Patrick Pruniaux; their industry experience could just as easily be used to align Apple's development process with the design, manufacture and marketing of hybrid products by luxury brand partners.
But watches are just the tip of the iceberg when you start thinking about combining biometrics and cloud data. Ultimately, biometric sensor packages could be placed in any number of wearable products: bracelets, rings, medallions, clothing and even eventually subcutaneous implants. The purpose would not be about fashion but to acquire biometric data and serve it via near-field connections to the iPhone or iPad and ultimately the cloud without having to think about it.
Apple is already laying the foundations to provide NFC and cloud-based iOS support and services in a variety of sectors: automobiles, health, education, enterprise, mobile financial transactions and bricks and mortar venues (iBeacon). But we are still just in the low-hanging fruit stage of this technological revolution. Software is currently Apple's fastest growing revenue segment and, once people are connected through iOS wearables so that bi-directional data-flow and consumption is pervasive, that growth should increase significantly.
Despite the fact that Apple is already arguably the most valuable company in the world, there is still amazing potential for growth under this scenario. Even though Apple is a very different company from what it was when the iPhone was launched, I certainly don't see the end of Apple being Apple ... or analysts being analysts for that matter.
Disclosure: The author is long AAPL.
Additional disclosure: I am a creative professional and AAPL stockholder. I'm not recommending readers take any position in the stock, but it's been very, very good to me.