BAB362 / OCTOBER 2017
Apple Watch (B):
20172017
Would You Bet On It?
The Initial Hype
The Apple Watch entered the market with great ballyhoo and fanfare in April 2015. Following
the company’s Spring Forward event on March 9, Apple Inc. (Apple) began blitzing television
airwaves and digital media with Apple Watch advertisements. One estimate stated that the main
Watch commercial had aired 300 times by the time pre-order sales and in-store demos began
exactly a month later on Friday, April 10.1 On that day, the initial production batch sold out in
less than two hours.2 In the month between the company event and the pre-order launch, Apple
spent $38 million on the U.S. ad campaign.3 In contrast, Apple had spent $42 million on iPhone
6 and iPhone 6 Plus over the five-month period ending in April 2015.4
Exceeded Expectations or a Disappointment?
The Apple Watch officially launched to the general public on April 24, and sales skyrocketed.
The product was initially available in nine regions or lead markets: Australia, Canada, China,
France, Germany, Hong Kong, Japan, the United Kingdom, and the United States.5 Although
Apple was notoriously tight-lipped about sales volumes, analyst estimates ranged from 1.5
million6 to four million7 units sold in the first quarter after launch, which was during the second
calendar quarter of 2015. This was a marked difference from initial analyst predictions of
between three and five million units.8 Reviewers acknowledged that while the Apple Watch had
much promise and unrealized potential, it was expensive and limited to iPhone users. 9 One
1 http://9to5mac.com/2015/04/09/apple-watch-advertising/ accessed October 2015.
2 http://www.cbsnews.com/news/apple-watch-38m-ad-spend-a-drop-in-the-bucket/ accessed October 2015.
3 Ibid.
4 Ibid.
5 http://appleinsider.com/articles/15/10/23/apple-watch-coming-to-india-on-nov-6-prices-and-resellers-
unknown. Accessed October 2015.
6 http://www.nytimes.com/2015/07/22/technology/apple-earnings-q3.html?_r=2. Accessed October 2015.
7 http://feedproxy.google.com/~r/TheNextWeb/~3/n33yw4bhjN4/. Accessed October 2015.
8 http://www.nytimes.com/2015/07/22/technology/apple-earnings-q3.html?_r=2. Accessed October 2105.
9 “Apple Watch review: Apple Watch one year in,” by Scott Stein, reviewed May 3, 2016. Accessed on
cnet.com/products/apple-watch/2/, September 2016.
This case was prepared by Gary Ottley, Lecturer in Marketing, and Ken Matsuno, Professor of Marketing, at Babson
College. It was developed as a basis for class discussion rather than to illustrate either effective or ineffective handling
of an administrative situation. It is not intended to serve as an endorsement, source of primary data or illustration of
effective or ineffective management.
Copyright © 2017 Babson College and licensed for publication to Harvard Business Publishing. All rights
reserved. No part of this publication can be reproduced, stored or transmitted in any form or by any means
without prior written permission of Babson College.
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Apple Watch (B): Would You Bet On It?
BAB362 - OCTOBER 2017
analyst summed up market sentiment resulting from these numbers.10 “It’s way too early to
render a verdict on the watch. All we can say is relative to expectations, whether those were
misplaced or not, the watch was a disappointment this quarter.”
However, a different picture emerged if one viewed the Apple Watch in a context of the overall
global smartwatch market. In 2014, smartwatches were considered a nascent category. With its
first entry into this market in 2015, however, Apple “trounced everything else on the market,
and continues to far outsell everything else even after supposedly collapsing." 11 In spite of
disappointing numbers, Apple’s entry appeared to buoy the entire market. In the second quarter
of 2015, sales of non-Apple smartwatches made up just 900,000 units.12 One firm estimated that
of 5.3 million units in the global smartwatch market in Q2 2015, Apple had shipped four million
and Samsung 400,000, together making up 80% of the global smartwatch market.13
As one industry insider noted, “Apple's iPods, iPhone and even iPad didn't hit their sales stride
in the first three months of sales. Each took some time to build an audience of millions and saw
sales develop particularly during holiday seasons.”14
Are Apple Watches All Created Equal?
Although it was common to describe the Apple Watch in terms of its lowest base price of $349,
in reality there were as many as 40 different models or configurations, depending on how one
mixed and matched the features. When it debuted, the Apple Watch sold in three collections:
Watch Sport, Watch, and Watch Edition. (Please see Exhibit 1 for Apple Watch collections.)
Prices of models in each collection varied greatly depending on: size (38mm vs. 42mm);
materials used for the back, screen, case, and band (glass, ceramic, aluminum, crystal, stainless
steel, and/or gold); and watchband (fluoroelastomer plastic, stainless steel, or leather). Prices
of the Watch Sport collection ranged from $349 to $399, prices of Apple Watch from $549 to
$1,099, and prices of Watch Edition from $10,000 to $17,000. 15 Such a large range made
estimating an average price challenging. Still, by late September 2015, many analysts had pegged
the average selling price between $425 and $550.16
10 http://www.nytimes.com/2015/07/22/technology/apple-earnings-q3.html?_r=2. Accessed October 2015.
11 http://appleinsider.com/articles/15/07/08/apple-watch-collapsing-sales-report-actually-shows-apple-is-
crushing-smartwatch-sector. Accessed October 2015.
12 http://feedproxy.google.com/~r/TheNextWeb/~3/Eto8Kbhf_a0/. Accessed October 2015.
13 http://www.prnewswire.com/news-releases/strategy-analytics-apple-watch-captures-75-percent-globalsmartwatch-marketshare-in-q2-2015-300116995.html. Accessed October 2015.
14 http://appleinsider.com/articles/15/07/08/apple-watch-collapsing-sales-report-actually-shows-apple-iscrushing-smartwatch-sector. Accessed October 2015.
15 At the time of the writing of this case, the most expensive Edition model on the apple.com/watch website was
priced at $12,000.
16 http://www.cnbc.com/2015/09/30/average-apple-watch-sells-for-529-at-top-end-of-estimates-report.html.
Accessed October 2015.
2
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Apple Watch (B): Would You Bet On It?
BAB362 - OCTOBER 2017
The Future of Smartwatches and Apple’s Role
After only a few months of market presence, the Apple Watch was credited with buoying the
entire market. While all smartwatch vendors sold a total of 4.6 million devices in 2014, the Apple
Watch was expected to increase the total to over 28 million in 2015. 17 One Morgan Stanley
analyst estimated that 36 million Apple Watches would be sold in the first 12-month period, a
number that could actually be higher were it not for supply chain issues.18 On the low end of
volume expectations, some analysts downgraded their estimates from between 30 million and
40 million in Year 1 to 15 million.
Much would depend on the 2015 holiday season, historically a time of year when new Apple
products sold well and provided a user base for past product successes. In October 2015, the
Watch came out in Saudi Arabia, the United Arab Emirates, Chile, the Philippines, and South
Africa. It was set to debut in India in November.19 How Apple thought about the evolution of this
product category and its role in diffusing innovation could profoundly affect future numbers.
Break-even volumes would probably not be a huge hurdle to overcome. Apple was not in the
business of breaking even, but rather in the business of category changing. However, a
significant marketing push would likely be needed to re-engage customers after the initial flurry
in Q2 2015, when Apple die-hards, the company’s innovator customer segment, would arguably
have spearheaded adoption and driven sales in the initial lead market and beyond with a
cascading effect.
Subsequently, to reach early adopters and entice the early majority, Apple might have to shift
its marketing message. What was Apple Watch competing against in the minds of mainstream
consumers when they began to consider adoption? Should Apple be concerned about Samsung
smartwatches or makers of already popular wearable tech devices such as FitBit? With an
average price over $500, and ultra high-end prices exceeding $10,000, Apple might have its
work cut out for it, especially in light of Kickstarter favorite Pebble, which in September 2014
cut its MSRP to an average of $149, putting it well below even the least expensive Apple Watch.20
A smartwatch was a complementary product, and its adoption base was the universe of
smartphone users. Given the historical adoption rate of smartphones, it was possible to estimate
the size of the smartphone market. Decisions would need to be made about how to compete with
substitutes in the market, the number of which was sure to proliferate as Apple’s success boosted
the smartwatch category. Among nine initial lead markets, the United States played an
important role defining and shaping customer usage and possession values of smartwatches,
still a nascent product category. Growth of the smartphone user base in the United States had
slowed recently, and the estimated market size in 2014 was 165 million users.
17 http://www.cnet.com/uk/news/apple-watch-to-dominate-smartwatches-with-15m-units-shipped-in-2015/.
Accessed October 2015.
18 http://www.cnet.com/news/apple-watch-sales-to-reach-36-million-over-first-12-months-predicts-analyst/.
Accessed October 2015.
19 http://appleinsider.com/articles/15/10/23/apple-watch-coming-to-india-on-nov-6-prices-and-resellersunknown. Accessed October 2015.
20 http://techcrunch.com/2014/09/30/pebble-price-cut-background-activity-sleep/. Accessed October 2015.
3
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Apple Watch (B): Would You Bet On It?
BAB362 - OCTOBER 2017
Table 1: U.S. Smartphone Market Size and Operating System (OS) Share
Year
2014
2015
2016
2017
U.S. smartphone market
165.3
184.2
198.5
211.5
size (users in millions)21
Smartphone OS Share of Market (SOM)22
iPhone SOM (users)
42%
43%
45%
48%
non-iPhone SOM (users)
58%
57%
55%
53%
2018
220.0
50%
50%
Source: Graphic created by authors.
Apple’s entry into the smartwatch market opened new marketing possibilities for itself and
competitors. Much was at stake. Industry experts quoted in tech publications when it was
released noted that while it was considered a phone accessory, specifically an iPhone accessory,
there was potential for it to be much more. Perhaps the Apple Watch could go from being
considered a non-essential companion device to one that could unlock the burgeoning world of
wearable Internet devices to more and more people, and in so doing become essential.23
21 Estimates given by http://www.statista.com/statistics/201182/forecast-of-smartphone-users-in-the-us/.
Accessed November 2016.
22 https://www.comscore.com/Insights/Market-Rankings/comScore-Reports-May-2014-U.S.-SmartphoneSubscriber-Market-Share for 2014, http://www.comscore.com/Insights/Market-Rankings/comScore-Reports-May2015-US-Smartphone-Subscriber-Market-Share for 2015. Case writers’ estimates for 2016-2018. Accessed
November 2016.
23 “Apple Watch review: Apple Watch one year in,” by Scott Stein, reviewed May 3, 2016. Accessed on
cnet.com/products/apple-watch/2/, September 2016.
4
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Apple Watch (B): Would You Bet On It?
BAB362 - OCTOBER 2017
Exhibit 1
The Apple Watch Collections
Source: The image above, adapted by authors for use in this case, appeared on many websites
and Apple representations, including on http://www.techgiri.com/smartwatch/shocking-applewatch-prices-in-india-revealed/, accessed October 2015.
5
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