Apple Watch is a Radical Shift in Apple's Strategy
If it succeeds, Apple Watch will become the company's fourth major new product category since the turn of the millennium -- following in the footsteps of the iPod, iPhone, and iPad that preceded it.
More than just a different branding ("Apple" replacing "i"), there are two stark differences between the Watch and Apple's other product categories -- differences that suggest a more fundamental shift in strategy.
It isn't independent
Although Apple's products have long been defined by their ability to work together, Apple Watch is the company's first major product that's basically an expensive accessory.
Earlier this year, perhaps in an effort to take a shot at a rival, Roku's CEO characterized Apple TV as a mere "accessory for the iPad." To be sure, much of the Apple TV's value comes from its ability to beam content from a nearby iPad (or iPhone or Mac) to a big screen, but the Apple TV -- with its suite of dedicated, video streaming apps -- is certainly useful as a stand-alone product.
The same can't be said for Apple Watch -- without a tethered iPhone, it's largely useless. This could be a limitation with the technology itself rather than an intentional design decision -- virtually every other smartwatch that has been released (at least so far) faces the same limitation -- but it still serves to set Apple Watch apart from the company's other products.
It doesn't cannibalize
As a consequence, it does not -- literally by definition -- cannibalize Apple's other product categories. In the past, Apple has not been shy about targeting its own products ("If you don't cannibalize yourself, someone else will," Steve Jobs famously said) but Watch is a dramatic departure from that philosophy.
The iPhone destroyed the market for the iPod (the recent discontinuation of the iPod Classic stands as proof of that). The iPad undoubtedly cost Apple a few Mac sales (though, as Apple's management has said, it was likely worse for the PC). Apple Watch, however, is unlikely to steal sales away from any of Apple's other products.
Indeed, if it's successful, it will serve to protect the iPhone rather than cannibalize it. Once a customer purchases Apple Watch (perhaps for thousands of dollars), they will be more locked into the company's ecosystem than ever before -- abandoning the iPhone would mean parting with an expensive accessory.
Apple is the iPhone company
Ultimately, Apple Watch serves as a powerful reminder that Apple, as a company, is about one thing: iPhone.
Last quarter, iPhone accounted for at least half of Apple's net sales, and as much as two-thirds if one includes secondary product categories (iTunes and accessories) that are tied directly to iPhone's success. iPhone's contribution to Apple's total profit is estimated to be just as large, if not larger.
Skeptics have wondered if the iPhone was repeatable -- in other words, whether or not any of Apple's future products would be able to eclipse the importance of the iPhone. Given how large the business has become -- $20 billion alone just last quarter -- it didn't seem likely.
Admittedly, the situation could eventually change -- like rival Samsung's upcoming Gear S, future iterations of Apple Watch could introduce a separate antenna for stand-alone functionality -- but for the time being, Apple Watch appears to be tacit admission of exactly that. Apple, as a company, is the iPhone.
That's not necessarily a bad thing -- with incredible gross margins and legions of dedicated fans, iPhone is in a strong position. But rather than be the company always seeking to unseat itself, with Apple Watch, it appears to be playing defense.
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The article Apple Watch is a Radical Shift in Apple's Strategy originally appeared on Fool.com.Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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