How The Apple Watch Legitimizes And Enhances The Entire Smartwatch Scene

Would you rather have 50 percent of a hundred million dollar market, or 10 percent of a one billion dollar market?

That statement should help you understand why many of the existing players in the smartwatch market will be happy to welcome Apple into the fold. Today's announcement of the Apple Watch will legitimize public perceptions around smartwatches and wearable technologies; it will reduce the costs  and increase the availability of the components involved in smartwatch manufacturing, bringing down the bill of materials and increasing margins; and it offers more retail opportunities for the countless consumers who will be looking outside of Cupertino for their technology, be it for personal preference, platform choice, or pricing considerations.

Much like its announcement into mobile payments, Apple's entry into the wearable space has long been expected. Strategy Analytics survey of the smartwatch scene in May this year estimated yearly smartwatch sales at 700,000 units. Samsung had a 71% share with its range of 'Gear' smarwatches, with Sony and Pebble each taking an 11% share. This is the market that Apple is entering, and I would expect Apple to quickly jump to the top of the market share table when the Apple Watch goes on public sale in 2015.

Naturally the Apple Watch ties consumers into Apple's ecosystem, reinforcing the consumer lock-in to the iCloud - just as Google , Microsoft , and Amazon, are working to be the platform of choice for users. Even more than an iPhone, the personal nature of the communication and quantified self driven by the Apple Watch will draw people into the iCloud, binding them to Apple far more effectively than a two-year network contract.

Smaller companies such as the Palo Alto-based Pebble have other reasons to welcome the Apple Watch. Currently priced at $149, Pebble's first smartwatch was one of the darlings of Kickstarter and has proven to be a useful smartwatch in the real world. It's cross-platform (pairing with Android and iOS devices) and provides a good level of standalone functionality; it has a good user experience for the public; and it has a solid developer base for third-party apps.

None of this will disappear overnight (or even before the launch in 2015), but Apple's entry into the market does change the perception of the smartwatch market. Smartwatches are no longer a toy for the geeks to play with, they are ready for the consumer.

While many will wait for Apple's watch to be released, the incumbents have the enviable position of being in-store and available right now. They offer consumers choice, and there will be many that decided not to wait on Apple's smartwatch. Now the details on the Apple Watch are known, consumers can do a valid comparison when buying a smartwatch.

Pricing for the Apple Watch range starts at $349. For many people looking to buy a smartwatch, that's far too much. Very few genuinely smart watches are in the sub-$100 price range that would be perfect for impulse buying in the run up to Christmas, but anyone on a budget is going to struggle to justify the cost of Apple's latest hardware when there are a number of alternatives in the $150 to $300 range.

As well as price, functionality will be part of the purchasing decision, and Apple spent significant time demonstrating the IM capabilities of the Apple Watch - an area that is 'new' to smartwatch users. It may well be implemented in other platforms in the near future, but Apple has the advantage of being the first to demonstrate the principle. That said, a smartwatch with customisable watch faces, applications, health tracking, and exchangeable wrist bands sums up almost every smartwatch on the market today, it is not a feature set unique to the Apple Watch.

While the sales numbers have been high for a start-up, Pebble and other boutique smartwatch manufacturers cannot command significant discounts or custom parts from the supply chain without incurring significant costs on relatively small production runs. With Apple entering the market, the parts used in its wearable will come down significantly in price thanks to the volume of parts being made. The sensors used; the touch layers, backlights, and other elements of the screen; and the hardware inside the watch will all be in much greater demand, leading to suppliers operating with much more economy of scale.

That will have a positive impact on the bill of materials for every smartwatch manufacturer, increasing the margin on each watch. Along with increasing sales in a growing market, this should increase profits across the board.

The immediate view on social media is that 'Apple has torpedoed every other smartwatch with today's announcement'. I think that is misplaced. Apple has raised the bar on what a smartwatch can be, but just as with the iPhone, Tim Cook has deliberately aimed for a high-priced, aspirational, slice of hardware. That leaves a huge potential market for other manufacturers to create more value, be it through price, features, materials, or platform support.

Apple has anointed the smartwatch revolution in the eyes of the public, and everyone involved in the smartwatch industry will reap the benefits from today's presentation from Cupertino.