This is republished with permission from Cramer’s Shirt. The author of this post was long Apple at the time of this writing. You can follow him on Twitter at @cramersshirt.
As we eagerly anticipate the Apple Watch event set for 1 p.m. Monday, I thought it prudent to share my own thoughts in blog form rather then a series of short, somewhat incoherent tweets in which it appears as if I’m shouting. Instead, let me share my thoughts and what I think “Watch” really means for Apple.
I’m not ashamed to admit that I plan on buying an Apple Watch. Very little can be said Monday to change my mind. The frontrunner, for now, is a 42mm Sport Edition with a blue band. I’ll probably pre-order it and pick it up in store on launch day. I did this with the iPhone 6 debut and it was a fantastic customer experience, though I admit I doubt the lines will mirror that for the phone.
For this reason, if I were Apple, I would can the pre-order for this launch. As I’ve mentioned before there are A LOT of choices for the watch so there may be some buyer confusion. It makes a lot of sense to me just to wait to see it in person before pulling the trigger. I’m willing to take the leap of faith, I get it if others are not. This would eliminate the media surrounding the number of “pre-orders” and likely create a longer line on launch day. We know how everyone enjoys seeing the lines at the store on launch day and the days leading up.
Honestly, no pre-order would likely leave me out in the cold on launch day. To create a buzz I can envision a tight inventory and the watch I have earmarked will likely be one of the most sought after. I’m not willing to wait in line for hours for this, but I wouldn’t wait in line for hours for anything at this point in my life if I can have it a month later with no wait so that’s not exactly a commentary on the desirability of the watch.
As many of you who follow me on Twitter can attest, I find the Apple analyst community to be close to worthless. It’s not as if information on this company is hard to come by or they have some sort of difficult business model that needs in-depth description. These folks, for the most part, are bright people, but in this day and age it’s hard to have an original thought on a company of this size with a 24-hour news cycle, devoted blogs and social media.
Despite this, analysts seem hell bent on making estimates for a product that we know almost nothing about ranging from sales of 10 million to 50 million in the first year for the watch. The 50 million estimate seems ludicrous to me and if your’e expecting that, expect to be disappointed.
Some of these analysts also feel it necessary to point out that the watch will not “move the needle,” as if we couldn’t figure that out on our own. How will they ever replace the revenue and margins of the iPhone???? It’s ok, I’m sure they calculated that on the “back of a napkin.”
Do the Maths
It seems quite likely that nothing will ever replace the iPhone as a cash cow for Apple or that any other company will ever develop a product that is as profitable and as meaningful to the company’s financial well being. But, here’s the thing, one product doesn’t need to replace the iPhone in order for Apple to continue to throw off ridiculous cash flows.
Ever seen Moneyball? I read the book long before it was a movie but I’m sure there are Brad Pitt fans out there that were first introduced to Billy Beane and the Oakland Athletics via the silver screen.
The premise of the real life situation that the book and movie followed was that the Oakland A’s, coming off one of the better years in franchise history, had to replace players that were integral to their success. They were free agents and commanded too much money for the A’s to keep. (Yes, Yankee and Red Sox fans, this dilemma does exist)
Through some soul searching and a chance encounter with a mid-level baseball executive in Cleveland with a penchant for Maths, Beane decides he doesn’t’ have to “replace” Jason Giambi or Johnny Damon, merely their statistics. The number of players to do it, is meaningless as long as the cost is less and the same number of runs…or in Apple’s case, “revenue” is produced.
Can I suggest that the iPad, Watch, Apple Pay, Beats, streaming music service and a new TV product may one day all add up to equal the iPhone revenues of today? That’s 6 product categories and revenue streams that have all be developed since the iPhone was first introduced.
I think it’s fair to say not many companies have had that many products/services introduced after their cash cow first hit the market. Many sit back and reap the profits as they come in. But I digress.
Just one last point on analysts. Take note of the ones that say the watch will not move the needle for Apple. They’re right, by itself, it won’t, but let’s see how many of these people use a “flop” as an excuse to bash the stock later when today, they’re saying it won’t matter anyway. So why should a flop matter if it’s not moving the needle to begin with? Think about it.
It’s Not a Wearable
Let’s ignore the fact that FitBit and JawBone seem to be doing fairly well with wearable activity monitors and the like. The Apple Watch is a whole lot more than an activity monitor. It’s a watch that does A LOT more than what a designer watch does today. You have men paying $US10,000 for watches with diamonds on them, you don’t think there’s a customer base for a trendy gadget that tells time, notifies you of email, appointments all while tracking your activity level among dozens of other features. Granted, a watch doesn’t have to be charged daily, but I guess I must be the only person in the world who doesn’t wear a watch to bed. It will be changing right next to my phone every night.
If you’re willing to spend $US100-$US200 on a watch today, wouldn’t you be willing to spend a couple hundred more that does all of what the Apple Watch will offer vs. just telling time? It seems pretty obvious to me.
“But it won’t work without the iPhone.” Yeah, that’s the point. All these services and products are designed to keep us all in the most profitable ecosystem of all time. I like the Apple ecosystem, but even if I didn’t, I couldn’t get out now if I wanted to. The time and expense to switch to another is simply not worth it. With each new product and MacBook or iMac convert, Apple guarantees years of revenue. It’s almost like customers in the Apple ecosystem are “MAUs” (monthly active users) that actually produce profits for the company they are users of. What a novel idea!
I’ll be watching the event Monday with interest and I’ll read the tweets from folks saying how unoriginal the product is and how all the fanboys are pathetic for even wanting the product. Maybe they will be right. I’ll also find it amusing that while these people won’t take the time to watch the presentation or think about the possibilities of the product, they will take the time to comment on those who have and mock them. That seems like a good use of time. Maybe they’re the ones who need the Apple Watch most, I hear it might save us all some.
NOW WATCH: Here’s How The Apple Watch Works
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