IPhones and Oranges

Apple Watch Isn't in a Time Warp

The consumer technology industry has changed a lot in nine years.

The technology industry is always looking forward. Yet when it comes to the Apple Watch, there is too much glancing at the distorted image in the rear-view mirror of tech history. 

There's been a perception that the year-old Apple Watch, the first significant new product category released in the Tim Cook era, hasn't gotten off to a great start. Apple doesn't disclose sales figures, but IDC estimates about 11.6 million Watches shipped in 2015, representing the first eight months of the device's life on store shelves. For people used to eye-popping numbers from Apple, the Watch sales estimates have felt a tad disappointing.

It's too premature to declare the Watch a knockout or a failure. Yet it's also not fair, as Apple fans have been doing, to use the iPhone's start as a guide. As a Wall Street Journal article noted, Apple sold roughly 6 million iPhones in its first 12 months on the market -- about half as many units as Apple's first year of Watch sales. The iPhone went on to become perhaps the most momentous tech innovation of the last decade and turned Apple into the most valuable company in the world.  

The comparison of first-year iPhone figures to early Watch sales is intended to show a device doesn't need to sell like hotcakes from Day One to grow into a world-changing innovation. 

That's true, but it's also not a fair comparison, because Apple and the rest of the consumer technology industry are judged by a higher bar now. The leading social network of 2007, MySpace, had about 115 million global monthly users when the iPhone first went on sale. Today, more than 1.59 billion people use Facebook each month. This year, about 1.5 billion smartphones are expected to be sold globally, or more than 10 times the size of the market in 2007. 

Higher Bar

Annual smartphones sales are 10 times what they were when the iPhone went on sale in mid-2007

Source: IDC and Bloomberg Intelligence

Technology devices and Web services are simply much larger markets today than they were in 2007. Apple is in part responsible for the mainstreaming of technology. That means sales of 12 million gadgets -- the number of Blackberry devices sold in 2007 -- might have been impressive nine years ago, but they aren't by 2016 standards. The distribution network pushing the Apple Watch, including the company's own stores, also can't compare with Apple's puny retail presence in 2007.

That's not to say the Apple Watch is a failure. But it is clear that Apple and its app partners haven't landed on the right formula yet to prove to most people why they must buy it. 

Other comparisons do make the Apple Watch seem as if it's made a bigger splash than the iPhone first did. Apple sold about 8 percent of all smartphones in 2008, its first full year on the market, according to Gartner data. By comparison, IDC estimates the Apple Watch had about 15 percent market share last year in the "wearables" category, which largely consists of cheaper fitness-tracking gadgets from Fitbit and others. Apple has more than held its own in that category of tech gadgets.

But Apple's ambition is to transform the market, not to grab a big share of the existing wearables category. With smartphones, Apple turned a niche technology area into a mass market that changed computing forever. 

No More Growth

For the first time ever, iPhone sales are expected to decline this year. That has erased growth for Apple, which generates two-thirds of its revenue from iPhone sales.

Source: Bloomberg and UBS (for FY 2016 estimate)

Note: Apple's fiscal year ends in September.

For Apple, the perception of the Watch's success or failure matters because iPhone sales are expected to decline for the first time ever. Apple's two other top device categories -- the iPad and the Mac -- are also posting sales declines. It's unfortunate for Apple that perhaps $6 billion worth of Watches sold simply isn't enough to offset falling sales of the iPhone, which generates two-thirds of Apple's revenue. 

Even in 2016, slow starts are considered perfectly acceptable in other nascent computing categories. Analysts estimate only a couple million high-end virtual reality googles will be sold this year. If VR turns out to be the next computing revolution, no one will care about light sales out of the gate. Still, it's best to give the Apple Watch time to prove itself on its own merits, rather than measuring today's tech successes or failures with a nine-year-old yardstick.

    This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shira Ovide in New York at sovide@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE