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Apple Watch launch projected to be 7 times more successful than Android Wear

After a slow 2014 for Android Wear and the smartwatch market in general, Apple is betting it will ship 5 to 6 million Apple Watches - topping the 720 thousand Android Wear watches shipped last year.

apple watch keynote

The Wall Street Journal reported yesterday that Apple placed its first Apple Watch orders with its manufacturing partner Quanta for 5 to 6 million watches. That's extremely bullish for Apple because only 720,000 Android Wear watches shipped in 2014 from such companies as Motorola, Samsung, and LG, while Pebble shipped 1 million smartwatches, according to market watcher Canalys.

Apple's rosy forecast for its premium-priced watch appears aggressive when one considers that Canalys reported a total 4.6 million smart wearable bands shipped in 2014.

The availability of Apple Watch apps will determine whether Apple meets its forecast. Like a smartphone without apps, a smartwatch without apps has some value, but without a variety of apps it isn't very inspiring or customizable to the wearer's needs. If Apple and its legion of developers have created enough apps, Apple could achieve its forecast.

Two app development obstacles stand in Apple's path. Apple's independent developers, its source for most iPhone and iPad apps, don't have Apple Watch hardware to use to design and test apps. Developers can't test smartwatch app features like swipes and tactile feedback without hardware.

Apple must also overcome a developer learning curve. Tim Cook's reference to smartwatch apps as "glances" during Apple's first quarter 2015 conference call suggests that the company is copying the Android Wear and Google Glass concepts of apps. Google learned that these apps are entirely different than smartphone apps. Based on Google's experience, the developer learning curve to discover what makes a good smartwatch app could depress Apple's forecast.

Citing anonymous sources at Apple, The WSJ report claimed:

"Half of the first-quarter production order is earmarked for the entry-level Apple Watch Sport model, while the mid-tier Apple Watch is expected to account for one-third of output, one of these people said." 

Apple has only revealed that Apple Watch pricing will start at $349. Using the arbitrarily assigned prices in $100 increments beginning at $349 (because Apple does this with other products), we can estimate that 5 million watches could be worth $2 billion in revenue. That's roughly half the production priced at $349, one third at $449, and the balance at $549. Though seemingly big, those revenue figures would amount to just 1% of the gargantuan $199 billion in revenue Apple generated over the previous 12 months. Apple Watch revenues might be slightly greater if one includes a few watches in the rumored $4,000, 14-carat gold Apple Watch category for sheikhs and investment bankers. In comparison with the luxury watch market, where Hublot, Audemar, and Piaget regularly sell for more than $100,000, that rumored price is relatively cheap.

This first tranche of watches ordered by Apple might not meet demand if the WSJ is correct in predicting its shipments to ramp to 1 million units per month so quickly. Though tempering optimism, the WSJ also said that Apple is more agile than most companies in adjusting orders up or down depending on forecasts.

This is the first new product Apple will have introduced since 2010, and the first under Tim Cook's watch. So investors, journalists, and fans will all be watching the Apple Watch's success closely. Even if apps are widely available, how will Apple squeeze enough revenues from its watch to matter?

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