I felt the full range of emotions as Apple (NASDAQ:AAPL) unveiled its new products: disappointment when its live stream went bust, delirium when CEO Tim Cook played that Johnny Ive-narrated video about the Apple Watch, and finally skepticism after more details came to light.
For tech companies and startups, there’s plenty to digest (our recap can help you with that). This is the most hotly anticipated Apple announcement in years, since new product categories could open up new business opportunities and upset the established order. So the question is, will Apple achieve that, just like it did with the iPhone, and to a lesser extent, the iPad?
Apple Watch offers lucrative opportunities to target the luxury segment
The Apple Watch will not become as ubiquitous or earthshaking as the iPhone. Not in the next few years. The big elephant in the room is its battery life, something which Apple CEO Tim Cook failed to address. It doesn’t come across as something people need either. But it doesn’t matter.
Like the iPad and the iPod, the Apple Watch is a niche product. Apple has sold way more iPhones than these two devices, but if you look at the volume of sales, the results aren’t shabby at all.
It’s way too premature to say how successful the Apple Watch will become. But the product itself offers clues. Unlike the iPad and iPod, the watch is an extension of the iPhone, and an expensive one at the starting price of US$349. So unless it makes some adjustments or offers a sweet bundling deal through carriers, don’t expect too many iPhone users to get a unit, particularly in price-sensitive, middle income Asia.
apple watch is robin to iphone’s batman #AppleLive
— David Corbin (@CorbinDB) September 9, 2014
High fashion has no price ceiling
Here are the implications: the Apple Watch is essentially a luxury item, and that means insane profit margins since the wealthy don’t mind shelling more for a bit of prestige and exclusivity. The watch is just as much about the hardware as it is about the software: the design team has put a lot of effort into the look and utility of the body. For example, you can swap straps with just a button press and a push.
The Apple Watch heralds the company’s rebirth not just as a tech giant but also a high fashion brand. Cook’s quip is telling. He calls this the “best watch in the world”, rather than the “best smartwatch”. It’s not just a technology product, but a fashion accessory.
Its Edition variant is lined with 18-carat gold. Buyers can choose metallic straps like the link bracelet and milanese loop, or opt for classic leather.
I’d expect the Edition to cost in the thousands, and I won’t be surprised if Apple comes up with a “Special” Edition that’ll be encrusted with diamonds and whatnot. Or how about a “Special, special” Edition crafted by a famous fashion designer that sells in limited quantities?
Apple’s recent hires of ex-Burberry boss Angela Ahrendts and Yves Saint Laurent head Paul Deneve makes a lot more sense on hindsight. To cater to the high-end segment, you need people who know how to craft retail and product experiences that meet their tastes.
It could achieve what Vertu failed to do: make gadgets a luxury item. Apple can do this because it has branded the device as a watch and not a smartwatch, pitting it against your Rolexes and Tag Heuers rather than the Samsung Gear. For Asia’s newly minted millionaires, getting one of these could be a nice way to make a flashy statement.
So, Apple probably doesn’t need to sell as many Watches as it did iPads or iPods to brand it a success. What it does need is a way to convince users to constantly upgrade their smartwatches.
It’ll require a fundamental behavior shift in the luxury segment: timepieces are meant to be worn forever. Apple’s modular approach to the Watch could address this. Users could swap in their bodies for new ones and keep the straps.
You can smell the business opportunities from a mile away. Just like how a cottage industry has gathered around iPhone covers, third-parties could start making and selling their own straps.
For app developers, the Watch offers the chance to target an even more lucrative segment than the iPhone. And with Apple’s robust ecosystem of app developers in Asia and abroad, we’ll see interesting new software catering to the upper-middle income and the wealthy.
So even if the Watch ships a middling 50 million to 100 million units in the next half a decade, Apple app developers should explore how they can take advantage of this new platform to bolster their existing businesses.
What if you’re a company with your own smartwatch or fitness tracker? If the Apple Watch gains traction, be prepared to adopt user interface and hardware design elements into your own products. As with the rise of the iPhone and the iPad, we could see an accelerated take-up rate for smartwatches using different operating systems, and that’s good news even if you’re competing against Apple.
Apple might even create a lucrative luxury device segment for other players to enter. That would be very bad news for traditional watchmakers, given that they have no clue how to make a watch that can track your health and motivate you to achieve fitness goals.
It’s software eating the luxury watchmaking world. Imagine a Xiaomi for rich folks: small-batch manufacturing could make startups in this niche a sizable profit which will enable it to expand into lower-tier categories later on.
See more: 12 of China’s hottest hardware startups
Apple has the best chance of succeeding in payments
Everyone has been talking about disrupting payments for a long time. Square, a startup created by Twitter founder Jack Dorsey, is failing. Bitcoin might still be the best long-term solution by removing banks and credit card companies from the equation, but it won’t create exponential returns in the near future.
Apple can succeed now: it has 800 million iTunes users, and 220,000 retailers on board in the US, including big names like Starbucks and McDonald’s. The razor-thin margins from this business won’t bother Apple; it has cash cows elsewhere. It won’t take long for the company to take Apple Pay to Asia.
Retailers and mobile shopping apps will certainly gain from this. In particular, ecommerce companies with physical retail stores now have a unified payment service for both online and offline shopping.
But startups in the payment or e-wallets space, especially those in developed markets, have the most to fear. Apple’s adoption in NFC brings cheer to startups who rely on the technology. But if you’re also trying to mainstream the use of NFC for payments, get ready to be swept away. Bitcoin startups should still be safe, given they are riding on an infrastructure with several competitive advantages against the bank and credit card regime.
The biggest pain point in payments today lies in the emerging economies though, where the vast majority of the population don’t own credit cards or bank accounts. And that is an area that Apple won’t touch for now.
So if you’re 2C2P, Coda Payments, or Omise, your prospects are still bright.
Apple will continue dominating the high-end smartphone tier
The most significant upgrade to the iPhone is the larger screen sizes and iOS 8, which improves communication between apps, and syncing between the iPhone and the MacBook. Nothing groundbreaking here, but it’s a maneuver designed to further entrench Apple users into the ecosystem and maintain Apple’s market leadership.
For developers and startups targeting developed countries, Apple stays the preferred platform to create products on due to its users’ higher spending power, friendlier development frameworks, and lack of device fragmentation. Its App Store, as a result, will remain strong.
Android will still control the developing markets, with the flood of cheap and mid-tier smartphones showing no signs of abating. The Apple Watch heralds the future of the company, and the message is loud and clear: 18-carat gold.
So up-and-coming smartphone brands like Xiaomi and leaders like Samsung won’t need to worry that their low to mid-market turf in India, China, and Southeast Asia will be invaded anytime soon by the design acolytes from Cupertino. It’s a different playground with a different set of rules.
Why Apple Watch and Apple Pay are good news for startups
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