Why Apple doesn’t care about market share

Canalys estimates Apple has sold some 3.5 million of its Apple Watch in the second quarter of 2018: the company gives no details, including it among “other products” such as Apple TV, Beats, Airpods or HomePod.

The figures come as no surprise to those of us who follow the company: the Apple Watch’s appearance in April 2015 changed the smartwatch, which of course was not invented by Apple, but as with other products it redesigned and redefined category.

The smartwatch concept had been around for several years, failing to attract much attention until a small startup, Pebble, revolutionized it in 2012 with a Kickstarter-funded model. Before running out of gas and being bought by Fitbit in late 2016, Pebble sold several million smartwatches, effectively creating a new consumer electronics product… until Apple announced in September 2014 it was bringing out the Apple Watch, which virtually halted sales in the segment: most consumers decided to wait until it came out in April of the following year. The Apple Watch immediately began outselling its rivals, and by the last quarter of 2017 had garnered more than 60% of smartwatch sales.

Meanwhile, Google applied the same strategy that had worked so well in the smartphone arena with Android: it set up Android Wear, inviting manufacturers to use the platform for their own models, creating a thriving smartwatch ecosystem. Over time, different brands have positioned themselves, and although Apple Watch is still an important product for Apple, its market share has been decreasing and in the second quarter of 2018 was 34%. Apple has recently begun focusing on China and India, selling the Apple Watch through telecoms companies to take advantage of its LTE connectivity: it is now the best-selling model in the Asian market, with more than a quarter of a million units.

Once again, we see the impact of Apple’s strategy: reinvent a category, set new standards for it while accepting that the brand that is not for everyone, while at the same time, other companies take advantage of the new category. The Apple Watch is what it is: a model with no variations other than the materials used in its housing, and is highly profitable: in 2015, IHS calculated that the cheapest Apple Watch, which then had a price tag of $350, cost about $84 to make. Subsequent estimates put the manufacturing cost higher, but there is still no doubt that Apple makes a healthy profit from its smartwatches, while it fits neatly into the range of other products and can be used for monitoring physical activity, unlocking computers after unlocking the watch with their iPhones.

Apple’s market strategy is, to say the least, striking: while other brands are obsessed with market share as the main indicator of success, Apple accepts that many smartwatch consumers will prefer, for whatever reasons, the products of brands that, in general, tend to obtain much lower margins, as with computers and smartphones. From there, the future of the product line depends on issues such as integration — most sales are to customers who already have other Apple devices, and it depends mainly on the renewal of the line with new models. Around 10 million smartwatches were sold in the second quarter of 2018, 3.5 million of them Apple Watches, but the company is probably more than satisfied with this market share and is probably anticipating that the market will level out and that it will take an even lower share.

There is little doubt that the smartwatch is the future of the watch: after trying one, most people quickly get used to their myriad functions, which they then miss when they return to their traditional watches, the sales of which continue to fall with no hope of recovery. When you get used to the device on your wrist notifying you of emails, monitoring your physical activity, allowing you to pay at a store or providing reminders of all kinds, a traditional time piece becomes a dumb watch and is likely to be consigned to the drawer. Do we need a smartwatch? Possibly not, but they have practical applications and we soon get used to them.

In the second quarter of 2018 alone, ten million people have decided to strap on a smartwatch, giving rise to an increasingly consolidated market where Apple, despite its diminishing quota, is still setting standards and trends, enjoying significant sales spikes when it launches a new model and where its innovations are copied by the competition. In Apple’s case, big profits more than make up for market share.

(En espa?ol, aquí)