Jorge Serna

@jorge.serna

The LTE Apple Watch: Virtuous Cycle for a new ecosystem

Adding connectivity that breaks the dependency from the iPhone can create a new ecosystem, but the virtuous cycle depends on bringing in developers

During WWDC this year, Apple made some announcements around WatchOS 4 that made Apple Watch more independent from the iPhone, and I predicted then that this year we would see the announcement of a cellular-enabled version of the device. Recent rumors and information extracted from the HomePod firmware seem to confirm this, which also furthers Apple’s path into the “smartphone disintegration”.

Adding independent connectivity to the Apple Watch moves it from an accessory category into an independent device, but will that functionality be enough to create a new ecosystem?

A Virtuous Cycle

The opportunity for the Watch to be more than an accessory, changing customers behavior and creating new uses and value, relies heavily on a — potential — virtuous cycle that requires some sort of jump-starting:

Because developers will not invest on creating apps for Apple Watch if they don’t have an expectation to get some return (fundamentally more engagement for attention economy applications). And today, for the current not-independent Apple Watch, it is clear they don’t see the return:

  • And some apps never even tried to support it, with WhatsApp as one prominent example.

How could LTE connectivity change this?

More exposure and more users

One key aspect of the LTE option is that it will bring relevant partners to push the product through their channels: telco operators. This will help Apple to get more Apple Watches into more customers’ wrists.

Yes, some operators have already sold Apple Watches in their stores, but this will no longer be an accessory sale (with probably low margin) but a connected device that will need an additional data plan. That is a recurring revenue and fidelization opportunity for the operator, that will have more incentive to push it to their customers.

And, yes, there have been cellular-enabled smart-watches before, which operators have been pushing unsuccessfully, but the brand appeal from Apple and the leverage of already having the most successful product in this category will be a big difference.

An LTE Apple Watch will require a data plan that will not be used for video or downloading big files, but just for small amounts of data and audio streaming, and that will be used in a controlled way. I believe the control of the plan will be ensured by the use of an Apple eSIM, which will make it impossible for the subscription to be used in other devices. With this in mind, the additional cost of the Apple Watch connectivity could be covered by maybe 3 or 4 euros/dollars on top of an existing smartphone or family monthly plan (consider that, for instance, Vodafone in Spain offers a monthly bolt-on for unlimited music services for 5€).

This low data approach could even drive Apple to follow some new approach for bundling data with the device, as some have suggested:

I don’t think this will be the case, at least initially, because to drive initial growth Apple will probably want to leverage the operator’s channels. But at some point — and for some specific market s— this could definitely happen.

Now let’s assume the LTE Apple Watch will be priced at around $399/490€ (I’m using the reference price for the smallest iPhone SE, which offers a similar connectivity), compared to the current lowest priced Watch, which retails at $269/339€.

At that price level it could be easily associated to existing multi-device plans from operators, so that it could be covered by monthly installments of $20–25€ (device+connectivity), with a 2 year contract.

Subsidies and push from operators can drive adoption so that the LTE Apple Watch user base starts to be more attractive for developers. But that will not be enough to trigger the virtuous cycle: it will also need a change in user behavior.

The Vicious Cycle

Even if the regular Apple Watch has been a relative success, developers have not had a real incentive to create differential Apple Watch applications because:

  • Apple Watch apps are distributed as an extension of an iPhone app
  • The Apple Watch is almost useless without a close iPhone (it’s an accessory)

So most Apple Watch applications are developed relying on the user being able to get to their phone (which will probably be close by) for the “full experience”. This makes them an after-thought, and in most cases developers don’t even bother with supporting the device with a specific app, and just trust regular app notifications showing up in their wrist (which is WhatsApp’s approach).

This drives the current vicious cycle preventing the Watch to become an ecosystem:

But with LTE connectivity, some small changes in user behavior can break this cycle and turn it into the virtuous one.

Real Standalone Usage

A recent TechCrunch article satirized that the only use case in which LTE connectivity will be useful will be for running. And it is true that Apple has shifted their positioning for the Watch to be mostly about health, but they are also positioning HomePod around music, and that doesn’t mean that that is all there is. For Apple these approaches are just first steps, and their real goal is to turn both devices into the center of new post-smartphone ecosystems.

I believe that having a connected Apple Watch will naturally start creating situations for independent usage besides running. Right now for most people leaving home without their phone is a source of anxiety. You need to have your phone with you “just in case” because: you may need to reach someone, you may need to be reached, you may have to check something... But with a Watch covering many of those unplanned cases (and I will talk more about this on my next post) you will happily leave that phone behind:

  • When you are going out to do some quick errands around the neighborhood
  • When you are out walking the dog
  • When going to pick up the kids from school
  • When going down to the swimming pool, or up to the rooftop, for sunbathing
  • When going out on a date in which you want to really be present
  • And, yes, when running

As this becomes a regular pattern, the “left phone at home anxiety”, the “fear of missing out” due to not being connected, will be reduced and create more and more situations of standalone usage for the Watch.

Developers following the trend

This standalone usage will grow, and it will not be most or the day or even a big part of it, but it will be relevant enough for applications that are prepared for this having and advantage and driving growing engagement.

This will make it more interesting to build compelling Watch apps that work with no phone around. Then additional cases will come from that, driving even more standalone usage. And thus the virtuous cycle will create a new ecosystem around a new connected device, a further step into the smartphone disintegration.

But what will be different with new apps leveraging connectivity from the Watch? And what hurdles are critical to be tackled first to avoid getting trapped into the current vicious cycle? I take a look at that on my following post, so read on, and follow me to get notified of my future articles.

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