There’s little doubt that the Apple (NASDAQ: AAPL) Watch smartwatch product line has been a huge success for Apple. The company doesn’t break out exactly how much revenue it generates from the product line, but researchers with IDC said that Apple shipped 17.7 million Apple Watches in 2017 — up 55.9% from the prior year.
The product category continues to have legs. Back on the company’s July 31 earnings conference call, Apple CEO Tim Cook told investors that Apple Watch “delivered record June quarter performance with growth in the mid-40% range.”
Although the Apple Watch product category itself continues to be on the rise, a recent report from Counterpoint Research suggests that Apple Watch buyers aren’t opting for the company’s latest models. Let’s take a closer look.
Vast majority choosing older models
According to Counterpoint Research’s Neil Shah, the Apple Watch Series 1 — a version of the company’s first-generation Apple Watch but with the upgraded processor of the now-discontinued Apple Watch Series 2 — “remains the most popular [Apple Watch] model contributing to almost nine out of ten Apple Watch sold in Q2 2018.”
Shah also had the following to say: “While this is great for Apple from an ecosystem perspective, from an [average selling price] perspective it is not the same bump as Apple would expect with newer iPhone models every year.”
What’s going on here?
The Apple Watch Series 3 is obviously a much more technologically advanced product than the Apple Watch Series 1. CNET, in its review of the Apple Watch Series 1, summarized the differences between the two products nicely: “Here’s what you’re missing out on if you get a Series 1 over a [Series 3]: GPS, swim-proofing, a brighter outdoor display, slightly faster speeds, slightly better battery life, and access to a few on the Music app and Radio app.”
As far as the price difference goes, the Apple Watch Series 1 starts at $249 while the Apple Watch Series 3 begins at $329 — about 32% more expensive. If Shah’s data is right, most Apple Watch buyers simply don’t value the feature delta between the Series 1 and Series 3 models to pay the extra money.
Part of the problem, I imagine, is that the Apple Watch Series 1 works just fine for what Apple Watch buyers use the devices for (e.g., checking the time, keeping track of workouts, use as a stopwatch/timer).
Another thing to keep in mind is that a product like the iPhone can legitimately be used as a primary computing device for many. It can be used to browse the web, participate on social media, take photographs, engage in video and audio calls, play increasingly sophisticated video games, trade stocks, and much more. It’s a highly versatile device that people use so much that they might be more willing to pay extra for a better user experience.
Something like the Apple Watch, on the other hand, simply doesn’t offer that breadth of depth-of-use cases. To be quite blunt, I think the vast majority of people would sooner give up their smartwatches than they would their smartphones.
This might make potential customers less willing to spend extra for a better Apple Watch, even if they’re the same sort of customers who would find value in paying for more advanced smartphones. Hence the phenomenon that Counterpoint Research describes.
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Ashraf Eassa has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.