Market Analysis: AAPL 9/10/2014

What's the iWatch All About?

Apple has officially unveiled its long-awaited Watch, and while some in the tech and fashion industries are praising the latest gadget, don’t expect it to take over the traditional watch market anytime soon.

Watches have been around for more than 500 years, surviving wars and technological revolutions. We may have advanced past the mechanics of the classic wristwatch, but we're still a long way from trading our Rolexes for smartwatches.

"The Apple Watch ... won't have a dramatic impact on the Swiss watch market at this stage, as the majority of the market is composed of brands at a luxury level, David Sadigh, founder and CEO of the Digital Luxury Group, told Business Insider. "Folks at Vacheron Constantin, Rolex, and Patek Philippe can still sleep well at night."

Here's why we aren't concerned about the fate of classic watches.

Design And Function Fall Short. Although the Watch wasn’t what some in the tech community were expecting, Apple no doubt attempted to appeal to watch purists, the fashion world, and the general public with familiar dials and watch faces (fashion editors were even invited to attend the Apple keynote for the first time).

Apple’s Watch is designed to be recognizable as a wristwatch. It's shaped like a traditional timepiece with a square clock face and even a digital crown on the side that can be spun and twisted to control what appears on the touch screen.

Yet the gadget looks first generation, to put it mildly. Clunky and thick, the Watch tries too hard to look analogue, and not hard enough to look like the new-age smartwatch Apple fans were anticipating.

Aside from its appearance, another concern is the battery life. The Watch must be charged each night, which means you can't sleep with it on your wrist, as Business Insider's Jim Edwards points out.

What the Apple Watch does have going for it is customization. Don’t like your watch face? Tap for a new one. Can’t decide between a leather wrist band or sporty fluoroelastomer band? Get both. This is by far the most customizable product Apple has ever introduced.

Another pro is how sporty the Watch is. It can provide plenty of data for fitness enthusiasts and will compete with the FitBit and Nike FuelBand, as well as wearable devices from tech industry rivals. But the Apple Watch is still not handsome or long-wearing enough to compete with real watches.

Craftsmanship And Nostalgia. Mechanical watches have remained popular through the digital age because of their craftsmanship and superior quality.

"We're all extremely attached to our cameras, our phones, our computers, our iPads, and I think there's something charming about owning something analogue," Stephen Pulvirent, former associate editor of online watch publication HODINKEE , told Business Insider last year . "I'm going to replace my iPhone sometime in the next few years. But a really high-quality watch I can wear and enjoy on a daily basis.”

It may not be able to ready you heart rate, but classic watches can last for decades.

Watch buyers accept that they're paying tens of thousands of dollars for what went into making their watch because they expect it to last.

It takes master watchmakers months and sometimes years to create the elaborate interior mechanisms that make collectors' watches so special, such as a split-second chronograph (two second hands to time different events) and perpetual calendars (which are designed to display the correct date on any given day in the future).

And never underestimate the power of history and nostalgia. Watch brands recognize that even if people aren't necessarily wearing watches to tell time, the watch can still be a symbol of something more personal.

"I can give my watch to my children and they can give it to one of their children," Pulvirent said. "It's something that works in perpetuity since watches aren't something that needs to be changed constantly."

On the other hand, if you buy an Apple Watch when it's released next year, it will quickly become obsolete once the next generation of the product is released.

Luxury Smartwatch, Not A Luxury Watch Apple announced that the watch will be available beginning in 2015, with a base price of $349.

At that price, the Watch only competes with a small segment of the market. “While the new Apple Watch won’t replace the inherent beauty and elegant utility of a vintage Patek Phillippe, it will disrupt the low-end market for overpriced quartz wristwatches (and maybe even some mechanical watches),” writes Kelly Jasper at HODINKEE.

High-end Swiss watchmakers shouldn't blink an eye at the Watch, but it could compete with mass-market watch brands like Rado, Citizen, and Fossil, which sell timepieces at similar price points. And while Swiss watchmakers now export more than $20 billion worth of watches, growth within the segment has been uneven, Pulvirent, now at Bloomberg Businessweek, writes, noting:

Dollar and unit exports of battery-powered electronic watches have been flat, while the market for luxury mechanical watches has nearly quadrupled. In 2000, mechanical watches accounted for only 8 percent of the watches leaving Switzerland; in 2013 they represented 27 percent. Nearly all this growth is coming from watches priced over 3,000 francs.

Global consumer interest in luxury watches grew 5.7% worldwide in 2013, with China, India, and Russia experiencing the biggest year-over-year increases. And the market for vintage luxury watches remains strong as well.

Apple is equipped to handle these challenges down the line. The Watch's design can be made more streamlined, and the battery life can be improved as technology advances.

Designers and celebrities may also start to team up with Apple to make more fashionable versions of the Watch (à la Google Glass and Diane von Furstenberg), giving it more clout and desirability in the marketplace.

The Apple Watch is just the newest player in the game though, and there will always be people who want impeccably made watches that last for decades (and don’t need to be charged every night, or used exclusively with an iPhone).

The classic wrist watch has lasted this long, and it isn't going anywhere.

Article Written By: Megan Willett