Harvard Business Review recently analyzed whether Tesla’s electric automobile is a disruptive innovation (the answer… well, sorry, butno) – using five questions posed by Tom Bartman. (See HBR article here)A disruptive innovation oftengets its start in a niche market and, once it takes root, goes on to completely redefine the product category or industry. Let’s apply these questions to the Apple Watch.
1. Does the product either target overserved customers or create a new market?
Yes. This product satisfies the second part of this testin that it creates a huge new market from what has, up to this point, remained a small niche. The brilliance is clear. More than a decade ago venerable Japanese watchmaker Seiko was horrifiedto learnthat its number one competitor was not Citizen, but rather the NTT Docomo corporation's mobile phone. Younger peopleen massesimply stopped wearing watches. Ironically, this trend is what is creating anenormous market opportunity for either a smart watchmaker or a smartwatch maker (a rose by any other name...) Apple can now sell a product to two primarysegments: those who wear a watch, and those who don’t. Might that be described as a large addressable market? I’d venture to say yes.
2. Does it create “asymmetric motivation,” meaning that while the disrupter is motivated to enter higher performance segments over time, are existing players motivated to fight it?
Yes. While the Apple Watch already has plenty of competition (Samsung, Pebble, 5ive, Sony, and many others) and new entrants are sure to come, these competitors will be hard pressed to replicate the seamless integration into users’ lives that Apple has come to define itself by. How many companies have the technology to integrate your mobile phone, PC, tablet, TV, wallet, car (and let’s not forget, your home security system, lighting, thermostat, refrigerator, alarm clock, toothbrush...) all thewhile possessing the scale to motivate an army of unpaid app developers willing toshare significant margin, as well asthe marketing muscle to land national and global deals with the world's largestcompanies? Sure, existing players will try to fight it, but will they succeed? I would not bet against Apple on this one.
3. Can it improve performance fast enough to keep pace with customers’ expectations while retaining its low cost structure?
Yes. We can surmise that Apple is already working on the 5th generation Apple Watch as we speak. Their refresh cycle is among the fastest in industry. They have the scale economies (and reportedly 50+% gross margins) to adjust pricing, upward or downward, based not only on costs but also on customers’ perceptions of value. The story yet to be written will be about the apps that will unlock the device’s potential in ways even Apple itself cannot foresee. Today there are "only" 3,000 apps available in the App Store for Apple Watch, up from 1,000in early April, and this figure will grow exponentially.
4. Does it create new value networks, including sales channels?
Absolutely. Soon when you go to buy a car there will likely be a display showing how the Apple Watch can replace your keys, serve as a car alarm, and help with other items such as documenting your miles driven for business which you can then transfer to your expense reports. When you visit your gym you will be able to leave with a detailed record of your workout. When you meet with your doctor you will be able to discuss various aspects of your health, which you can monitor and review courtesy of your new device. When you arrive at your hotel you will be able to bypass the front desk, going directly to your room and opening the door with your Apple Watch. These all become value networks that did not previously exist, withthe participating companies servingas implicit sales channels. Most importantly, as noted above, the yet to be developedapps will create new value in ways we can only speculate upon at this early stage.
5. Does it disrupt all incumbents, or can an existing player exploit the opportunity?
This product disrupts all incumbents. No question about it. While the conversion of wearable technology from niche to mainstream will certainly help Apple’s competitors, the question is whether any other company will be able to exploit the opportunity as well as, or better than, Apple. Looking at the recent success of the iPhone 6, a fairly mature product in a mature space, I would say the chances are not good. KGI Securities’ Apple analyst Ming-Chi Kuo estimates Apple had pre-orders of 2.3 million Apple Watch units. By comparison, erstwhile smartwatch market leader Samsung sold 1.4 million units in all of 2014. The fast follower strategy works.
So, is the Apple Watch a Disruptive Technology?
The simple answer: YES
But... would I buy one?
CNBC recently reported a new SurveyMonkey poll which found74% of respondents said they were “not at all likely” to buy the Apple watch. You can put me in this category as well. I was not at all likely to buy one. I just didn't feelthe need. That is, until I went to my local Apple Store to see what all the fuss was about. That same day I ordered my Apple Watch Sport, in space gray aluminum with the velvety black band. Do I need it? No, I don’t. Just like I don’t need my iPhone, iPad, every generation of iPod ever made, iMac, MacBook Pro, or Apple TV. If Apple continues to have this manycustomers who are not likely to buy their products they should continue to do pretty well today, and on into the future.
Disclosure: I own shares in Apple. If I did not own shares in Apple I would A. still have writtenthis article, and B. gone out to buy the stock (and Apple Watch) afterward.
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James Domingo is an entrepreneur, consultant, writer, public speaker, creative thinker, startup investor, and also president ofThe Domingo Group LLC. He specializes in business development, corporate strategy, cross cultural leadership, and globalization.
You can follow James and alsoThe Domingo Group on Linked In.
