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Apple Watch: A Disruptive Innovation or a Chink in Apple's Armor?

Apple Watch: A Disruptive Innovation or a Chink in Apple's Armor?
Case Code: BSTR518
Case Length: 19 Pages
Period: 2011-2017
Pub Date: 2017
Teaching Note: Available
Price: Rs.500
Organization: Apple Inc.
Industry :Wearable Devices
Countries: US, Global
Themes: Strategic Management, Strategic Marketing
Apple Watch: A Disruptive Innovation or a Chink in Apple's Armor?
Abstract Case Intro 1 Case Intro 2 Excerpts


Apple's Entry into Wearables Market

The smartwatch as a wearable device category had taken center stage in the consumer tech market since 2012. The market had evolved and grown with companies such as Pebble Technology Corp. , Samsung , Garmin Ltd , Sony , Xiaomi , Motorola, Huawei , and LG launching their own products. In March 2014, Google, Inc. (Google) launched Android Wear, a version of Google’s Android operating system designed for smartwatches and other wearables. Android Wear focused on watches that came in a range of styles from different manufacturers. In 2014, an estimated 6.8 million smartwatches were sold at an average price of US$189. About 89 companies from 18 countries sold smartwatches in 2014. Samsung led the smartwatch market with 1.2 million unit sales and a 17.65% market share followed by Pebble, which shipped an estimated 700,000 devices in 2014...

The Launch

Finally, on September 9, 2014, Cook unveiled the Apple Watch featuring revolutionary new technologies and a pioneering user interface. “Apple introduced the world to several category-defining products, the Mac, iPod, iPhone and iPad. And once again Apple is poised to captivate the world with a revolutionary product that can enrich people’s lives. It’s the most personal product we’ve ever made,” said Cook. The Apple Watch enabled users to communicate in unique ways right from their wrist by sending and receiving messages, answering calls to their iPhone, and using comprehensive health and fitness apps that could help them lead healthier lives. The Watch boasted of some interesting features, such as its Digital Crown (a small dial on the side of the device that was used to scroll, zoom, and navigate without obstructing the display), taptic engine (which subtly vibrated to let users know when they had received a message or a notification from a source), and sensors built into the back of the watch to monitor vital signs such as heart rate...


Apple did not even reveal the unit sales of the Apple Watch in its earnings report, citing competitive reasons. According to Daniel Eran Dilger, editor of Apple Insider , “One of the reasons Apple doesn’t detail the unit sales of Apple Watch is that it would reveal not just how many were sold, but also what prices buyers are paying on average, offering hints at how much Apple is earning from sales of bands and licensing. With that data, a competitor would know what products to develop at what tiers in order to more effectively compete with Apple Watch.” Instead, the company bundled it up as a part of the ‘Other Products’ category which combined sales of the Apple Watch, iPod, Apple TV, Beats Electronics, and third-party accessories. The sales estimates for the Apple Watch mostly came from third-party data...

A Success or Failure?

The Apple Watch received mixed reviews. While some believed it to be yet another example of Apple’s innovation and leadership, others were distinctly unimpressed with the gadget and found it underwhelming. The Apple Watch sell-through was reportedly higher than the comparable launch periods of the iPhone or the iPad. Despite its late arrival to the wearables market, Apple claimed the top spot in terms of device sales as it accounted for over 50% of smartwatch sales in 2015...


Going forward, the Apple Watch’s lead in the smartwatch market would be increasingly challenged by the rebounding competition, said analysts. Fitbit was touted as Apple’s most significant rival in the wearable market. Google was planning to launch two new smartwatches within the first quarter of 2017, both running Android Wear 2.0 . Luxury brands such as Hugo Boss (US$395), Tommy Hilfiger (US$295), and Michael Kors Access (US$350) all undercut Apple on price...

The Road Ahead

The company was reportedly gearing up to launch a new edition of the Apple Watch, presumably the Apple Watch Series 3, in the second half of 2017. The third generation Apple Watch was expected to come with more compelling apps, better connectivity, and a new design that would make it look more like an actual wristwatch and perform more like a standalone, connected gadget replete with unique applications. “The Apple Watch hasn’t exactly been the success the iPod, iPhone, and iPad initially were (though to be fair the iPhone and iPod weren’t that great the first year either); with demand matching that of the iPod’s currently, and Apple apparently rushing to get a revised model out the door, things aren’t looking good for this product. That said, I’m not convinced it is really dead, and given it took three tries to get the iPhone and iPod to overcome their initial issues, there is good likelihood that by the third version Apple will have a winner,” said Enderle...


Exhibit I: Global Wearables Vendor Shipments and Market share in Q1 2017
Exhibit II: Top Ten Smartwatch Manufacturers by Unit Sales (2014)
Exhibit III: Apple Watch Specifications
Exhibit IV: Apple Watch Vis a Vis Competitors
Exhibit V: Global Smartwatch Shipments (2014-2015)
Exhibit VI: J.D. Power – 2016 Smartwatch Device Satisfaction Report
Exhibit VII: Global Smartwatch Vendor Shipments (2015-2016)
Exhibit VIII: Net Sales of Apple Inc.
Exhibit IX: Estimated Worldwide Smartwatch Shipments
Exhibit X: Smartwatch Shipments and Revenues, World Markets (2013-2020)

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