Marketing Management

Google is investing hundreds of millions of dollars in self-driving cars and prolonging life. Amazon is testing deliveries by drone. Facebook is toying with virtual reality and flying internet access into far-flung places in solar powered planes. Apple, meanwhile, is going into the fashion business. In spite of the seemingly different scales of ambition and complexity, all have something in common: they are long-term bets that will take many years to make a significant dent in these vast companies’ bottom lines. After years of speculation, Apple’s new Watch was launched by Tim Cook, chief executive, in Cupertino on Tuesday. As the unusual group of Vogue editors and other fashion journalists invited to the event attests, Apple sees the device as more than just technology: ‘It’s something functional yet incredibly beautiful,’ Mr Cook said. While others in Silicon Valley may try to bring forward a science-fiction vision of the future, Mr Cook says that Apple wants to create products that help people’s everyday lives, such as through the smartwatch’s health-tracking apps, and solve more personal technological challenges. ‘We wanted to create something that was very personal. We felt that the wrist was the best place to do that,’ Mr Cook told the Financial Times. ‘We can help people live a better day with this. But we love innovating around things that require seamless innovation of hardware, software and services. You can see all those together in the watch.’ As well as these technological achievements, Apple stands to profit handsomely from its Watch if it proves anywhere near as popular as the iPod, iPad and iPhone. The device will cost upwards of $350 when it goes on sale early next year – a price that is higher than many analysts had predicted, and one that will jump for the gold version with a leather strap. That cost may limit how many customers can afford Apple’s Watch, but of the 200m people who already own compatible iPhones, many affluent consumers may shell out for Apple’s latest gadget purely for early-adopter kudos. ‘Tim Cook has been under a lot of pressure the past 12 months,’ said Geoff Blaber of CCS Insights. ‘They needed to get a toe in the water.’ After seeing the Watch, Citi predicts that Apple will sell 14m in its first year and 15m in its second. That overshoots its forecast for Samsung to sell 4m smartwatches and fitness bands this year, and will add $12bn to Apple’s revenues over the next two years. But given the vast scale of Apple’s existing iPhone business, which has sold more than 550m devices to date, Citi sees the Watch making up just 3 per cent of its annual sales. With pent-up demand from Apple customers with older models, analysts see the iPhone 6 kick-starting a huge upgrade cycle. Many see the jumbo-sized 5.5-inch iPhone 6 Plus, which costs $100 more than previous models, as driving higher margins, although that may be offset by Apple increasing the memory it provides for the same price in more expensive models. Concerns linger about Apple’s ability to meet consumer demand for the iPhone 6 Plus in the run-up to Christmas. Nonetheless, IHS, a researcher, predicts that the new iPhone will propel Apple ahead of Microsoft’s Nokia as the world’s second-largest maker of mobile phones after Samsung – including all phones, not just smartphones. ‘The introduction of larger-screen iPhones eliminates a key differentiator that has insulated Samsung, Sony, HTC and LG large-screen flagship smartphones from iPhone competition,’ IHS said. For the Watch to move the financial needle – and impress Wall Street, which left Apple shares broadly flat after Tuesday’s announcements – the tech group will need to convince more than just early adopters that its pricey bracelet belongs on their wrists. That is something Apple’s competitors have failed to do, analysts say. Some have chastised Apple for being slow to catch up with arch-rival Samsung, which launched its first smartwatch more than a year ago, but Mr Cook is unruffled by such complaints. ‘We ship things when we believe they are ready,’ he said. ‘For us, it’s much more important to be the best than to be the first.’ Apple did not have the first MP3 player, smartphone r tablet, either, he continued. ‘You could say we had the first modern one of all of those, and I think you can make the same point today that we have the first modern smartwatch.’ Some analysts watching Apple’s event on Tuesday seemed to agree. ‘They got the design right,’ said Carolina Milanesi of Kantar Worldpanel, a market research unit of WPP. ‘They’ve taken the technology out of it, which is not what everyone else is doing. They made it much more appealing to a wider audience.’ Many noted that Apple packed a lot more ideas in to its smartwatch than the first version of the iPhone, which lacked seemingly key features such as 3G wireless and an app store. ‘I’ve seen a lot of smart watches – this one was really polished,’ said Richard Doherty of Envisioneering. But some complained that Apple had lost its famous focus by trying to sell consumers on something that is part jewellery, part sports device, part communicator, part wallet and even, according to Mr Cook, a remote control for the Apple TV box. ‘I’m underwhelmed,’ said Om Malik, a tech blogger turned investor with True Ventures, a San Francisco group that counts fitness band maker Fitbit among its portfolio. ‘I feel that they should have tried to do a few things well. Apple is missing its editor,’ Mr Malik added, in a reference to Apple co-founder Steve Jobs’ capacity to axe features and products even at late stages of development. Many are looking to the app developer community to come up with something to convince consumers to buy the Watch. Here, Apple retains an advantage over rival app stores such as Android’s Google Play. Mr Cook said that part of the reason for launching the Watch months in advance of its release to consumers was to get developers working. If they do not come up with the substance, Apple will have to fall back on the Watch’s style until they do, analysts say. ‘Every wearable device we’ve seen to date has been in search of a reason to use it,’ said Mr Blaber. ‘This is a step in a long journey.’

1 Why would Apple want to move into the fashion business?

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2 What type of innovation is Apple’s new watch?

3 What role does innovation play for a company such as Apple?

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