Last fall, Apple CEO Tim Cook described the Apple Watch as the “next chapter” in Apple’s history, placing it at the same level as the Mac, iPhone and iPod. I get the sense that a lot of people don’t believe him; they just don’t see the need for a wearable.

There is ample precedent for this sort of shortchanging, particularly when it comes to an entirely new market: look no further Thomas Watson’s 1943 claim that “There is a world market for maybe five computers,” or more recently Steve Ballmer’s insistence that “there is no chance that the iPhone is going to get any significant market share.”

The problem with this sort of criticism is that it nearly always arises from looking at the world as it is, not as it will be. In the case of Watson, a “computer” in 1943 was a house-size collection of vacuum tubes; to his credit Watson himself, as CEO of IBM, led the way in proving his own prediction wrong. Ballmer, famously, was less fortunate, but the forgotten context of his iPhone skepticism was that in a very narrow sense, he was right! The original iPhone cost $600, was only 2G, and had neither apps nor even the most rudimentary of enterprise support. Had it always remained as such than Ballmer’s prediction of 2 to 3 percent marketshare may have even been been optimistic.

The iPhone, though, did not remain frozen in time, and crucially, neither did the world around it. Indeed, the iPhone catalyzed changes that Apple subsequently benefited from, including a huge amount of investment by telecom carriers in providing first 3G data and later LTE to data-thirsty iPhones, 1 as well as the development of the app ecosystem through the creation of the App Store.

Thus, in order to estimate just how important the Apple Watch might be, it’s essential to step back from the world as it is and consider the world as it might be, and, having done that, consider just how significant a role Apple’s offering might play.

The World As It Might Be

For all of the changes that have been wrought by technology, a huge amount of our daily existence really hasn’t changed in a very long time. Consider keys: in my bag I have several pieces of metal, hopefully unique, that unlock doors or start up machines that run on controlled explosions. It’s positively barbaric! Money has improved a bit – cash is certainly a very old concept, although credit cards are more modern – but the idea that we physically hand someone access to a huge amount of money (i.e. our credit cards) without even thinking about it is odd. We operate lights with switches, print disposable tickets for everything from airplanes to concerts, and pack identification from a whole host of authorities, including the government and workplace.

It’s increasingly plausible to envision a future where all of these examples and a whole host of others in our physical environment are fundamentally transformed by software: locks that only unlock for me, payment systems that keep my money under my control, and in general an adaptation to my presence whether that be at home, at the concert hall, or at work.

The Importance of a Wearable

To fully interact with this sort of software-enabled environment, I will of course need some way to identify myself; for all the benefits of the human body, projecting a unique digital signature is not one of them. The smartphone clearly works, but it’s not perfect: the more you need it for interacting with your environment, the more noticeable is the small annoyance of retrieving it from your pocket or handbag.

A wearable is different, particularly if it’s on your wrist: simply raising your arm is trivial. This makes it much more likely you will actually interact in a meaningful way with software-enabled objects around you, which makes even having said objects much more likely. To put it another way, I don’t think it’s an accident that the two hot new technologies are wearables and the Internet of Things; they are related such that each is made better by the other.

Getting From Here to There

So imagine a world that I have described, filled with software-enabled objects that I can interact with if I have a compatible wearable. It’s a better world than the one we live in today, reliant as it is on physical objects that have barely evolved in centuries.

The trouble is that this future world is only better if both essential components – wearables and software-enabled physical objects – are widespread. Having one without the other is much less interesting, but it’s not obvious which should come first: software-enabled objects can interact with the smartphone, but as I noted there is real friction that accumulates over time; wearables by themselves, though, have limited use cases.

One solution to this conundrum is simply to have one single company bring all of the relevant pieces to market; in broad strokes Xiaomi is pursuing this strategy (although it’s still primarily smartphone-based), and others like Samsung, which makes both a wide array of appliances as well as smartphones and wearables, seem uniquely suited to make this vision reality.

The Problem With Wearables

Samsung, though, along with most of their competitors, faces a particularly vexing problem: wearables need to be worn. In other words, having all of the pieces that work together is a second order problem; you have to first get the actual wearable on the wrist. To put it a different way, the utility of wearables and software-enabled objects are significantly increased in the presence of each other, but the customer being willing to actually wear the wearable is itself a precondition to unlocking this utility.

Cook captured this conundrum and Apple’s response to it in his segue to Apple’s wearable, the Apple Watch, at this week’s “Spring Forward” event:

Apple Watch is the most personal device we have ever created. It’s not just with you, it’s on you. And since what you wear is an expression of who you are, we’ve designed Apple Watch to appeal to a whole variety of people with different tastes and different preferences. But the one thing that is consistent is that we crafted each one of them with the care that you would expect from Apple and used incredibly beautiful materials.

There has been a bit of consternation about Apple’s focus on “fashion” and all that entails, but there is a very practical aspect to this focus: people need to be willing to actually put the wearable on their body. While “form may follow function” for tools, the priorities are the exact opposite when it comes to what we wear: function is irrelevant without a form we find appealing. In this case, design actually is how it looks.

It’s on this point specifically that most critics – including myself – have failed to appreciate Apple’s approach. After last fall’s presentation I compared the Watch’s introduction to that of the iPod, iPhone, and iPad and found it lacking for its lack of focus on functionality. What I now appreciate, though, is that this was almost certainly on purpose: there was focus in that keynote, it just happened to be on the Watch’s appearance; since I’m a geek I dismissed it, but normal consumers, especially in the case of a wearable, absolutely will not.

In fact, at last fall’s introduction, Cook was quite explicit on this point:

Apple Watch is made to be worn. And it can be worn all day for any occasion. It’s as much about personal technology as it is style and taste. It seamlessly combines materials and software and technology, and we thought not only of the function but the way it looked.

The number one problem with most wearables is that no one wants to wear them. Apple rightly addressed this problem first, and it’s fascinating how we in the industry all just kind of wrote it off as some sort of dalliance with the fashion world. In fact, anyone seeking success in the category would have no choice but to do the same.

Moreover, it’s difficult to think of any company other than Apple that has the capability of designing desirability. It’s not just a matter of taste, but also manufacturing, and here Apple is unmatched. The company’s operations are one of its biggest advantages, along with retail stores that will enable something as basic and critical as trying the watches on in a way that other manufacturers will struggle to match.

Bootstrapping the Ecosystem

Having addressed this first order challenge with wearables last fall, Apple this week had a much more explicit focus on the actual utility of a wearable, specifically, how the Apple Watch enables you to interact with your physical environment. Demonstrations included Siri, Apple Pay, Uber, Passbook with an airplane QR code, SPG room unlock, and more. Every one of these demonstrations is a realization of the potential I noted at the beginning: allowing the wearer to interact with his or her physical environment in a way that was not previously possible.

What is particularly noteworthy is that these demonstrations all came in the context of showing off 3rd-party applications; Apple is depending on other companies to build or provide the software-enabled physical objects with which the Apple Watch will interact. 2 In this Apple is able to bring to bear its most powerful asset: the leverage the company gains from its devoted customer base. No matter what Apple will sell millions of watches simply because it is made by Apple; this, then, will indirectly make the Watch more useful because those millions of sales mean there is instantly a reason for a Internet of Things ecosystem to spring up to complement the wearable.

That’s not to say interaction with one’s physical environment is the only function of a wearable (although I do think it is the most profound and the chief reason to be bullish about the Watch). The wrist is an obvious place for notifications and brief interactions, especially (and perhaps counterintuitively) ones we want to ignore and dismiss. This benefit though, is cumulative over time as our smartphone is pulled out of our pocket or purse fewer and fewer times over the course of a day, something that is hard to appreciate in a demo. That is where Apple’s built-in customer base will again be critical: word-of-mouth will be more important to the Watch’s success than any other Apple product to date (the closest is probably the iPad, another category-defining product). 3

Only Apple

I’m a bit miffed that Cook has adopted the phrase “Only Apple” because, well, it’s really the only way to explain why I think the Apple Watch is primed for more success than most anticipate. Only Apple can create a wearable people will be excited to wear and manufacture it at scale; only Apple has a retail operation that will let people discover which model looks best on them; and most importantly only Apple has the customer base necessary to bootstrap the ecosystem that will enable the Apple Watch’s functionality to fully match its form.

To be sure, this is a product that still needs iteration. I found some aspects of the UI to be confusing , and as long as the Watch is tethered to iPhone the total utility is capped just as much as the addressable market is. Most critically, to truly maximize the Watch’s potential Apple is counting on an ecosystem of software-enabled physical objects 4 that will take time to develop. In the meantime the company needs to hope the elimination of small annoyances compensates for the addition of one big annoyance – daily charging.

Ultimately, I suspect this interim period, where the primary reason to own the Watch is notifications, will be brief (if it’s not, the Watch will only be a minor success). The big prize is being to the physical world what the iPhone is to the virtual one: the best possible way to interact anywhere and everywhere.

1. To be clear, the carriers would have built this regardless; the iPhone spurred carriers to build more rapidly and with more capacity [ ↩ ]
2. This is Why Apple Released the Watch when they did [ ↩ ]
3. I discussed this more extensively in both my Apple Watch event preview and review of the event [ ↩ ]
4. I think pure software plays are much less interesting; I suspect the “app” phenomenon won’t match the iPhone [ ↩ ]