Is iWatch a Bad Omen?

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Apple (NASDAQ: AAPL) has been struggling to prove to the market that it has the Steve Jobs magic without Steve Jobs around. So far, the market isn't impressed with the company's prospects, or at least with the price that was being paid for those prospects. The rumor of an iWatch doesn't make that better, and perhaps actually makes things worse.

Amazing Innovation

Over the past decade or so Apple's innovations have been nothing short of revolutionary. Its iPod music players completely reshaped the music industry, giving the company a seat atop the music business with its iTunes store in the process. Of course the music business was pretty much decimated along the way.

The iPhone took the cell phone business by storm, reshaping the landscape of both the handset manufacturers and the cellular service providers. In fact, BlackBerry and Nokia (NYSE: NOK) are both clinging to life in the smart phone space, a massive fall from their previous dominant positions. Cell phone service, meanwhile, has shifted its focus from voice to data. The more functionality that Apple crammed into its iPhone's the more data people have been using.

The iPad, meanwhile, brought the notion of a casual computer to the fore. It has completely altered the mindset of dealing with a personal computer at all, since many people only use a computer as a gateway to the Internet. While online, the tasks are usually pretty simple. That's causing notable strife at once massive personal computer companies like Hewlett-Packard, which is trying to follow the lead of International Business Machines out of the hardware business. Too bad HP was late to the game and hasn't executed particularly well.

What's Next

One big problem Apple has is answering the question, “What's next?” Everyone would like to know. There have been rumors since late last year that an iWatch was to be the next big release. However, it's hard to see that as being a transformational event.

For starters, a watch is relatively small, which would severely limit the functionality of any device. There simply wouldn't be enough screen space on a realistically sized watch to allow it. Second, voice control, while much improved from the past, isn't up to Star Trek speed and would more than likely disappoint. The company's Siri voice activated control system is cool, but seen as little more than a toy by most users.

Tipping the Hand

Perhaps that an iWatch is even making the news is tipping the company's hand. With such a small space, perhaps it will simply connect wirelessly to an iPhone or iPad and act as an extension of the more powerful device. This could work in the same way that some applications use an iPhone to control functionality on an iPad (such as the iPhone becoming the paint pallet for an art program). That would leave an iWatch as little more than a neat accessory. It seems unlikely that people would give up their $1,000+ Omega watches for an iWatch for very long.

Thinking longer term, does this cement the notion that Apple is it just a device maker that can only grow by selling more baubles? If this proves true, then an iWatch will be a great new toy for the company to hype and sell. However, it won't transform the world.

Stiff Competition

The second problem Apple is facing is that competition is heating up, and getting better at fighting back. For example, while Nokia pretty much gave the cell phone market away when it stumbled in the smart phone space, its recent partnership with Microsoft (NASDAQ: MSFT) to create the Lumia phone line has, so far, been received well. While it may not displace Apple, it gives Nokia a toehold that it lacked before—a decent phone. With Nokia's strength in emerging markets, it has a good chance of regaining its footing.

Microsoft, meanwhile, has been able to showcase its mobile operating system. Since that is the heart of the phone, most of the accolades, and negatives, about the Lumia really belong to Microsoft. If it can take the success of the Nokia phone and shop around its operating system, it might yet be able to take the number three spot in the smart phone wars. Not the position it wants, but a good place to be just the same. Of course Microsoft's “me too” tablet hasn't been doing as well as expected, which isn't good news.

Google (NASDAQ: GOOG), meanwhile, has taken a different approach to the entire space. It just wants more devices to run on its Android operating system so it can collect advertising revenues. This device-agnostic stance makes it look more like a pick-and-axe company, providing the tools for others to compete and collecting money along the way. The best part is that Android has been becoming increasingly competitive, notably gaining ground in the applications being offered for its operating system. Moreover, Google has the benefit of being on Apple's devices, too, with its own apps.

Of course one of the reasons for Google's success is Samsung's success at competing with Apple. The Galaxy line of products, which the two companies have bitterly sparred over in court, has proven an ample counterweight to the iPhone and iPad. The fact that Apple went to court to hinder the Galaxy's progress may be as telling as the iWatch idea.

More bodies

This also makes succeeding in China even more important. Indeed, Apple's CEO has already said that China will be its biggest market. Based on the population, many of which are entering the middle class, that seems increasingly important if the company has to sell more to make more. And Wall Street is certainly expecting more from Apple. Or at least it was until recently.

For a few months now the shares have been weak at best. Even hedge fund managers are getting in on the act, with David Einhorn publicly taking the company on. That would have been close to unheard of just a year or so ago. Perhaps Einhorn smells blood.

Calculator Watches

If you are old enough to remember the calculator watch, which was a very exciting development thirty or so years ago, the notion of wearing a small, functionally limited computer on your wrist probably isn't too exciting. Unless Apple finds a way to really knock the world's socks off, the iWatch is destined to be a disappointment. It may also seal the belief that Apple is out of ideas and is now just a device seller working off of volume.


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Reuben Gregg Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, International Business Machines., and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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