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How Apple Shafted Itself On its Own Watch

Company is being held to a completely unfair standard that is basically its own fault.


How about everybody who bought an Apple Watch just hold your wrist up and let us do a count?

That may be the only way to find out how many of the supposedly coveted wearable gadgets are actually out there, because the company sure isn’t telling. In its quarterly earnings call yesterday, Apple decided to dump Watch sales numbers into a big bin with iPod and Beats sales without breaking down how many of each type of product sold. Why would they do that? CEO Tim Cook says there are “competitive reasons.” The cynical among us might also apply Occam’s Razor and point out that it would cover up weak sales.

Of course, that's speculation. Because it has to be.

But hey, look, obviously sales are just fine, right? Analysts project that anywhere between three and 4.2 million of the things have sold. The Verge used some squishy algebra to guess that revenue was probably in the neighborhood of a $1 billion. Those are objectively big numbers. And Apple’s CFO bragged to the New York Times that the Watch outsold the iPhone and iPad “during the same period” (that is to say, the first quarter after release). So it’s a hit even compared to some of Apple’s biggest hits. That all sounds like good news for the company.

So why not just come across with the numbers? Surely that’s easier than letting us all thrash around in the mire. And why do Apple honchos sound suspiciously like they're tapdancing every time the subject comes up? “Sales of the Watch did exceed our expectations,” Cook said during a Q&A, which could mean virtually anything. He added, “Our objective of the quarter wasn’t primarily sales but also how we position the product. Most importantly, customer sat [satisfaction] is off the charts.”

We wouldn’t presume to tell you how to do your job, Tim, but nobody talks like this unless they’ve got something to hide. Apparently Wall Street agrees, because Apple stock took a dip in spite of huge profits. What the heck is going on here?

First of all, even if that $1 billion number is accurate, it doesn't mean much, since the price of the product varies from $350 to $17,000. That’s a bit of a gap. If most of the money came from rich dudes buying up the priciest model, that would mean revenue is good but sales are lousy.

Second, even if they really did sell four million of the things, that’s actually not very much. They sold 47.5 million iPhones in the same period (notice they’re very comfortable telling us that number), and that’s a product that first hit shelves eight years ago. The Watch beating sales from the iPhone launch is also shaky praise, since by present standards they really didn’t sell very many of those things back then.

In fact, Apple is a victim of its own success here. It almost doesn’t matter how many units they sold and how much money they made; what matters is how much they were expected to make. Those 47.5 million iPhones were significantly less than the 50 million industry insiders predicted ahead of time. Tim Cook can sit there and say (in effect) “Look jerks, it’s 47 million more phones than you could move, so how about a little respect?” and be one hundred percent right, but the market doesn’t care. It’s not enough just to do good; you’ve got to always be doing better, because that’s the name of the game.

Worshippers at the altar of Apple can rest assured that even if the Watch turned into a flop it wouldn’t sink the company. In fact, they might barely notice, in revenue terms. The damage would be psychological: The company needs a hit, to prove they’ve still got their mojo after all these years. The sick irony is that, if they’d never released the Watch at all, an earnings report like yesterday’s would be seen as a resounding success, which of course it technically is anyway. It’s not even close to fair. But it’s nothing new either, and the company has been doing this long enough that it’s got no grounds to complain.



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