• In H1 2022, Apple Watch’s attach rate reached 30%, the highest for any half year since launch.
• The watch has evolved in consumers’ eyes from a cool accessory to a useful tool focused on health.
• Apple Watch is likely to be a key growth driver for Apple as the iPhone market saturates.
• Apple Watch offers an annual revenue opportunity of as high as $70 billion.

Apple Watch attach rate reached 30% of iPhones in North America through the first half of 2022, according to Counterpoint’s Global Smartwatch Tracker and North America Channel Share Tracker. This is the highest attach rate for a first half since the Apple Watch launch back in 2015 when Apple sold one Apple Watch for every ten iPhones. This demonstrates the growing popularity of smartwatches in the US market, especially Apple Watches.

The attach rate of Apple Watch to iPhone has been steadily increasing over the years since the launch of Apple Watch in 2015. While Apple Watch has registered a strong share in the North American smartwatch market since its launch, demand was initially limited, as the use cases and value to customers were not immediately recognized. Many saw the device as a fashion accessory rather than as a useful tool that could improve their daily lives. But now, with Apple Watch gaining maturity, the utility of the device cuts across three key lifestyle elements – Fitness, Health and Wellness.

Evolution of features drives adoption

At its launch in 2015, Apple Watch had a limited range of functions. It allowed users to pay, message and call, but the advantages of having a smartwatch in addition to a smartphone were not entirely obvious. But over time, new features were added, including waterproofing, GPS, cellular connectivity, ECG generation, sleep tracking, fall detection, always-on display, blood oxygen saturation detection, body temperature sensing for ovulation tracking and more. As these features emerged, Apple Watch’s role as a helpful health and fitness tracking tool, as well as a small, lightweight alternative to a smartphone for daily tasks, came to be, allowing users to stay up to date with their notifications, pay at the store, and get around town all without needing their smartphone (if they had a connected Apple Watch).

As more hardware has been added and new software features have released, consumers are seeing the value that smartwatches can offer in their daily lives, both in combination with their smartphones and independent of them. Consequently, more and more consumers are opting to buy smartwatches. Apple dominated the 2010s as one of the most important tech companies in the world. Apple Watch will play a key role in maintaining that position in this decade.

How does Apple Watch fit into Apple’s strategy?

While Apple gains a trickle of customers from the Android ecosystem every year, its key smartphone markets have reached or are near saturation. This places Apple Watch at the center of Apple’s hardware strategy as the company looks for top-line revenue growth.

1. Globally, Apple Watch shipments were just 18% of iPhone shipments in 2021. If Apple views every iPhone user as a potential Apple Watch user, then the annual revenue opportunity for Apple Watch would be nearly $70 billion, or nearly 550% higher than the current estimated annual Apple Watch revenues.
2. However, the ASP will continue to rise with the introduction of more premium variants such as the new Apple Watch Ultra, which now costs as much as an iPhone 14. This means that the revenue opportunity could be much higher.
3. In Q3 2022, services generated 23.6% of Apple’s total revenue, up from just over 10% in Q3 2015. People love listening to music on the run and while exercising. A connected cellular Apple Watch will play a pivotal role in the growth of service revenues, mainly through subscriptions of Apple Music, Apple Care and Apple Podcasts. There is more room for growth if Apple decides to design more services to fit the form factor.
4. Apple Watch further strengthens the “walled garden” approach. It keeps the churn under check and creates more hardware opportunities for Apple. This will be extremely important as Apple forays into health, fintech, automotive and beyond.
5. Further, new wireless standards such as 5G Redcap will open new growth avenues for the overall watch ecosystem. With gains in energy efficiency, battery life and connectivity, it is likely to drive higher engagement and edge-based applications right at our wrist.

Conclusion

Apple Watch’s adoption has been slow but steady, tracing both Apple's and consumers’ journey in discovering the roles that smartwatches can play in consumers’ lives. As the functionality of wearables has become clearer over time, adoption has increased, opening a door for Apple to continue growing its hardware and service revenues. But if Apple wants to continue to push adoption higher, it needs to find new ways to prove to consumers that wearables are a vital part of their device collections. New and improved features in health and fitness tracking are a good starting point, but more is necessary to win over the unconvinced.