Now that we are nearing the launch of the Apple Watch, it is time to revise my guesses for the prices, based on extra information gathered on the complexity of the processes used:

There is an interesting article about the price of gold cases at GrailWatch, but I believe the math to be wrong: I imagine the thickness of the case to be at most 1.5mm, given the extra strong alloy Apple has developed, and then the math¹ comes out to $2500 for the gold in the case. And if we take the ceramic alloys Apple has patent for into account, with a more likely thickness of around 1mm, the gold content would be below $1000.

With Apple apparently hiring a lot of people with car backgrounds, we are seeing speculation that Apple is working on a car.

While there are areas in the car experience where Apple could help with creating a better experience, I do not believe that it makes business sense to become a car manufacturer itself.

What Apple could improve

A major sore point with modern cars is the bad integration of the additional complexity modern computers bring into the car. The problem here is that the car companies have not yet fully realized the extent to which software is a fixed cost, and so continue to have a quite modular approach while software would work best with an integrated approach: you should have one software interface, and use consistent UI controllers for every car. No steering wheel options with different controls, no choice of screens, no choice of input controllers. All of this makes the design work more difficult and so increases the risk that the result is mediocre.

Car companies can actually learn from the Apple Watch the core lesson: provide options in the physical, haptic, emotional world, but keep the software interface identical across all variants.

One of the important tasks for an improved interface on the car would be to clearly separate the driving and the standing interface: reduce what you can do while driving, essentially only allow selections from lists, and use a touchscreen with a nice keyboard for configuration while standing ( or make this available via an app on the phone)

Apple cannot do wonders

But this is also why the user interface is not really that important: as the driver, you cannot do any involved tasks without becoming so distracted that it could kill you. This severely limits the interaction you will have; when you only interact once every half hour, the interface quality matters a lot less. Of course there are a lot of people who see it as their right to text while driving, but this is so dangerous behavior that it should be banned, not encouraged.

This will only change when the car will drive itself on at least the easy route parts, and so allows the driver to do other things. But when this happens, we can as well use our phones directly, we no longer need a special interface optimized for low attention.

Electric cars are the best bet

For a new entrant, electric cars are the best bet to get started, as the greater freedom to design a car, and the newness of the technology means that they can enter a less crowded market, and it means the incumbents are likely hampered by old assumptions. But they utterly depend on their batteries: currently they are only viable in the luxury segment, where you can spend $80000 on a car. The battery cost is still eating up the advantage from having a much simpler motor, and we are some way from batteries being cost competitive with petrol. A Nissan Leaf battery will set you back $5500 plus installation, and is guaranteed for 60000 miles. This comes to 5¢/km ( 8¢ per mile). A Tesla with its larger battery currently costs twice as much for a 8 year prepaid option, and easily 6 times as much when needing replacement today. So everybody is working on getting the battery price low enough to become price competitive. It will need to reduce by a factor of 2 to 3 until we are there. And this could be hard: Not only do batteries only improve at a rate of 7% annually, and we are already able to achieve way more than half the theoretical limit in capacity, it is also that more than half of the price of the battery are for the raw materials, and you would need more than 50 times as much lithium as currently produced worldwide were all new cars suddenly electric.

Given these constraints it is rather unlikely that battery technology will become price competitive for the mass market within the next 15 years or so. And until then the market for electric cars will be a luxury market without massive subsidies, and we are not affluent enough for many people to be willing to part with a $10000 surcharge for a better car. Sales of high end cars are currently in the 1 to 2 million annually range, compared with 85 million total production.

Is Apple really working on a car?

This makes the market quite small by Apple standards: they realized a bit more than $200 per iPhone, assuming they could make $5000 per car they would need to sell more than 8 million cars to match the iPhone.

Given these economics, I doubt that Apple is actually intending to become a car company, I find it much more likely that Apple wants some car prototypes they can use to create an optimized experience, so that they can sell to car companies an outstanding car multimedia module. This is a much better strategy for Apple: they do not burden themselves with a lot of low margin manufacturing investments, they do not risk the brand for car related problems, and they concentrate fully on the part where they can deliver the best value. Considering Tim Cooks vow to double down on secrecy, I suspect that these rumors are a smoke screen to throw us off what Apple is actually doing.

In the earnings conference call we were given two interesting bits of information:

• The number of iPhone owners who upgraded to the 6 / 6P is barely over 10%

• The number of switchers from Android was significantly higher than for the last three years

Both numbers indicate that for a large number of people the phone size is more important than improvements in technical capabilities. This points to enough residual demand for a smaller iPhone that we will see a return of a small model, probably with a slightly larger screen but the same overall dimensions.

And it points to another question that is bugging me: When will the phone be good enough? The current replacement cycle of roughly 2 years is fueled by the large improvements we have seen in processing power as the mobile chips have vastly outpaced the improvements seen with PCs. But the gap is now down to one generation, the camera already delivers a remarkable quality even under indoor lighting, and almost nobody feels that their phone is too slow. Just as with the iPad ¹, the signs are there that people will start to keep their phones for longer; the question is now whether the carriers will continue to force device subsidies onto their customers, or will they switch to those 24 months device installment plans to effectively end the forced subsidies?

While a longer replacement cycle will reduce sales, it will help Apple: the longer you intend to keep your phone, the more important it becomes that it will have the quality to last, and active support over the entire lifetime. We already see this in the renaissance of the Mac: now that our computers last, the willingness to invest into a premium product increases.

In order to embarrass myself a bit, these are my estimates for the numbers Apple will announce today:

Earnings will take a hit from the Euro, given that the iPhone no longer sells at a nice premium in Europe, but it is modest as most of the deprecation came at the end of the quarter.

Edit: now the results are in, and I was wide off the mark: 5.5m Macs, 21.4m iPads, 74.5m iPhones. The irony is that from the U.S. mix I had an estimate of 74.3m iPhones, but it just felt too high.

There are currently rumors that Apple is planning to release a larger iPad, at 12.2″ or 12.9″, with an optional stylus. If we interpolate the weight from the difference between the Air and the mini, we arrive at 650g to 700g, compared to the 437g of the Air 2. So we are back at the weight of the original, which was best used sitting on a chair, with the iPad ideally lying flat on a table. While I see some usage for this “Air Plus”, I feel that for most the Air will remain a better compromise between screen size and weight. The main benefit of the 12″ size could well be that it allows enough space to effectively support multitasking, which could make it into a viable alternative to a MacBook Air.

Actually the Air Plus will closely resemble the Surface 3, which has its fans, for example for being an excellent drawing surface. Both these computers, as well as a super light MacBook Air, will compete to become the standard choice for normal computer users, and it will be interesting to see how their software will develop, and if touch based text entry will become good enough to replace the keyboards.

I believe that the killer app for the Apple Watch will be authentication. And therefore the success of it will depend on a wide adaptation of all locks to support it, exactly like Apple Pay needs to be widely accepted. In both cases the watch is easier to use, but they need the iPhone as a steppingstone to reach the critical mass to convince people to make the effort to support it.

And this means that the watch will be likely off to a relatively slow start, until in a few years the ecosystems have grown enough for it to displace wallets and keys.

I wonder about the Apple Watch, as I find it difficult to imagine what it will be good for. It has to make do with an extremely small output area, which means that it can only compete against the iPhone in cases where the interaction is so short that the convenience of having a 2 to 3 second faster access wins out against the much better experience you could provide with the iPhone, or the information that needs to be processed is so small that it can comfortably fit onto the watch.

These activities are pretty limited:

• Authentication is probably the killer app: it could replace all the keys and the credit cards you own with an inherently more secure solution. Ideally it would also replace our IDs, and it could replace all our computer logins.
• “What’s up?” is also an important task to master: seeing a reminder for your next appointment, for puplic transport times, the weather, or walking/cycling directions are quite helpful. For some seeing who is calling/texting might be essential, but for me it would be just annoying, while the reverse would be brilliant, having the watch figure out whether it is good time to interrupt me and tell my callers.
• Remote control for small things: controlling the TV, changing the temperature, preheating the car, …
• fitness tracking is an obvious point, including replacing the iPod as your music source during exercise. A smallish, but lucrative niche to get the watch of the ground, with some nice halo effect as well.
• And of course telling the time, and the other functions of the clock app.

It will be interesting to watch this evolve, as I feel there is a huge risk of providing too many small functions cluttering the interface, making access so slow that you’d rather use the phone. Also the interface itself looks quite limited: you have the touchscreen, with your thumb obscuring most of the screen, or the crown which is only one dimension and could be difficult to use when strapped on the wrist. It seems to me that having more than a dozen apps to choose from will be painfully slow. All of this points to a very restrained role the watch will be playing compared to the phone, a role which will only require quite limited hardware resources, and so see much longer upgrade cycles than the iPhone.

With the latest event, Apple has now provided us with its latest lineup. It is an interesting one:

• iPhone 6 Plus provides the paperback sized iPad experience, marketed as a phone with huge margins. Still surprised that it does not support the SD card reader.
• iPhone 6 is interesting in that the smaller 4" size has now been discontinued. I am still adjusting to this size, it is definitely less easy to use with one hand, but with some navigation changes in the software most of the problem could be overcome. Still hearing from people that it is too big and they went for the 5S instead.
• Retina iMac looks like a gorgeous and absolutely price competitive computer. Technically the most impressive advance.
• iPad has seen a small upgrade in the minis, lost the rotation lock on the Air, but gained a less reflective screen, and essentially provides Touch ID now. An incremental update, nothing you need to get, but a nice improvement if you had a pre A7 iPad. I am disappointed that the price for thinness seems to be the loss of rotation lock.

Overall it seems that with the new Watch, Apple is now willing to grow the surface of its devices, as the “glance and react/ignore” use case no longer needs to be so prominently served. The greatest advance this year is the better integration between the devices, making it much more seamless to move around work between the devices.

Coming from an iPhone 4S, the 6 is quite a big change. The screen is huge enough that it makes one handed operation more difficult, but at least for my hands it just remains possible if you lay the phone flat in the palm of your hand. And for this position I highly recommend a leather case, without a case I would worry that the phone would slip from my hand. And if you require a firmer grip, a double tap on the home button will work well enough to bring the elements into reach. The problem is ironically the lower far corner, which I can only just reach with my thumb. This means that if your hand is smaller than the average male hand, you really should check in person if the 6 is not too large for you.

The screen on the other hand sufficiently compensates for these problems: you can see a lot more ( or if your eyesight is fading, you can activate a scaling mode to have a permanent zoom mode). It especially makes writing easier, with the larger keyboard targets, and should enable even fat fingers to no longer need landscape mode. It is an adjustment to get used to the new spacing coming from a previous iPhone, but while you are learning, autocorrect works quite well in guessing what you actually meant to write. The larger screen is especially welcome for watching videos, where the improved brilliance and viewing angles of the display also get to shine.

Scaled and native app with keyboard

Even with the larger dimensions, the 6 is a tiny bit lighter than a 4S, and still fits most pockets easily: only specifically tailored phone pockets will be too small.

Others [1] have written extensively about the new phone, so here are just my highlights coming from a 4S:

• Touch ID is a great win for security and convenience. My recommendation is to let 1Password generate you pronounceable password of about 16 letters, use that password for about a month without the sensor so that you have properly learned it, and then activate Touch ID.
• the camera is brilliant, the new manual controls very welcome, and it is just so much faster to start up and to focus.
• I really like the improvements to typing: the suggestions in the bar above the keyboard are good often enough to improve typing speed, especially one-handed, and the speech recognition is a good deal better, and now supports Dutch as well.