The history of the iPod shows exactly why the Apple Watch will be huge despite what critics think (AAPL)
There are real questions about whether anyone actually needs the Apple Watch. It's expensive. It doesn't do much more than your phone can do. And you need to carry your phone while wearing the watch, too.
So reasonable people are wondering just how big this product might be, and whether it might flop.
Those people need to consult the history of the iPod, because that shows exactly why Apple Watch will be massive for Apple.
No one cares about the iPod anymore. You can use iTunes on your iPhone, so no one buys new iPods.
But the iPod is arguably the most interesting product Apple launched after its Mac computers, even more interesting than the iPhone.
When Apple cofounder Steve Jobs launched the first iPod in 2001, it taught the company — and the world — that you could squash a pretty decent computer into the palm of your hand. The gadget could be improved, take on more functions, and become more powerful. There have been a couple of dozen iPod versions so far.
Most importantly, Jobs made sure the iPod did not work independently. You could only make it work if you had an Apple computer. Only later was iPod's iTunes functionality extended to non-Apple machines. Either way, you had to have Apple's iTunes on your machine in order to make your iPod work.
This marketing strategy is called "tying." (Sometimes it's illegal because companies can abuse their dominance in one market to tie their customers into buying products in another market.)
This was the huge lesson from the iPod that made the iPhone a success: You can make a computer that fits in your pocket and you can make a lot of money by ensuring the product works best if it is tethered to another of your products.
The iPod lesson has transformed Apple. The iPhone currently generates $51 billion per quarter for Apple.
Sure, you can buy an iPhone without buying a Mac. But it works better with a Mac.
Crucially, the Apple Watch is an extension of the iPhone. It doesn't work unless you tether it to your phone. One supports sales of the other. Apple Watch is to iPhone what iPod was to iTunes on your Mac.
The watch also proves Apple can make a computer even smaller than your hand. Apple can now fit a computer into a piece of jewelry — jewelry that is dependent on yet another of Apple's products.
The Apple Watch may be like the iPod — it will shine briefly and then wither away. But Apple will have learned a huge lesson about designing small, wearable computers.
That is why the Apple Watch is important.
And that is why the watch will be a success regardless of the revenues it generates — it is teaching Apple how to dominate consumer devices in the future. The iPod gave birth to the iPhone. Who knows what Apple Watch will give birth to?