Apple Introduces Apple Watch, Bigger iPhones, Digital Wallet

National Smartphone King Steps Into Fashion, Retail and Payments

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What the fans -- and critics -- have been waiting for: Apple Watch.
What the fans -- and critics -- have been waiting for: Apple Watch. Credit: Apple.
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Apple planted its foot firmly today in three incredibly profitable industries -- luxury fashion, health care and payments -- as well as one incredibly new one.

At an event on Tuesday, Apple started by introducing two new larger-screen phones, the iPhone 6 and the iPhone 6 Plus. The new iPhones come equipped with near-field communication, a short-range wireless technology called NFC for short and a mobile-payments digital wallet. Under Apple's branding, the system is called ApplePay.

"Today we are launching the biggest advancement in the history of iPhones," CEO Tim Cook said from the stage.

Apple emphasized the larger screen size, an area where it trails rivals. Phil Schiller, Apple's CMO, introduced the two phones, which include new battery life, wireless calling capabilities and upgraded camera and video features. "And, yes, they're bigger," he said.

The iPhone 6 screen is 4.7 inches and the Plus model is 5.5 inches; previous iPhone screens were four inches.

The smaller model will retail for $199 and Plus will be $299, with two year contracts. Each will come in three colors: gold, silver and "space gray." They will begin shipping September 19 in the U.S. and eight other countries.

Mr. Cook introduced a short ad for the new phones, narrated by Jimmy Fallon and Justin Timberlake.

One more thing
But attendees and analysts were also keenly watching for word of its long-awaited wearable computer device, which would enter the company into a young market already flooded by its top smartphone rivals, as well as top apparel and fashion brands.

They got what they wanted. After introducing Apple Pay, Mr. Cook reclaimed the stage ahead of a black "One more thing" screen, a trait made famous by company founder Steve Jobs.

"We've been working incredibly hard for a long time on an entirely new product. We believe this product will redefine what people expect from it's category," Mr. Cook said. "It is the next chapter in Apple's story."

It was Apple Watch, the company's long-awaited wearable computer. The tiny gizmo's key marker from the other smartwatches is its "digital crown," a circular panel on the side that, with one touch, transitions from a typical time-keeping face to Apple's familiar slate of apps.

The Apple Watch comes with a range of type-faces, along with six different straps.

"We set out to make the best watch in the world," Mr. Cook said.

Apple had not introduced a new product since 2010, when the iPad debuted. Skeptics seized this gap as evidence that Apple had lost its innovative spark and that Tim Cook, the CEO who took over after Mr. Jobs' death, could not match the charismatic founder. Criticism reemerged when Apple agreed in May to pay $3 billion for Beats Electronics, a headphones and music streaming company.

Apple's recent financial numbers beat expectations and quelled much of the criticism. In its most recent quarter, the company reported revenue of $37.4 billion and operating profit of $7.7 billion. Apple shipped 35.2 million iPhones and 13.3 million iPads during the quarter.

In 2013, Apple spent $718.6 million in U.S. advertising, according to the Ad Age DataCenter. As competitors like Samsung have increasingly gunned for Apple in their marketing, the iPhone-maker has built up its own creative teams to compete with its longtime partner, TBWA/Media Arts Lab.

The Apple Watch follows a series of turns the hardware manufacturer has made toward digital health. Since 2007, the company has partnered with Nike for its wearable products, including the Fuelband. (Nike reportedly shut the hardware component of Fuelband this spring.) In June, Apple released HealthKit, an application programming interface for its latest operating system that is meant to serve as a central software hub for fitness-tracking devices.

In August, the Financial Times reported that Apple would withhold data on HealthKit from advertisers.

Apple's recent hires had also fueled speculation of a wearable device. Last October, the company recruited Angela Ahrendts, the CEO of fashion brand Burberry, to head retail. It has also added experts from bio-sensor companies, as well as retail and marketing executives from Nike, Levi and Yves Saint Laurent.

This year several smartphone rivals have released wearable tech products, most running on Google's operating system, Android Wear. Samsung has put out five.

In a research report on Monday, Citibank estimated that the smartwatch market will hit $1.3 billion this year and then expand to $10 billion by 2018. Apple, the report projected, will sell 34 million units in its first two years. Those sales would register between 2% to 3% of the company's substantial revenue. (Other analysts put the figure below 1%.) By comparison, Apple shipped 79 million iPhones in the last two quarters alone, netting $45.8 billion.

Bigger, better
While Apple tries to break the wearables market open in a way that earlier entries from competitors have not, the new iPhones it introduced on Tuesday put Apple squarely in the position of chasing the market. Bigger phones are increasingly popular, particularly in Asia, where consumers often have one internet-connected device. "Phablets" -- tablet-esque phones with screens between five and seven inches, such as Samsung's Note -- will record shipment growth of 209.6% in 2014, according to IDC. By next year, the research firm predicts phablets will outsell PCs; by 2016, they'll surpass tablets.

Although Apple has seen steady growth in rising markets like China, it is facing new challengers abroad. IDC estimates that Apple ships 11.7% of smartphones worldwide, a 1.3% drop from last year, as both Apple and market leader Samsung saw rising competition from Chinese manufacturers Huawei and Lenovo.

Apple's share is climbing at home, reaching 42.4% of the U.S. market as of July, according to ComScore. The research firm also estimates that more than a third of current iPhone owners are ready to upgrade devices, a pent-up demand that could bloat Apple's balance sheets.

However, Apple will need to contend with a changed telecom landscape, as the main U.S. wireless carriers have shed the subsidy plans that bolstered earlier iPhone sales. The carriers are also partnering more closely with smaller handset-makers, in a bid to loosen the controls of Apple and Samsung.

Delayed payment
Many had been waiting eagerly for Apple to get into the NFC payment game, which they hope would spur widespread use.

Google introduced its mobile wallet in 2011, and several of its Android smartphones include NFC chips. Three of the top carriers -- AT&T, Verizon and T-Mobile -- teamed for their own payment system, formerly called Isis Wallets. (It has rebranded to Softcard, given recent events.) But without Apple, and nearly half the U.S. smartphones, adoption has failed to take off.

Proximity payments totaled $1.6 billion in 2013, a 114.5% annual increase, according to eMarketer. Yet only 8% of smartphone users made one of the transactions.