In early October, I interviewed Horace Dediu, a Romanian-American tech analyst based in Finland who focuses on Apple products, as part of a larger story I was working on about watch brands that sell more than $1 billion at retail annually. Apple had just released its new Apple Watch Series 3, a model boasting cellular functionality, meaning it no longer needs to be tethered to a phone. Dediu and I spoke about how well the watch has performed, how it might evolve, and whether or not Swiss watchmakers should fear for their livelihoods.

Is Apple now the world’s biggest watchmaker by volume?

Apple doesn’t give specific numbers; they give you iPhone numbers and Mac numbers, but they’ve never actually given specific units or sales numbers for the Watch. They claimed at the last launch event that they overtook Rolex sales by value, not by units.

I looked up Rolex sales, which were [estimated to be] $4.7 billion in 2016, including service revenue. We don’t know whether the number was up or down, but I used that 2016 number suggesting that Apple’s would be above $4.7 billion.

My expectation is Apple is running at about $5 billion a year and, as a result, they’re number one. And they launched the Series 3, which has a new feature of being a wireless phone as well.

How is the Apple Watch performing overall?

If you follow Apple and the history of the iPhone and iPad, you know these products took off like rockets. The Watch hasn’t been quite that, but it hasn’t been a flop either.

How does it scale? How do we measure success in this market? Only iPhone users can use it. It’s very much an accessory product. It lives under the shadow of the iPhone.

But the iPhone was in the shadow of the Mac in the early years. There’s a chance this baby product will grow up to be a more mature product, which will place it in more direct competition with the traditional watch market.

If you look at the Apple Watch, it probably crossed over 30 million or 33 million [unit sales]. Give it another couple years and it will probably be at 100 million. After six to seven years, it will probably be the bestselling watch of all time, as well as the top-selling brand.

Who’s buying the Apple Watch?

We’re seeing a lot of people in service positions—flight attendants, people in the hospitality sector, and people in security (both TSA agents and in passport control). I see a lot of people who might not be considered tech or luxury people but who need this watch because they can’t pull their phones out. They can still get their texts without interfering with their jobs. There’s no product that comes close to offering these kinds of alerts.

What’s the key takeaway about the Apple Watch?

The product is kind of a chameleon. It keeps evolving because developers and Apple are constantly rethinking what to use it for. Fundamentally it’s a computer and it’s going to get more powerful; it’s a clean canvas which they can paint with apps.

The iPhone was born as three things: an iPod, an internet communicator, and a phone. Now, social media is number one, imaging is one of the big deals on the product, and probably something around maps/location.

Hardly anyone uses it to talk or for music. And nobody thinks about it as an internet communicator.

In 10 years, the iPhone evolved into something completely different based mostly on the success of Facebook, Twitter, and Google. The watch could potentially go through the same transition.

What about the luxury association? Has that gone away, too?

At the launch event in 2015, analysts were surrounded by really beautiful people wearing really nice clothes who went to fashion shows and showed it off. The thing is, that kind of flash went away and now they’re concentrating on the health and fitness side.

Health and fitness are the interesting angles. Maybe we’ll all be getting these from our insurance companies; some are already giving these out as perks.

Software-enabled products like the iPhone and Apple Watch generally evolve into completely different organisms over time. There’s been an evolution in traditional watches, but in the software world, we’ve seen this stuff happen much more quickly.

We start using a different language—swiping, engagement—a new vocabulary. The traditional watch has not evolved that way and I don’t think it ever will.

We have yet to see what the Apple Watch evolves into. The language of the band and case was to tide us over — this language of watchmaking, it’s almost as if Apple felt a little bit awkward.

What do Apple’s sales numbers tell us about the types of watches being sold?

We’re seeing the vast majority of watches being sold are the basic ones; the gold is gone. If you take that revenue figure, you get to about $330 per watch and most analysts would argue people are buying the aluminum basic watch. It’s good enough.

The choice of metal is not important. In that sense, it’s kind of proof that people are buying the basic watch because of what it does, not how it looks. It’s very much a functional product.

What do you think of Swiss-made smartwatches?

A lot of purists reject the idea of a smartwatch. When you lay over a smart interface, you’re going to have to partner with someone like Google that may not understand the luxury market. The problem is, cycles of innovation in the software world are so fast they leave behind the hardware-based logic of mechanical watches.

But many people actually say these are two separate worlds, and I don’t want to mix them at all. I want to keep the mechanical experience. There was a failure on Apple’s part to put the watch in gold and a failure of traditional watchmakers to make it smart. Both were rejected.

From Apple’s point of view, they want to have people wear these more or less every day and become extensions of their existence. People should miss not having it.

I call it a competition over wrist real estate. There are seven billion people on the planet and 14 billion wrists. Apparently, people don’t like wearing two watches at the same time. So the market is seven billion wrists, one per person.

Then how many people will not wear a watch? How many will only wear a mechanical watch? Some will only wear the Apple Watch.

I think these two worlds are fairly separate and the world is big enough for both. I think Apple will easily have 100 million customers for the Apple Watch and they’re not doing it to kill these guys.

What about this notion that once people get used to having an Apple Watch on their wrist, they’ll eventually graduate to a luxury timepiece?

I was in the lounge of Heathrow Airport recently and was looking at car magazines for connoisseurs. Very English, gentleman racer cars.

I expected the advertising to be auction houses, but all the ads were for watches. I was taken aback. Almost all the ads in the car magazine were for timekeeping.

The same buyer of that kind of vehicle, or even aspiring buyer, is probably the kind of person that’s a watchmaker’s dream. This gets into the deeper psychological aspects of watch buyers.

Again, back to the question: What are the watch buyers interested in? They’re nostalgic about cars, mechanical things, and this masculinity through objects. It’s vanity of a certain kind. Whereas Apple is kind of like having a screen on your wrist.

Apple to some degree encouraged the notion of an evolving luxury watch consumer by having watch people come to their events. As we move forward, there might be some decline in correlating the two.

Apple Watch is going to carve itself a new niche around health and fitness; they’re competing against nonconsumption, negative space. This discovery of this new space—we didn’t know we wanted social media before we got it—will be developed over time. It has nothing to do with the traditional job of having a timepiece that’s more aspirational.

So the Swiss can rest easy?

I’d say the Swiss guys have less to worry about than they thought. They’re not going to disappear. There’s a good argument that it’s a completely different product.

Luxury watches very clearly have all this passion and allure associated with them, but very little functionality and quite a lot of symbolism. The Apple Watch is very different: It’s very high in functionality but very modest in symbols.

The idea from the user’s point of view is: “I’m not in the market for an Apple Watch or a luxury watch, but possibly both. To the gym, I’m taking the Apple Watch and to a cocktail party, the luxury watch.”

(Pictured at top: Apple Watch Series 3)

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