Apple Watch shows the strategic ripple effects of a big splash

Whenever chief executives babble about "ecosystems" - as they often do - I picture one of those school biology diagrams of a pond: bacteria at the bottom, algae floating on top, and maybe a stickleback or two darting about below the surface.

Occasionally, a bigger fish dives in. That is what chief executive Tim Cook did last week when he launched the Apple Watch. As the ripples fan out, other pond-dwellers now have a choice: adapt, struggle along, or look for another habitat.

First to rise from the sludge at the bottom were China's counterfeiters, who were brazenly advertising knock-offs of the new device before Mr Cook had drawn breath. Once the watch itself hits the market, or Apple's lawyers hit them in the courts, many are likely to sink back into the mud. The bigger question is for legitimate traders. The watch's arrival could shake up many product categories, from luxury goods and fitness accessories to, well, watches.

How should you react if a powerful new product looms into sight in your sector? Even for companies outside technology and wearables, the lessons of previous Apple launches still apply.

Ask yourself first how revolutionary the new gadget is.

The watch is unusual for Apple. It is a shiny pendant to the iPhone, rather than a substitute (the iPhone, by contrast, reduced the best-selling iPod to an app). But Scott Anthony, author of The First Mile, about how to bring ideas to market, says that if a new entrant aims to do the same job your product does, does the job as well or better than yours, and is at least as simple to use, you have a problem.

In assessing new rivals, though, do not take too narrow a view of the new device. Nokia stumbled in 2007 partly because it treated the newly launched iPhone merely as a phone - one that was less useful, less sophisticated and more fragile (Nokia engineers noted disdainfully that it had failed its "drop test") than its existing best-selling models. Similarly, an over-simplistic view of the Apple Watch may underestimate how it could meet previously unremarked needs, excite users merely through its superior design, or channel them to other new products and services, just as the iPhone encouraged the growth of iTunes and the App Store.

If you decide you must react, be decisive. Google's Android switched course to meet the iPhone touchscreen challenge as soon as the new phone appeared. One Android engineer, quoted by Fred Vogelstein in his book Battle of the Titans, about the Apple-Google rivalry, commented: "What we had suddenly looked just so . . . nineties." On the other hand, when Verizon Wireless asked BlackBerry to devise an "iPhone killer", it took too long to produce the Storm touchscreen phone, which was buggy and disliked. Verizon ultimately turned to Google's Motorola and Android combination for an alternative.

One possibility is simply to pull out of the market altogether. A former technology chief executive told me recently that his team was in the latter stages of developing a touchscreen tablet when Apple launched the iPad in 2010. Despite the sunk cost, he scrapped the project after realising Apple's version was simply better in all respects. But competing in the tablet market was not critical to the future of his company in the way smartphones were vital to BlackBerry or Nokia. For them, ignoring Apple was simply not an option.

For smaller companies, though, it may ultimately be more profitable to wait and see. Anindya Ghose, professor of IT and marketing at New York University's Stern School, says: "When Apple makes such a big splash, whether it sells or not, it creates an awareness about a gadget of this kind."

Pebble, the crowdfunded watchmaker that already offers a number of popular, less expensive alternatives to the Apple Watch, styles itself as the incumbent to beat. But it is more likely to prosper by dominating another part of the larger market opened up by Apple, just as smaller retailers benefit from traffic to the mall when an "anchor tenant" such as a big department store leases space.

My pond analogy is too restrictive, in other words. New and heavily marketed products open up space for others to thrive. As an alternative to being swamped, positioning yourself to catch the wave from a big new arrival's splash could be good business. For those hanging back, this could even be the moment to take the plunge.

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Twitter: @andrewtghill

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