With its debut smartwatch, Apple aims to make wearables fashionable

CEO Tim Cook delivers on a promise to move into a new product category, making a foray into wearable devices with the Apple Watch. Plus: Bigger-screen iPhones and a mobile service called Apple Pay.

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Can the Apple Watch do for wearables what the iPod and iPhone did for media players and smartphones? James Martin/CNET

After promising for more than a year to take Apple where it has never gone before, CEO Tim Cook on Tuesday did just that -- introducing the company's first wearable device: a smartwatch called the Apple Watch.

On the same stage where Apple co-founder Steve Jobs kick-started the personal computer revolution when he unveiled the Macintosh computer 30 years ago, Cook -- who took over from Jobs three years ago -- fulfilled his pledge to deliver new products in categories beyond smartphones, tablets and computers in 2014.

"It is the next chapter in Apple's history," Cook said of the Apple Watch, a rectangular-shaped device that will go on sale next year. "It will redefine what people expect from a watch."

He described the Apple Watch as "incredibly customizable," "amazingly simple," and "elegant" during an applause-filled, two-hour presentation that was punctuated by a performance by rock band U2. In addition to the Apple Watch, Apple also unveiled, as widely expected, two new models of the iPhone with larger screens and a mobile payments service called Apple Pay before a crowd of more than 2,000 at the Flint Center for the Performing Arts, just down the road from Apple's campus in Cupertino, California.

The question, though, is whether the company can do with the Apple Watch what it did with the iPod media player, the iPhone and the iPad tablet: reinvent a product category with a swoon-worthy design that convinces consumers that Apple's next new thing is a gadget they must have. Even though its products have been wildly successful -- Apple has more than $150 billion in cash and ranks as one of the world's most valuable brands -- competitors from Amazon to Google to Samsung have been working to chip away at its cachet by experimenting with new products and updating them more often.

The last time Apple entered a new product category was with 2010's iPad. The result: Apple's sales and profit growth has waned since Cook took over, and investors have questioned whether the company still has the hunger -- and product vision -- it did under Jobs.

The touch screen-based Apple Watch will be available in three versions made from stainless steel, aluminum and 18-karat gold. It only works with the iPhone, though Cook said users of the iPhone 6 , iPhone 6 Plus , iPhone 5S, 5C and 5 -- or more than 200 million people -- will be able to use the Apple Watch at its launch.

The Apple Watch will be priced starting at $349 when it's released in early 2015. "It is worth the wait," Cook said when the crowd moaned over the late release date.

The smartwatch uses the super clear, super tough sapphire crystal display that covers most premium watches in the world today, has a new custom chip called the S1 and has a built-in speaker, accelerometer, gyroscope, GPS, and other sensors that let you track your heart rate. The device has apps that collect other health and fitness data, and it will allows you to share data with other Apple Watch users nearby with a simple tap. It has customizable watch faces and interchangeable straps, including sports and stainless steel bands.

It also tells time.

"We've been working on Apple Watch a long time, and we assembled an amazing team to do so that covers every discipline at Apple," Cook said. "What we didn't do is take the iPhone and shrink the user interface and strap it on your wrist. The display is too small -- it would be a terrible user experience. ... It's amazing what you can do from your wrist."

Apple's shares rose initially on word of its new products, hitting a high-water mark just above $103 per share in regular Nasdaq trading, but ended the day at $97.99, down marginally from the previous day's closing price of $98.36.

"It was good to see Apple start to broaden its product portfolio but it's the new Phones that will continue to drive profit growth," said Walter Piecyk, an analyst for BTIG Research. "It's hard to live up to the high expectations that the management team has contributed to."

Welcome to the new world of wearables

Apple isn't the first consumer electronics maker to market with a wearable. But early entrants from big-name rivals like Samsung and Motorola, and startups including Pebble, have so far failed to woo buyers. In the US, Europe, China, Japan, and Australia, less than 1 percent -- specifically, 0.81 percent -- of consumers own a smartwatch, according to a study by Kantar Worldpanel ComTech. Of global smartwatch owners, 51 percent have strapped on a Samsung device, 17 percent use Sony, and 6 percent own a Pebble smartwatch, the research firm said.

Still, there's interest in the category -- and especially in Apple's entry, given the company's track record in designing elegant, easy-to-use products that reshape industries and force competitors to follow. Cowen and Co. estimates the market for wearables will rise to $170 billion by 2020, and predicts "the launch of Apple's iWatch will act as a catalyst for innovation." Forrester Research said this week that 25 percent of US online adults anticipate purchasing a wearable device in the next year, and 42 percent are specifically interested in "wearing it on their wrist -- assuming it's a service of interest, offered by a trusted brand."

"That's why Apple will succeed where companies like Nike, LG, and Samsung have experienced spotty success," Forrester said. "Those companies launched products. Apple will do what it does best and use its trusted relations with consumers and its second-to-none ecosystem and sell the wrist-based wearables category."

Apple, which hired former Burberry CEO Angela Ahrendts this year to head its retail business, hopes the fashion world will stand behind its latest gadget. Apple reportedly invited top fashion editors and bloggers in unprecedented numbers to Tuesday's launch, where it demonstrated the products in a large white cube outfitted like an Apple retail store that was built specifically for the event. And the fashionistas did show up: a tweet from Marie Claire was featured atop Apple's own live blog of event: "What's hidden underneath this white box is the talk of the town. Keep following to find out."

The device already seems to have won celebrity admirers. In addition to Bono and U2 -- which offered its new album, Songs of Innocence, for free to Apple's more than half million iTunes today -- celebrities including Gwen Stefani, Will.i.am, Stephen Fry, Dr. Oz and Beats co-founder Jimmy Iovine mingled with Apple's executives. Apple co-founder Steve "Woz" Wozniak was also on hand, waving to Apple employees who filled nearly half of the auditorium.

News of the Apple Watch seemed to overshadow today's other news, including the thinner, big-screen iPhones and a new mobile payments service called Apple Pay that lets users of the iPhone 6, the iPhone 6 Plus and the Apple Watch check out just by tapping their devices at checkout stands.

The iPhone 6 has a 4.7-inch display, while the iPhone 6 Plus has a 5.5-inch display -- both larger than the 4-inch display in the iPhone 5S. The updates to the iPhone, which is Apple's top moneymaker at more than half of the company's sales, include a thinner case face, a faster new processor called the A8, a new motion sensor called the M8, improved camera technology and a new feature called "Reachability" that lets users easily navigate menus on the larger screen with one hand.

The iPhone 6 is priced starting at $199, and the iPhone 6 Plus starts at $299, with two-year wireless service contracts. They will be available in the US starting Sept. 19.

Apple's decision to boost the screen size of its phones was more a necessity than design innovation.

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Security features, including the TouchID fingerprint scanner, will be vital to Apple Pay. Apple

Large-screen phones from Samsung running Google's Android mobile operating system have lured users away from Apple and its iOS software and app ecosystem.

Apple Pay combines a new Secure Element chip that stores encrypted payment information (your personal, banking and credit data), near-field communications (NFC) technology to enable wireless transactions from your mobile device and the TouchID technology built into the phone for scanning fingerprints.

"Apple Pay is easy, secure and it's private," said Apple service chief Eddy Cue.

American Express, MasterCard, Visa and big six banks already support the service, and customers will be able to use it at 220,000 US merchant locations that support contact-less payment -- including Macy's, Bloomingdale's, Walgreen's, McDonalds, Whole Foods Market, Disney stores and DisneyWorld, and, as expected, Apple's Retail Stores. "One-touch checkout," Cue said. "And none of your credit card information is shared with the merchant."

"Apple Pay will forever change the way we all buy things," Cook said. "We love to make great products that really enrich people's lives. We really love to integrate hardware, software, and services seamlessly."

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