Insurer Aetna Inc. (AET) is making Apple Watches available to employees of its largest corporate customers, according to a source familiar with the matter, highlighting the importance of health and fitness to Apple Inc.'s (AAPL - Get Report) line of smart watches.
It's not known how many of Aetna's 23 million members will get the watch, or whether it is subsidizing the devices, but the move suggests that a vibrant future for wearables in corporate wellness plans. Aetna already offers an Apple Watch to its 50,000 employees as a wellness benefit. CNBC first reported on Monday that Apple and Aetna were negotiating a plan to offer free or discounted Apple Watches to Aetna's customers.
While health and fitness apps may not yet drive massive sales of the Apple Watch, which Apple does not yet break out in its results, there is clear interest. Among more than 2,000 North American consumers that 451 Research surveyed in April, 64% of those who plan to buy a smart watch said health and fitness monitoring were the most important functions. Water resistance, the ability to send and receive texts and wireless connectivity were next highest, selected by 31%, 29% and 25% of respondents, respectively.
"Health and fitness are quietly becoming killer apps for Apple Watch," Neil Mawston of Strategy Analytics said in an email.
Mawston suggested that more agreements like Apple's deal with Aetna will follow. "Corporate wellness is a fast-growing market and Apple Watch can benefit employers by developing healthier employees," he said. Apple and others will have to address financial, legal, ethical, cultural and logistical challenges along the way. "For example, there remains some debate about whether smartwatch sensors are accurate enough in the near term to provide reliable data or algorithms for enterprise-grade employee monitoring," he said.
Apple boss Tim Cook has been bullish on health and fitness apps for the smart watch, noting that the device is "motivating [users] to sit less and move more" during a third fiscal quarter earnings call in early August. Upgrades coming in Watch OS4 will allow the device to serve as a personal activity coach, while Apple's GymKit program will connect the watch to cardio equipment, he continued.
The current Apple Watches require proximity to an iPhone to connect to the Internet, limiting the appeal to Aetna customers or others who own phones with Android or other operating systems. The next iteration of the iPhone reportedly will have its own wireless connection, a boon for non-iPhone users.
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"If you don't have an iPhone today, the Apple watch is probably not going to be in your consideration set," said Jeff Orr of ABI Research. "If those rumors do come true and a stand-alone smart watch like an Apple watch with LTE integrated into it becomes available, it's going to open up the possibility for even more people who would look to it as a potential solution for them."
Former Apple product development head Jean-Louis Gassee suggested that the company is "playing the long game" with the watch and its capabilities for health and fitness, in an interview with UBS earlier this year.
Health apps were a priority under the late Steve Jobs, who reportedly established a biomedical engineering team to work on technology to monitor blood sugar for diabetics. Tim Cook reportedly tested a blood monitoring accessory earlier this year.
Adding health and fitness capabilities is a smart upgrade to the Apple Watch, Gassee suggested to UBS. "Initially the Watch was launched with a little bit of fashion polish on it," he said. "I think that has been corrected and health and fitness now drive the applications."
However, ABI Research's Orr suggested that no single application drives smart watch sales. "I don't know that there is a single killer app," he said, noting that notifications and activity tracking are the lead applications. "The value of smartwatch is assessed by the versatility of what can be done."
Still, the health and fitness capabilities of the Apple Watch 3 could push Apple back on top in wearables.
Apple led the wearables segment in the first quarter, with estimated sales of 3.5 million Apple Watches according to Strategy Analytics. Xiaomi and Fitbit Inc. (FIT - Get Report) surpassed Apple in the second quarter, however, as Apple Watch sales dipped to 2.8 million.
Strategy Analytics Director Cliff Raskind suggested that the "Watch Series 3 launch with enhanced health tracking could prove to be a popular smartwatch model and enable Apple to reclaim the top wearables spot later this year," in an early-August report.