The biggest innovation I look forward to seeing is how Apple, Samsung and any other company overcomes the battery longevity issues for such a small device.
If they have a significant breakthrough, it could lead to much improved performance in other mobile devices.
I've read that people want their watches always on. I'm thinking a compromise--say time, date, basic alerts as low powered LCD--and then you blow on watch or shake your wrist to bring up full hands free functionality.