I predict the 2nd gen to be released during the 2016 holiday season followed by yearly updates after that. Also, I think the 2nd gen will be a significant redesign like the iPhone 3G and iPad 2 were. With this redesign I could see them changing the band latching interface but then staying with this updated interface for a few model (3-5) years. With a stable band interface in place, they could then release "standalone" Apple Watches that are sold without bands which would bring down the price. Now Apple is introducing yearly updates on a product that costs as low as $300 which might just hit the sweet spot for users to upgrade without concern for their bank accounts, especially if the yearly updates are significant enough. Knowing their consumer base, why wouldn't Apple take advantage of releasing a yearly product that could generate a huge amount of revenue?
Unfortunately, those "significant updates" are what I see Apple having the most problem developing on a yearly basis. There are finite amount of use cases and features that belong on a 42mm device strapped to your wrist and a watch can only get so thin and so light before feeling cheap. However, Apple just proved with the latest iPad Mini that they will release an "update" to a product almost just for the sake of doing it yearly.