Are you sure they buy iPhone for the camera? Why not Lumia then? Had much better camera. I think they buy iPhone because of iOS in the first place and due to perceived quality, popularity and status in some markets.
The point is that when you sell a lot of models of the same device for whatever reasons in the end customers end up with a bunch of models and get confused. Some do not realize the real difference until they run into limits and discover the purchased device is missing a feature which could be useful for them. Most will just buy a cheaper device thinking why pay more if it's nearly the same. A lot of people just get the basic 16Gb iPhone only to realize later it's not enough at all for normal usage.
In the case of iPads it was a reasonable exception, not many will need and want to get an additional SIM card and data plan for their tablet, most just use Wi-Fi. With watch and GPS it's not reasonable. GPS doesn't require a SIM card, it is not a gimmick, not something uber-expensive, it is a basic feature for the modern smartwatch, which Apple actively pushes as a device for running and training. The price for GPS module is like a couple of $, so the single argument of reducing cost to make a device more affordable for more users is absolutely not an argument here. What Apple tries to do is to get more money from those who will pay extra $100 for GPS enabled device.
And in the case of iPads Apple sells way too many models: current generation in 3 sizes, plus cellular/not cellular models, plus previous generations. Same with iPhones. Features are being spread thin over the whole range. 3D touch, no 3D touch, Live Photos, no Live Photos, single camera, dual camera... it feels like a lottery today. Even some software features like Live Photos in iOS 9 and 'raise to wake' in iOS 10 are artitifically limited to the last 2 generations at the cost of the user experience. Pure greed.
It was the same before Steve Jobs returned to Apple: dozens of different Mac models. He did cut it to just 4. Now Tim's greed convolutes the product lineup again. There should be just the last generation on sale for the price of the previous one if you truly care about customers as you always proclaim in the interviews. Components get cheaper over years, you still make a huge profit with a big premium on your devices. If you start selling previous generation $100 cheaper you just confuse your customers most of which are not tech savvy and do not realize the trick, that the device is limited in functionality or it's 2-3 years old model or it will be obsolete the next year. You also delay the adoption of new features by users and developers. You force developers to support older tech with limited features for prolonged periods of time, because it's still being sold. Devs are not really pushed to adopt new features since it's very slowly adopted by the users. Users even with the latest tech not always can use those features in 3rd party apps since it's slowly adopted by devs. Who wins here? Only Apple, not its users, not its developers.
Your quote:
I and others pointing out the benefits of GPS were routinely ridiculed on these forums and told how unecessary GPS was, so either they were just hopeless fanbois, or they legitimately had no need for the functionality.
Considering the Apple Watch potential as the sport and health tracking device and the price of GPS modules, they most probably were hopeless fanboys. You were rught about GPS and shouldn't defend them now.
When Apple advertises on huge billboards and massive TV and print ad campaigns, "Shot on iPhone 6 & 6s", then yeah, I'm pretty sure the camera is a significant feature for people to buy an iPhone.
I'm not going to get into compairing Apple with the mid-90s and what they're doing today, because it's not really the same. Most of Apple's models were software bundle distinction. Suffice it to say, the while GPS is not necessarily an expensive feature, it's not just GPS, but the additional package that includes GPS. There's a cost to not only the additional components, but also to the engineering, R&D to support it.
The fact is Apple already has a watch they can sell at a certain price point, with a cut off on how much they add to it, before they exceed the margins they hope to achieve. So why not price it accordingly, and then for those who want the added features that the average person is not likely to use, bundle them in a separate product and charge more.
The Watch already has three tiers, a Sport (which is nothing of the kind), a regular watch, and the Edition. Each defined by their appearance. How is it confusing to bundle actual sport related features into a model that is physically different-looking from the other watches, and label it "Sport"? That's what they should have done. But no, "Sport" now means cheap. So they're going to have to come up with a different approach, which is likely the same method they have been distinguishing the 3-4 iPhone models they sell at any one time.
Agree with it or not, limiting features on a device to sell it for less, and adding them to sell it for more, is not going to confuse anyone within reason, and it's going to help Apple expand their customer base, especially for a product that seems to lack significant interest from the public to invest, at least until they have the chance to see how useful it can be in their lives. Do they do this forever? Probably not. But in the beginning it doesn't matter for most average consumers -- all they know is that one model costs less than another and they can afford the risk to try it out. If Apple does their job right, they make both types of customers happy in delineating what they're paying for. Most people don't need a GPS, or LTE, or "water-proofing" above what the base model does, or any of the new features being rolled out with the next watch. All they need is a chance to use the watch for a price they can reasonably afford, that performs a little better than the gen 1 watch to decide if they want such a device in their lives at all.