Firstly, it's incredibly obvious Apple is making one. The huge boom in popularity of wearing the 5th/6th generation iPod Nano as a watch clearly demonstrated society's innate interest. So what did Apple do with the 7th generation? Not make it watchband compatible in the slightest. Why? So they can have people hop on the iWatch bandwagon when it finally lands. Plus, all the rumors and stories regarding Apple researching flexible displays - it all culminates into one juicy sandwich of iWatch-likelihood.I shall hazard a prediction. Apple won't make a smart watch.
People want bigger, not smaller screens. Who is gonna hold your watch up to your face to make a call? If the iWatch won't make calls, and you need smartphone, why need 2 smart things on your body?
Nonetheless, your argument is flawed. Do people want bigger, not smaller screens? Some do, some don't. But regardless, that's for a phone, a mini-computer. Why do you assume people are going to be making calls with their watch? It's clear from those that use the iPod Nano setup and the products from Pebble that phone calls are not the go-to use for these devices. From an ergonomic perspective, it's just silly - can you imagine someone holding their wrist up to their ear? That just doesn't make sense.
What does make sense, is being able to quickly access key information from your phone discretely and conveniently. Notifications, text messages, caller ID, directions... perhaps queue up some songs. Maybe your phone is connected to your TV as you watch Netflix and you want to switch episodes without reaching for your phone. Maybe you have your phone setup across the room to take a group picture and you want to use your iWatch as a wireless shutter release. The idea as a whole is that a smartwatch would be an extension of your phone, not a replacement. And sure, it won't be for everyone, but I'd wager there are plenty of people out there who'd be interested. And the possibilities of its usage, on top of typical watch necessities, is very promising with today's technologies.
EDIT:
Thought I'd tag you in this post since I mentioned a few example uses.I still can't tell if this whole smart watch thing is a joke or not.
Seriously, WHAT is the point of a watch being "smart"? Who in their right mind is even asking for such a device?