I seriously doubt Apple is ahead of the competition because they made a smaller smartwatch. Some people actually prefer a larger watch than what Apple offers. Their implementation, fit an finish have much more to do with it than anything else IMO.
I don't disagree with either of you, given the exact same usable space, the rectangular useable area inside a circle is less than that inside a circle. No doubt. To achieve approximately the same volume of a circle as a square, the circle would have to wider than the square. And there are tradeoffs for both approaches.
But then all things are not equal here.
In Apple's case, they have imposed a significant black bordered bezel around the display, making it actually more rectangular than even the shape of the watch.
So the reality is, when comparing the useable area of the rectangular Apple watch to the useable area of the exact same sized round watch, there is clearly more useable area on the round watch, without the watch being any taller than the current Watch, albeit wider.