It doesnt have to be mechanical luxury watch to take over that segment. An iPad isn't a netbook and analysts said that the iPad wouldn't be a threat to netbooks. Looked what happened to netbooks.
http://www.computerworld.com/s/article/9176932/Netbook_sellers_need_not_fear_the_iPad_says_analyst
Your analogy doesn't really hold up. The majority of tasks that people did on netbooks turned out to be tasks iPad could do reasonably well, all in a more attractive package. That was the case that Jobs made in January 2010 when it was unveiled. Was there room between a notebook and a smartphone? There turned out to be room. iPad was an obvious move for Apple. Wearables are something else entirely.
From my experience people wear watches to tell the time, for purposes of fashion, for sentimental reasons (really high end mechanical watches given as gifts). A watch that Apple makes could do #1 reasonably well, but I remain deeply skeptical about #2, and #3 is a market Apple will never enter.
Questions/Comment I have:
1. What is it supposed to do? Being a better 'watch' is not sufficient.
1a. Sensors to track health?
1b. Receive notifications, so people have a fourth device receiving push notifications?
1c. Serve as an identity tool?
2. What is it going to look like and designed from?
2a. Presumably it will be stylish because Jony Ive wears watches and he would have a final say in what it looks like, but how broad an appeal?
2b. If it goes after high end timepieces, are you still going to want to wear it everywhere?
2c. If it's not worn everywhere, does it lose the value added tech proposition in tracking?
3. What is the cost and upgrade cycle?
3a. $1000+ watches rarely get upgraded, $400+ watches might get upgraded a couple times a decade, $100 watches might get upgraded annually.
3b. Presumably sensors are going to get better quickly, so Apple will want people to upgrade regularly, after all, regular upgrades are part of Apple's business model.
3c. How much money can Apple attempt to get out of consumers every 4 years? Does an expensive iWatch do damage to iPhone and iPad upgrade cycles?
4. Who is going to buy it and why?
4a. It's got to do some things that iPhone can't do and some things that iPhone can do, but better.
4b. I don't think it's going to convince people who don't already wear a watch to wear one.
4c. I don't think it's going to supplant the majority of watches that people already wear.
Final Thoughts
Apple has been great at making tech fashionable. This is their first foray in making fashion out of tech.
Whatever Apple's wearable is, it has to be always on you, under $200, and will be a secondary band on your wrist. No display, no Android Gear style push notifications, very thin, very elegant.