I know, it’s Apple; but at the same time, you’re easily going to sell 2-3 times more of them, and; like the iPod, it can easily introduce them to the Apple ecosystem and when it comes time to buy a new phone; they’ll maybe say ‘well, I’ve already got an Apple Watch and really like it…maybe I’ll get an iPhone this time my contract expires.’
But it’s Apple business logic. I’ve used their products pretty much exclusively for nearly 20 years (I’m an iOS/WatchOS dev and have used Logic to make music for 15 years) but I’ll never understand many of their decisions.