Now, you're stuck in an airpot and bored. You keep your phone in your pocket and stare at your watch with a 38mm screen. Can you imagine spending an hour or two interacting with and consuming content on this thing?
These watches deliver the information density of WAP feature phones with interactive models that are not much different (scroll wheel), plus panning and zooming on a tiny screen.
The people projecting the launch of the 2007 era iPhone as an industry defining moment that's going to kick off whole new app business models I think are extrapolating without thinking about it.
These devices are primarily best suited for sensors, and for information radiation tasks: notifying you of information and allowing quick response or dismissal.
But a 300Mah "smart" device with a 38mm screen being something you're going to spend a lot of time downloading apps and using "on the device itself" (and not on the iPhone) I think is too far of an extrapolation.
Maybe I'm wrong and this will be claim chowder thrown in my face in a few years, but to me, the trend towards bigger screens on phones is a perfectly example of why these watches will always be limited.
Humans are visual creatures, and a device that has the screen size and interactivity of a virtual tamagotchi is a fashion accessory toy, not something we will build our whole life around like mobile phones and tablets.