The story is that no-one, including Apple, has figured out how to keep improving smart watches with new features or longer battery life. We seem to have hit the limit after two generations, so it seems unlikely that they will achieve mass market appeal any time soon.
I think it's just too soon to say that. We just hit the second generation Apple Watch, and as I pointed out there are reasons why they probably shouldn't want to make massive improvements in the second generation. Chips keep getting smaller, more powerful, and more efficient. Batteries are continuing to get better. There's no reason to think we've "hit the limit" and won't see further improvements in the future.
To keep the phone market going Apple has to have a big bit of "innovation" every year, a reason to upgrade.
That's not really true. Apple releases a new model every year, but their only introduce a new major revision every other year. Part of what my post was trying to point out is that this is upgrade cycle is intentionally set to the same upgrade cycle that most people have for their phones (cell phone contracts tend to be 2 years, so people tend to buy new phones every 2 years). The big question here is, how long does Apple think that people will generally want to hold onto their watches before upgrading to a new model. Every two years? Maybe three? Their research might say it'll only be every five years, and if so, we can probably expect that Apple might provide minor revisions every year, but only release major watch revisions every five years. (I suspect it'll be longer than 2 years but less than 5)