Wearables, wither a watch or something else, must have a clear answer on these two questions.
Google, Facebook and others have a revenue that is driven by ads. They both started on the desktop and slowly migrated to the mobile devices. When going downwards in screen-size, you have less real estate to place ads.
The upcomming Apple have a tiny screen and no internet browser at all. You will only use if for a few seconds a time and any ads on your wrist will ruin your user experience.
This is why I belive that ads on wearables is lousy proposion and not a viable option as a business model.
The other way to earn money is to
collect information about the user, their behaviour and sell that information to other parties. Talk about privacy issues with such an intimate device. My guessning is that this is the route both Google and Facebook will take.
The third option is a paradim shift for many people from the internet-generation. You have to pay for the devices and services. There is no free lunch, not even for mice.
This last business model works very well with Apple who gets a handsome profit on selling devices and giving away services for free or at a low cost.