The reaction has been fascinating. Many of the Apple fan sites are flat out ignoring the news. A few weeks ago Gruber was
snarking at Motorola
Then when the Android Wearables video dropped yesterday he was
skeptically tweeting
After the moto 360 news and videos came out there was no update lol
Two most curious reactions so far (besides Jtwo's sticking his head in the sand

)
The
answer is "Google is getting better at design faster than Apple is getting better at web services."
What innovations is Apple's eventual iWatch going to offer? Gesture UI? Payment system? The iWatch will have to be especially 'sexy' (curved screen as on the Samsung Galaxy Fit) and/or the fitness function would have to be ground breaking (diabetes management?) because Apple is already far behind on the stuff Google showed off yesterday. iOS notifications don't support response actions, there's no iOS intents system (to enable third party Voice actions), there's no iOS equivalent to Google Now, Siri isn't as good as Google's voice dictation, no iOS equivalent to Google's Home automation...
Apple still has its captive iPhone/iPad userbase that will make any iWatch a success but, unlike at the iPhone launch and the iPad launch, I don't think Apple will be dominating this new market