They didn't take whatever was out there in the market and copy it/make it incrementally better. They started from scratch and built something drastically different and better than the rest. Same for iPod (yes there were plenty of cheap MP3 players out there, but none of them were comparable), Airpods and all the rest.
It wasn't that far ahead when it first launched. Very basic functionality. But a few versions later it was the end of Nokia and Blackberry.
https://www.mobilegazette.com/2007-review-07x12x12.htm
"No handset polarised opinions during 2007 more than the Apple iPhone. Although it has many good points, the list of bad points is equally impressive. The iPhone lacks 3G, the camera is only two megapixels and lacks autofocus and flash, you cannot send MMS messages, third party applications are not allowed, the battery is not replaceable and it is absurdly expensive."
you think when the iPhone came out the space was not crowded? You think they defined the category? Jobs himself have put up a number of smartphones in his 2007 presentation. Yes, the iPhone was far, very far better but it was definitely not a first.
Same thing with the iPod vs Diamond Rio MP3 layers.
As for the Watch, gosh, I do not even know where to start. Pebble Kickstarter two years before that? Two generations of the Samsung Galaxy Gear came out well before the Apple Watch.