I've been pondering the Watchlist changes at some length, I've spoke to various friends and one of the most interesting conversations I had with Bex gave me reason to consider the changes not from a gameplay point of view but a software design one.
With Great Power
People argue that the Watchlist is a powerful intelligence tool, it can be but it has to be used the right way. The introduction of tags or labels really increased the power but knowing someone is online is not the most useful of intelligence.
With the coming change the Mercenary, The Pirate and the Intelligence Assets of major alliances lose a way of tracking pilots of their targets.
If you see them online in your watchlist then you instantly know they know they are watching you, because you're in their watchlist. Paranoia +50!
Brings back all kinds of "watching me, watching you, watching me" jokes. *shudder*
What Could They Have Done
As-is the watch list is a very useful tool in both gameplay positive and negative ways (probably more negative depending on whom you speak to) but it was poster StainGuy in a Reddit thread who (shockingly) provided, surprisingly excellent, constructive feedback on how it could be changed.
The new method can't be stopped and I doubt any major changes will take place before it appears in-game however I firmly believe that the watchlist should work based on a delay. The closer you are to a target, the sooner you see they are online and consequently the further you are from them the longer your notification takes to appear.
So you're in the same system, well that will be a waste of time as you could see them in local but with 5 jumps you'd find out within a minute or two. Get ten jumps or more then it starts increasing so if you're 50+ jumps away it could take up to 60 minutes before you see them online.
In a wormhole, well it should only work if you're in the same system but still delayed by a few minutes. After all no beacons to show local in a wormhole so no need to tell everyone someone is in the same system as you by having a pseudo-local instant notification system.
The Watchlist is a feature people like and dislike, i think it will remain but its form will forever be altered. However I think the form is being altered not because it has to be from a gameplay perspective but from a software engineering one.
The time has come to change a feature and which would you rather spend time on, new features or old, buggy ones? With the exception of one developer I worked with every developer wants to do new things not fix old things they didn't design.
So comes the Watchlist, someone has been tasked to update it and they've taking the quick and easy route. I can't blame them but long term I feel it's shortchanging us, the players, we're getting a reduction in functionality in order for something to be updated but nowhere near the functionality we had before.
Why do this?
Two reasons come to mind, this is a short term solution (that in true EVE style will likely remain long term until someone notices it in ten years :)) or there is a lot of code for this functionality that is hard to maintain, no longer is efficent and needs to be updated.
That's where I'd lay my bet, the code is old and needs to be changed in the modules (for whatever reason: CREST, BIAB etc..).
It's a shame, we're being shortchanged with this.