Apple Watch Edition

March 10, 2015 7:48 AM

There's been an awful lot of discussion the last few months around how much the Apple Watch Edition would cost, who would possibly buy an expensive piece of jewelry that would likely be obsolete in a year, and what clever trade-in or upgrade schemes Apple might put in place to make it worthwhile.

Today we know for sure that the answer to the first question is “US$10,000-$17,000, or possibly higher for models not yet on the Apple Store.”

I'd like to suggest the answer to the third question doesn't matter, because the answer to the second question is “people who don’t care about the third question.”

I think it was Gruber who pointed out that one of the interesting things about Apple products for us upper middle-class consumers is that the iPhone we buy is exactly the same one Beyoncé has. No matter how successful she is, she can't get a better iPhone than us.

Empowering for us, kind of annoying for Beyoncé.

At the time I'm writing this, Apple is the most profitable company in the history of everything. Selling luxury watches to that small population of people who can pay for luxury watches isn't going to make that needle move noticeably. Rolex's annual revenue is around $4.5bn. That's less than 10% of what Apple is expecting to pull in this quarter.

Apple isn't modeling their business on Rolex selling watches that will last a lifetime. They are looking at Armani selling couture that will be deliberately outmoded by next season’s fashions. And they are looking at it for exactly the same reason Armani does.

(Armani's annual revenue is a lot less less than Rolex, which is where the analogy falls down a little, but I think the general point is still valid. :) )

Armani Exchange prices its dresses in the low hundreds of dollars. Emporio Armani or Armani Collezioni dresses start to reach the thousands. But if you want something like the Armani gown Cate Blanchett wore to the Oscars, you might be talking six figures.

The number of people who are going to buy a $100,000 dress is vanishingly small (and I'm assuming Blanchett was, like most Oscar attendees, lent hers as a promotion). If you built a business making $100,000 dresses, you are likely be a cottage industry dependent on the fickle fancies of the very rich. But if you're in the business of selling $100 and $1000 dresses, having a $100,000 dress draped over a famous actress lends an enormous amount of prestige to your brand, and makes people start to think that maybe your $1000 dresses are kind of a bargain?

Apple already knows that with the right tech, it can make hundreds of billions of dollars selling $500-$1000 gadgets with a 24 month life-span. The difference is the iPhone models were differentiated by technical specs, not by appearance. If Apple had just released one watch that was priced around $400, and another that was closer to $1000, with identical specs and different materials, customers would have really wondered whether twice as much money was worth it just for a slightly prettier watch.

Through the simple existence of the Apple Watch Edition, the regular Apple Watch stops being the few-hundred-dollars more expensive model of the entry-level Apple Watch Sport. It becomes the one-tenth-the-price model of the Edition. When the Jay-Z version of a product is $10,000, and you know that you're getting exactly the same functionality as Jay-Z just in steel or aluminium instead of gold, the psychological effect is you're now deciding in terms of the—much less immediately grokkable—difference between 1/10th of the price and 1/20th.

If the Apple Watch is a product people want, and we don't yet know it will be, Apple are going to sell a lot of Editions. The world contains a lot of people who want to express their wealth by buying a better version of the thing everyone else is buying, and the Edition speaks to those consumers. But when it comes to their bottom line, Apple is going to make a whole lot more money from consumers who, just because the Edition exists, unconsciously see the stainless steel Apple Watch as the middle choice.

Previously: Vagrant-HOWTO

Next: “That’s the complaints department.”