Apple is now taking $200 of electronics that typically retails for $349 and will be worth $0 in a few years, wrapping it in $640 of gold (source: Forbes), and selling the combination for $12,000 as “Apple Watch Edition.” I’m looking at a 6-year-old Panasonic 1080p plasma TV on the wall. It might be worth about $349 on Craigslist and will be worth $0 as soon as 4K goes mass-market. I am going to remove the black plastic bezel and replace it with a metal bezel containing some gold, fusing the two together so that they can never be separated. The result will be the $12,000 “Apple TV Edition.” The weight of the metal bezel will not generate complaints such as this one from Bloomberg about the Apple Watch.
How many people are out there willing to spend $12,000 on a fancy case inextricably linked to almost-immediately-obsolete electronics? Vertu supposedly found about 350,000 customers for its expensive-on-the-outside phones. I’m guessing that Apple could sell at least 10 times that number over the next three years. That’s $4.2 billion or a little over a week of revenue for the company.
What do readers think of the $12,000 Apple watch? Is it more evidence for the philosophy of David St. Hubbins? (“It’s such a fine line between stupid and clever.”) On which side of the Hubbins Line does the watch fall?
The main purpose of the Watch Edition is to make the prices for other models look reasonable.
My head says they’ve jumped the shark on this, but my heart says that plenty of people will queue up in lines to buy them at any price. I feel the same way about Ultrabooks too – regardless of manufacturer: Take a $400 laptop -add $300 in upgrades, and put it into a Kate-Moss-thin case – and boom: $1299. That class of machines has probably saved laptop makers alone.
Gold watches have always sold for far more than the metal value. The premium on a gold Rolex is significantly greater than the marginal cost of a gold vs. stainless case.
In general, the entire high end watch industry is (similar to other fashion industries, perfume, etc.) not about the product itself but about the IMAGE of the product. As my everyday watch, I wear a Chinese made self-winding mechanical watch that employs basically the same technology and materials as Rolex or Omega (their movements were designed 50+ years ago and all the patents have lapsed long ago and the technology is well understood). The watch I wear retails for around $40 when you get it mailed to you from China. A Rolex Explorer sell for around $7,000. The Rolex is made by Swiss elves and not Chinese prison inmates (actually both are largely made by machines) and the quality is slightly better, but in terms of actual manufacturing cost (and not the advertising, golf tournament sponsorships, celebrity endorsements, etc.) lets say it costs them, (and I’m being generous here) 10x as much as the Chinese to make. That would get them up to $400 and that still leaves $6,600 unaccounted for. But my Chinese watch does not add to my aura the way a Rolex would.
Now the one thing you can say in Rolex’s favor is that since the technology is already totally obsolete, it can never become even more obsolete (unlike the Apple watch which WILL be obsolete in a year or two). It has cross the valley and it is so uncool that it is cool again, with all those steampunk gears and springs and stuff in it.
I have in my watch collection Omega’s version of the tuning fork watch that was sold as the Accutron by Bulova. In the year that watch was built (in the early 1970s, just before the invention of the quartz watch) this was the most expensive steel watch in Omega’s catalog, because it contained cutting edge technology. I purchase this watch on ebay for a pittance (tuning forks not yet having crossed the valley of cool) but Omega mechanical watches of the same vintage goes for thousands. The only way the Apple Gold watch will ever be collectible is if it is a total flop and only sells a few copies so that it becomes rare.
Apple is a religion. You either believe it or you don’t. I don’t. The Apple watch is the Tesla of watches. A status bauble. It must be linked with the iPhone in your pocket. Battery lasts 18 hours, max. Must be recharged every night using its proprietary charger. People who work with their hands won’t wear it at work. Touch sensitive crystal gets scratched and banged up. It’s jewelry, if you’re a believer and can afford it, go for it.
ps: I own an iPhone 6. Expensive, yes. But both, a practical and magical device when your 66 years old. Favorite app: “The Photographers Ephemeris” (gives me location specific sunrise/set, moonrise/set azimuths). I also use “Best of New England Travel” by Yankee Magazine. Helpful when I’m out aimlessly wandering my six favorite states. I also enjoy “Star Walk” (astronomy, helps me re-learn the night sky).
I’ve never understood ultrabook pricing either. They lose the optical drive so that saves them about $30 but going from a mechanical HD to a SSD no longer adds that much (you can get a 128gb SSD for $70) so where is your $ going? I guess the idea is that you are buying a macbook competitor so it should be priced like (but slightly cheaper than) a macbook. In general, products are priced at whatever the market will bear, which does not necessarily correspond to the cost in the short run.
By the way, all of the apps that Paul mentions are available on Android. A couple of years ago, the iPhone might have had some technical advantage but that is largely gone now and you are mostly just paying for the name.
Although it is only a week of revenue, it is probably something like 80% of pure profit. And 3B is nothing to sneeze at.
As to the disposable electronics inside – for a lot of certain people it’s a plus. “Look, I can throw away 10K on an expendable item”. People drink 10K bottles of wine, you know. They last much less than a year.
And then there’s Rolex, who takes about $1000 worth of tiny springs and sprockets, and puts them in a package that sells for $6000, and then adds the same $640 worth of gold, and sells that for $20,000. By comparison, the Apple gold Edition is a veritable bargain.
Joe: http://www.bloombergview.com/articles/2015-03-09/the-apple-watch-won-t-salvage-gold-no-matter-what-gold-bugs-hope says that a Rolex includes 75 grams of gold. The Forbes article cited above says that the Apple watch has about 14 grams (half an ounce). So the Rolex contains more than 5X as much gold as the Apple watch.
http://www.ablogtowatch.com/10-things-know-rolex-makes-watches/ has some more info about Rolex manufacturing. The same author has written about pricing: http://www.ablogtowatch.com/rolex-prices-past-60-years-revealing-analysis/
There are a lot of people who wear 30-year-old Rolex watches. I don’t expect to see too many people in 2045 wearing the Apple Watch Edition…
“Apple Watch” is Apple’s way of keeping its name on the front page. This is more of a marketing play vs. a real product. Past iPhone, Apple has not produced anything new at the scale of iPhone.
New Yorker article about Jony Ive: http://www.newyorker.com/magazine/2015/02/23/shape-things-come.
Too long, of course, but there is some entertainment value in many of the author’s comments plus whatever other insight you may derive.
The 75g of gold in a Rolex only account for around $3,000, leaving another $17,000 or so unaccounted for. The blog gives mostly fanboi type points taken from Rolex marketing material. For example, the “better” steel that Rolex uses sell for around $1/lb. and is not that difficult to work – you can buy surgical scissors, etc. made from that same steel for a couple of $ each. There are more exotic and difficult to work case materials on the market (which are also more scratch resistant) such titanium, tungsten and ceramic, but Rolex doesn’t use them. It really is a miracle of modern marketing that the same watch that Rolex sold for $150 in the late 1950s is now worth $7,500. It would be as if VW was able to sell its original Beetles today for $100,000. I really don’t understand it but I wish I did so I could have a license to mint serious money the way Rolex does. It’s better than alchemy.
The irony about Rolex is that they lucked into their strategy by accident. In the late ’70s, it was widely assumed that quartz watches would entirely replace mechanical watches – they were more accurate, did not stop if you didn’t wear them for a couple of days, did not require periodic skilled maintenance, etc. It was just assumed to be inevitable. The very largest Swiss watch house (which later became Swatch and which owns Omega) had the resources to take on an electronics project. The first quartz watches were even more expensive than mechanical watches. The Asians entered the field and quickly drove the price of quartz movements to almost zero, as they had done before for transistor radios, etc. Many of the smaller Swiss houses just folded. Rolex decided to just keep selling what they had always been selling (they introduced one quartz model but it didn’t sell well). The tooling on the mechanical watches had long since been paid for. Maybe they figured that they could keep it going for a couple of years selling to old people and once it was no longer profitable they would close up shop too. But then somehow their product became a Veblen good which every investment banker wanted on his wrist – the more Rolex raise the price, the more people craved their product as a badge of wealth.
paul kramarchyk’s comment is the perfect example of not understanding Apple yet living its output.
First «Apple is a religion. You either believe it or you don’t. I don’t.» but immediately after comes a revelation: «I own an iPhone 6. Expensive, yes. But both, a practical and magical device» followed by a roll of useful things the product does. A lapsed Apple-ist, then? But a prime example of how the “religion” is working: «practical and magical».
He then states that the watch is not good because «it must be linked with the iPhone in your pocket. Battery lasts 18 hours, max. Must be recharged every night using its proprietary charger. (…)» The original iPhone wasn’t only 2G when 3G was available, GSM only, didn’t support Adobe Flash, had to be charged daily, didn’t have wireless syncing of contacts/agenda and with a proprietary (!) cable, didn’t have a removable battery, lacked a physical keyboard, etc. Yet it became the most sold and most profitable smartphone ever and changed the paradigm of what we call phones. And how? Through progressive iteration while achieving critical mass.
It’s yet to be seen if the watch achieves a fraction of the iPhone’s success, but clearly, this is also an initial version.
«It’s jewelry, if you’re a believer and can afford it, go for it.» It’s certainly not affordable, like the iPhone, especially the initial generation, and yes, it’s jewelry. But it’s more, it’s fashion. My gut feeling is that Apple is trying to get wearables to succeed, where others failed ( the prime example being the Google Glass). Wearables have to be more than just fitness trackers. They have to be “computers on us”, the closest we’ll get to implantable computers. If wearables succeed, one day we’ll look back and ridicule the act of someone showing a boarding pass on their smartphone, like if someone were taking a brick out of their pocket with a rock art pictogram on it (QR code).
Is fashion one of the components necessary for the success of wearables? Who knows, but Apple is betting it is, betting it’s part of what will create the «practical and magical» outcome. Practical here, amongst other things means being able and wanting to have it on you. Apple Watch will flop if fashion is only there to glorify a fitness gadget. Let’s revisit this in two years.
Why a Burberry scarves cost over $400 when another brand with same material and quality can be had for $40? Even a so called fake Burberry scarves which is the real one but sold illegal off a silk markets in China can be had for $10.
Trying to figure out a justification for why an Apple Watch or Rolex cost so much is pointless. The price is set high to make a statement that you can be in this exclusive club.
A wearable is a very special thing because you have a more intimate relationship with it than with a device on your desk or even your pocket. A wearable is both a piece of jewelry and a device that must have a lot of utility. Very few devices in history have passed the threshold and qualified as wearables. People own many devices and they own many items of jewelry, but very few wearable devices. The wrist watch was the greatest – it had war credibility going for it (as did the trench coat, the bomber jacket, etc.). Prior to WWI, wristwatches were almost unknown. Then soldiers found it inconvenient to have to fumble for your pocket watch in the trenches. In certain societies, a sword, a pistol or a knife. After that the list grows short. Unless you get the aesthetics and the function just right, people won’t wear them – either it’s too ugly/geeky or the function is too compromised by shrinking it to wearable dimensions or both.
It remains to be seen if the Apple Watch is the breakthru device. I don’t get the feeling that it is and that if Jobs were alive it would not have met his standards.
Folks: I do get the idea that a watch or other fashion item can be sold for more than the cost of production. But the Apple Watch is, like my old Panasonic TV, a rectangular box of Asian-fabbed semiconductors. I don’t see how that will qualify as a fashion item for most people, regardless of the bezel material.
You can describe anything in those terms and wonder. How does a loop of metal with no parts inside qualifies as a fashion statement? Something like this http://shop-hers.com/products/28739-morningstarsjewelers-cartier-bracelet?utm_source=google&utm_medium=cpc&utm_campaign=PLA_USTop10&gclid=CP-JhOCeocQCFQ4yaQod7oUAuQ
philg: Why don’t you consider the Apple Watch a fashion item (like your TV) while a Rolex can be? Is it mere durability? Is it the design?
Here’s another interesting take on the matter:
«Apple retail is a self-funding marketing operation. So too, perhaps, is the gold watch. Apple might only sell a few tens of thousands, but what impression does it create around the $1,000 watch, or the $350 watch? After all, the luxury goods market is full of companies whose most visible products are extremely expensive, but whose revenue really comes from makeup, perfume and accessories. You sell the $50k (or more) couture dress (which may be worn once), but you also sell a lot of lipsticks with the brand halo (and if you think Apple’s margins are high, have a look at the gross margins on perfume)»
From http://ben-evans.com/benedictevans/2015/3/12/why-is-apple-making-a-gold-watch
>rectangular box of Asian-fabbed semiconductors. I don’t see how that will qualify as a fashion item…
So is it a rule that anything with semiconductors in it can never be a fashion item? Or is the rectangular shape too plain? As you mention, Vertu had some success with marketing electronics as a fashion item and they were rectangular also.
In general though, a key selling point of jewelry made of precious stones and metals is that their value endures – “diamonds are forever”. Of course, this is a fiction – if you try to sell a piece of recently purchased jewelry you will only recover a small fraction of the cost. But still, people associate these objects with permanence. Electronics, OTOH, are assumed to become obsolete very quickly – in as little as 1 yr. So there is a tension there that will limit sales.
Apple could overcome this objection somewhat with some sort of guaranteed trade-in or upgrade program, especially if they could keep the styling of the case constant. For a certain fee, Apple would replace the innards of your Apple watch (or the whole thing) with the latest up to date version.
The $12,000 version is clearly intended as a publicity stunt and I’m sure they don’t expect to sell a lot of them. It worked – it got you talking about the Apple Watch. If the Apple Watch topped out at $350, you probably wouldn’t have even mentioned it in your blog.
Scott Gallaway’s NYU Stern Business School Professor of marketing.
quotes given in his youtube presentation.
Luxury brands give you self-expressive benefit: “They signal something about you. This is not a timepiece [holding up his watch]. I have not wound it in five years. It’s my vain attempt to express Italian masculinity and signal that if you mate with me I’m more likely to take care of your offspring than someone wearing a Swatch watch.”
There are only three things we do in business: Appeal to the mind, the heart, and the desire to propagate. “As we move down the torso the margins get better.”
The core axiom of evolution: “Is men paying $150,000 for cars that can go 160 mph in domains where you can only go 55. It makes no sense. Women will continue to pay $600 for ergonomically impossible shoes to try and solicit inbound offers from those same men.”
Apple is the only tech company in history: “That has successfully migrated down that torso. It used to be the best computer. Then it sang to your heart with songs. Now it’s the ultimate self-expressive brand.”
Apple is going to be the biggest watch company in the world: “Who does it hurt? It hurts everybody.”
@Izzie,
give it a rest already, you are worst than the professor when it comes to Apple.
If Apple sold gold watch at $2000.
20% of gold supply would be used up instantly.
Gold is used by Central Banks as a hedge for Inflation.
Apple is using million dollar CNC machines, instruments used to test
jet engine parts to manufacture the watch. It is precession instrumentation
in the micon level. No other manufacturer can say that and produces millions
of these things. It is using Lasers to cut out the fringing. No one has used
that yet.
If you don’t value that then the Apple products are too expensive for you.
end of story.
Apple is not forcing you to buy any of its product.
especially when you can’t see any difference between iphone and
android phones.
Most of my responses to your questions would be blocked by blog owner
so I won’t even bother.
Oooh, lasers. Then it must be worth $10,000. I’m sorry I questioned it.