A quick remark on the Apple Watch Edition (the $10k one)

https://static.medium.com/embed.jsA quick remark on the Apple Watch Edition (the $10K+ one)

A lot has been said about the Apple Watch Edition which costs more than $10,000. I initially thought it wouldn’t be priced like that as it would be out of character for Apple whose identity was more mass market — with technology being widely available. To be sure, Apple products were never cheap but they weren’t ludicrously expensive either.

There was always something different about the positioning of Apple versus the positioning of Rolex and the like. A great share of the population can afford Apple products while instead Rolex is exclusive. Indeed, it is so exclusive that Rolex take out billboard ads. Why? Not to sell to commuters but to sell the idea to commuters so that when they encounter someone with a Rolex they know they are encountering someone who is friggin’ rich. Put simply, if you wear a Rolex and no one knows it costs a ridiculous amount of money, there goes your value proposition. What are you going to do with a $20,000 watch? Tell the time? Give me a break.

Robert Frank in Vox wrote that the Apple Watch Edition should be celebrated by the rest of us because it spreads fixed costs around. That price discrimination story is great when we come to think of things like business class travel but it does not hold up for the Apple Watch. Why? Because to make sense, it must be that the presence of the Apple Watch Edition actually lowers the price of other Apple Watches. But I just don’t believe that is the case. Instead, while it likely has not impact on their pricing, if it does have an impact it is to raise the stature of all Apple Watches and, for that reason, raise their prices. In other words, it is more Veblen than Varian.

So how should we look at the Apple Watch Edition? First, I don’t think it exists to make money and, therefore, does not exist to help defray the costs of developing the Apple Watch. Second, given this, I do not think that it is there to impact at all on Apple’s image as having accessible technology. Put these two things together and we see a plan. The Apple Watch Edition is most likely there for Jonny Ive so that he can play in the major fashion designer leagues. I know that he seems like such an affable guy and a man of the people but he has a Bently and a Knighthood. So it is a very British sort of person made good. You want to keep him interested, you have to throw him a bone and that bone is the Apple Watch Edition. This is why on the Apple site they talk about $10K plus and put that out to the press when, in reality, if anyone buys one of these they will be paying twice as much to get the ‘good red one.’ After all, the $10K comes with a sport band. A sport band! No one is going to get that. No one.

But the other clue we have that this is the case is that the Apple Watch Edition is precisely the same as the Apple Watch Sport. There are the same two sizes with the larger one costing more (in the case of Edition, $2000 more but still). But the technology is the same. The insides are the same. The rich person with the Edition will not be able to do one thing more than someone with a sport. Not one thing. This is unprecedented in price discrimination. Whenever different versions arise they can do more. This time around, you don’t even get extra storage. It would have been so simple for Apple to have differentiated on some feature. Yet they chose to do none of them. Why? They were going to err on the side of not compromising their identity.

In summary, the Apple Watch Edition is possibly the most commercially irrelevant product ever launched (certainly by Apple) and should be viewed as an expense on the human resource management ledger.

5 Replies to “A quick remark on the Apple Watch Edition (the $10k one)”

  1. Hi Joshua,
    more Veblen than Varian—good point. A perk for Jony Ive though seems like an expensive way of keeping a senior manager happy unless there’s a business case for the watch itself–so I’m a bit sceptical on that front or have to start to doubt Apple’s management practices.

    An aspect that struck me is the PR Apple got out of the 10k announcement: most reviewers spilled more ink on the 10k+ price point than was due, and much of that was negative. It led them to remind readers of the transient nature of the Apple watch compared to a traditional one. My impression is that this hurt the launch of the watch overall.

    The fact that the Apple Watch Edition offers no additional features compared to the base model means Apple has actually compromised its identity: Apple usually masters the art of price differentiation. On this one it seems like they goofed up.

    If the Apple Watch Edition is going to be the most commercially irrelevant product Apple ever launched, it’s competing head on with the Newton!

  2. “Put simply, if you wear a Rolex and no one knows it costs a ridiculous amount of money, there goes your value proposition. What are you going to do with a $20,000 watch? Tell the time? Give me a break.”

    And, of course, this is true for just the “feel of quality”. Do you think the Cadillacs of the 1970’s with the plastic wood felt cheap? I’m old enough to know they seemed as high quality and awesome, and probably pretty close to as enjoyable, as the gold plated Mercedes do to people today, because relatively they were just as expensive and rare.

    If positional externalities are so obvious to you, as they should be, doesn’t it bother you that they are almost completely ignored in academic economic analysis and policy? I guess when libertarian ideology dominates so tragically much in the field that, with rare exception, no one can even put forward what any optimum is but the Pareto one, then it’s easy to ignore the monumental losses of total societal utils from assuming almost always that position is irrelevant to utility.

    If it at least became acceptable to the gatekeepers to say what the total societal utils optimum is – which is not a normative statement; you’re saying what it is, just like with Pareto, not necessarily advocating for it – then we might start thinking about, hey, if we took positional externalities into account in policy we could have incredible increases in total societal utility (like very progressive taxes to pay for predominantly non-positional goods, like medical research, education, doubling Social Security retirement payments,…)

    Of course, it’s obviously not easy to go against the gatekeepers if you care about your own utility.

  3. I think it is a genius thing for Apple to price the Edition at 10K+ USD. Apple needed to differentiate itself from competitors. All competitors currently are selling technology. So, if the Edition have more technology, it will just move one step closer than to Samsung Gear and the like. The only way to charge a ridiculous price is to link it to fashion. As only fashion can justify something with such low material cost with such high price tag. Who will look at you as a serious fashion accessory if you only cost 360 USD? With 10K, you can make it to the cover of China Vogue magazine. If Apple only sell 1% of the 20M units as Edition, they should have already enough profit to recover all of their R&D many times. There are certainly more than 20K people in this world that can afford some extra fashion (and it is a much cheaper gift than Rolex).

  4. This seems like a myopic dismissal based on faulty assumptions of who buys luxury goods.

    Just as they hired an executive from a luxury brand to run their retail the “edition” watch will sell amazingly well, just not anywhere you would notice.

    My sister just moved to Singapore and confirms the necessity of conspicuous consumption. The quality of service received at a retail location is based on the brand of one’s purse. Go to Taipei and everyone (especially men) has an LV purse of they are of a certain stature. Any major city in Asia has this dynamic just about.

    You are starting to see this phenomenon dissipate in Korea and even more so in Japan. This makes me suspect it has more to do with a rapidly rising standard of living. Having an LV bag means you made it. Having a Hermes bag means you really really made it. An Edition will mean that you are of a certain class and it will be necessary to show off.

    In the West we look down on this type of behavior as uncouth. Yet in the US it is only now that Hip Hop culture is finally moving away from conspicuous ‘bling’ as a primary visual differentiator of stuff.

    Ultimately this is about China. Luxury retailers already make more in China than the rest of the world combined.

    So any prediction that Apple has wildly overestimated demand for a $10k watch and made something irrelevant is besides the point.

    Rolex is an excellent example of a company that sells directly to those concerned with conspicuous consumption v. Those who would never be caught dead.with a Rolex when they could afford a Patek phillippe even if it is wildly more expensive.

  5. (You have apparently missed the explicit reference to Rolex in the article.)

    Many years ago, I was visiting my mother and she handed me a purse asking me what I thought of it. I looked at it carefully and handed it back saying ‘It’s cheap crappy plastic.” Her reply was: “No! It’s a Louis Vuitton!” But that didn’t matter to me because it was still cheap crappy plastic.

    Your comment about Patek Phillippe (“…even if it is wildly more expensive”) suggests you don’t even understand your own point. You should have written: “…precisely because it is wildly more expensive.”

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