Why A $17,000 Watch Makes Sense (for Apple)

At the tail end of Apple’s latest Product-Announcement Filibuster the other day, Tim Cook said strikingly little about the Apple Watch Edition, the high-end offering in the company’s forthcoming line of smartwatches. Then again, he didn’t have to say much. Simply by noting that prices will “start at $10,000,” he guaranteed an onslaught of free publicity.

And sure enough, voices from the tech media and beyond rose up in a mighty chorus to comment upon, speculate about, and make fun of the notion of a “luxury” smartwatch. Turns out the most expensive Edition will go for $17k. Who in the world, everybody essentially wondered, is going to fork over five figures for these things?

That’s an understandable question. But it misses the real point of the Apple Watch Edition. Sure, as a consumer product, the thing is pretty ridiculous. But as a strategic maneuver on behalf of both Apple’s brand and its actual business, it’s rather cunning.

A $17,000 smartwatch makes perfect sense — maybe not for you, and certainly not for me, but definitely for Apple.

BENCHMARK: MORE THAN ZERO

For starters, consider the brazenly vague context Cook offered for the Edition: it will available in “limited” numbers, and only at “select” locations. There’s more than a whiff of exclusive “in the know” mystery in that language. But more important: By suggesting no benchmark whatsoever for judging the product’s success, he effectively let critics do so, and they have helpfully set the bar at zero. At this point, any Edition sales whatsoever will demonstrate that, in point fact, Apple can sell a $10,000 watch.

Which, of course, it will. As we know, there are people in this world with entirely too much money. How hard is it to imagine some celebrity or other one-percenter enthusing about the Edition on a red carpet or a late-night show? If the only buyers are sort of lame — tacky Russian billionaires, a few venture capitalist dorks, a Kardashian or two, Bono —  we can be sure that the paparazzi will spot the Apple Watch Edition “in the wild,” and the resulting images will be duly circulated, freely advertising Apple’s arrival in the realm of grossly conspicuous consumption.

All of which will contribute to the chit-chat value that the maneuver ensures — corny “is that the $10k version?” jokes will start countless conversations about more affordable Apple Watches that people actually buy and wear.

And in the unlikely event that, say, Jay Z buys in and sparks actual demand, Apple can safely “limit” the Edition’s availability to “anybody who will buy one.” But of course that outlandish scenario is not required. Apple is a wildly profitable company sitting on huge piles of cash. Despite all the hand-wringing about Apple losing its soul, the company is not suddenly shifting to an exclusive focus on hyper-rich customers. Its future business does not remotely depend on actual Edition sales.

It might depend on sales of its (comparatively) cheaper Apple Watches — and the Edition’s real function is to indirectly help that cause.

A VERY FANCY FRAME

Think of the Edition as the technology equivalent of the elaborate and improbable creations strutted up and down the runways of high-end fashion shows. The design houses that dream these up are not betting their futures on the actual sales of these specific objects — they are betting it on more accessible products that indirectly benefit from the aura of luxury those objects help create. Similar dynamics play out in other categories — from BMW’s more “affordable” models to an “entry level” Rolex.

As a related but more practical matter, offering three versions of the same product with distinct price ranges is basic consumer psychology: A $350 Apple Sport Watch is now “the cheap one.” The almost certainly high-margin Apple Watch has a notably variable price range, from $550 to  $1,100; but instead of raising eyebrows, that’s now the mid-range option, which is often where consumers gravitate. Thus the mere existence of a super-premium variation can change buyer perception. (This phenomenon is often referred to as price “framing,” and you can read more about it here.)

Obviously that strategy can’t be deployed arbitrarily, but it’s one that probably makes more sense for Apple than for any other technology company. Supposed “rebel” soul notwithstanding, it’s long had a reputation for “premium” products and pricing — Macs have always been more expensive than mass PC rivals, and the original iPod was a $400 entry into what was then a niche category. It’s not like we’re talking about the equivalent of J.C. Penney suddenly rolling out a couture line.

In fact, perverse as this may sound, Apple arguably needed to do something to buff up and restore its high-end aura: In an era when the iPhone is about as remarkable as a polo shirt, there’s not much “exclusive” about its brand these days.

(That said, another cunning aspect of Cook’s cryptic description of the Edition is that he made no attempt to describe any technological difference between it and its cheaper cousins. So far as we know the functionality is identical; its guts will not be hand-assembled by a persnickety old craftsman in a remote corner of Italy; it will not be a timeless family heirloom or appreciate in value. Much of its “luxury” status is bound up in the mere fact of its outrageous price.)

ONE MORE THING

But, oh, wait: One More Thing. Among those who evidently believe that expensive luxuries are totally worth it is Jony Ive, Apple’s insanely celebrated head of design. A recent New Yorker profile, which included various scenes of Ive thoughtfully appreciating his Bentley and other accouterments of the most tasteful lifestyle money can buy, quoted a friend noting that: “Jon’s always wanted to do luxury.”

So let’s say the worst case scenario for the company is that it sells zero Apple Editions — but keeps Ive in the fold by letting him work with fancy new materials and make some product videos that involve saying “al-yew-MIN-ee-um” a few dozen dozen times. That may not be an insanely great payoff. But surely a happy and engaged Ive is a luxury Apple finds more than worth the cost of some limited-Edition ridicule.

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