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Apple Watch and the price of luxury

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Mutual Mobile
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March 9, 2015
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Over the past year, high-quality smartwatches have started popping up on people’s wrists all over the world. Android Wear devices are leading the way with Motorola’s Moto 360, Samsung’s Galaxy Gear S, and LG’s G Watch R. I tried out these timepieces during the 2015 Consumer and Electronics Show in Las Vegas, and found them to be attractive and well-made devices containing impeccable screens.

With the first quarter of 2015 coming to a close, we are already starting to see branches in the smartwatch family tree. Watches like the Pebble use LCD screens and e-ink to conserve battery life. Devices like the Samsung Gear S use LED screens to mimic the look and quality of our smartphones. And we’re even starting to see smartwatches with analog faces, like the Withings Activité and Activité Pop.

Apple’s timing to the wearables market couldn’t be better. Current smartwatch manufacturers have already cleared a path to the consumer by providing examples of highly functional watches that people actually want to wear. These forerunners have generated enough buzz in the tech sector to grab the attention of fashion brands, a crucial step for wearable technology take off.

Apple has high expectations for its watch, and rumors suggest that the company hopes to sell six million devices in their first quarter. That’s an ambitious sum, considering only 720,000 Android Wear devices were sold in 2014.

Apple Watch will be the biggest coupling of luxury and intelligence.

Apple’s iteration of the smartwatch has been heralded as the product that will finally bring the industry to the everyday consumer and position the smartwatch not only as a highly functional device, but also as a desirable status symbol. I contend that Apple Watch will not wipe out Android Wear. Far from it. Apple’s arrival on the scene will further legitimize the smartwatch market, accelerating the sale of Android Wear devices as more people warm up to this new form of wearable.

Regardless, there is a lot of talk about Apple positioning its watch not just as a smartwatch, but as a luxury good. This idea is understandably met with a lot of skepticism, but Apple has sound reasons for this and everyone should pay attention. The starting price for the Apple Watch Sport will be $349, well within the range of a consumer device expected to have a lifespan of a few years. Prices for the stainless steel Apple Watch to can get up to $1049 and the gold Apple Watch Edition is available in limited quantities for $10,000 apiece. Some analysts contend that consumers won’t pay that much for an electronic device because the product won’t have a long enough life span to warrant the cost.

However, if we’ve learned anything from Apple’s history, it’s this: no matter the price, there is demand for Apple products. We are also talking about the watch market, where more than 1.6 million watches were sold for over $3,000 in 2014. The numbers are even more promising in the $500-$3,000 range, where 3.5 million timepieces were sold just last year.

History will repeat itself

You could call wristwatches the original wearable. Over a century ago, pocket watches were created to meet a simple function–to help people keep track of time. Advances in technology have allowed manufacturers to shrink these timepieces to a size that could fit on the wrist. Because these watches were mechanical, their accuracy depended on high-precision manufacturing. Precious stones provided low-friction supports for the wheels and gears, thus making them more accurate. Gold was desirable for watch parts and cases because it didn’t corrode. Eventually, these expensive materials migrated outside the watch for more ornamental purposes.

Today’s market will likely follow the same evolution, where tech and luxury will eventually converge. As I’ve previously touched on, the luxury-watch market is a more than $20 billion business. About 20% of that is in the $200-$500 range, 12% in the $500-$3000 range, and 6% in the $3000 and up range. It’s easy to dismiss the luxury end of the market as irrelevant, but those high-end timepieces have a history that mirrors what is coming for smartwatches.

Luxury is the differentiator

Once smartwatches reach a certain level of functionality, their design will be the only thing left to distinguish them. Watches, after all, are a jewelry item. This makes the Apple Watch Edition a reasonable product, even if it’s priced north of $10,000. It may not be approachable for most people, but there’s still a large market that will be more than happy to pay that price.

Hints of convergence are already appearing in the luxury sector. Montblanc’s e-Strap is an interesting bridge. The e-Strap is a smart watchband that maintains the watch’s classic design, while extending the smart functionality to a screen embedded at the clasp of the band. It pairs via Bluetooth with both Android and iOS phones and vibrates to provide alerts. This is a meaningful product pushing toward the convergence of smart and traditional watches.

The one unresolved question with luxury smartwatches is obsolescence. Smartwatches are evolving fast and next year’s models will be much more capable than today’s crop. Think of your smartphone or tablet. Sure, you may be willing to shell out $400 to $600 every couple of years to keep up with the latest technology, but would you be willing to do the same if smartphones were $1,000 or more?

Only time will tell how high the price of smartwatches can feasibly climb, but there’s clearly a huge opportunity for this market. With Apple coming into the game, there will be an even greater push for other manufactures to embrace the “luxury state of mind.”