Why Apple Inc.'s $10,000 Gold Watch Is A Win For Investors

By Markets Fool.com


Source: Apple

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Tech giant Apple's Watch strategy is as good as gold (pun intended), or at least, that's what it wants to you think.

I, and many others, have voiced a somewhat skeptical perspective on Apple's forthcoming smartwatch. To counter this swelling skepticism, Apple executives have been hard at work on the PR trail, arguing you won't believe it until you see it. It certainly was true in the case of past Apple devices like the iPod or even the iPhone. Only time will tell.

However, one area of Apple's Watch strategy has proven especially controversial, the Apple Watch Edition. Many have questioned whether the +$10,000 pricing for Apple's most expensive device even makes sense within Apple's product portfolio. Who's going to buy them, and is it really a sustainable strategy for Apple? However, recently, one of my favorite technology commentators made a great point about one critical, but largely overlooked, benefit of Apple's uber expensive Apple Watches.

An $18,000 Apple Watch doesn't make sense
In a recent post, noted technologist Benedict Evans highlighted one extremely beneficial aspect of the +$10,000 Apple Watch Edition that I hadn't yet considered. For those unfamiliar, Evans is a partner at the high profile and highly polarizing venture capital firm Andreessen Horowitz where his role is to "help articulate the firm's views to the broader world" according to a recent profile. His Twitter feed offers a veritable bounty of tech punditry, offering up gems such as:

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And as I mentioned, Evans recently raised one very interesting point about the high-end of Apple's Watch offerings that many have found so confounding. Simply stated, it's all about the brand.

Many observers have justifiably pointed out the fundamental tension in Apple's attempts to position the Apple Watch Edition among the ultra high-end cadre of luxury watches that have lined Swiss watchmakers' pockets for centuries. The problem is that most watches in the +$10,000 range are marketed as deserving such lofty price tags in no small part because of their world-class mechanical craftsmanship. And say what you will about such claims, it's simply irrefutable that the Apple Watch Edition will lack this same degree of mechanistic differentiation from its more affordable brethren. Heck, if you replace the 18 carat solid gold casing with an aluminum one and slap on a plastic band, the same Watch would sell for $350. Although the luxury watch market is far from innocent of padding its margins, the lack of technical distinction between the Apple Watch Sport and the Apple Watch Edition seems like an especially thinly veiled example of this practice, so much so that you have wonder if Apple can truly break into the high-end of the watch market.

But Evans would argue it simply doesn't matter.

Apple's solid gold brand
Evans argues by noting that a seemingly far-fetched sales total for Apple's ultra high-end Edition Watches of, say, 100,000 units would equate to between $1 billion and $1.8 billion in revenue for Apple. Obviously, that's nothing to sneeze at, but it's closer to a rounding error for Apple's massive revenue base. And as such, Evans shrewdly argues that Apple must have an ulterior agenda of some kind, and I have to agree.

The Apple Watch Edition is a brand play pure and simple, meant to strengthen the perceived value for the other Apple Watches and probably the rest of Apple's suite of iDevices as well. Evans argues that Apple is borrowing directly from the playbook that modern luxury fashion houses have leaned on so successfully. Many luxury labels will design and sell custom couture garments with sticker prices into the tens of thousands of dollars for a single use. As is the case with the Apple Watch Edition, the ability to command these prices isn't grounded in any kind of cost-based economics, and it doesn't matter if these houses only sell a handful of these kinds of garments in a given year. However, the perception of desirability that these pieces create for a brand helps them fuel millions or billions of dollars in sales of smaller, less expensive items like handbags, lipstick, etc. And having the purpose of the Apple Watch Edition laid out this way, I have to agree.

Apple has always been a brand with an uncanny ability to project the values or qualities by which it wants to be associated. It's part of why Apple's brand alone has been valued at as much as $118 billion. Think about Apple's famous 1984 or Think Different campaigns. In both cases, Apple was able to frame itself as something much more significant than a token PC manufacturer. And I believe looking at the Apple Watch Edition as the latest in Apple's attempt to project its air of luxury and "fashionability" is a novel and important lens through which Apple investors should view these somewhat outlandish pricing strategies.

Don't question it. It's fashion, right?

The article Why Apple Inc.'s $10,000 Gold Watch Is A Win For Investors originally appeared on Fool.com.

Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.