On the Pricing of Apple Watch

Friday, 20 February 2015

After the gala announcement event in September at which Apple introduced Apple Watch and whatever last year’s iPhone was, I ran into SlashGear editor-in-chief Vincent Nguyen in the private hands-on area Apple had set up for select members of the media. I’ve known Vincent for years from various Apple events, and I always enjoy his perspective. I was actually looking around for him this time, though, because I really wanted to hear his take on Apple Watch. Vincent is a watch guy — he knows the watch industry, and his taste is excellent.

We greeted each other, walked in, and started staring, close-up, at the lineup. When we got to the Edition models, Vincent said, with some excitement, “This is going to cost $20,000.”

I’d already started thinking that the Edition models would cost thousands, plural, but $20,000 struck me as a price from Bananas Town. Vincent’s reply was something to the effect of, “Try to find a good 18-karat gold watch for less than $20,000. You won’t.”

Here’s what I wrote back in September, in my initial thoughts regarding Apple Watch:

In short: hundreds for Sport, a thousand for stainless steel, thousands for gold.

Most people think I’m joking when I say the gold ones are going to start at $5,000. I couldn’t be more serious. I made a friendly bet last week with a few friends on the starting price for the Edition models, and I bet on $9,999.

The more I think about it, and the more I learn about the watch industry, the world of luxury goods, and the booming upper class of China, the better I feel about that bet. I don’t think I was wrong to place a friendly late night bar bet on a $9,999 starting price. I think I was wrong to guess just $4,999 in my ostensibly sober published analysis.

I can see which way the wind is blowing. For months I’ve been asking friends who might know — or know someone else who might know, or even know someone who knows someone who might know — whether my guess of $5,000 is too high for the Edition starting price. The answer has always been “No”. But the way I’ve been told “No” has given me the uneasy feeling that I’ve been asking the wrong question. I should have been asking if $5,000 is too low.

I now think Edition models will start around $10,000 — and, if my hunch is right about bands and bracelets, the upper range could go to $20,000. I was off by a factor of two, and my friend Vincent, I think, nailed it back on the day Apple Watch was introduced.

It’s All About the Bands

Louie Mantia helped clarify my thinking on this by publishing this seemingly sparsely populated table of Apple Watch collection/band combinations. Study that for a few minutes, and you should come to a few surprising — to me at least — conclusions.

One of the selling points Apple emphasized in September is that bands are easily interchanged on Apple Watch. You just press a button underneath and it’s released; slide a new one in and it securely clicks into place. And they showed a wide variety of bands: Sport, Classic Buckle, Leather Loop, Modern Buckle, Milanese Loop, and Link Bracelet. Six different styles, all of them — other than the Milanese Loop — in multiple colors.

I walked out of the event under the assumption that all of these bands would be available to purchase as accessories, like iPhone cases. So that one could, say, buy an Apple Watch Sport with a white sport band, and buy a Milanese Loop or one of the leather bands to make it dressier.

I am no longer certain that’s going to be the case. And if it is the case, the non-Sport bands are going to be expensive — in most cases, even more expensive than the Apple Watch Sport itself.

What seems clear to me now is that the various bands signify tiers within the three collections — particularly for the stainless steel Apple Watch models. Take a look at Apple’s page for the steel Watch collection, and scroll down to the bottom, where they present a scrolling carousel of “all 18 models in the collection”. From left to right:

• 38mm with White Sport Band
• 42mm with White Sport Band
• 38mm with Black Sport Band
• 42mm with Black Sport Band
• 38mm with Black Classic Buckle
• 42mm with Black Classic Buckle
• 38mm with Milanese Loop
• 42mm with Milanese Loop
• 38mm with Soft Pink Modern Buckle
• 38mm with Brown Modern Buckle
• 38mm with Midnight Blue Modern Buckle
• 42mm with Stone Leather Loop
• 42mm with Bright Blue Leather Loop
• 42mm with Light Brown Leather Loop
• 38mm with Link Bracelet
• 42mm with Link Bracelet
• 38mm Space Black Stainless Steel with Link Bracelet
• 42mm Space Black Stainless Steel with Link Bracelet

Things to note:

The “Modern Buckle” is only available for 38mm models. The Leather Loop is only available for 42mm models. The Space Black watch is only available with a single band option: the Link Bracelet.

Sport Bands are surely the least expensive. Link Bracelets, I’m almost as sure, are the most expensive. I think Apple placed these models in order from least to most expensive, going from left to right. (Including the fact that 38mm models will cost slightly less than their 42mm siblings.)

Why are there both Classic Buckles and Modern Buckles? From their descriptions, it sounds like the Modern Buckle uses a better leather, and without question it has a more advanced clasp mechanism. I conclude: Modern is more expensive. They both exist because they’ll sit at different price points.

Note too, that on the regular Apple Watch collection page, the Classic Buckle description states, regarding color options: “Available in black.” This, despite the same band being offered in Midnight Blue for the Edition collection.

So I’m thinking the regular Apple Watch will come in at least five pricing tiers:

1. Entry: Sport Band, black or white.
2. Regular leather: Classic Buckle, you’ll get it in black and you’ll like it.
3. Milanese Loop.
4. Deluxe leather: Modern Buckle for 38mm models, Leather Loop for 42mm models. Each with a choice of three colors.
5. Link Bracelet.

You’ll pay a premium for color straps and advanced clasp mechanisms, and you’ll pay even more for the Link Bracelet.

I think the spread between these tiers could be significant, ranging from, say, $700 for the entry model with the Sport Band to well over $1,000 for the Link Bracelet. I still think the average for the steel Apple Watch will be around $1,000, but depending on your strap choice, you’ll pay several hundred less or more.

But wait. I would not bet against Apple bringing back the black tax. Remember the plastic MacBooks from 2006? Apple charged $150 more for the black one than the white one, even though they had nearly identical specs.

Note that the silver Apple Watch Sport only has four band color choices: white, blue, green, and pink. The space gray Sport edition has only one band: black. I think Apple might charge more for both the space gray Sport model and the space black stainless steel model.

Further, I don’t think any of the stainless steel bands will be available for retail purchase. They’ll sell sport bands, which you’ll be able to use on any Apple Watch, but I don’t think any of the nicer bands will be available for retail purchase. Don’t hold your breath for a space black Link Bracelet to put on your $349 Sport model. The nicer bands aren’t accessories that Apple hopes you’ll tack onto your purchase; they’re signifiers of how much you paid for your stainless steel or gold Apple Watch.

Limited Edition

Which brings me to the Edition collection’s curiously thin lineup of strap choices. There are only three for each watch size, and Apple doesn’t present them side-by-side in a carousel like they do with the stainless steel models:

• 38mm Yellow Gold with Bright Red Modern Buckle
• 38mm Rose Gold with White Sport Band
• 42mm Rose Gold with White Sport Band
• 38mm Rose Gold with Rose Gray Modern Buckle
• 42mm Yellow Gold with Black Sport Band
• 42mm Yellow Gold with Midnight Blue Classic Buckle

That’s the order in which the six models appear on Apple’s page. It almost certainly does not correspond to price.

Things to note: None of these leather colors are available in the standard Apple Watch lineup. These are not regular Sport Bands — they have gold clasps. None of them have metal bands.

These are (I think) $10,000+ watches, but half of them come with rubber sport bands that are nearly indistinguishable from the bands on the $349 Sport collection.

Glaringly omitted is a gold Link Bracelet. I’d place a side bet Apple withheld it in September, and will unveil it as a surprise option at the event they’ll hold before releasing the watches. If you’re going to go gold, go gold. Some people buy a gold watch simply because they like it. Others buy a gold watch because they want everyone to know they wear a gold watch. The latter group will gladly pay $20,000 for a watch with gold band.

Perhaps I’m biased by my personal taste in watch bands, but at the hands-on event in September, the Link Bracelet was my favorite by far, followed by the Milanese Loop. It seems downright ludicrous to me to charge significantly more for the Edition models and not offer the best of the bands. Note too that among the Edition combinations Apple currently lists, there is but a single 42mm model with something other than a rubber Sport Band — the Midnight Blue Classic Buckle. Further, as stated above, I think the Classic Buckle is the low-end leather strap. I’m guessing Apple will offer Edition models with gold Link Bracelets for $20,000, and perhaps Milanese Loops for $15,000 and a Leather Loop for around $12,500.

Look at the Watch Industry

Don’t try to guess the price of the Edition models based on the amount of gold they contain. I did it this week, but it’s the wrong way to look at this. It doesn’t matter if the gold in an Apple Watch Edition model is “only” worth $1,000 or $1,500 or whatever. The gold in a Rolex is only worth that, too — and their gold watches sell for $20,000 and more, for the exact same movements in their $6,000 stainless steel models. The value of a gold watch is only tangentially related to the number of ounces of gold it contains. And Edition isn’t just made of 18-karat gold — it’s made of the best 18-karat gold in the world. (I don’t know that for a fact — I don’t know anything about gold — I’m just saying what Apple is saying.)

Apple Watch Edition is not a tech product, so don’t try to price it like one.

Apple Watch Edition is a luxury wrist watch. Apple’s ambitions in this arena, I am convinced, are almost boundless. They’re not entering the market against Rolex, Omega, and the rest of the Swiss luxury watch establishment with disruptive prices. They’re entering the market against those companies going head-to-head on pricing, with disruptive (they think) features.

Again I point you to someone from the watch world, Grail Watch’s Stephen Foskett, who points out that gold watches typically cost $10-15,000 more than the same watch in stainless steel — and tens of thousands more if they come with a gold bracelet. Even if I’m wrong about Apple having gold Link Bracelets lying in wait as an April surprise, I don’t think a $10,000 starting price for Apple Watch Edition is even a step out of line for the watch industry.¹

Will it work? Will people actually buy these? I have no idea. But I think Apple thinks it’s going to work.