On Monday, Apple revealed the long-awaited Apple Watch, its first entirely new device since the iPad in 2010. It looks like a fine timepiece and a cleverly designed gadget. It does most of what you’d expect from a tiny computer that you wear on your wrist, and if Apple’s track record is any indication, it will probably do it quite well.
The Apple Watch can tell the time, take phone calls, send emails and texts, remind you about appointments, and pull up the weather report or the score of the game. You can use it to pay for your groceries at Whole Foods or open the door to your W hotel room. You can set it up to keep track of your exercise habits and bug you with a little vibration if it thinks you’ve been sitting for too long. It boasts a couple of ingenious design touches, like a “digital crown” that you twist to zoom in on a screen or scroll between menu options. And there are some inspired software widgets, including one that lets you sketch something on your watch and have it retraced on your friend’s watch just the way you drew it.
The Apple Watch, in other words, has much in common with the wildly popular Apple devices that preceded it into the homes and pockets of an astounding number of consumers around the world: the iPod, the iPhone, and the iPad. But one thing is quite different. Unlike iconic Apple products past, the Apple Watch is not a singular luxury product for the masses. It’s a luxury product for the rich—and, in the case of the gold-cased Apple Watch Edition, which starts at $10,000, a luxury product for the uber-rich.
Really, Apple unveiled three watches on Monday. The stripped-down Apple Watch Sport has an aluminum case, starts at $349, and aims at the fitness-band market. The flagship Apple Watch, with a stainless steel case, starts at $549 and ranges upwards of $1,000 depending on which band you choose. And, yes, the Apple Watch Edition starts at $10,000, with a top-end price of $17,000 for the fanciest version of all. Oh, and you have to already own an iPhone for any of them to work.
In many ways, a $17,000 Apple Watch is a shrewd business proposition, as I’ll explain. It comes with a big marketing push in high-end magazines, including a slew of “rare” profiles of top Apple designer Jony Ive that portray him as an artistic genius. But it could cost the company something less tangible: its unique place in the popular imagination.
To be fair, Apple products have never come cheap. The company’s first personal computer, the Apple II, debuted in 1977 at a base price of $1,298—or about $5,000 in 2015 dollars. The fully loaded version, with a whopping 48k of RAM, would have set you back more than twice that much. The first iPod cost $399 in 2001, the equivalent of more than $500 today. Even now the iPhone and iPad cost significantly more than rival phones and tablets.
As a byproduct of their expense, Apple’s devices carry a soupçon of cultural cachet. You can see it reflected in the demographics of iPhone users. As a group, they’re much wealthier than Android users, with a median income of $85,000 vs. $61,000, according to a 2014 Comscore study. They’re also more likely to prefer wine to beer, fly frequently, and own stock, according to one survey. Android users are more likely to take the bus, eat McDonald’s, and smoke cigarettes. Android users are also more religious. (The survey must have classified the Cult of Jobs as secular.)
That exclusivity, however, has been largely incidental to the Apple story. It has driven fanboys to camp out overnight for the company’s latest offerings, yes. But it has never been central to the devices’ appeal—until now.
Put it this way: You don’t buy the most popular smartphone in the world in order to set yourself apart or announce that you’ve made it. (Unless you live in a developing country characterized by vast wealth inequality—which describes, not coincidentally, two of the largest new markets Apple is trying to crack.) You buy it because you dig the design, because you’re an Apple loyalist, because you’re too lazy to learn a new operating system, because all your friends have one, or maybe even because it’s the best-made and most thoughtfully designed smartphone on the market.
This makes Apple products such as the iPhone, iPad, and MacBook Air something of an oddity in the world of consumer goods. They’re at once luxury products—the finest of their kind, by many accounts—and crowd-pleasers. The iPad is the Porsche of tablets; it’s also the Toyota Camry. Your barista at Starbucks and the CEO of your company carry identical iPhones in their pockets.
Apple’s unique market position once reminded the astute tech blogger John Gruber of a famous Andy Warhol quote about Coca-Cola:
What’s great about this country is that America started the tradition where the richest consumers buy essentially the same things as the poorest. You can be watching TV and see Coca-Cola, and you know that the President drinks Coke, Liz Taylor drinks Coke, and just think, you can drink Coke, too. A Coke is a Coke and no amount of money can get you a better Coke than the one the bum on the corner is drinking.
Gruber used the Coke example to favorably contrast Apple with a startup called Vertu that was peddling a $6,000 smartphone whose chief selling point appeared to be its exclusivity. Apple, he implied, does not sell exclusivity. It sells the best devices in the world at a fair price, and people love it for that.
It’s that love that has made Apple not just a successful company, but the most valuable company in the world. Many iPhone buyers would have gladly paid twice the sticker price, or more, for what they considered the best computing device in its class. But that wasn’t an option, so they showed their gratitude by lining up in droves instead. Owning an Apple product wasn’t a mark of exclusivity, but owning it before everyone else—well, that showed you were an aficionado, at least among a certain crowd.
The gap between what people are willing to pay for a product and the lower price that they actually pay is referred to in economics as consumer surplus. For Apple customers with money, Apple products tend to come with consumer surplus in spades. From a pure business perspective, that’s a lot of money Apple has been leaving on the table.
The fancy Apple Watches represent a bid to capture that surplus. “Oh,” Apple is saying to its wealthiest customers, “you’d pay $10,000 for a top-of-the-line Apple product if we asked you to? Well, now we’re asking you to.” In exchange, those customers get the chance to own an Apple product that the plebes can’t afford. They aren’t paying for a device, really. They’re paying for prestige. And, for the first time, Apple is willing to sell it to them.
There appears to have been some internal dissension over that decision. As Fusion’s Kevin Roose recently pointed out, a revealing part of the New Yorker’s Ive profile described a battle between Ive and Apple engineers over the watch’s pricing. “Apple wants to build products for everybody,” one former engineer protested. Ive won, and the company brought on a slew of executives from luxury brands like Burberry, Yves Saint Laurent, and TAG Heuer to help market the watch to billionaires. This is the flipside of the strategy it recently pursued with the iPhone 5c, which was priced below the flagship iPhone 5 in hopes of drawing in new customers.
There is nothing morally wrong with charging rich people exorbitant prices for shiny things that make them feel special. Lucrative corporate empires like Louis Vuitton have been built on so-called Veblen goods, whose demand is based largely on their high price. And it makes sense for Apple to do this with a watch, which has long served a dual role as timepiece and status symbol.
The question is: What might Apple lose by getting into the exclusivity game?
What it might lose is the adoration of the masses. People like a company when it makes a product that delivers on the price they paid for it. People love a company when they feel that it gives them more than they paid for. They love a company that gives them the same perfect product it gives to celebrities and millionaires. They love a company when they feel ownership over its products. People, by and large, do not love a company that ropes them off from its finest offerings. People are not going to love walking into Apple Stores and seeing glass cases full of gold watches they’ll never be able to afford. And, if I’m right, shaggy young fanboys are not going to camp out for nights on end to be the first to buy the cut-rate Apple Watch Sport.
The Apple Watch may be a hit. But it’s already earning the company the sort of resentful jeers that greeted another wearable device whose early marketing revolved around exclusivity and fashion: Google Glass.