Why is Apple making a gold watch?

As expected, the gold version of Apple’s watch is very expensive by consumer technology standards - $10,000 and up, depending on the band you take. And, also as expected, this made a lot of people’s heads explode. 

There are really two different conversations here: will people buy a $10,000 Apple watch, and why did Apple make one? 

To the first question, Apple is clearly breaking lots of rules with the watch. There are plenty of $10k watches on the market already that sell just fine, but those are normally mechanical ones, and mechanical watches are sold primarily on the complexity of the mechanism, where of course the gold Apple watch is internally identical to the $350 aluminium model. Mechanical watches are also expected to last: no-one quite knows how long an Apple watch will last (the battery is replaceable, but is the screen? And how long will the software be viable?) but it’s probably not something that your grandchildren will own*.

On the other hand, there is no a priori reason why a watch should have to follow those rules. Plenty of other $10,000 luxury items are far more ephemeral, and once you're selling things for other than purely utilitarian reasons questions like 'value' and 'resale' miss the point. Apple is certainly trying something that’s new to both the tech industry and the luxury goods industry, but it's not necessarily outside the bounds of (rich) consumer behaviour. If we only ever bought things that had rational use cases and the best value, we'd all be wearing boiler suits, or hoodies. 

Ultimately, though, how many people buy the gold one is probably immaterial. The Swiss watch industry sells about half a million precious metal watches a year, and though the size of the overall watch market is not a good indicator of the market potential for smart watches, the size of the market for precious metal watches is probably not far off as an indicator for the gold Apple watch. Even a hundred thousand gold Apple watches at (say) $15k each would be ‘only’ $1.5bn a year, or less than one percent of Apple’s 2014 revenue.  

So (and this is the question that actually matters) why bother? One could argue that it’s a vanity project, or that Apple’s doing this just because it can, or that a few hundred million dollars still matters at Apple (as indeed it does). But I think it’s more interesting to compare it with Apple retail. Despite its prominence, this is only about 10% of Apple’s revenue. It’s much more important as marketing. And it's great marketing. 

Apple stores are huge rich-media billboards on every major shopping street in the developed world: I can't think of any other company that has shops as big as that in such premium locations in as many places. Apple retail is a self-funding marketing operation. So too, perhaps, is the gold watch. Apple might only sell a few tens of thousands, but what impression does it create around the $1,000 watch, or the $350 watch? After all, the luxury goods market is full of companies whose most visible products are extremely expensive, but whose revenue really comes from makeup, perfume and accessories. You sell the $50k (or more) couture dress (which may be worn once), but you also sell a lot of lipsticks with the brand halo (and if you think Apple’s margins are high, have a look at the gross margins on perfume). 

Meanwhile, though other companies are already making metal smart watches, I struggle to imagine Samsung making solid gold watches. Apple's brand might or might not work there, but no other CE company's does. That is, if this is marketing, and if it works, it's marketing that no-one else can do. 

On another tack, perhaps the biggest message that this sends is that the Apple watch is not a technology product. It’s a post-‘feeds and speeds’ product. Today we have prices and release dates for the watch but no tech specs at all - because they’re irrelevant to the user experience. This is a product sold on delight, and experience, and on the feel and pleasure of owning and wearing it and looking at it (which of course means Apple retail is a huge advantage). It’s sold on a butterfly, not on the storage capacity. The value of the gold may be just that message - it’s not a geek’s product at all. One might call the gold a marketing detox - an emancipation of tech from the tech industry.

Finally, whatever your opinion of all this, it doesn’t really matter. Apple’s watch is, after all, coming to market at a lower entry price than any previous new category from Apple. So we can go out and buy it for $350 or $1,000 and get on with working out what, beyond delight, it’s good for - how it changes attribution, and user acquisition, and dwell time, and changes how you use your smartphone, and all the shifting metrics of the mobile internet. 


* There was some speculation that Apple might have a plan here - that it might buy back the gold watches, or replace the insides, perhaps - because a $10,000 object that's outdated is different to one that's $600. This may well still happen. 

Apple's selling points

The interesting thing about this spot is how closely it links to Apple's selling points without dwelling on them. Low-light works. Slow-motion works. Sending it to the TV works. Everything is as it should be and nothing is difficult - there's no 'hang on a moment while I make this work' - the experience we've all had trying to show something 'technical' to a non-technical audience.

In other words, this is not a branding spot, it's a pure feature-led spot, but it approaches those features as part of an experience such that the technology just fades away. This is the point of Apple. You're not supposed to know your camera's aperture, just that it can take a video of a baby in the dark.


Interesting that both Apple and Nokia are running campaigns around the camera. For Nokia this is a real point of differentiation: the Pureview camera tech is very good. For Apple it's part of the broader lifestyle positioning: don't worry about widgets, just enjoy your phone. 

The poignant thing, of course, is that Nokia doesn't have Instagram, or many of the other photo-sharing services: it had to launch the new 925 with Hipstamatic (remember that?)

Both, incidentally, are doing good advertising at the moment, unlike some others in the space. Although I'm not sure about the wisdom of a close-up on the ISO settings in the Nokia spot...

HTC and Samsung

It should be pretty obvious that Samsung (or even just Samsung Electronics) is a much larger company than HTC, with much more financial firepower. But it's interesting to look at some of the ways that scale affects things. Marketing is a good example. 

Both companies disclose a 'sales and marketing' line. For Samsung this includes activities for the TV and domestic appliance divisions, but the way the spending has grown in recent years suggests that the great majority of the spending is for mobile - and of course the brand is the same anyway, so advertising for TVs will also bleed across to phones.

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Where is this money going? Well, Samsung discloses a split in the 'sales and marketing' line - around 40% is advertising and the rest is 'sales promotion expenses' - a lot of which is sales commissions. 

In Q4 2012 Samsung's budget was 13 times HTC's. Samsung hasn't disclosed the Q1 number yet, but if it dropped to, say, $2.5bn in Q1, the same proportionate shift as at the beginning of 2012, it would be about 19 times bigger. It's actually a little hard to see given the scale, but HTC's budget is down 40% year on year, to just $130m, a tiny amount. And given their operating profit was zero in Q1, they can't afford to spend much more.

In the handset market today, having a lovely product is necessary but insufficient. This chart ought to show why.

Incidentally, Apple doesn't break out a sales and marketing line (it only gives the advertising spend): in 2012 Apple spent about 25% as much as Samsung Electronics directly on advertising, some of which was obviously for iPads as well. However, it has contracts requiring mobile operators to spend money on advertising as well, so this isn't a direct comparison. 

Apple retail in China

Apple has eight stores in China, compared to seven in Japan, which generates 2/3 the revenue of China and hardly has the same potential. To be fair, it also has four hundred premium resellers there and of course sells iPhones mainly through the mobile operators (but not, obviously, China Mobile), meaning that iPhone points of sale were up from 7k to 17k in the year. Even so, more effort here seems like an important priority. Tim Cook himself said he saw retail as crucial to sales of the iPad (since it allows you to explain why you might want one). 

Apple's own job site only has about two dozen open retail positions in China (though I'm not sure how meaningful those listings are), but also has open spots there for retail recruiters and, most relevantly, a bunch of retail real estate analysts. 

On the basis of its planned $1bn retail capex, Apple will probably open 40-50 new stores this year around the world. Four of the 40 opened in 2012 were in China - I wonder how many there will be in 2013?

Galaxy versus Android at the Superbowl

On the basis of (the not-entirely-reliable) Google Trends, it looks like the Samsung Galaxy brand is starting to overtake 'Android' in consumer awareness. 

'Samsung galaxy' itself is some way behind Android, but 'galaxy' alone has equaled it, and I can't offhand think of another reason why that term would have shot up (suggestions gratefully received), while the spikes in the line are clearly correlated with 'Samsung' and 'Samsung galaxy'

US data shows much stronger iPhone share (which is unsurprising) and flat to-declining Android search volume. 

EDIT: Google Trends seems to have broken, and is claiming there's no data for any terms for the USA. That's the last time I get clever and embed the chart instead of taking a screenshot. 

This reflects a couple of dynamics. First, Samsung has around 50% of Android unit sales (outside China), so one would expect it to be strong. Second, given the lower price points at which most of its smartphone volume sells (the GS3 is less than half Samsung's Android volumes) one might expect a slightly less tech-savvy buyer, perhaps with more interest in the phone brand than the ecosystem. 

Third, and most interesting to me, though, is the fact that Samsung really doesn't talk about Android at all in its marketing - which now has a $14bn run-rate budget (around 13-14x Apple). A lot of Samsung marketing for Android devices doesn't even mention Android. 

You can see this very clearly in the new Samsung Superbowl ad. This has got lots of attention by (depending on your point of view) mocking Apple for trying to patent basic concepts or brazenly flaunting Samsung's systematic copying of Apple's innovations. But to me, what's striking is that it doesn't show the phones or any features, let alone mention Android. 

The subtext, of course, is: 'the UX is a commodity, the apps are a commodity, the stuff Apple talks about is a commodity that's absurd to patent - we're going to compete on hardware features'.  That's a natural angle for a hardware company with no control over the platform, of course. For now. 

iPhone launch

It's fascinating to watch the original iPhone launch ads from 2007 today. Everything they show seems somehow boring, obvious and generic, yet this was all totally new at the time. Now, of course, it's been copied into banality. 

Plenty of discrete parts of this had been done earlier (I bought a SonyEricsson P800 in 2003 with a touch screen and apps, and indeed brought a camera phone back from Japan in 2001), but it had never been made to work like this before. 

Also worth noting: no celebrities, jokes, fireworks or exciting visuals. They just tell you about the product. That was enough.

'Pretty' versus 'design'

Google has recently got religious about ‘design’ - or what it thinks is design. All the sites have been made-over. Subtle greys and anti-aliasing are everywhere. All of Google looks easier on the eye. 

For example, ‘Google Play’, the new umbrella content store that combines apps, movies, music and books,  has a ‘pretty’ logo with a careful font selection:

That logo is most often seen on third-party websites (and indeed posters and print ads) for that content providers to promote their content as being available on Google Play, so Google (and Apple) need to create a ‘button’ graphic for those third parties to use. 

So how have Google and Apple addressed this requirement?  

Apple’s graphic is clear, readable and works well at many sizes. Google’s graphic is almost unreadable.

Clearly, Google has learnt that ‘design’ matters, but hasn’t learnt that there’s a difference between making things look pretty and good design.