Apple Watch: Hindsight Is 80/20
Using early pre-orders reports and a few long-standing theories, the Apple Watch will likely be loosely guided by the premise behind the 80-20 rule, where approximately 80% of Apple Watch profits will come from 20% of Apple Watch customers. In essence, the Apple Watch and Edition collections will likely account for a small portion of sales, yet play a much bigger role in terms of Apple Watch profit. The implications are significant when contemplating how management will treat the Apple Watch line in subsequent years.
While I’m not entirely sold on the exact why behind Cupertino’s move to haute luxury with Apple Watch Edition, I’ve come to accept the existence of the $10,000 tier based purely on the effect it might have in lowering the unit cost of Sport. Because Apple Watch has no straightforward subsidy model in place (albeit this should change the moment its heart rate sensor achieves Apple’s “deep health monitoring” goals), it seems mighty compelling from my everyman perspective that Edition — and various combinations of the steel and sapphire models — do in fact help cut my costs on the bottom rung of the income ladder. Considering how intricate and sensitive Apple Watch is on the production end, I’d be surprised if Sport has a better profit margin than any version of iPhone or iPad. And since Apple doesn’t make loss leaders, it’s believable that at least one of the company’s reasons for introducing the high-dollar Edition was to cut costs for the rest of us.
Of course, you shouldn’t mistake this as an act of charitable altruism on Apple’s part. Apple is in the business of selling hardware, and a huge part of that equation is getting the pricing just right. Apple’s done that. But I don’t think they could have without appealing to the wealthiest of the wealthy elite — something many Apple fans believe to be distasteful and out of character for the brand’s identity. Of course, another big part of Apple’s identity is in offering top-flight products at aspirational — but achievable — price points. In this regard, Apple fans would be well advised not to bite the (gilded) hands that feed them: Cybart reckons that just one $17,000 Apple Watch Edition accounts for the same amount of profit as 75 $400 Apple Watch Sports.
So next time you’re about to hate on some “douchey” rich person, just remember: Without Apple Watch Edition, there might not be any Apple Watch at all.