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The Best Article You'll Read On The Economics Of Apple Watch

The Best Article You'll Read On The Economics Of Apple Watch

March 11, 2015

Cliff Kuang, Wired:

Apple makes stuff. To grow that $700 billion into $1 trillion, it can’t make cheap stuff. A hundred-dollar gadget would have to sell to virtually every middle-class family in the country to yield meaningful revenues for Apple. So the company is pursuing another strategy: Progressively moving the price points of Apple’s wares ever higher.

Consider: Apple, with its $650 cellphones and $1,500 computers, already makes perhaps the fifth or sixth most expensive item in a high-income household, right behind furniture, luxury goods, TV’s, cars, and homes. And guess what? They’re now in the luxury goods business. There are rumors that they’ve been trying to make a TV for some time. Reports suggest they are investing heavily in making a car. These are high-ticket items, and that’s why the most important thing the Apple Watch might do for Apple is get us used to the idea that Apple makes goods worth spending many thousands of dollars on.

Perspective is important, and in this context, the pricing on Apple Watch — all three versions — seems perfectly reasonable. The financial risk Apple’s taken with the wearable is likely far less opprobrious to shareholders than that required by iPhone a decade ago, but the payout (particularly in terms of new market development) can help maximize the earning potential of everything Apple makes. Further, the notion that Apple may be faced with a philosophical glass ceiling where higher profits can only be achieved in the face of shrinking profit margins (as with big-money items like TV sets and automobiles), is disruptive but enlightening. The future of Apple is bright.

We just might not be on the same wavelength.