September 17, 2014
MarkBernstein.org
 
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Further Review

Jon Gruber nails it in his thought piece on the Apple Watch. The most interesting and significant thing about the Watch is: we don’t know.

Ages ago, William Gibson speculated that we’d eventually want costly, custom-crafted laptop bodies that we’d keep for years and years, periodically swapping internal components as technology improves. That’s got to be the underlying logic of the Watch. Gruber has got to be correct: the expensive editions of the Watch are going to be really expensive.

Side issue: assume every Apple store has one gold watch to display, and one gold watch in stock to sell. At $10K apiece and 450 stores – and Gruber is right that the top-of-the-line watches are going to cost a lot – that’s $9 million of inventory for each SKU. Yes, I think people will buy these – especially if there’s some assurance that they won’t be obsolete in three years – but nobody’s going to buy one sight unseen. So pretty much every model adds five million in inventory.

Gruber is also right about the announcement. Apple announced the hardware because, if they didn’t announce it now, the suppliers would dribble out details about this piece and that piece. Apple didn’t announce the software – the product – because it’s not done yet. The Watch may be amazing or it may be a frost: we don’t know and we won’t know until it’s ready.

Apple told us about the outside of the box because, if they didn’t tell us now, the cardboard company would. They’ll tell us what the thing does later, when it’s finished.

Gruber’s main point is the fundamental egalitarianism of mass production: the president and the bum on the corner drink the same Coke that you drink. Obama may have a nicer glass, but the Coke’s the same.

In the tech world, weirdly, it’s even backward. A maxed out Mac Pro, for example, is a much nicer machine than an $999 MacBook Air. But that Mac Pro isn’t marketed to pro football players, real-estate moguls and hotel heiresses. Rich people are fine with the Air, and what would they do with 12 cores? The natural customers for the Mac Pro are working folks, people who make software, rocket scientists, people who make movies. There may be a few working folk who buy the gold Watch – salesmen, perhaps, or hoteliers – but that’s not their natural audience. On the other hand, just about every serious developer is going to need a low-end Watch just for research, and it’s going to be those watches for which the cool software is made.

For perspective: remember that a $10,000 gold watch costs only costs $10,000. That’s a lot of money, especially when a $375 sport watch tells the same time, but it’s also solid gold and sapphire. $10,000 buys you some nice materials. But you can blow through $10K worth of software development in no time at all. There’s a market for luxury Watches, but I don’t think there’s going to be a market for bespoke software that runs on them. There’s a pot of money in lovely Watch hardware, but the software’s going to need to run on a lot of wrists.