Comment The New York Times has profiled the wearables market and there's an intriguing little hint that, as a designer, Apple's Jony Ive is in fact a great marketing guru. For he seems to be thinking that the iWatch is going to be so cool that it'll entirely screw over the Swiss watch industry.
This isn't, needless to say, quite what is likely to happen - the reason being a lovely class of things called Veblen Goods. More on those later. But then, speaking as an economist, we might also describe Ive as a great designer.
Here's the actual quote:
According to a designer who works at Apple, Jonathan Ive, Apple’s design chief, in bragging about how cool he thought the iWatch was shaping up to be, gleefully said Switzerland is in trouble — though he chose a much bolder term for “trouble” to express how he thought the watchmaking nation might be in a tough predicament when Apple’s watch comes out.
OK, we all know that the iWatch is going to be the greatest thing since your in-laws discovered dogging sites, but to think that it's going to be competing with the Swiss watch industry is just nonsense, even if they do include that Swiss Railway clock face they finally paid royalties on. The reason is this from one of the senior figures of the past in the Swiss watch industry:
“Why would I need to know how the watch industry is doing? I’m in the luxury business,” the CEO of Rolex once famously quipped.
The economic concept here is that one of a Veblen Good - something for which demand increases as its price increases. Torstein Veblen developed this concept into a theory of conspicuous consumption. Some people buy some things simply in order to show that they are wise enough to know how to do this (this explains Sting being photographed reading Kierkegaard), have enough taste to know the difference (anything any hipster does, ever) or rich enough to be able to afford it (all luxury goods).
Another way of putting the same thing would be to say that a Rolex isn't just a watch: it's a statement that you've got $10,000 to blow on a bracelet. The only reason they make it as a watch is so that it's recognisable as having cost $10,000, which is the whole point and purpose of the entire exercise. That it also tells the time is an irrelevance.
So, releasing an electronic watch at $400 isn't going to be competing with this Swiss watch industry. No, not even if it does also tell the time, or tells the time better and more accurately and in a number of amusing ways. It's simply not fulfilling the same function.
Let's not get too carried away with this, though. All of Apple's iKit is also a Veblen Good, of course it is. Yes, it's pretty good kit but that price premium they can charge comes about precisely because they can (and do) charge a price premium. Apple goods are expensive precisely because people know that they're expensive; quite obviously there'll be people shunning $30 Timex timepieces because they want to be seen to be telling the time on a $400 iWatch. Great. Good luck to them but that's not going to have Audemars Piguet quaking in their boots.
Ive seems to have missed the point that, while he does design premium goods, not all premium goods are the same. People flogging $10k stuff don't care what happens at the $500 level because no one at all buys their stuff as an alternative to that cheapo stuff. The entire point of the exercise is that they have something other people recognise as costing $10k and producing something (possibly) better – producing something functionally better but cheaper is missing the entire point.
Now, if Vertu were to bring out a $10k iWatch in gold and Swarovski crystals then that might compete with Rolex... except no one would know what the hell it was and would assume it to be a $3 Chinese knock-off. ®