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Apple Watch’s pricing is a tricky balance of paradigms.

The much-hyped Apple Watch will be hitting the public marketplace in the next couple of months, and this has pundits virtually tripping over themselves to predict the product’s price, or even ask for certain price points.

Apple’s main business is gadgets. Mac, iPod, iPhone, iPad…these are all gadgets. The gadget industry is based on a continual upgrade cycle. Cynics see this as a money grab (and it has its financial benefits), but it’s also the nature of the beast. Faster chips, updated software and new advances in sensors and storage make available features that weren’t possible before. For consumers, the trade-off is that we get a new version of a gadget that allows us to do things we couldn’t before.

Is a watch a gadget? The answer is yes, of course, but the “gadget-ness” of a watch is not its main selling point. Watches are about style, and as you move up the price point ladder, they become about showing off, as well. Kevin Michaluk explains:

When moving into the realm of luxury watch pricing, It’s not about what the watch does for the owner. It’s about what the watch means to the owner….There’s a nice feeling associated with wearing a quality watch that you’ve purchased for yourself. It’s a reward and badge of pride for working hard and smart, and a constant reminder to myself that time is precious and to always make the most of it.

So, watches may be gadgets, but particularly at higher price points, that’s not the main thing the buyer is getting out of it. The buyer is getting a showpiece that communicates to others their taste, their status, their pride. In fact, really expensive watches don’t even need to be good at telling time (or much else).

Is an iPhone a status symbol? To some degree, it is. But perhaps a more accurate way of comparing iPhones and watches is that an iPhone is about as much of a status symbol as an expensive watch is a gadget. The utility of the iPhone is a much bigger part of the sales equation than the style or status, whereas the style of a watch is a much bigger component of the sales calculus than the utility. If we were to break this down into arbitrary numbers, we might say that the style/utility split for a normal watch or phone is 90/10 (either way), and that perhaps Apple Watch more closely approaches a 50/50 split between gadget and status symbol.

This must have been a difficult problem for Apple’s design team (one which Jony Ive alluded to in the Watch’s design video), because in order to have their smart watch be a workable software platform, there needed to be uniformity and standards, but at the same time they’re not going to sell many of them if they all look the same, because style is a huge part of the watch-buying decision-making process. The design team settled with a variety of materials and bands to allow the device to sit at different price points.

All of this means Apple is treading into interesting, and perhaps uncharted, territory, as the pricing of Apple Watch walks this line between gadget and fashion item.

John Gruber offered this speculation:

I now think Edition models will start around $10,000 — and, if my hunch is right about bands and bracelets, the upper range could go to $20,000.

Let’s use these numbers for the sake of discussion. Imagine that the gold Edition Apple Watch goes for $10,000+. That puts it in competition with Rolex, Breitling, Patek Philippe and others. The difference is, those other watches are at least 90% about style, and being objects that last for years, whereas Apple Watch is more like 50% about utility.

In a few years, there will be a much more capable Apple Watch that can do twice as many things as the first model. In five years, the Apple Watch software may not even support the original model anymore, making this soon to be released $10,000+ object visibly outdated. Wear it on your wrist and it’ll tell people that you’re rich, but at the same time if it’s the old model, it’ll just as efficiently tell people that you’re behind the curve. People who are rich enough might not balk at buying a new $10,000+ gadget every year or two, but there’s a sizable upper end of the market for whom even that would be a bit much.

This is precisely where it gets interesting. How does Apple (or other manufacturers who inevitably enter this space) balance the desire for high-end luxury with the desire for the latest and greatest?

I can see a couple of possibilities.

Perhaps Apple has defined the internal dimensions of the casing as a sizing standard that future iterations of the Apple Watch can conform to.  In effect, Apple’s engineering team would always know that they have so many cubic millimeters of space, and that they need to fit the circuit board and any other necessary elements into that space.  If they did that, then perhaps you could bring your casing into the Apple Store, and for under $1,000 or so they effectively perform a transplant on your device, updating it to the latest version.

Another option is that they offer a trade-in program. In this scenario, you bring your old gold watch in, and it gives you a sizable discount over the then-current version. It seems to me this option is less palatable for Apple, because it’s questionable how much monetary value they could extract from outdated Apple Watches.

There may be plenty of other options being kicked around, and it’s possible that internally these questions aren’t even answered yet. This promises to be an interesting bit of tension around this product for us to follow, a problem that doesn’t exist in Apple’s other product lines. This is an issue that may well come into play in other product types over the next decade, as the lines between fashion and technology inevitably begin to blur.

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