Ever since Apple (NASDAQ:AAPL) announced the Apple Watch last September, there's been speculation that the Edition version of the device, with its 18-karat gold watch case, would be an expensive product. Most guesses for pricing have been around $4,000 to $5,000. But have we been thinking too small? One technology journalist thinks so.
The gold version of Apple's new smartwatch could have a starting price as high as $10,000 and a price as high as $20,000 for the versions with Apple's best bracelets, predicted the well-connected tech journalist John Gruber in a blog post on his Daring Fireball site last Friday.
He suggests the media is thinking about the Edition version with the wrong mind-set.
"Apple Watch Edition is not a tech product, so don't try to price it like one," he says. "Apple Watch Edition is a luxury wrist watch. Apple's ambitions in this arena, I am convinced, are almost boundless."
Understanding the luxury watch market
Gruber originally thought that that the Edition Apple Watch would start at "just $4,999." After all, he explains, the amount of gold an Edition Apple Watch contains is probably only worth $1,000 to $1,500 or so. This would leave Apple plenty of margins, right? But Gruber says when he guessed $4,999 as the starting price he wasn't thinking about pricing for the Apple Watch the right way; He called his initial pricing analysis for Apple Watch "ostensibly sober."
Gruber's change of heart begins with a better understanding of the watch industry.
He cites these tidbits about high-end watches to support his case:
- A gold Rolex, too, contains gold worth about $1,000 to $1,500, but a gold Rolex sells for around $20,000 or more.
- Watch expert Stephen Foskett, from Grail Watch, says that gold watches usually cost $10,000 to $15,000 or more than the same version in stainless steel.
But will this pricing work for Apple?
Apple's business is extremely dependent on shipping millions of units of hardware every quarter. In Apple's first fiscal quarter of 2015, the tech giant shipped about 74 million iPhones, 21 million iPads, and 6 million Macs. With Apple moving so much inventory, some investors may wonder if a $10,000 Apple Watch even makes sense. Will Apple be missing out on an opportunity to tap into its massive and loyal customer base? I don't think so.
Keep in mind, Apple Watch pricing for its Sport version begins as low as $349. So, Apple is undoubtedly prepared to serve its usual customer base. The higher-priced stainless steel and gold versions of the Apple Watch, therefore, will help Apple capture upside in a market that has already trained consumers on obscene luxury pricing.
If Apple does have pricing similar to other luxury watch-makers for its Edition version, it will be very interesting to see how the average selling price, or ASP, for the Apple Watch pans out. Even at a small fraction of Apple Watch sales, the Edition could have a meaningful impact on the Apple Watch line's ASP. Could the ASP for Apple Watch exceed the iPhone's ASP of $687? That wouldn't be too difficult if some models do end up costing upwards of $20,000.
The question remains, however, about just how popular Apple's smartwatch technology will be with consumers. And will technology and wristwatch fashion collide as seamlessly as Apple believes they will?
Daniel Sparks owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.