The 18K Apple Watch 1 was a failure to learn from the old guard and overengineering out of price.

The external components of the Apple Watch are definitely high end, but the economics involved are completely different than for a “traditional” luxury watch.

Consumer Electronics manufacturers rely on automated manufacturing processes and intensive distribution. They add a small markup, which translates into good profit since they need to make millions of units.

Luxury watchmakers rely on labour intensive manufacturing processes and selective, if not exclusive distribution. As a consequence the products require a significant markup to generate profit, as they should only produce in a limited amount of units.

Where Apple broke the rule is by using an expensive metalsmithing process such as CNC machining to make $ 300 watches. The best analogy that I can think of is delivering pizza in a Rolls Royce. Any experienced watchmaker would reserve CNC machining to watches above $ 6,000 and use deep drawing for anything below.

This means that compared to traditional watchmakers, Apple forgoes a lot of markup and gives away high end quality for a bargain.

The trade off is that when Apple tried to apply this strategy to the 18K gold case of the Apple Watch 1, they went too far and ended up with an overpriced product that was barely profitable, even with razor-thin margins.

Sometimes it is not enough to break the rules. You must be humble enough to listen and be let in on the secret: when it comes to working with gold, watchmakers try to use as little of the precious metal as possible, leaving empty spaces in the mass or using cheaper metals to fill them up.

Apple’s CNC machining process meant that they were still left with three times more gold the same volume as a watchmaker’s.

Categories: SmartWatches

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