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The most striking thing about today's Apple event is the price of the luxury edition of the Apple Watch. While the low-end Apple Watch Sport starts at $349, the high-end version starts at an astronomical $10,000.
Why did Apple do this? The obvious reason is: because it can. Presumably, the profit margin on a $10,000 watch — even an 18-karat-gold one — is huge. So if Apple thinks people will pay that much, why not do it?
But making a super-expensive version of the Watch serves another purpose, too. Apple's big challenge is convincing people that a watch can be a status symbol rather than a funny-looking gadget you strap on your arm. To solve this problem, Apple is using a strategy that previously helped Tesla make electric cars cool.
It's hard to remember today, but a decade ago electric cars didn't have a great reputation. Carmakers had experimented with a few electric vehicles, but these had not been a commercial success. The cars' primary selling point was their high fuel economy, but this wasn't very appealing when the cars themselves cost dramatically more than gasoline-powered alternatives.
Tesla's solution to this problem was to focus on the very high end of the market. The first Tesla car, the Roadster, cost $109,000. And Tesla's marketing focused not on its energy efficiency but on the sports car's extremely fast acceleration, made possible by its powerful electric motor.
This strategy of defying stereotypes about electric cars helped Tesla become one of the most prestigious brands in the auto industry. And as it has moved downmarket (the company introduced a $57,400 Model S in 2012 and is working on a vehicle that will cost $30,000), it has been buoyed by the luxury reputation the Roadster helped to establish.
Apple faces a similar challenge with its Watch. Smartwatches have a reputation as impractical devices for nerds. Apple's strategy is to defy this stereotype by creating luxury smartwatches that (Apple hopes) people will pay $10,000 for.
If this strategy works and Apple persuades people that its gold watches are in the same category as watches from Rolex and Cartier, it will create a halo effect that should boost the rest of Apple's product line. If rich and famous people are willing to shell out $10,000 for a gold Apple Watch, that will help persuade people that Apple Watches in general are cool.
Of course, the reverse is also true. It's possible that those $10,000 watches will sit on the shelf unsold. If this happens despite Apple's legendary marketing savvy, it will confirm that smartwatches remain hopelessly uncool.
Correction: I originally described the Apple watch as gold plated, but the watches are solid gold.
