Why Apple is selling a $17,000 Apple Watch

Andreessen Horowitz analyst Benedict Evans has a blog post on why Apple is bothering to sell a $17,000 gold Apple Watch.

After all, not many people are going to pay $17,000 for a gold Apple Watch. People that would pay $17,000 for a watch are more likely to buy a mechanical watch, which will hold its value for longer, and is valued based on its mechanical movements.

Evans' theory is that the $17,000 Apple Watch is a form of marketing for Apple. It creates an air of luxury around the rest of the Apple Watch line, which helps to make the watch distinct from other smart watches on the market.

He likens it to Apple's stores which act as giant, profitable advertisements for Apple in big shopping areas.

Here's Evans:

Apple stores are huge rich-media billboards on every major shopping street in the developed world: I can't think of any other company that has shops as big as that in such premium locations in as many places. Apple retail is a self-funding marketing operation. So too, perhaps, is the gold watch. Apple might only sell a few tens of thousands, but what impression does it create around the $1,000 watch, or the $350 watch? After all, the luxury goods market is full of companies whose most visible products are extremely expensive, but whose revenue really comes from makeup, perfume and accessories. You sell the $50k (or more) couture dress (which may be worn once), but you also sell a lot of lipsticks with the brand halo (and if you think Apple's margins are high, have a look at the gross margins on perfume).

Another small point from Evans that's been lost in the all the hype around Apple's expensive watch. At $349, the entry level Apple Watch is the cheapest price Apple has ever offered for a new product.