What a $10,000 Smartphone May Mean for the Watch Industry

In a certain rarified world, men and women pay King Farouk-like amounts of money for a wristwatch. You know, like spending as much on an IWC as you might on, say, a Rolls-Royce Wraith.

According to an article on Business Insider, this crowd—and the companies that furnish it with timepieces that cost as much as real estate—feels no pressure from possible wrist-borne computers from Apple and Samsung.

“A wristwatch is the ultimate rare status symbol, and Apple poses absolutely no threat to our market,” says Francois Nunez, product director for timepieces at Victorinox, manufacturer of the ubiquitous Swiss Army Knife. “There’s not one bespoke watchmaker who worries about wrist computer phones.”

We can debate the usefulness of a quote from the guy who makes Swiss Army Knife watches (not to be snobby, but Victorinox watches top out at around $3,700—companies such as IWC, Breguet, and Patek Philippe charge more than that for sales tax on their timepieces), but the point is certainly a fair one to make: The kind of utility an iWatch or a Galaxy S Watch will provide has no effect on the attraction some people feel toward extremely expensive watches.

Function, in fact, has nothing to do with it: If you want to own the world’s most accurate watch, go out and by a $40 Timex—its quartz mechanism (and any manufacturer’s quartz mechanism) is leagues better than any mechanical watch, no matter how expensive.

Besides precious metals and gems used in fine watchmaking (slap enough platinum and diamonds on anything and you can make whatever it is the most expensive thing in the world), people pay for craftsmanship. They pay for the fact (or the perception) that highly trained men and women have spent entirely unreasonable amounts of time to fashion something complicated and exacting. The idea that an Apple or Samsung watch will be mass-produced in a factory means, from the outset, that it will never be as impressive as the work being carried out in Switzerland’s Jura valley as tourbillons and flybacks are obsessed over and lovingly built by hand.

Maybe that’s giving the high-end watch buyer too much credit. Sure, there’s a subset of watch enthusiasts who really do care and love to know about the intricacies of what they wear on their wrist, but there’s also a sizable group—I’ll be polite and just call them “people”—who buy high-end timepieces for one reason and one reason only: status. They may be more easily swayed by the conveniences and features offered by a smartphone-like watch—particularly if such companies as Apple and Samsung let third party brands incorporate the watch into their own designs. Snobby von Jerkenstein may not be interested in a standard-issue iWatch, but what if there were a special-edition (and very expensive) version in sumptuous leather from Hermès? Might he ditch his dinner-plate sized Panerai for something that’s obviously pricey and can do all these gee-whiz things a smartwatch can do?

At the same time, developments on the smartphone front may further exploit weaknesses in the high-end watch market. Recently, a press release from luxury phone maker Vertu landed in my inbox. For years, Vertu was little more than a punchline: It made wildly expensive phones that were years behind what you could buy at Verizon Wireless for $199 with a two-year contract. Vertu handsets were the height of absurdity: expensive, bejeweled tech that wasn’t nearly as good as what was available to the masses. This wasn’t even like fancy mechanical watches and their cheaper quartz brethren: A Rolex Cosmograph Daytona will, in fact, tell time—not to mention divide that time into increasingly arcane units. Vertu was selling low-tech cellphones long after the world moved on to smartphones. Its first smartphone, the Constellation Quest, was a cack-handed BlackBerry manqué that came out in 2010, three years after Apple introduced the iPhone.

But Vertu, improbably, has survived (indeed, sales in 2012 were near €300 million ($393.6 million), up from €266 million in 2011). Earlier this spring, the company released the TI, its first smartphone that runs on Android. Previous Vertus ran on Symbian, Nokia’s ill-fated operating system, which has been abandoned by the company. By switching to Android, Vertus now gain a crucial feature—they can be viable smartphones that at least some people will buy. Mind you, the phones still have functional shortcomings, such as the fact that the TI runs Android 4.0, which is two steps behind the latest OS, Android 4.2. But for people who could care less about that and are more interested in the sapphire-crystal display and ceramic ear-pad, they can at least now perform many of the same tasks other smartphones have been doing for years.

The TI starts at around $10,000. Which is ridiculous. But is it any more ridiculous than a watch that costs 30 times that? Vertu knows it is playing in a very, very small sandbox; the company has sold only 300,000 units over the last decade, according to the Wall Street Journal. It has to move a relatively small number of phones to really improve sales. And with a real-deal Android operating system, the phones now have some fundamental utility where there was none. Do I want one? Absolutely not. Then, I’m also not interested in watches from Parmigiani, Franck Muller, and Richard Mille. It’s not because I’m Amish—there are plenty of things I could see spending ungodly sums of money on—but a fanced-up smartphone just isn’t my thing.

For others? Sure—and that’s where another challenge to the high-end watch industry could lie. The smartphone has been a mass product from the day it appeared. Other than some wackadoodle exceptions that make Vertu look positively restrained, the device itself has remained decidedly middle class. A luxury expression of the smartphone may be just what some status-hungry jillionaires are looking for. If they are, then it’s possible that money spent on a Vertu or some other luxophone will take away money that could be spent on a watch.

The smartphone has already become ubiquitous. But if it—and its accessories like the smartwatch—also becomes rarified, that could spell big changes for certain luxury industries.