How smart is Apple’s attempt to woo the rich?

It is a rule of consumer technology that prices fall: what starts as an unfeasibly expensive gizmo eventually becomes affordable and accessible. The textbook example of recent decades is the mobile phone. Not long ago mobiles were the preserve of the obnoxiously rich, eager to signal their affluence, but gradually became so ubiquitous they now outnumber humans.

Belying that downward price pattern is no easy feat, which is what makes Vertu one of the oddest and most fascinating mobile phone companies.

The English-based company was started in the late 1990s by Nokia after its chief designer, an American named Frank Nuovo, determined that there was a lucrative market in mobiles for the extremely rich. They launched their first phone, or “communications instrument” as they liked to call it, at the Museum of Modern Art in Paris in 2002, with an attention-grabbing price of $7,549 (€7,111). “I wanted to take something as unlikely as a communications technology and present it as art,” said Nuovo at the time.

But far from being art, the Signature was a gaudily blinged-up version of a Nokia, and the entire Vertu concept seemed like an exercise in satire, an elaborate joke at the expense of rich fools. The most expensive “Platinum Diamond” model cost $35,275 for goodness sake.

When dumb phones were rendered obsolete by smartphones five years later, it seemed like the Vertu strategy was up – surely no one would fork out $15,000 for a technically limited handset when $500 could get you an iPhone? Right?

Well, it seems there really are enough people who value status signalling more than having the best device available, because Vertu has managed to survive, sold by Nokia a few years ago and now offering insanely expensive handcrafted Android smartphones starting at $10,300, including models featuring lizard- and alligator-skin backings.

Truly, Vertu’s success in extracting cash from the rich can only be explained by seeing the phones as a “Veblen good”, a commodity “whose demand is proportional to their price”, according to Wikipedia. Crudely put, the appeal is directly linked to how expensive it is.

And the rise of these sorts of goods has to be seen through the prism of record wealth inequality, a technological by-product of Piketty-isation, so to speak.

The growing wealth of the global top 1 per cent has led to huge demand for “luxury” goods that serve merely to signal one’s membership of the top 1 per cent. Which brings us to the Apple Watch, remarkable for being arguably less interesting as a piece of groundbreaking technology than for its pricing strategy, from $349 for the aluminium Sport version to north of $17,000 for the most thoroughly blinged-up gold version.

Extensive interviews

In the first, a fascinating, extremely long profile by Ian Parker in the New Yorker, it was made clear that Ive was the primary architect not just of the itself, but of the device’s positioning as a luxury gadget for the super-rich, convincing chief executive Tim Cook to overcome “concerns about creating a divide between wealthy and less wealthy customers”.

Incidentally, Parker tellingly revealed that Ive was “very interested” in Vertu, according to a former colleague.

The second interview, with the Financial Times, was less revelatory, but what was perhaps most interesting was the interview’s placement – in the How to Spend It magazine, the rather vulgar FT supplement that revels in conspicuous consumption.

Then came the Apple Watch launch event itself, which spent about as much time purring over the luxuriousness of the materials as it did explaining the watch’s practical utility. Such an emphasis, of course, is critical if the company wants to convince potential high-end consumers that they are getting a status symbol worthy of their bank balances.

With the Apple Watch, Cook and Ive have set themselves an extremely challenging pair of tasks: convince people that a smartwatch is something they might want and find useful; and price it along a spectrum ranging from relatively affordable to spectacularly unaffordable.

At this point, it is extremely difficult to determine whether Apple will be successful with these two challenges in the short to medium term.

Wearable technology

However, whether it will be Apple Watches on those wrists remains to be seen. Initial reports suggesting that the user interface is uncharacteristically confusing don’t augur well, and there’s every chance another company will refine the template set by Apple and other current rivals.

On the second challenge, it will be fascinating to see how simultaneously targeting the mainstream and luxury markets will affect perceptions about both the device and the Apple brand.

It’s instructive to note that with Vertu, Nokia took the precaution of releasing jaw-droppingly expensive equivalents of their basic phones under an entirely different brand, whereas Apple just released jaw-droppingly expensive equivalents of their basic watch at the very same event.

It would take more than the usual dose of Steve Jobs’s famous “reality distortion field” to overcome the cognitive dissonance that comes from seeing the same device being presented as both a mainstream gadget and a Veblen good. That incongruity offers an unavoidable implication about how Apple is positioning itself to exploit the world’s widening wealth inequality.