Luxury Watches are Dead after the advent of Smart Watches

Could the concept of a “luxury” smartwatch soon be redundant?

Last week was a big week in the world of watches. Swiss luxury watchmaker Tag Heuer announced Tag Heuer Connected, the company’s first foray into smartwatches. Surprisingly, this earns the company the title of being the first traditional watchmaker to make the transition into the smartwatch space.

The device itself is styled on a regular mechanical Tag Heuer watch with a pricetag to match – it's set to retail for $1500 (about £1000). It has a circular 1.5 inch display running at 360 x 360, 4GB of storage, a 1.6GHz dual-core processor and 1GB of RAM. And, of course, it runs Android Wear, the only real viable non-Apple platform, despite what Samsung may pretend.

This was perhaps a more significant moment than people realised – it could be game over for traditional luxury watches.

A lesson from history

To explain, let’s go back to 1998 when mobile phones were taking off. Phones didn’t do much back then. You could make calls, text, and maybe play Snake, if you were lucky. It was around this time that some phone makers attempted to make “luxury phones” a thing. Nokia, for example, established “Vertu”, a luxury brand explicitly trying to sell phones as a fashion accessory. What this essentially meant was taking a fairly standard Nokia handset, slathering it in diamonds and expensive metals, jacking up the price and trying to sell it to people with too much money.

It might have worked too – the company certainly kept pumping out new “luxury” phones. But then, in 2007, the iPhone arrived and changed everything. As soon as everyone caught on, there was no other phone that mattered, especially amongst the affluent types who might previously have purchased an expensive Vertu. The mobile phone went from proto-fashion accessory that can make calls to a product defined by its functionality. And the same is now happening to watches.

Coincidentally, this week we found that that Vertu is having another go: the brand has been sold to Chinese company, Godin Cyberspace Security Technology, and will be directly aiming at the Chinese market, but it's still likely to face the same problem of “not being an iPhone”.

Function over form

Think about the way that luxury watches are supposed to work. For the less wealthy, they might save up to buy a nice watch as an expensive gesture or significant gift. A watch given as a retirement gift is worn for the rest of the recipient's life and passed down as an heirloom.

“Smartwatches are on the cusp of transforming our understanding of what a watch is for.”

For the rich, it's more affordable, but the meaning subtly shifts: a rich customer drops a hefty wedge on a Tag Heuer or a Rolex to make a statement about how wealthy and powerful they are. Essentially, it acts as a status symbol.

The challenge of the smartwatch to luxury watches is that they render both of these cases moot. After all, we don’t pass down ancient computers in our families. And who needs a status symbol when you have a status update?

Smartwatches are on the cusp of transforming our understanding of what a watch is for. Similar to how iPhones became a big deal because of the apps they can run, a smartwatch that's capable of displaying incoming messages and controlling a TV is more useful than a simple device that can tell the time.

A watch is no longer about its looks, or signalling status, it's about the technology inside. Just as it's increasingly weird to say the words “mobile phone” instead of just “phone”, it won’t be surprising if eventually the word “watch” is expected to describe a device on which you can take calls.

And this is the point at which Tag Heuer should get worried.

Technology vs fashion

The problem is that, ultimately, Tag Heuer is a watch company, not a technology company.

One of the criticisms so far of Tag Heuer Connected is that, compared to other, much cheaper, smartwatches, it's hardly cutting-edge. The watch is beaten in terms of power and functionality by the likes of the Huawei Watch or the Moto 360, which are about a quarter of the price.

“Traditional watchmakers will never be able to match the technology companies on their home turf.”

The pace of technology is such that all of the major players will keep iterating new products, year after year, with devices slowly getting faster, thinner and better. The problem for Tag Heuer and any other traditional watchmakers is that they will never be able to match the technology companies on their home turf.

With the likes of LG, Samsung and Huawei fighting to innovate against each other, it's seriously unlikely that Tag Heuer will be able to keep pace. Just as fashionable people wouldn’t be seen dead in last year’s clothes, would people who care about functionality really be seen wearing last year’s tech when this year’s can do so much more?

Bizarrely, Tag Heuer has essentially already conceded this point by making a key part of its Connected offer that, in a couple of years, if you give them another grand, you’ll be able to swap out your Connected watch for a regular mechanical Tag Heuer. It’s a strange proposition as the company seems to be suggesting that, after two years, you won’t miss the convenience a smartwatch gives you – and that you’ll be happy swapping it for an expensive lump of metal that happens to be able to tell the time.

The Apple factor

There's one more factor that will make things even more difficult for Tag Heuer. Even if the company can craft the most powerful, most luxurious Android Wear smartwatches ever created, it will be next to useless for the affluent, as Apple has that demographic stitched up.

According to most analyses, the rich are disproportionately more likely to own an iPhone than an Android device. While the Tag Heuer Connected watch will presumably work with the iPhone, it will be hobbled by limited support for the platform.

If you connect an Apple Watch to an iPhone it can do rather a lot: it will not just receive notifications, but it will let you interact with them – responding to messages, liking Facebook posts and so on. For third party developers, such as Google’s Android Wear app, Apple limits how much control it grants non-Apple devices. So, with Android Wear, you can receive notifications, but you only have the option to dismiss them, rather than carry out a more complex interaction.

This means that, if you’re an iPhone user trying to choose between an Apple Watch and Android Wear device and money isn’t too much of a problem, picking an Apple Watch is a no-brainer. And, if you’re rich, you probably own an iPhone.

Even if Tag Heuer – or any other traditional manufacturers – could compete, they’d still locked out of the Apple ecosystem.

Luxury watches are over

Times change, and the definition of the watch is shifting – so is it game over for Tag Heuer? Obviously, making predictions is a foolish thing to do, but it wouldn’t surprise me if the sector faced significant challenges as smartwatches become more popular.

We’re already starting to see the traditional watchmakers panic. Coincidentally, last week Fossil Group dropped $260m on wearable makers Misfits in a bid to get ahead on the technology side.

Perhaps Tag Heuer should be applauded for recognising that the sands are shifting, and that making its products smarter is the only option it has? However, given how much money Apple, Samsung and the other tech players are pumping into wearables, the Swiss company needs to act fast because it is only a matter of time, messaging and notifications until the upstart tech companies catch up.