Swiss vs Smartwatches

Despite the smartwatch’s moderate success in the marketplace up until now, it is undeniable that the watch industry is changing. Smartwatch manufactures are trying to figure out if they are selling gadgets or jewelry and traditional watch makers are trying to decide if they are in the business of tradition or technology. Depending on the success of the launch of the premium-priced Apple Watch next month, that will likely dictate the direction other companies follow. If smartwatches do prove viable, Switzerland, a country synonymous with traditional, mechanical watch making, has a particularly turbulent road in front of them.

TAG Heuer is a great example of what is likely occurring behind the scenes at most Swiss watch producers. The company has had a rough past year between conflicting corporate communications, major personnel shifts, and executives who were bit too vocal. All of these combine to create a public display of how TAG Heuer is fighting to develop a strategy which embraces the future while continuing to appeal to their target audience.

TAG Heuer was first thrust into the press last summer when Apple hired away Patrick Pruniaux, the company’s VP of Sales. He was appointed Senior Director of Special Projects at Apple and was widely speculated to be actively working on Apple’s watch. Shortly after the surprise hire, TechHive interviewed several executives within luxury watch companies including TAG Heuer. Every one of them went on record that smartwatches faced several hurdles that they argued tech companies were not equipped to handle, but TAG Heuer’s then-CEO, Stephane Linder, was particularly vocal saying, “They look like cheap, plastic-designed watches,” and that “it looks like a cheap wrist computer.” He went on to say a proper watch requires you to be able to “feel the hand of people in it;” something a mass produced smartwatch cannot emulate.

Following the unveiling of the Apple Watch in September, the head of LVMH’s (TAG Heuer’s parent company) watch division, Jean-Claude Biver, stated it “looks like it was designed by a student in their first trimester” and was “too feminine.” He continued by saying the Apple Watch “looks too much like the smartwatches already on the market” and that Apple had made “some fundamental mistakes” designing the device.

In December, Linder resigned from his role of CEO after only 18 months in the position and Biver stepped in as interim CEO. Days later the company announced that it was 4 months into working on a smartwatch of their own. Through partnerships and acquisitions the company believed it would release something in late 2015 and wanted to be “first, different and unique.” Rumors pointed to a mechanical action combined with sensors.

Four months after publicly denouncing the Apple Watch, Biver had a change of tune. During a January interview the executive said, “it’s a fantastic product, an incredible achievement” and suggested that he would likely purchase one for himself. He also expressed concern that the Apple device posed a credible threat for watches priced at less than $2,000. Perhaps after a few months of R&D, Biver was realizing some of the challenges to creating a smartwatch.

The “Made In Switzerland” moniker is important to watch manufacturers. They have spent decades branding it as the pinnacle of watch craftsmanship and tradition. As these companies look to integrate “smart” attributes into their devices there is a problem – Switzerland is not known for chips, batteries, screens, or sensors. More than likely they will have to turn to Asian companies to supply these pieces. After years of fighting against cheap Asian watches, this is a tough pill to swallow. So vital are the electronic components that during the same January interview, Biver admitted that TAG Heuer would have to shed its vital “Made In Switzerland” designation for the company’s smartwatch effort.

Losing the ability to say your device is “Made In Switzerland” is not the only issue facing Swiss watch makers as they try to produce smartwatches. The watch also needs software to run on. The more feature rich the software, the more compelling the device. The companies could build their own software, utilize the MotionX platform, or implement a version of WebOS, but none of those provide nearly as deep or as integrated of an experience as operating systems designed to work together. So either watch manufacturers reach a point of compromise for features or they license Android Wear from Google. The only problem is rich people buy Swiss watches and, based on two recent studies looking at sales and usage, rich people do not buy Android.

Following the launch of the Apple Watch this April, it will be interesting to see measurements of how the three different tiers of the Watch sell through. Are people willing to pay a modest premium for higher quality casing materials? Will the luxurious, and arguably indulgent, solid gold Apple Watch find a market? Do consumers view the Apple Watch as a gadget that is only worth the minimum price of entry? Or perhaps the entire product line will flop. If either of the former two questions are true, then Swiss watch makers might be in trouble, finding themselves flat footed. With the Apple Watch having been in development for over 3 years, it will be a game of catch up for traditional watch manufacturers.