The Future of the Luxury Watch Industry: A case *for* TechnologIy

Note: I am NOT an expert on the mentioned technologies in this Journal. Rather, I aim to open a discussion around the technologies and learn from the community on their capabilities and uses within the luxury watch industry context.

On a rare, gloomy Los Angeles day in February 2016, I was sitting at my desk workingwhen a friend of mine messaged me asking if I’d heard about ‘this thing called Bitcoin’. I stated I’d heard rumblings about it but didn’t have a clue what it was. That night, I’d gone home and spent some time on my laptop researching what Bitcoin was. At the time, it went over my head (I’m not a techie whatsoever) and it seemed like it was just some gimmick. I was especially turned off by how hard it was to attempt to purchase a Bitcoin so, I left it alone. Back then, BTC was trading in the $300-$400 range. Today, in the high $30,000’s.

I am of the belief if we are to look forward and predict coming trends and normalcies, we must acquaint ourselves with the past. If there is one word characterizing the overarching theme consistent throughout the luxury watch industry’s history, it would be persistence. This can be exemplified by the Quartz Crisis and the subsequent boom in ultra-high-end mechanical watches; by Audemar Piguet’s octagonal steel rebellion against the looming death of mechanical. The watch industry persisted to brand and identify its offerings as mechanical works of art produced by men, not machines. The industry nestled itself in the comforting blanket of niche price categories and it worked. Without getting into data and statistics, our industry has never been stronger.

The crisis was averted. Technology lost, mechanical watches prospered and continue to. The industry demonizes technology and rightfully so – technology does not belong in mechanical watchmaking (save for innovative creations by certain brands). Fast forward from the late ’70’s and early ‘80’s to now, where the industry (and the world at large) is confronted by technology again. Only this time, it does not bring with it impending threat; rather, it promises efficiency and freedom.

Often, luxury brands will adopt new technologies and modalities of operating so as to present themselves in forward-thinking light. A cherry on top, so to speak. Equally as often, as consumers, we’ll view these implementations as niceties, as opposed to necessities. The level of adoption stems partly from cost – a completely new modality will surely be expensive, the conglomerate owned brands will adopt first given they can afford to, the market will acclimate, technology will become cheaper, independent brands might eventually implement the respective technologies. A once revered luxury will become the standard.

One can imagine how long it’ll take for independent watch companies to adopt the following systems considering, 1. An organization needs to build out a permission based blockchain specific to the company’s needs and, 2. The cost therein. Nonetheless, I feel this dynamic within our world will demand the attention from all, on a long enough timeline.

The luxury watch industry will be laggards in adopting these technologies because 1, the leadership in place for most of the bigger groups and 2, as alluded to earlier, luxury doesn’t REALLY need use of these technologies to be advertised. How ironic it is to tether a completely unnecessary industry to a technology that is itself completely unnecessary within this context!

Blockchain, the network

Ah, the buzz word of the century. We’ve all heard certain brands already utilizing blockchain’s technology to digitally certify respective collections, track lifecycles of watches, and store pertinent collector information (i.e transaction details). This is all good and well but this is not the fundamental use of the technology. Rather, it’s true potential lies within the back end flow of a transaction, or at scale, the entire operational system of a company.

One aspect of operational flow blockchain makes more efficient is transparency. I, personally, have spoken to a number of organizations utilizing blockchain to trace the entire lifecycle of high value products. This solves issues that have plagued our industry for some time – authenticity, sourcing, secondary exchanges (buy/sell side). Trust, or security, will not be an issue as Proof of Work/Stake will be made more efficient and applied to all digital systems. Collectors will be able to buy and sell their watches directly through one another while also transferring ownership, certifications, and applicable warranties all through the use of blockchain. This all sounds good and dandy but keep in mind, we’re in the beginning of developing barely the architecture of these technologies so who knows when user experiences/interfaces will be simple enough to be widely adopted.

Ethereum, the platform

Yet another buzz word. Most of us do not know what Ethereum is. Sure, it’s a blockchain technology but before getting into weeds I have no clue of navigating, the underlying application of Ethereum is a smart contract. An example of a smart contract is a vending machine – insert $2, the software authenticates all required proofs, communicates authentication with hardware, you get your water bottle. The same ideology can technically be applied to any sale. Process a transaction, the system authenticates all necessary attributes (amount paid, pertinent information entered by salesperson, etc), and issues required documents (warranty cards, certification of authenticity, invoices, etc). This significantly reduces the need for paperwork, consolidates/automates back end processes, etc. You might have heard there are system requirements for running a protocol on Ethereum called gas, or Ether, which needs to be purchased. This surely will be expensive and volatile in the short-term, but my bet is things get a lot simpler and cheaper as we progress in development.

Nonetheless, at scale, Etherum’s technology will streamline production, inventory, and sales flows, making them extremely efficient.

CRM and Internal Networks, the cornerstone

Again, some brands are already working on internal messaging systems or CRM platforms to communicate with respective clientele. However, in light of recent events, one may make the argument that decentralization has a place in ALL systems used by an organization. Why? Much like an independent brand whose mission is to reach vertical integration, reliance. All of these technologies – Bitcoin, blockchain, Ethereum, decentralization – they enable an organization to be completely self-reliant. Internet service providers, CRM programs, internal communication boards, security systems, insurance providers, etc. will all be tailor made to fit into the needs of a particular organization. No need for generalized protocols, the future looks to be very specific.

Decentralization, the shift in paradigm

Perhaps the most important aspect of this all, the very essence of these systems is decentralization. It’s a wonder why it has taken society this long to come to such a powerful change in structure. In any case, as mentioned earlier, it allows for companies to foster self-reliance. As someone who is building his own brand, that is reason enough. In fact, we’re seeing decentralization parse its way through government, community, and entire cities. I am of the opinion that the future of not only our industry but of the world lies in this paradigm. Consider the following –

Reference 1

Peter Thiel, billionaire entrepreneur and capitalist, brilliantly presents a system in which we can decidedly embark on ventures with a bit of calculation, which in turn presents the underlying sentiment about our respective futures (see Ref. 1). On the vertical axis you have optimism and pessimism. On the horizontal axis you have determinate and indeterminate. The determinate perspective is that things are knowable and you can control them. The indeterminate perspective is that things are unknowable and uncontrollable. There are just too many chance events. If we infer from the watch industry’s history, we can more or less point to where our collective has always been situated in the quadrant. I’m proud and honored to be part of such a brave, innovative, ever-forward-moving tribe.

While I’ve only scratched the surface and admittedly over-simplified the topic, I’d like to state – the luxury watch industry should not only NOT shun away from technology; it should sprint full speed to embrace it! Using these technologies allows our passionate world of unnecessities to hone in on what is the essence of luxury – the human-to-human relationship.

If you’re anything like me, after being utterly fascinated by technology and its ever-expanding place in our world, you might ask yourself “Where does it end? What does technology NOT touch?” Well, fellow collector, it is you and I. Rather, the human-to-human link. The relationships, experiences, and connections we make are untouchable as they are, similar to high-end mechanical watches, tied to our memories, ultimately tying them to our collective humanity. That is true luxury. As always, I welcome your discourse and general discussion.

Talk soon,

AJB