By Steve Ranger From TechRepublic

Rise of the million-dollar smartphone: how luxury phones became a must-have for billionaires
Go with TechRepublic’s Steve Ranger on an inside look at the gold-plated gadget market that’s received a big boost from Apple.

It has been a while since a smartphone was considered a luxury item by most people. I’ve got one. You’ve got one. Your mum has got one. Somewhere around one billion smartphones were sold in 2015. Apple sold 48 million iPhones in the last quarter alone. And the price of those smartphones is plunging, too. A basic smartphone could soon cost just £10.

And they all look pretty much the same.

That’s fine for the vast majority of us, who see their smartphone as a handy tool, but for the mega-rich who want to show off their wealth, that uniformity is something of a downer.

Enter the luxury smartphone—handsets that can cost from £2,000 to more than £100,000, and even into the millions.

One example of how high the prices can go: in 2013, designer Stuart Hughes was commissioned to build a gold iPhone for a Chinese businessman. It involved recreating the iPhone 5 chassis in solid gold, including a flawless black diamond weighing in at 26 carats. The handset was also inlaid with around 600 diamonds and 135 grams of 24ct gold. Total cost: £10 million.

While boutique luxury gadget suppliers have been around for years, Apple gave the garish gadget market fresh momentum with its own pieces of bling—the Apple Watch Edition, a set of smartwatches smothered in gold and starting at £8,000.

So, are these high-cost fashion devices the harbingers of a more elegant future for personal computing, liberating us from a bland world of boring black bricks? Could we be on the cusp of the next evolution of our gadgets, as the priorities of the fashion world supersede the tech world’s nerdy obsession with processor cores and megapixels?

Or, just perhaps, is this simply a new way for the wealthy to try to waste money on pretty baubles the rest of us can’t afford?

Handmade in England
The biggest and best-known of the luxury smartphone makers is Vertu. Vertu started off as a boutique brand for Nokia back in 1998, and its first handset, the Signature, was unveiled in 2002. The company’s headquarters, which also houses the small factory where all of its handsets are assembled, is just outside the village of Church Crookham, in Hampshire, about 40 miles west of London.

The location means the company can pick up skills from the aerospace and motor racing firms in the area, but the green landscape also makes a fittingly picturesque backdrop for a company that prides itself on its “Handmade in England” tagline (compare that to Apple’s “Designed by Apple in California, Assembled in China”).

Vertu phones certainly aren’t cheap. For example, its Signature Red Gold Black DLC phone will cost you £23,000 (DLC stands for Diamond-Like Carbon coating, the same stuff they use in Formula 1 car engines).

And they don’t look like the other phones on the market. The Signature, with its chevron keyboard, is a sleek, slightly dangerous-looking creation that shares a lot of design cues with the luxury cars the people who own these phones probably drive.

The phones also come with features you won’t find in your average phone, like 18-carat gold styling and sapphire keys. Oh, and the ring tones were recorded by the London Symphony Orchestra. Plus owners get access to a 24-hour concierge service and a “dedicated personal lifestyle manager,” and access to members’ clubs around the world and “iconic fashion events and happenings.”

What’s remarkable about this model (apart from the price) is that it’s really a feature phone, rather than a smartphone: it runs the Series 40 software, the descendant of the software that would have run on your Nokia phone a few years back.

The point here, of course, is that if you have enough money to buy one of these phones, you can probably afford not only a separate smartphone but also someone else to check your Instagram.

These handsets aren’t created on an anonymous production line. Each is built by hand. That even extends to walking the components from place to place on a trolley.

While visiting the factory, I didn’t see a single conveyor belt. All the employees are on first-name terms, working carefully on their handsets, of which the company makes only a few thousand per year.

The components of each device arrive on a tray at the workstation, and then on-screen instructions guide the workers through the process of building the handset. Each is assembled by a single maker, and in one of the last stages of the production process, their signature is laser-etched inside to emphasize the handmade nature.

Hutch Hutchison, Vertu’s head of design, leads me down a spotlit corridor that also doubles as a sort of design museum, recording some of the various iterations of Vertu’s devices through the years, from the days of Nokia to the current models. The cabinets holding the phones remind me of a high end jewellery shop—with good reason.

He gestures to a handset: “Some beautiful enamel work back there. These were done with companies in Austria who maintain Faberge egg collections,” said Hutchison.

“[Customers] got younger because the money’s got younger.”
HUTCH HUTCHISON, VERTU HEAD OF DESIGN
Hutch—that’s all it says on his business card—is clearly an enthusiast for materials and design: “You chase components all around a phone when you are designing it,” he said. “If you move a screw here by half a millimeter, I guarantee you at the other end of the phone, you’ll be playing Tetris with all the building blocks. So that’s why I talk a lot about engineering as well as design because the two are married in what we do.”

Vertu started making smartphones in 2010, and in February 2013 produced its first Android-powered smartphone. The company’s most recent Signature Touch (starting at £6,500, equal to the cost of about 12 of the Apple iPhone 6s) has the computing power you might expect from a high-end smartphone. It runs Android 5.1 Lollipop and combines a Qualcomm Snapdragon 64-bit octo-core processor with a 5.2-inch 1080p display protected by sapphire crystal and a 21-megapixel camera.

Its other handset, the Aster (starting at £3,950) in sumptuous leather and exotic skins (with pink stingray and red alligator leather and even “raspberry pink” ostrich skin among the options) is more reminiscent of a high-end fashion bag.

Hutch has been with Vertu since its beginnings as a Nokia skunkworks project. Over a lunch of immaculately trimmed sandwiches at the company’s headquarters—no crusts in sight here—he explained some of the thinking behind the brand.

“Before we even started, I went out to Dubai to talk to some people, and I was talking to a man who has the best of everything in the world and I still remember a blue plastic phone clenched in his fist,” said Hutchison. “This makes no sense. To him, a phone costs as much as a snack, one of our phones costs as much as a snack.”

Vertu’s argument is that phones should be built to last and not created with the assumption of obsolescence. The company still has people bringing back their very first devices from 2002 to have them refurbished.

“What makes something luxury is when you start to have a relationship with the product rather than it being utilitarian, and this is something that we learned along the way,” he said. It’s also a rejection of another tech industry assumption: that all gadgets are functional rather than personal.

“Why, when it’s the only thing that’s so close to you, is it the only thing that says nothing about you? Whereas everything else that is close to you, like your watch or shoes or suit … will say something about you, if you can afford to say something about yourself. That’s where it differs,” he said.

So what do Vertu customers look like? There are around 200,000 ultra-high net-worth individuals in the world and they’ve each got around $30 million in the bank just for spending. Then there’s around 14 million high net-worth individuals around: that’s somebody with a mere $1 million in the bank to spend. These are the sorts of customers for Vertu.

“It’s changed a bit over the years because the money’s changed. [Customers] got younger because the money’s got younger. There was the inherited wealth, that was the typical high net-worth archetype, but most of the people [now] have made their own money. They’re rich in their 30s,” said Hutch.

Turning a smartphone—which many would consider to be a utilitarian tool rather than an item of value—into something to be desired, to even be loved, is a complicated process. To do so, you must step beyond the world of logic: you have to appeal to their emotions.

“We are turned on by all sorts of stuff, which is all learned from our interaction with other things. Well-engineered things go ‘clunk’ rather than ‘ping’. We spend more time talking about that because I think that’s the bit that really promotes us up and above the impersonal black slabs,” he says.

The luxury audience is composed of different types of consumers, said Massimiliano Pogliani, Vertu’s chief executive, and luxury is a very personal thing, he argues: “We have to keep in mind the starting point we are offering a luxury object, so we are not talking about a ‘need’ state here, we are not talking about a rational choice. We are talking mainly about an emotional choice.”

While for most people spending so much money on a smartphone would seem a ridiculous expense, Hutch argues that Vertu is aiming at a specific group of people who, when they choose their mobile phone, want to make that choice at the same level they do for other objects in their life: be it their car, watch, shoes, or the restaurant where they have dinner. The difference being that “our phone will at least last you two or three years, while a bottle of wine will last half an hour or one hour and is the same price,” he said.

Vertu has been making luxury phones for more than a dozen years and has seen competitors come and go: balancing the demands of the fashion world and the tech world is too hard for many. But there is one new big new entrant: Apple.

For Pogliani this is a validation of the luxury market. “There is a demand. I would say the gold Apple Watch Edition is proving the market and the concept.”

Apple arrives in the luxury world
The London launch of Apple’s smartwatch in April 2015 reflected the high-end fashion aspirations for the device: supply was so short that only one Mayfair boutique (and not Apple’s own stores) had any to sell on the day.

While the cheapest Apple Watch will set you back a mere £299, the gold Edition versions cost vastly more: the 38mm 18-Carat rose gold case with white sport band will set you back £8,000, while the 38mm 18-Carat yellow gold case with “bright red modern buckle” will cost you £13,500. Plus another £1,500 for Apple Care, if you want it.

What’s notable is that the hardware in these gold Apple Watches is essentially the same as the basic versions. The only major difference is the 54g of gold it comes wrapped in. (Oddly that means Apple’s cheapest and most expensive products—the £40 iPod shuffle and the £13,500 Apple Watch Edition—are devices of roughly the same shape and size.)

If the Edition watches are too rich for you, there’s always the Apple Watch Hermès, a collaboration with the luxury brand which delivers a Hermès-stamped face for the smartwatch and leather strap. “The buckle recalls those on the straps of a horse’s girth, a nod to the equestrian heritage of Hermès,” the Apple website notes. So just canter on down to Hermès and for £1,000 it’s yours (£1150 for the “Double Tour” extra long strap).

So because Apple is doing it, will we soon be deluged with high-end fashion versions of all gadgets? Perhaps not. Wearables might lend themselves to this treatment more than other form factors, says Carolina Milanesi, chief of research at Kantar Worldpanel.

“I think luxury in wearables makes a lot of sense. With wearables being more of a personal device that borderlines jewelry and fashion, it makes sense to look at luxury options. The market will still be niche but the return on investment is significant, especially when it is materials that are different, versus overall design and ‘guts’, as this minimizes costs,” she said.

As such the market will necessarily be significantly large or indeed worth pursuing for every brand, warns Milanesi.

“There are brands that are already seen as luxury, Apple being one, and these brands have a much easier job and lower investment costs. I would dissuade any phone vendor to pursue this segment if they need to build their brand first as the cost would not pay back. I would expect fashion and watch brands to look closely at the wearables market to seek either partnerships (Hermes and Apple) or a solo entry in the segment, such as Tag Heuer,” she said.

That hasn’t stopped them from trying. Samsung has announced platinum- and rose gold-plated versions of its Gear S2 smartwatch, while Huawei will soon start selling a rose gold-plated “Jewel edition” (that word again) smartwatch which will comes with 68 Swarovski Zirconia and is aimed, somewhat cringingly, at “women who sparkle and shine”.

While Beyonce, Drake, and Katy Perry have all been pictured wearing the gold Apple watches, it’s not clear how many Apple has sold. Indeed, Apple hasn’t even given details of how many watches it has sold at all. And while a £13,500 watch might seem pricey, in the rarified world of luxury watches that is, if perhaps not quite entry level, then not especially remarkable.

But then again, almost certainly, sales is not the point—or at least not the whole point—for Apple.

The Apple Watch, like all smartwatches, is a new and untested concept. So for those shoppers hesitating as to whether to lay out £300 on one, what could be more reassuring than to know that some people are willing to spend £13,500 on pretty much the same device? As such, one of the roles of price of the Edition Watches and the celebrity endorsements is to reassure more timid shoppers that the devices are a good buy. Looked at another way, Apple has borrowed a trick from some of the big luxury brands, who know that they might not sell many couture dresses, but know the cache helps them sell perfume to the masses.

Gold-plated luxury
So far, Apple has shown no interest in creating an iPhone Edition coated in precious metals. It does sell a Gold and a Rose Gold colour iPhone but that’s not quite the same thing. But, there is another way to get a luxury gadget: take a standard model and upgrade it.

That’s the business GoldGenie is in: taking gadgets, and other items, and covering them in gold and gems. The latest addition to their product list: a gold plated Apple iPad Pro – yours for only £1,850.

This is one of their more modest offerings: prices for their gold-plated smartphones can start around £2,000 and stretch into millions for bespoke models with diamonds and emeralds, GoldGenie chief executive Laban Roomes told me at his London office.

The business started back in 1995, when he would travel around the country gold-plating people’s car emblems. But the big break came with gold-plated phones.

“I got contacted by the Emmy Awards who wanted these gold-plated phones to give out in their goody bags to the likes of Denzel Washington and Helen Mirren. They sent 55 phones over and I erected a massive marquis in my garden and had about 20 people working for me. That’s where the business was really born,” said Roomes, who also appeared on the BBC TV show Dragons Den and received investment from James Caan.

Gadgets are the main item that the company gold plates: because they change so rapidly there is always a new product in the market to customize.

Over the years the company has gold-plated a toilet, nipple rings, and recently a bicycle that went on sale for £250,000. “Every few months we will gold-plate something that is out of the ordinary,” he said.

For some clients—who send in baby shoes or a dummy to be plated—the impulse is to preserve something that is dear to them.

“It’s human nature if it’s something that is quite dear to your heart, close to you, human beings want to somehow immortalize it, make a shrine of it,” said Roomes. “You can take inexpensive items and like the midas touch of old, it’s gone from a cheap item worth nothing to a very expensive item that people will treasure.”

And some people just want to be different. On his desk is a gold-plated iPhone with diamonds ready to go—ordered by a businessman for his wife.

“£10,000, £15,000 might be a lot of money to most people but there is an element of society, to them that’s like pocket change. It’s not a lot of money for them to spend on something they like that’s a one-off,” Roomes said.

“It’s human nature if it’s something that is quite dear to your heart, close to you, human beings want to somehow immortalize it, make a shrine of it.”
LABAN ROOMES, GOLDGENIE CEO
When his customers upgrade to a new iPhone, they’ll either keep their old handset as some sort of collector’s item or they’ll hand it on to somebody in the family, he says.

“We’ve got a lot of people who want [their gadgets] to match their outfit, so there are some people who will buy a red iPad and a black one and another colour because they want to match up with some shoes or a bag. We’ve had quite a few husbands who mentioned that is what they are doing for their wife. With iPhones you’ll get people who like rose gold jewelry, so they like to have a rose gold phone to go with that,” he said.

He also sees the arrival of Apple as good for the luxury gadgets market: “We’ve had a huge busy period with gold-plating Apple Watches… what we are finding is people will buy the normal stainless steel one and send it to us to gold plate, we presume because people want to pretend to their mates that it’s a solid gold one.”

There are two views on luxury that are in conflict with each other, said Professor Joanne Roberts, director of the Winchester Luxury Research Group at the University of Southampton, which investigates the social, cultural, and economic impact of luxury.

“There are different views of luxury and different reasons why people have the luxuries that they have,” she said.

There’s the bling view of luxury—lots of gold, lots of gems—and then there’s the other version which references concepts such as quality, timelessness, and continuity with the past. Different types of luxury gadgets clearly emphasise different elements of these.

But that idea of timelessness is one of the trickiest ideas for them to address. A luxury handbag might improve over time as the leather ages. Certain luxury watches are sold with the idea that they will be passed onto future generations. Smartphones do not age like fine wines. They are more like plums which quickly turn into prunes. But this is actually part of the attraction of such devices, even if at a subconscious level, said Roberts.

“It’s a part of your conspicuous consumption that you can have this mobile phone that is so expensive it’s only going to last for 12 months and then you’ll be onto the next one,” she said. “It’s part of your consumption pattern and part of you displaying your wealth.”

That the smartphone will become obsolete is a key part of the attraction because it shows you can afford to spend money on something completely ephemeral. While a gold watch might be considered an heirloom and worn with pride, nobody is seriously going to be rocking an iPhone 6 in a few decade’s time, even if it is encrusted in gems.

“The people that are buying them may not even be using them as mobile phones but as collectibles because that’s a market too,” she said. And so what happens when that diamond encrusted handset is inevitably superseded by a later model? “If you are a billionaire, this is something that will probably go in a drawer or in a display cabinet,” she added.

What makes luxury gadgets so intriguing is that they challenge our assumptions about what a smartphone—and luxury items—should be. We’re used to gadgets being within reach of the average consumer, and getting cheaper. Luxury handsets do the opposite. The gold, the celebrities, and the envy adds to the mix, too.

But they also reflect that—whatever the billionaires may wish—there is something innately democratic about smartphones. Smartphones need to be mass market to be successful. The strength of iOS and Android lies in the rich software ecosystem around them which has created millions of apps. And that only exists because there are millions of users.

The network effect means the most popular smartphone operating systems are the best. Certainly, the concierge services and fine materials add to the overall package but with most luxury smartphones, underneath all the glitz is, for the most part, the same software that powers smartphones which cost a thousandth of the price.

Some of these handsets are elegantly expensive, some are glitzy and some are, frankly, gaudy. But they also ought to make us rethink our own smug certainties.

We assume a smartphone should be an anonymous black slab because that is what we have been sold (compare this to the wonderful, crazy world of feature phones that came before).

We’ve been trained by phone makers and wireless carriers to throw away our handset every couple of years because that level of churn is what keeps their profits flowing. And we don’t think about who made it, under what conditions, or which rare metals go into the construction and where they come from.

And, of course, it’s much easier to throw away an impersonal chunk of metal and glass than it is to part with something we’ve invested with personality.

Certainly, some of the luxury handsets sparkle with absurdity. But, it is perhaps hard to argue their ostentation is any more ridiculous than our own throw-away attitudes to tech.

ABOUT STEVE RANGER
Steve Ranger is the UK editor of TechRepublic, and has been writing about the impact of technology on people, business and culture for more than a decade. Before joining TechRepublic he was the editor of silicon.com.

IMAGES:
01-luxury-tech.jpg Vertu’s Signature Red Gold Black DLC phone Image: Vertu
02-luxury-tech.jpg Apple Watch Edition starts at £8,000. Image: Apple
03-luxury-tech.jpg GoldGenie CEO Laban Roomes Image: GoldGenie
04a-luxury-tech.jpg GoldGenie accents devices like the iPhone with gold and gems as after-market add-ons.Image: GoldGenie

For more on this story go to: http://www.techrepublic.com/article/rise-of-the-million-dollar-smartphone/?tag=nl.e101&s_cid=e101&ttag=e101&ftag=TRE684d531