Rolex

0:00 Hey, acquired listeners. We've placed this episode on Rolex toward the top of the podcast feed, since people frequently say it is one of their favorites and a great place to start listening. It was recorded on february twenty third, twenty twenty five. All right, David, what's on your wrist? Well, currently on the wrist is my stainless white face Daytona that my dad gave me

0:22 I think it was still quite popular when he gave it to me probably close to fifteen years ago, but Not like it is today. A strong choice. I am actually also wearing a Daytona that I am borrowing from a good friend of the show. Mm. Love it.

0:35 Well, fun fact for our listeners, the watch that David is wearing is the one that I was wearing during the Morris Chang interview. When we wanted to foreshadow that. This was our next episode. Yes, and in front of me here now, in my hand, but not on my wrist is my other Rolex that my dad gave me a long time ago.

0:53 My Rullisor Day Jest. Dude, you gotta go one on each wrist. Yeah. Great. All right.

1:00 Who got the truth? Is it you, is it you, is it you Who got No. Is it you, is it you, is it you Down!

1:12 Another story on the Welcome to the spring twenty twenty five season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. All you need for time keeping is something that happens at a constant rate.

1:33 And some way to count it. It could be sand in an hourglass. It could be a weight being pulled down by gravity on a grandfather clock. Slowly turning the hands. moderated by the tick tock of a pendulum.

1:47 Yeah. It could be a mechanical watch on your wrist. driven by a complex and beautiful array of hundreds of gears and springs. Today, listeners, we tell you the story that we can't believe we haven't already told on acquired. Rolex.

2:03 Oh. Rolex is a cascade of paradoxes. It's one of the best known brands in the world. But despite that, it's one of the least known companies in the world. They're privately held by a charitable foundation, the Hans Wilsdorf Foundation.

2:17 So they don't have to disclose anything. And really. They never do. They're one of the most secretive companies that we have ever studied. And David, check me on this. I think they're even more secretive than IKE or Mars.

2:28 Oh yeah. It's funny that the closer to the present day we get The less we know. Totally. They operate like an intelligence agency over there. Yes. Like James Bond, one might say. Oh, or one might not say. Listeners, they make watches that everyone wants to buy, but nobody seems to be able to get with famously long and opaque lists at retailers. Except of course over a million people a year actually do buy one.

2:55 And for an average price of Thirteen thousand dollars each. That is until you walk out of the store. And then they instantly become worth more. At least for a lot of the models these days.

3:07 To your point about paradoxes of Rolex, this is one of the greatest ones. It is Absolutely one of the very, very top top tier luxury brands in the world. And yet they also sell a lot of units. Hermes doesn't sell a million Birkins every year. There's probably ten times more Rolexes sold than Birkin's sold, or at least on that order.

3:26 It's a success built on the back of craftsmanship, engineering, and manufacturing, honed and perfected over a hundred and twenty years. It is one of the greatest brands in the world built meticulously And so intentionally, David. And my favorite part of the paradox. This is the story of the most successful Swiss watch company.

3:45 But it wasn't founded in Switzerland. Or even by a Swiss person. No, no, it was not. It's a ten plus billion dollar revenue business performing a dead craft. obsoleted by the digital world. They make a watch that can't tell the time as good as my Apple Watch. Or even a ten dollar Casio, for that matter. So what is going on here? How did Rolex become Rolex?

4:08 This is a story we've been giddy to share. Uh. So excited. Well, one big disclaimer up front, much like how our NFL episode wasn't about football and our NBA episode wasn't about basketball. This episode isn't really about watches. It's about the business of watches.

4:23 Yes. If you want to know every time an episode drops, check out our email list. It is the only place where we will share a hint of what our next episode will be. It will share corrections, updates, and little tidbits that we learned from previous episodes. That's acquired.fm slash email, or click the link in the show notes. Join the Slack. Come talk to us about this episode with the whole acquired community afterwards, acquired.fm slash slack. And if you want more acquired between monthly episodes, Check out A C Q two, our interview show where we talk to

4:54 Founders, CEOs, and investors who are building businesses in areas that we've covered on the show. The most recent one was a very fun interview we did with a friend of the show, Guillermo Rausch, the founder and CEO of Vercelle. about really the whole history of web development frameworks and their latest and greatest product, V Zero, a startup within a startup that lets you code web apps from scratch.

5:17 In just English instead of a programming language. Yes. Search ACQ two in any podcast player. And listeners, this is not investment advice, but um

5:27 You can invest in this. And you can't invest in many of the other great brands that we are going to talk about on this episode either. There's something kinda remarkable about the uh companies we wish we could invest in, but actually we can't. So this show is for informational and entertainment purposes only. David, where do we start our story? All right.

5:48 As is so often the case with these. Big old European companies. Back not in the last century, but even the century Before that, On March twenty second, in eighteen.

5:58 eighty one. In Kulmbach, Bavaria. About thirty miles north of Nuremberg in present day Germany. Where Hans Eberhard Wilhelm Wilsdorf is born to young Anna and Johan.

6:13 Willsdorf. And you might say, This sounds like a German name. Bavaria wasn't a part of Germany, right? Well, I was just gonna get to that. Technically it's not Bavaria anymore. Technically it is part of the German Empire, but this is a very, very recent

6:28 Development. As the Count Otto von Bismarck had only Just ten years earlier. Convinced Bavaria. To join forces and unite with Prussia.

6:39 to form the greater German state, German Empire. In the aftermath of the Franco Prussian War, where they battled Napoleon. The third over. In

6:48 France. But as far as Young Hans and his family are concerned. They're Bavarian. They don't identify with this. Germany thing, this is foreign to them.

6:58 They're Also Protestant Not Catholic, which puts them in the great minority in Bavaria at the time. Now

7:08 I say all of this. Deep European history here for Two reasons. One, because it's sort of a fun story and uh Calls back to our Mes and L VM H episodes and It's gonna call back.

7:18 Very directly to those episodes in a minute here. But also I think it's important to paint the picture of Hans's Even from birth, he's kind of this consummate Outsider. really

7:29 fit in in any sort of national or religious Identity in the either established or changing European order at the time. He doesn't really have a country, he doesn't really have a religion or a people, he sort of floats Between the seams of

7:44 Europe, which Rolex itself is going to do as we shall see in a very big way. Yeah. Now Back to Young Hans and his family.

7:52 His father, Johan, came from a line of successful ironmongers. And very likely. Hans was destined to go into this business as well. However,

8:05 Tragedy strikes and both His father and his mother Die within a couple months of each other. Orphaned. Just like

8:14 This should sound familiar, Ben. Oh yeah. Louis Vuitton. And Ermez This is absolutely freaking nuts. The founders of

8:23 Arguably maybe the three Biggest and most significant luxury. Brands in the world today. We're all Orphans from the eighteen hundreds. This is wild. And I wonder how much of a statistical bias there is here.

8:37 If we were studying anyone from this era, how many of them would be orphans because of disease and war and Yes, all sorts of stuff. Just lots of people died for lots of reasons. Yes. Totally, totally true. But it's just so interesting, right? These brands I mean, much less so Rolex, but Armaz L V M H

8:55 Are so steeped in this European history and the tradition of the nobility. But it's actually these orphaned outsiders that Founded them? Well, I think that's a great point. Rolex doesn't share that heritage at all.

9:08 This is not steeped in nobility. This is not an artifact like a leather bag or a saddle that any king's ever had. When you buy a Submariner or a Daytona or even a Date Just.

9:21 You are not buying Swiss history here. You are buying twentieth century modernity. As we will get into. So In the wake of this tragedy.

9:29 Hans and his brother and sister. are placed in the care of his uncles. And the uncles decide that they are going to sell The family ironmongering business. To fund.

9:41 Sending Hans and his siblings off to boarding school I see. So Hans would later write in this amazing document that is essentially his autobiography.

9:50 It's the first volume Of a four book set that the company published in nineteen forty five for the company's fortieth anniversary, the Ruby Jubilee. Hans rates. Our uncles were not indifferent to our fate. Nevertheless, the way in which they made me become self-reliant very early in life made me acquire the habit of looking after my possessions and

10:12 Looking back I believe that it is to this. That much of my success is due. Hm. So Hans goes off to boarding school and becomes an excellent student there.

10:22 He excels in math. And he also excels in foreign languages Particularly English. And While he's there in boarding school there in Bavaria.

10:33 He meets a friend who is from Switzerland. And he develops an interest in that country and He no longer really has any family ties or anything to Bavaria anymore, doesn't really care about Germany. He's like, Oh great, Switzerland seems like a good place. I'm Gonna go live there when I graduate.

10:48 Which he does. He moves to Geneva. And he finds work there first. For a large pearl merchant. So this business was

10:58 buying like raw pearls from fishermen. And then selling them to the famous Swiss jewelers there in Geneva. And then he joins another local trading company. In a adjacent industry to the jewelry business, a firm called Cuno Courten.

11:15 turns out isn't in just any industry. As far as Switzerland goes, they are in the industry. Besides. Banking.

11:24 They're in the watch trade. Well you need something to bank. Yeah, you need something to bank. Exactly. A country can't just have banking as an industry. It needs a real economy to build banking on top of. Exactly. You start with jewelry, watches. Then you get into banking. And Kuno Courten is actually a major player.

11:42 in the watch trade. Now they are not watch makers. They are watch exporters. So they are facilitating the trade of all these best in the world Swiss watches. out of Switzerland and into other countries around the world.

11:55 And at this time, this is like the late eighteen nineties. Kuno is doing about a million Swiss francs worth of business a year. Now I don't know exactly what the Swiss franc to US dollar exchange rate was at nineteen hundred, but Today

12:09 The Swiss franc is stronger than the dollar. It's about one to one. They're pretty close. So call it a million dollars a business. a year in the eighteen nineties, like this is big, they're a big player. And it's important to remember too, it's not like Watches where this little

12:22 corner of the Swiss economy. Exporting watches was a huge part of the Swiss economy and a huge employer in the nation. Yes. No. We're saying watches here.

12:33 It's important to know. What were watches at the time? They weren't something you wore on your wrist. There's not wristwatches because Basically Hans and Rolex hadn't

12:43 invented that. Yeah, they didn't exactly invent it, but hadn't popularized it yet. We're talking about pocket watches. Yes. That's what The industry was at this time. And part of the reason is functional pocket watches were bigger. So the movement to accomplish a certain amount of precision.

12:58 didn't require as little teeny tiny of tools and You had more margin of safety and bigger watches. And so whenever anyone tried to make a watch and put it on the wrist at this point in history, it was usually fragile or really inaccurate Or actually worn more as jewelry. And so they actually didn't call them wrist watches, they called them wristlets.

13:18 And they were mostly worn by women. Wristless, yes. We'll get more into that later, and I know you're chomping it a bit to give you the technical explanation of the crazy human craft and engineering that goes into watches. It's amazing. It's so unbelievably cool.

13:35 But Back to the Han story for the moment. So The job that young Hans gets here at Kuno turns out to be pretty pivotal for him and the future of Rolex.

13:46 He is a secretary. Which means That he's answering letters from clients. All around the world.

13:54 And then responding and coordinating with them because remember, he's really good at languages and What is his best language? English. So he's

14:04 coordinating with most of their Clients in the British market in the UK. And he sits at this really interesting choke point of the whole industry. where he understands how all the producers are sort of laid out and how the whole value chain works on the Swiss side of things.

14:21 He's seeing the market prices and price action happen. For all different types of watches from different makers and different parts, et cetera, et cetera. But he's also Getting to know

14:32 The buyers in Britain. These are retailers. These are the jewelers in Britain. These are the distribution points for watches. Yeah. the perfect business market strategic background

14:45 Distribution relationships for going on ultimately. Found. Rolex. But it's not just that he

14:52 falls in love with the business of watches there. He also falls in love with The objects and watches themselves in there. So he starts this habit of

15:03 He would take home batches of pocket watches. at night and he would run his own tests for accuracy on them, on the product that Cuno Gordon was Trading in so he would set them all. At the same time. And let him go overnight and then he would check them in the morning how much they

15:18 Or disper from one another and check their accuracy. And the legend goes That one day he gets the idea. That he's gonna take. Three watches that he's found to be

15:29 quite accurate in this whatever this recent batch that he's testing is. And he's gonna go get them tested. Astronomical observatory. And have them measure these watches according to the strict

15:40 Observatory time keeping tests, which are also called chronometer test, if you've ever heard the term. Chronometure. A chronometer is a time keeping piece, could be a watch, could be a larger clock, could be all sorts of devices. That has passed these

15:55 Astronomical observatory tests for being accurate enough for celestial navigation. Yes. David, I'm looking down at this Daytona right now and it says Rolex Oyster Perpetual which

16:07 All three of those words we haven't gotten to yet. Superlative chronometer. Officially certified cosmograph. Lot of words in there that we will get to, but at the moment where we are is chronometer officially certified. Yes.

16:22 And today this is like a oh, you know, cool, that's Q your mechanical watch is like officially certified that it keeps good time. Back then this is Critically important. Celestial navigation if you're involved in anything in shipping, the maritime trade is

16:39 Critical if you have a crappy time piece. You're gonna go to the wrong place because you're using it for navigation. And so to your point. Observatory chronometer certification No one's doing it. For my pocket watch that I can set to the local church bell or whatever whenever I need to reset it.

16:57 But yeah a young Hans has this idea, he goes and does it and he Guess what? These three pieces that he takes, these pocket watches, they pass the tests. And they get certified as chronometers and he takes him back to his boss's uh And they're like

17:09 Whoa. Well that's Got a market ass. Slap that on the tin, baby. And it's this aha moment of Kuno, and then soon the rest of the industry realizes Oh actually. Chronometer certification on pocket watches helps us move product here.

17:26 Yep. The other thing to realize here is We're in an era Where And this era would last the next hundred plus years.

17:35 But An era where having a watch is super important. Yes. It's not a fashion accessory. It's not a nice to have

17:45 Without a pocket watch If you are leaving your house and moving about in the world You're lost. It's almost like not having your phone today. where you feel like I'm floating. It's very uncomfortable.

17:56 Totally. It's even more than you're saying. It's like a smartphone in that you need it to function. But pocket watches are also like smartphones today in that they're fidget devices. If you're out in the world and like you're waiting in line or you don't know what to do with your hands, you're in a socially awkward situation, you know, whatever.

18:14 You're gonna take your pocket watch out, you're gonna open the clask. This is what people did. It was just so Ingrained in everyone's day to day existence. Just like a smartphone is today. It's an essential tool for moving about the world, which explains how it's such a huge industry that moves the needle for the nation of Switzerland and how there's these businesses that can be exporting a million dollars worth.

18:36 Over a hundred years ago. And why there's so much attention being paid to it. It's not a random accessory. It is an essential piece of life, a tool. Totally. So After working at Kuno for a couple years,

18:49 And liaising with the British market. In nineteen oh three, Hans decides that Hey. I'm good at English.

18:57 I like London. I might actually want to move there. So he moves to London. At age twenty two. And he goes to work for another watch company. There in London locally. We actually don't know the name. I don't think anybody has ever found the name.

19:11 What you and I read probably five books between us and wasn't any of'em. Yeah. He works there for two years. And he writes Two things struck me most forcibly about my new employers this. British watch company.

19:25 On the one hand, their commercial competence And on the other hand, their lack of specialization. I soon gained confidence in myself, and in nineteen oh five, at the age of twenty four. decided to set up in business alone, feeling that my training and education had prepared me. So he strikes out on his own.

19:42 Starts his own watch importing company. There, in London, but remember the specialization piece that'll come back in a sec. Mm. So

19:50 Hans is out on his own. There's one problem though, which is In order to do what he wants to do, which is import Swiss watches, And sell them directly under his own banner where he makes And keeps the profits there in London.

20:06 He need some capital. In order to finance the buy. Gotta place the order. Yes. So

20:12 Through his lawyer, he gets connected with a local man in London named Alfred James Davis. Who has some money to invest in. So they meet through the lawyer, they hit it off immediately and decide To go into business together and thus In nineteen oh five

20:29 Wilsdorf and Davis Limited. The world famous Merchant watch trading firm. is born. And uh yes, none of you know Wilsdorf and Davis. However, Wilsdorf and Davis Limited.

20:41 Is Rolex. Yep. As we shall see. You know, if you read anything about the history

20:47 People will tell you, Oh, well Davis was Hans's brother in law. He married Hans's younger sister, Anna. That is true. But I believe that didn't actually happen until after Hans and Alfred went into business together. I think

21:02 Anna Met Davis. Through Hans. But really it is Wilsdorf's company. It's kind of funny that Davis's name is on it.

21:11 I kinda get the sense he's mostly capital. Yeah, he's there a little bit. But it's almost as if, you know, Atari instead of being Atari is Bushnell and Valentine. That's the equivalent here. I think that's right. And obviously they get closer over time as they become Family when

21:28 Davis Mary's. Hans's sister, but yeah, I think this is Hans's business. He's running it. Davis trusts him. Yeah. And so what is the business doing?

21:38 Well, the business plan when they get going is They're gonna do what Hans has been doing his whole career at this point in time, which is importing Swiss made highest quality in the world. Watches.

21:50 into the London market where there is High demand for them. And they're not selling directly to consumers, right? No, just like back at Cuna Court. The

21:59 Buyers are the retailers are the jewelers. No end consumer had any idea who made their watch at this point in time. They would walk into the retailer, say, Give me a fine Swiss watch, sir, and The retailer would sell it to them. And the retailer would take one out from the case You look down at the face of the watch, the face of the watch has the retailer's name on it.

22:20 And you're just trusting that the retailer bought A good watch. From Some importer Who bought a good watch from someone on the Swiss side who managed to create a good watch by putting a movement, a case, and all that together.

22:35 Now, there's a little bit of detail in there where sometimes the importer would import a ful watch, sometimes the importer would just import a movement, and then they would import a case differently, and then they would put it together themselves. But this was the craziest thing that struck me is the retailer is the brand on the watch at this point in time. Yes, there is no brand for the product. Right. So Will Sorf and Davis is occupying the spot in the value chain where they are importing the watches. And then selling them to retailers to brand.

23:05 Yes. A minute ago, something really important, which is there were kind of two ways that this would happen. You would either import Fully finished. Watches from

23:15 Switzerland. A whole product, so to speak, and Either trading firm like Wills Dorfin Davis would do this or Cuno Courten. Would export it, or maybe the retailers would buy directly from Cuno Court and et cetera. If they were big enough. If they were big enough, yep. What Wilsdorf and Davis are doing is they're saying, Well Hans knows through his time at Cuno Courten all the best

23:37 Movement makers, all the best. Case Makers. Right. He operated one click up the value chain, sort of aggregating on the Swiss side. Exactly. So now that he's operating down on the importer level, one click down the value chain, he's like

23:51 I can still aggregate all these producers and start building a watch myself. Yes. So He's not making anything But he is assembling the finished product. So he would have watchmakers there in Britain. Assemble

24:05 The best movements that he would import from Switzer with the best cases that he would find. And that was part of his value that he's adding. To the industry here. And this is probably an important time. There is so much lingo. in the watch industry.

24:19 We're gonna do our very best on this episode to demystify it. Movement. in lay speak is The hole inside that makes the watch tick. And drives the hands.

24:30 Yeah. Not the dial. Right. Correct. No dial, no hands.

24:36 No case No Glass front. And The movement, I think, like you said.

24:42 Is kind of the critical piece. Absolutely. That's the hard thing. Case is important. Dial's important, hands are important, but that's all aesthetics. And as far as performance goes. Hundred percent movement. It's like semiconductor production. If you're your movement maker, you're like T S M C here. Right.

24:58 Chronometer officially certified refers to the movement. Actually, in fact, only the movements are tested, not the whole final case watch. Not the finished watches, yes. So David, who is he importing movements from and how does he meet said movement maker? Well, that brings us to The other half of the Rolex equation.

25:19 One. Based in Bienne, Switzerland, which is in the mountains of the north of the country. Importantly, not Geneva. Yeah, not Geneva. Geneva's in the southwest of the Country in Switzerland right next to France.

25:34 So Egeler runs this movement workshop. Up in what is then a tiny little town in the Swiss. Mountains. And it turns out that He's actually kind of like a generational talent.

25:45 Yeah. Watch movement making. And in particular, what he's really, really, really good at. is making movements that are accurate and on par with the highest quality, most precise, most accurate movements.

25:57 out there on the market. But are also much smaller in size. He's making miniature movements. And Hans had gotten to know Jean when he was working at Cuna Courten and kinda thought like oh hey man, this guy's a Diamond in the rough up there in the mountains.

26:12 He's as good or better as Any movement maker. And he's making these miniature movements before there's a real market. It's almost like he's just doing it because it's the hardest thing he can think of. Totally. It's like his hobby horse. I'm gonna push the limits of human achievement of how small can I make this thing. Yes. I think it's probably known and respected in the industry, but Wasn't a large player and

26:34 Hans is like, Oh, actually This guy's my ticket to differentiation here. I'm keeping his address so I can write him a letter when I get to When I start my own company. Yeah. So here we are. At the beginning of Willsdorf and Davis. Hans is importing these movements from Eglar.

26:49 that he's putting into cases selling his watches here in the UK. This is nineteen oh five. This carries through this relationship. For the next ninety nine years until Rolex

27:03 finally buys Aegler in two thousand four. Where Eggler Is making the movements For Rolex watches. And I don't

27:13 think there's ever any real formal arrangement here. It's basically a handshake deal. Yeah. That's correct. We will make your movements handshake deal for ninety nine years. Yes.

27:22 All of Rolex, everything it becomes. This is the basis of it. And so they weren't exclusive yet. So in nineteen oh five They're placing their first order. And there's already a little bit of a dance that's starting to happen where

27:36 Of course the front of the watch on the dial is unsigned. So the retailer can put their name there. This already is starting to rob Hans the wrong way. He kinda feels like these are my watches. Why does the retailer get to put their name on it? And so he goes to Aigler and says

27:52 The ones we're gonna sell, these are Wilsdorf and Davis watches. I understand you made the movement But we gotta brand it somewhere. And so he gets Aegler to buy in on this idea that On the movement.

28:04 They're gonna put a W and D. And then also inside the case back for whoever they're buying the case from, they also inscribe W and D. And so that's the state of things here in nineteen oh five and those first few years after is there's a W and D on the inside case back on the movement. But not on the face of the watch.

28:24 Yeah. Which gets into the type of watches that they're making here. Now we're still in Pocket Watch Land. The wristwatch.

28:32 vision hasn't really entered Hans's brain yet. Even though Egler's specialty is these. Small miniature movements. So Remember what Hans said about his earlier British employers and their lack of specialization.

28:45 He continues in his autobiography talking about How he decided to do things differently. Here at Willsdorf and Davis. Quote, I undertook the financial side and management of our concern. From the very outset, our success was assured by our fundamental policy to trade only in specialty.

29:02 horological products and especially in new lines. The first specialty we adopted was Called a portfolio watch. Cased in the finest quality leathers.

29:13 This line I immediately placed in large quantities on the market, the range covering every possible style and design. So Again, we're not at wristwatch yet, but he's like The way that I'm gonna succeed and break through here is through differentiation. Yes, to do something different. It's like we always talk about the most important thing to build a huge successful business is to do something different.

29:35 and unique that people have to come to you for and can't go to the commodity markets. Now that doesn't necessarily mean you're right. Yeah. Cause he's not right with traveling watches. We don't tell any of the stories here on Acquired of all the people who wanted to do something extremely unique and different. And was not what the market wanted. But it's the classic you have to be contrarian and right. Yeah.

29:58 And you know, I I don't know, I guess reading Maybe he was right. It sounds like the traveling watch was a success enough. He probably thought it was a success. At the time. Yeah. So then

30:08 As legend has it. One day, shortly after starting the company and focusing on these travel watches, Hans is reading an account of the second boer war. In South Africa. Ben I never knew that all my like European AP European history lessons. I tweeted this yesterday. I know, I know. Who knew that our livelihoods would depend on AP European history someday? That's right.

30:35 Anyway, Hans's reading An account of the second Boer War in South Africa. And he reads that these soldiers that had fought had worn wrist watches. So that they could coordinate

30:47 their movements and their firing times and all the troop movements, even while they were Holding guns. Do you know why in particular this war had them wearing wrist watches? Oh, I don't I just assume that the technology Had progressed enough.

31:03 existed at this point in time. They just weren't thought of as serious watches. That was part of it. Climate. Oh yes, of course. They can't wear their jackets and so they can't reach into their pocket and grab a pocket watch.

31:15 Course, because it's hot there. Yeah. Well, climate is gonna become important again here in the development of the Rest Watch. Industry. So the soldiers and officers there would use these wristwatches because even though they weren't as accurate

31:27 As pocket watches. Like you said, Ben, you probably weren't wearing a jacket Even if you were wearing a jacket, like if you're engaged in battle You gotta stop, put your gun down, take your pocket watch out of your vest, open the case. No.

31:40 The axis upon which you evaluate value is a different axis than when you're hanging out on the streets of London. Yes. Supposedly, as Hans is reading this, Like a bolt of lightning. Yeah, it's the key and say.

31:53 Well, hell, it's not just soldiers these days. It's actually like a lot of people. in the world that could benefit from having an accurate time piece on their wrist that they could just turn their wrist and look down and look at instead of A pocket watch.

32:07 Now the funny thing is He calls Egler. Maybe he writes to Eglar. I don't exactly know. He sends him a text. He places the largest order in Eglar's company history. Several hundred thousand Swiss francs.

32:20 for a bunch of these tiny movements. And the great irony of this whole thing is he's kind of wrong. The time was not right for wristwashes yet. The boar war was not The shove

32:33 that the world needed to say, Whoa, wrist watches. The soldiers come back from the Boer War and it's still kind of the wristless era. There's not really enough inertia. To make it takeoff everywhere. Now it's kind of okay because Willsdorf and Deus is still this

32:50 small company, so they don't need that big of a market to address. to feed the needs of the business. But it would be another ten years before World War One happened and you had this Incredible. unfortunate tailwind saying, Oh my God, we need tons of wristwatches now.

33:07 Yeah. There does start to be a market. For Serious time keeping. wrist watches, particularly in the far reaches of the empire. So Australia

33:17 South Africa, of course, after the Boer War, and especially India. These are places where you're probably not wearing a jacket or a vest that much. So this is the initial seeds of The wristwatch.

33:31 market for Well's Dorph and Davis. So interesting. But Hans is like a true believer at this point in time. This is gonna be the future Way beyond just the empire.

33:42 People in Britain are gonna want this too. It's obvious to him. Why you wouldn't want to have to reach into your vest. To bring out your pocket watch. He's like a zealot. He's a total zealot.

33:52 So he's like all right. We've got this killer product. We're first to market. We're basically gonna invent this whole market. We need a name for her. The product. We need something that's gonna

34:02 Make consumers know to ask for This product for our watches. We need to Coin the term for the industry. And he's inspired here. By the Kodak Camera. Which by then had been around for a while and was made

34:16 Not by The Kodak Company, but by the Eastman. company. And Kodak, I believe, was the first. Invented

34:24 product brand name. And it was a name that meant nothing. Yeah, I think that's right. And it intentionally meant nothing. It was easy to pronounce, it was easy to say, you could see it once, it was very memorable. It worked in any language, it was five letters. It had a great sound to it. So it supposedly

34:41 Eastman came up with with his mother using an anagram set. And he said that there were three principal concepts. That he was looking for in the name.

34:50 One, it should be short, easy to pronounce, it should work in any language. And it should not resemble any other name or be associated. With anything else. Yeah. Anyway.

35:00 Hans takes inspiration from this and he decides that he needs a kodak. For his new wristwatch. And he writes, I tried combining the letters of the alphabet in every possible way. This gave some hundred names, but none of them felt quite right. It was one morning.

35:16 When I was sitting on the upper level of a double decker bus, powered at that time by horses, Driving alongside Cheapside in London. That a good genie whispered in my ear Rolex. He's good at myth making. Many startups are named this way today. Totally.

35:36 And a few days after this fruitful journey, the Rolex brand was filed and then officially registered in Switzerland by Wilsdorf and Davis. Now This is a brand name. There's not yet the company name.

35:49 It's Rolex. By Wills Dorph and Davis. So they trademark it in Switzerland. A couple of years later, they trademark it in London. And you know, it's short, it's easily pronounceable, it's memorable. It's the same in every language, but there is this one other characteristic that makes it really perfect.

36:05 Which is Would you hear Rolex you can kind of think about rolling a crown of a watch. You know, that little knob that's sticking out from it that you use to wind the clock. It channels that.

36:20 And there's also the X kinda has a time keeping feel to it also. It almost is like the tick tick tick tick tick tick tick. A Rolex feels like maybe you're turning the crown until it hits the end or something like that. You can intuit the type of product that would be called Rolex.

36:37 Yes. Totally. So Hans's like okay. Great.

36:41 I've got my Kodak name. Got the brand. Invent this new category. How am I gonna legitimize this? With customers.

36:50 Well, I have this one cool trick that I used before. Exactly. I had the one cool trick. I'm gonna do the one cool trick. In nineteen ten, He sends The first one. Wrist watch movement.

37:07 to the school of horology in Switzerland. To be awarded the world's first. Wrist watch chronometer. Rating. Which is a big deal because people just did not think these things were accurate before. And without Aegler, they kinda weren't.

37:21 Exactly. Now Getting certified at the school of horology in Switzerland is Nice and all but This isn't an astronomical observatory.

37:30 This doesn't carry the same weight as Something like uh Oh, say the Royal Observatory there in England. So Hansen. Egler keep working on these products, refining the movements, Eglar's getting better and better at making

37:45 Truly great. Nineteen ten goes by, nineteen eleven goes by, we're here in nineteen twelve. Wilsdorf asked Egler specifically, hey. Can you produce a wristwatch capable?

37:58 of achieving an observatory time keeping certificate. And David, as you mentioned, the Royal Observatory. And Eckler says, Let me try. And let me get to work.

38:09 It still takes a couple more years. So he works for two years. And then finally in early summer nineteen fourteen. Hans takes One of Eggler's movements. To the Q Royal Observatory in England, K E W Q.

38:25 For testing. Now Q Is Not only A well respected observatory.

38:32 for astronomical and Specifically time piece testing. There in England. It's where all the marine chronometers for the British Royal Navy are tested.

38:42 The British Royal Navy at this point in time. We're talking the British Empire, the greatest Navy in the world. And it takes forty five days. They put it through the ringer to make sure that this marine chronometer is gonna get our soldiers, our sailors where they need to go. And Even more than that, it is of course. Affiliated.

39:00 With the other great observatory In England. The Greenwich. Royal Observatory. Yes. Which you know was where Greenwich meantime was invented.

39:10 We are talking like probably the most important time keeping institution in the world. Have you been there, David, to Greenwich? No, no, I wanna go. Have you? There's an awesome museum with the history of time keeping. When I spent some time in London of summer geez, fifteen years ago, I went and spent a day there. It was amazing.

39:29 Oh, we gotta go. Yeah. We'll stop by on our way to Geneva. Perfect. So Again, here we are. It's early summer, nineteen fourteen.

39:39 Hans has submitted. This wristwatch movement to Q. And after the forty five day rigorous battery of testing On july fifteenth, nineteen fourteen. It comes back.

39:51 And it receives the first class A precision certificate. Known as the QA. K E W dash A certification ever awarded to a wristwatch.

40:04 Cause for great Great celebration and fanfare all around the world. Except That it is three weeks. After World War One starts.

40:15 Yeah. So between the time that Hans had brought the watch in for testing and when it finally gets the certification. Archduke Franz Ferdinand is assassinated in Bosnia by a Serbian nationalist. the whole rat's nest of European alliances gets triggered and next thing you know

40:30 The whole world. Is at war. On the one hand, nobody cares about watches. There's a war breaking out. On the other hand Everybody cares about watching. Yeah. Exactly. Exactly. So it world war one is truly the first

40:43 Crucible moment for Rolex because it's the best thing that ever happened to the company in the industry. It made the whole world Also

40:54 It's very directly the worst thing. Because all of a sudden anti German sentiment in Britain Goes through the roof. Totally insane. There's all sorts of horrible propaganda. I didn't realize this till now. Do you know why

41:07 British people call German Shepherds Alsatians. Yeah,'cause they don't want to call him German. It's'cause of this. Yeah. There's all sorts of racism against Germans and England and in Britain. Which is Utterly ridiculous because the British royal family was German. So Queen Victoria

41:24 Married Prince Albert. Prince Albert was a German prince. The whole British royal family. was German. This is when they changed their name to Windsor because before Windsor Their family name was Saxe Hobergot. Which isn't gonna play well when you're at war against the Germans. No, no, no, no, no, no. Speaking of things that aren't gonna play well when you're at war against the Germans, you're not building a strong consumer brand. In

41:47 Britain in nineteen fourteen. Called Wilsdorf. Changing their name. Yeah. Will Starf and Davis also needs to rebrand. Despite the fact that at this point. Willsdorf is a naturalized

42:02 British citizen. And feels no affiliation to Germany. He really doesn't ever in his life consider himself German. Totally, totally.

42:10 But Yes. Is the birth of The company. Rolex.

42:15 So in nineteen fifteen. They renamed the whole company after the brand name Rolex and the Rolex Watch Company Limited. Is Founded. Well, David, I was about to ask you

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44:56 So How are we getting to Switzerland? Yeah, how does Rolex become a Swiss watchmaking company? Well. Obviously the anti German sentiment was part of it.

45:07 I think if that were the only factor, Rolex probably would have stayed In England. Yeah, at this point Willsdorf is a naturalized citizen. His wife is British. The company is called Rolex now, or they're working on it. It would have been fine. Yeah. However the other reason that World War Two in Britain is Bad for business for the new Rolex company.

45:28 Is that Britain imposes a thirty three percent import tax on watches early on in the war. That's gonna kill your importing business. Well, it's interesting. I read that and yeah, it's gonna make it tougher It's crippling, but it's still you could run a business. You could figure out how to pass those prices along to customers. That's often what happens in the case of tariffs. But One year later, at the beginning of nineteen sixteen, the British government

45:55 Puts the nail in the coffin. They completely banned the import of all gold and silver. They mean it. impossible for Wilsdorf to build this business based out of Britain. Cause a lot of times he's actually Exporting

46:07 the watches for sale in colonies, or he's importing a movement, he's importing a case, or maybe he's taking a local British case, putting it together, making a Rolex watch, and then it's getting shipped out somewhere else. And he's sitting there thinking I can't get these precious metals and I'm paying out the nose for these movements. This is stupid to run my business here. Yep. And I assume then as now

46:30 Rolex's margins in the precious metal watches are way, way, way higher. than in non precious metal watches. It's insane. A ten thousand dollar watch becomes a thirty thousand dollar watch when you add gold to it or platinum or whatever. Yep. The delta between It's like Apple selling memory. Exactly. Exactly. Yes.

46:50 Interestingly, in the hype of twenty twenty to twenty twenty two, The Precious metals were actually easier to come by as a customer because there was so much less demand to go buy a$30,$50,$100,000 watch. That those would kind of be lying around while the steel ones

47:06 were flying off the shelves and there were huge lines for them. Totally. So On the back of this, in nineteen sixteen Rolex first moves the assembly of the watches.

47:17 Two Bien in the Swiss mountainside near where Eglar is. Which makes sense. They set up a office and basically say, Hey You're making the movements next door, we're gonna put a case on'em right here. Yep, and then be able to export from Switzerland now to countries all over the world and not go through Britain first. Ultimately after the war in nineteen nineteen, Hans moves both himself And the official company headquarters.

47:41 to Geneva, where of course it still is to this day. And Even to this day, this is crazy. Design, sales, marketing, and I think final assembly. All happened in Geneva.

47:53 While production of the movement still happens up in the mountains in Vienne. It's super interesting. It would make sense if you are Britain to throw on some terrorists to finance your war. You gotta finance it somehow. And at the same time. It also makes sense if you're a business operating in Britain in this time to say, and I'm moving to Switzerland.

48:11 Yeah. There's this alternative reason to move the business to Switzerland, and Hans knows it. If he's gonna build a globally renowned watch company. He wants to do it in Switzerland. This company becomes Rolex of Geneva.

48:26 Not just Rolex. Again, I'm gonna look at this watch. All the way down at the bottom. Swiss made. Don't you forget it. Or you look at a Patek Philippe.

48:36 Geneve right there on the face of every Patek Felief watch. They are extremely proud of this. Geneve, I love it. Genev, Ben. Geneve. Oh, I'm gonna hear about that one, aren't I? It's okay. It's okay. We're ugly Americans here. Okay. So then the question is. Why? Does Geneva have this prestige? Why is Switzerland an amazing place for watchmaking?

49:02 Well David, will you uh indulge me and let me wind the clock back? I actually thought you were gonna start the timeline for this episode back in the fifteen hundreds. I was shocked that you only started it in the eighteen hundred. So perhaps this is a good time to go and tell

49:17 The history of watchmaking in Switzerland story. Okay. Great. A lot of this comes from Mark Bridge, who is the founder and CEO of At Present, a marketplace for unique jewelry from independent artists. Mark is one of David and my very best friends. And insanely, coincidentally, and lucky for us and you listeners, he wrote his master's thesis twenty years ago on the renaissance of the Swiss watch industry. Amazing. We're gonna link to it in the show notes. It's

49:45 Awesome to have this. resource available. very conveniently from one of our best friends. So All the way back in the 1500s, Geneva was a center of activity for the Protestant Christian world led by John Calvin. And if you know anything about Calvinism,

50:00 It is uh Very focused on moral uprightness. Yes. The Protestant work ethic. Yes. One of these tenets was banning frivolous things like ornamental jewelry.

50:12 Local goldsmiths and jewelers Instead Focused on watchmaking, since watches served a real function in the world and were not frivolous. It was sort of this exception to the rule. If you had that skill set. There's also human beings are human beings, no matter what rules you impose on them. It's like, you know, life finds a way.

50:31 Status always finds a way. That's a hundred percent right. So you've got the rise of Calvinism. Along with that religious reason that's sort of causing this local pivot of industries. You have one of climate too.

50:45 There are these long harsh winters. And so an industry that could be done indoors in a small physical footprint Was perfect. If you're gonna go pick a profession out of a hat to have in Switzerland Mountainous country, long cold winter like

51:00 This is a great one and especially because it's so valuable at this point in time. You can become an important player in Europe in the European economy. Making something that you can make in your climate.

51:11 Third. There's a cultural reason. So David, are you familiar with the term Etablissage? Ooh no Are you sure? It's supposed to be Swiss, not French.

51:24 I've been to Geneva and I've been to other places in Switzerland, but I know very little about its culture and history. Talk to me about terroir, I know exactly what you're talking about, but etablissage, uh, I don't know. Okay. Well, it's Swiss for establishment, basically. But what Etablissage means in this context is Is that it's this system, this sort of economic system that they established in the area of the Jura Mountains, where very small independent companies, often one to ten people,

51:53 Could focus on Something small, like a single component. And then you'd have dozens of these small companies work together to create the finished product. It's almost like a distributed manufacturing system. Ah, so this is where Egler comes from. This is why he's got the workshop in the mountains. Etablisage, yep. Exactly. And so with this specialization of labor in small companies, you could get really, really good at your tiny part, making say hairsprings that we'll talk about later, or these essential elements of watch movements. These tiny companies

52:26 by artisanal craftsmen these very labor intensive companies got really, really, really good and pretty efficient at making their one thing. So that's kinda the backdrop of how the Swiss are producing things. And lastly.

52:41 In the late fifteen hundreds, the French had been rising as a watchmaking powerhouse and And when the balance of power changed in France and the Catholics came to power The French Huguenot refugees who had talents in jewelry and metalwork and watchmaking fled to Geneva. Yeah, these are the Protestants that got kicked out of France. Yeah, that's exactly right. And so the Protestant safe haven of Geneva, they brought their watch making expertise or if they didn't have watch making expertise

53:08 That's all they could really do. if they were jewelers or or metal workers. Since you can't make anything too shiny and too. Off putting. Yeah.

53:17 So this is how Switzerland gets the reputation as the watchmaking capital of the world. Yeah. Exactly. Basically this creates centuries of momentum, especially in this distributed Etablissage system of how Swiss watches were made.

53:34 I kinda think about it as this beautiful blend of French beauty? an appreciation for aesthetic. And Swiss precision. Yeah.

53:44 Well, I mean it sounds like Switzerland itself. It's a Blend of French beauty and German precision. I love it. Well that's Definitely one big reason why.

53:53 Hans is like okay, we gotta move Rolex to Geneva to participate in this tradition. as we're now gonna be selling to the world. But the other reason is after World War One, they're like, Well, we're gonna be selling to the world now. Britain is still gonna be our largest market, likely, but Every country in the world is fighting

54:10 Or at least every European country. has troops fighting in World War One, they're all seeing the benefits of the wristwatch This is gonna be way, way, way bigger. After World War One, I need to be able to serve the whole world. So they wanna be in a neutral

54:24 Country. Yeah, yeah. And he just experienced like oh Britain puts these tariffs on and Gosh, well I didn't really have a market for Rolexes in Germany before, but if I did, I wouldn't have been able to sell in Germany. And like I don't want that to happen in the future. Who's not gonna put on a big tariff to finance a war? Switzerland. Switzerland. Yeah.

54:42 Super interesting. You know what else happens in nineteen nineteen? Well, now that we've set up shop next to Aegler for putting their movements in our cases, It's time for Us to get a little bit closer.

54:55 So Rolex and Aegler arrange for a deal. Where in nineteen nineteen, nineteen twenty Erman Egler, who's the son of the founder Jean. Buys shares in Rolex. Unclear what the purchase price was. That seems to be been lost to history.

55:09 And joins the board. So he owns about fifteen percent And so the board is Wilsdorf, Davis, and Aglar. There's a second part of the deal. which is Rolex actually buys shares in Aegler too. And this one's less talked about, but there were two companies that were big purchasers of the movements.

55:28 It's Rolex and Gruen. And both of them were watchmakers Gruen, I think was American. was their second biggest client and both of them But Eggler shares also.

55:39 Yeah,'cause Rolex did not focus on the American market until after World War Two. Correct. So The companies are a little bit more joined at the hip, but still not an exclusive partnership. Yep. And like we said before, I

55:52 Believe still even though There's this equity relationship. There's no formal contract. Governing the provision of movements here. Crazy. But you know, it's in both their best interests to keep it going.

56:04 Of course. So here we are now. World War One is over. We've had the chat GPT moment, shall we say, for wristwatches. All these soldiers from countries all over Europe and the world Experience the power of

56:18 Having an accurate watch on your wrist, they go home to their civilian lives, they wanna bring it into their life. And Who Makes the best. And most accurate.

56:27 Wristwatch. chronometer time keeping pieces in the world, Rolex. And so of course they're gonna buy Rolex. No, that's not true. No. No That is not what they're gonna do. It's Omega, right? Well, I think it's lots of companies. I mean, basically the market went from the very early adopters in the British Dominions, the far falling reaches of the British Empire before, to now like

56:51 All of a sudden it's this giant European wide market. Hm most of which says they have no idea about Rolex. They're like Rolex, whatever. I don't know what Rolex is. Like I've never heard of such a thing before. So I think it was like everybody was now rushing in. And even though Rolex had this history, probably had the best product, it just didn't matter. Right. There was just massive demand for this new product category of which there were many good options.

57:12 And Also, there was massive demand. But it was kinda like search engines before Google. The product still kinda sucked. You know, even really in many ways the Rolex product. Rolex.

57:25 probably kept better time. Than competitors. They were QA certified. QA certified, right? But

57:33 If you're wearing a wristwatch it's a lot more exposed to the world than your pocket watch. And You talked a little bit about how Complex and delicate. Please.

57:44 movements are and especially in a miniature movement that goes into a wristwatch. Any dust, any water, any humidity that gets into the case Is gonna Jam up your movement and your watch is gonna fail. Yep.

57:58 So I finally like had this aha moment when I'm doing the research. For this episode. I'd always thought it's just ridiculous. You know, you go look at the watch market now, Rolexes, all the other brands that like Waterproof to Fifty seven thousand million meters. I was just like what there's no depth that exists. David Rosenthal, watch aficionado, ladies and gentlemen. Exactly. But like why? Who cares? And then it's like oh

58:23 This is why waterproof watches are a big thing. It's not about water, necessarily. It's actually dust more than water. It's dust. It's humidity. It's if you're waterproof, that's shorthand for saying you're Element. Proof.

58:36 You're durable. Nothing is gonna get inside this watch and mess up your movement if water can't get in. You could subject it in a hundred meters of still water and no impurities would get in. Right. You could throw it to the bottom of the ocean and it'll Keep time forever, you know, et cetera, et cetera. Like, oh, this is why this is important. Yeah. And servicing was a big deal. Like you had to get your watch serviced often and the more dust and humidity and stuff got in there, like it might just break entirely. Yes, exactly.

59:04 Great. I like where you're going, David, because there's basically three big pillars of what makes a Rolex a Rolex, or frankly, what makes a good mechanical watch a good mechanical watch. There's precise, so there's officially certified chronometer. And there's The other two. What's the second one?

59:20 Oyster. Yeah, so like I said. There's demand for these products, but they all suck because they're not Element proof. Well.

59:27 Oyster. With Rolex Marketing speak for waterproof. So there's this great race among High end Swiss matchmakers. To now produce a waterproof

59:38 Rest watch. And A Swiss Case making company. Called Francis Baumgartner.

59:45 Which supplied cases to Patek and you know many other great watch brands. In the early nineteen twenties. They invent a new case style called the Hermetic. You'll notice that your Rolex does not say Hermetic.

59:58 The way they do it The watch keys. Inside another watch case. Oh, that's right, this is the weird hinge thing, right?

1:00:06 It's like a scuba helmet. They take a watch and they put it inside a scuba helmet that is waterproof. So it works. It does make Watches water and element. Proof. But it's big, it's ugly.

1:00:19 And most importantly You have to unscrew the outside. And take out the inside case every day in order to wind the watch. Right. Because famously the crown is the most dangerous

1:00:33 entry point for water or dust. So you can't leave the crown sticking out of the hermetic case or it would defeat the purpose. Yep. So That's the state of play through the early twenties.

1:00:44 And Rolex. gets into this too. They buy cases from Baumgartner and they make These are medic watches. You can go find'em. You see pictures of them in collectors books. It's got a hinge on the left side and a little clasp on the right side that goes around the crown. Yeah. And then this is so awesome. This is like a forest Mars moment from Hans.

1:01:04 In October nineteen twenty five. Two Swiss case makers. File a patent. For a moisture proof winding stem and button.

1:01:16 It's the crown of the watch, the winding system and the button where Water is most on dust or most susceptible to getting in, too. Yeah. And mind you, Rolex has been They had

1:01:28 At least three failed attempts to create a waterproof seal in house. Yes. The whole industry has. And Hans. Like Forest Mars.

1:01:39 Reads the Swiss Patent filing register. religiously, every day. He is reading All of the patents that are getting filed in Switzerland. So he sees this patent get filed and he's like, This is it. I gotta get this right now.

1:01:55 So he goes to the two guys that invented this. And he buys the patent. And makes it exclusive to Rolex. This turns out that this is the key component.

1:02:05 mechanical wrist watch that doesn't need to be Put in a jar. Yep. And when I was reading this I thought, oh Man, Rolex didn't actually invent the oyster case, they just watched someone else do it.

1:02:16 But that doesn't really matter. they saw that this was absolutely essential and Willsdorf jumped right on the opportunity. And said, Who cares who came up with the idea? We're in the position to commercialize it, to roll it out across all of our watches. I need to strike first. This is his genius. He's not a watchmaker. And Rolex. were not watchmakers until

1:02:37 They finally bougher in two thousand four. Hans's genius is he sees the vision for where the market's going, he recognized and innovation and he pulls it together and he makes it commercially viable and marketable. Yep. In a way that like This patent got filed in the Swiss patent register. Any of the other watch companies who Desperately wanted to solve this problem. Could have seen it too, but

1:03:00 He jumped on it. Yep. I mean, really he's like the Mark Zuckerberg of his time. Ooh, that's a good analogy. Yeah, I mean this is Instagram, you know, and then copying stories from Snap. Hans doesn't care. He's like, I'm gonna market this and I'm gonna make this the most successful thing possible. I don't care that we didn't invent it. It needs to be in our product. Yeah.

1:03:19 That's interesting. For anyone who's a watch person who's sort of wondering what actually was in the patent, it's essentially for the screwdown crown. The hermetic seal. On the all oyster watches going forward. And of course it's named the Oyster because

1:03:34 oysters seal when they're closed. It's a perfect thing to name it after. Everything works on a threaded system. So the back of the watch screws into the middle part of the case. And then the crown can screwed out also. So you have these airtight, watertight threads.

1:03:53 that keep any impurities out. So in July Nineteen Twenty Six. Hans and Rolex goes and registers the product name. Oyster. This is

1:04:03 Really, really big. And Hans He's like I am gonna go. Big Everybody in the whole world. Needs to know the Rolex name, needs to know that we are the exclusive owners.

1:04:13 Of the oyster system. He prepares To spend In Britain alone. Annual expenditures of over ten thousand pounds.

1:04:24 Just on advertising. For The oyster models. Dude knows how to build a brand. He's already Naming components. He's not just marketing Rolex. This is Rolex.

1:04:35 The only watch that has oyster. Yes. Oyster technology. Ha ha. A eighteen biotic. Yes. Really the parallels to Apple are just like incredible. Uh four hours from now I was gonna make that point, but

1:04:53 So He's prepared to spend all this money, he's got the product, but he's like We gotta do a big launch. I don't wanna just buy regular Ads in the newspaper here.

1:05:03 So in nineteen twenty seven, towards the end of the year The timing is right. And that brings us to a young British woman named Mercedes Gleitz. Now Gleitz was a secretary and bilingual stenographer in London, much like young Hans was back at Kuno.

1:05:21 Who happened to have a uh sort of unique Hobby. Of Endurance swimming in the river Thames in her. Free time. Which is

1:05:32 Insanely cold. Very cold. Even back then, quite polluted, but uh so be it. And she was so good at endurance swimming. Apparently she would swim for like Ten hours at a time.

1:05:45 in the River Thames. And so in October of nineteen twenty seven, she decided that she was going to attempt To swim across the English Channel. Maybe even more cold. Definitely cold. Definitely pretty choppy.

1:05:58 And she did. She became the first British woman. To successfully do so. That year in October. Nineteen twenty seven. However

1:06:07 A couple days after she completed her swim, Another woman emerged and claimed to have also Swam. The channel. But have done it faster. And now it turns out that that actually was a hoax.

1:06:20 And Mercedes knew it was a hoax. But in order to reprove herself She decided to stage a vindication swim that gets hotly covered by the press. Which, mind you, she's doing this vindication swim. She's already spent fifteen hours swimming across the channel. Yeah. Uh a miracle she's still alive. At this point.

1:06:40 Hans is like oh This is our moment. This is exactly the spectacle that we need. So he comes up with a brilliant marketing stunt. Of he is going to get Mercedes to do this vindication swim.

1:06:54 While wearing a new Rolex Oyster model. And uh what uh Rolex doesn't talk about to these days is a footnote to history of It wasn't actually on her wrist. Like a lanyard around her neck. Yeah, it was on a small chain that she wore around her neck.

1:07:10 But nonetheless, this is an incredible stunt. Nothing ruins a good story like data. Let's just smooth it over. Yes. This is still featured prominently on the Rolex website today. Mercedes's photo is everywhere. But it doesn't matter. I mean, at the end of the day, who cares if it was on a wrist or not? Yeah. She also doesn't actually make it. But that doesn't matter either.

1:07:32 That's the other crazy thing. I think it was an especially cold day or especially choppy or something. She makes it ten of the fifteen hours. So the design of the test is a little bit arbitrary. This is a watch, while it wasn't on the wrist and it didn't make it all the way from England to France. It was still in the water for a long time. For ten hours. Yeah. Pretty good. Um Product testimonial, shall we say. For a testimony. So

1:07:56 Hans After this event happens the next day. He Bies. The front page

1:08:04 of the Daily Mail newspaper, which is a nationally syndicated newspaper in Britain at the time. I didn't realize y you could do this back in the day. You could actually By the front page as an advertisement. I think it was common. I think it

1:08:18 was a while before the front page was actually dedicated to editorial and early on it was very common for it to be a full page ad. Yeah. So Hans does this and proclaims the success. An announcement of The world's first.

1:08:32 Waterproof. Rest watch. Fully enclosed in its own case without a second hermetic seal around it. And the triumphant

1:08:41 Launch of the Rolex oyster. So this is how Rolex tells the story. After I had heard this told a few different times I sort of expected to see this full page ad written in a certain way.

1:08:54 It is kind of buried. Maybe this is what the advertising style was back in the day, but the big words are not Watch Survive's English channel swim. The big words are Rolex Oyster and it says Rolex introduces For the first time, the greatest triumph in watchmaking

1:09:11 Okay, I still don't know what it is. Then I see a picture of a woman's face. Then it says, send for this colored brochure. It's free. Telling you to send in for more information. Then there's four sketches of the different watch faces you can get of the Rolex oyster. And then it says the wonder watch that defies the elements.

1:09:30 There's words all over the place. You finally finally get to the tiniest text in the entire thing, maybe the second tiniest font. In this little corner. It says

1:09:40 Moisture proof, water proof, heat proof, vibration proof, cold proof, dust proof. Either Rolex? hadn't found their groove in advertising yet. Or maybe people just read a lot more words back then, but if you put this up today and Art.

1:09:57 TikTok if I brains would be like Don't care. Next. There's way too many words and they completely bury the lead that she did a channel swim with this thing and it survived. It's hard to know how much of this is just the state of the art in advertising at the time.

1:10:12 Versus Hans designed and wrote all that himself. So one of his maniacal control things was I believe up until he died or pretty close to it. He did all the creative for all the advertising. Oh, I didn't realize that.

1:10:27 Yeah. We'll get to it later, but they do bring on the Jay Walter Thompson agency before he dies. Uh probably the the rest of the company's like all right all right all right, Hans. We gotta professionalize a little bit here. And that's when they get extremely good is in the sixties. Extremely good, yes. But I think it's fair to say There's two interesting takeaways here. One They hadn't found their groove in advertising yet. But two

1:10:49 Advertising hadn't really been professionalized. in a way that we would see in the Madman era. Totally. We're still before World War Two here. We're not. Yet in the modern world.

1:11:00 Yeah. The other thing that's really interesting is there's something about this that was sitting with me too doing this research. This is a major, major, major moment. The Mercedes Glihts. moment, the first brand ambassador of Rolex.

1:11:14 It's interesting. Yeah. The moment and the person that Hans chose for this launch was a woman. Super interesting. Back in nineteen twenty seven. Super interesting. Yes, the wristwat was a lady's item.

1:11:29 Before World War One, but after World War One Really, I would think the big market is the men's market. It's interesting dug into it. In this era. Rolex still was primarily a ladies' product. The men's market was growing. Oh but if you look at

1:11:45 their product catalogs really up until World War Two Ladies models outnumbered men's models two to one. Whoa. These are the little like Prince watches. Yep. Yep. And definitely Hans's vision was like a wristwatch is for everybody.

1:12:00 Men and women's But it's interesting that they were really women's focused. And then we did a little more digging and asked some friends And even to this day I believe the market of buyers for Rolex watches is basically fifty fifty. Men and women.

1:12:16 Which is insane. I never would have guessed that, especially because much of my research was lurking on the Rolex and Watches subreddits. Which are a very particular type of dude. And it comes across as a very male thing. at least the way that I'm exposed to watches. I mean you you read

1:12:34 the amazing journalism about watches on Hodinky and the whole world around appreciating watches. It's kinda male focused. It's like a portion of nine eleven. Right. It's amazing that Rolex's history indexes so heavily to women. And that even today they move a lot of units to women, even though that's not where I come across Rolex in my day to day.

1:12:56 Well it's certainly not where the enthusiast market is focused. Yes. But it's one of the really unique things about Rolex. So many of the other really, really high end watch brands, with Cartier as an exception. I think really are men's Brands.

1:13:12 Yes. Whereas Rolex, yeah, it really is fifty fifty. Amazing. All right. So that's Mercedes Glitz. That's the oyster story. And that

1:13:20 really is a huge watershed moment for Rolex and for the restwash industry. And she's effectively the first testimony. I'm not sure they'd come up with that terminology yet, but this w is something that they would lean heavily into as their means of marketing in the future. they would hate you calling it a brand ambassador. Yes, partner. It's a Rolex partner is what they call it. No, I think it's testimony. I'm pretty sure it's this like very particular word that they wanted to sort of invent and have to themselves.

1:13:48 And it's different than influencer marketing. It's different than the way that someone appears in a advertising a perfume for a five year deal. I think it's this very long term oriented you are a part of the brand and you are a part of the brand kind of for your lifetime. Flashing all the way forward's Roger Federer is the purest embodiment of this today. But That is to come in the future.

1:14:10 It turns out though back to the product of the rest watch Oyster Was huge. But it had a problem. Then, like you said, the key to making it work. You didn't have to have the whole scuba jar that you enclosed the whole watch in.

1:14:28 But the crown had to screw down. The crown had to screw down like a jar and so That meant that when you went to go wind the watch, you had to unscrew the crown. Pull it out. wind the watch, expose it to the elements, and then screw it back in.

1:14:44 Well, if you know anything about humans, probably at least half the humans on the planet. are not gonna be exactly fastidious about screwing their crown back in. Yes. There are three pillars. to what makes this a breakout product.

1:14:59 that enables the wristwatch to really have its iPhone moment. And that third of being perpetual, of being self winding, is Is the magic. Yes. And these things are so intrinsically linked. And I didn't realize until getting so deep into the research. Self winding watches

1:15:16 Are kinda cool on their own. But just like before, I was like Waterproof, whatever, why is that important? Self winding, yeah, seems cool, but how hard is it to manually wind your watch. That's what people were doing with pocket watches for Centuries.

1:15:29 It's actually because it's tied to the oyster and the screwdown mechanism, if you forget to screw your crown back down, you lose the element proofness of The oyster. Yes. Oh, okay. I can't wait. The way that The perpetual movement works.

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1:17:33 And just tell'em. That Ben and David sent you. So back to oyster and leading into the need for self winding and the perpetual element of Rolex. If you can create a self winding wristwatch, well all of a sudden

1:17:48 the element proofness of the oyster works fine for everybody because nobody actually has to unscrew the crown. You never have to pop out the battery and put in another one. You never have to charge your Apple Watch. You name the analogy, but you just set it and forget it. Yep. You walk around all day. Your watch keeps perfect time ish. And It's waterproof.

1:18:09 And you never need to wind it. Sounds like an amazing product. Who doesn't want that? That's a Steve Jobs like product right there. Yeah. Okay, before going into the nuance of how Rolex's particular

1:18:22 self winding mechanism works. I think this is a good time to explain. how mechanical watches work at all. What the key components are. And frankly, yeah. It's like alchemy. It's one of the coolest things ever done to prepare for

1:18:36 Una acquired episode was Go learn how a mechanical watch works. At a high level, you need two major components to make a timepiece. First, a way to store energy. And second, a way to release that energy in a predictable and precise interval.

1:18:52 Which seems like oh yeah, of course you could do that these days with, you know, a battery and electronics, but Imagine doing that. Without a battery and without electronics. Exactly. So yes, on that first one storing energy.

1:19:05 There is something called a main spring. Did you read about this in the research, David? Yep. A main spring can store potential energy. So imagine a footlong skinny piece of metal. that you wind real tight and you stuff into something called a barrel. This looks like a film strip that's kind of stuffed inside a film canister.

1:19:23 that you'd see a stack of canisters in a projector room at a movie theater. That's sort of what you should imagine, a real tightly wound Mainspring inside that barrel. Now Interestingly, to your point, David, this kinda begs the question. What is a battery?

1:19:38 Right. Yes, I said a battery. Technically that is a battery. Right. It's like a mechanical battery. since it's a way to store potential energy to be used later. Now amazingly the way a mechanical watch works these days is so energy efficient. That the main spring can store on the order of three days.

1:19:58 of potential energy. to take the watch forward. It's amazing. Amazing. Okay, so moving on, obviously this isn't sufficient on its own if you just release the main spring in the barrel, it would spin around real fast, it would make all the gears spin, and you'd let all the energy out at once. Break the watch. Yes.

1:20:15 So you need something to control the energy release from that main spring. And do it in slow, fixed. Time intervals. All mechanically. Yes. You need something to make the watch

1:20:26 Tick. Ayo. Yes. Watchmakers call this an escapement. Now

1:20:31 An escapement in a mechanical watch has two key components. to harness that potential energy from the main spring. One is a pallet fork. Come back to that. And two is something called the balance.

1:20:46 So how does a pallet fork work? Well a pallet fork looks like a little T. With teeth. on the edges of the top of the T. And it moves back and forth, a tick and a talk.

1:20:58 like the pendulum of a grandfather clock. And as it flicks back and forth Yeah. Moves. all the gears on the watch forward one tick.

1:21:08 Or one beat. And there's this That uh This may be several steps down the chain where it's not. It's actually usually like the our movement, right, that then drives all the other

1:21:20 movements off of that. kind of depends on the watch and what complications are in it, things like that. But yeah, the important thing to know is When one beat happens when the pallet fork enables everything to move forward one beat. What it's really doing is

1:21:35 Allowing what's called the escape wheel. To turn one click. And that drives whatever else is in the gear train for that particular watch. Gotcha. Which some watches is, you know, just hours and minutes, some watches is hours and minutes and seconds, some watches is

1:21:51 Date day moon phase. What you had for breakfast, et cetera. Right. And with these complications, which are the sort of features It's really amazing because you can sort of think through what the algorithm would be. to make such a complication, but when you're thinking through it, you're thinking sort of like a programmer. You're saying, Well if this, then that, you know, if the date is thirty one days. Yeah, these are not computers. Right.

1:22:14 All of the logic is encoded mechanically in a gear train. It's beautiful. Yeah. So Where we left off here is our escapement. We're we've got the pallet fork

1:22:25 And it's his little T and it's a tick and a talk. It flicks back and forth and moves the gears all forward one tick. So how do you get it to tick back and forth? What is the mechanism by which This pallet fork goes tick tock, tick tock, tick tock, tick tock. This is where we introduce a big hero of the whole Mechanical Watch story.

1:22:44 The balance And the balance. Also has two parts. There's a balance wheel. And a hair spring.

1:22:52 And these two things are stuck together around the same center point. So picture the wheel of a bike. That that would be the balance wheel, kind of like a hula hoop. And then the gears go around the same axle on a bike. You know, you can imagine that you've seen the rear wheel of a bike. In this analogy, those gears are the hair spring and the outer wheel is the balance wheel.

1:23:14 So that's what this component kind of looks like. The hairspring. Looks really cool. It is another coiled up piece of metal. although it's much looser and more fluid than the tightly wound mainspring that we talked about earlier.

1:23:28 Unlike everything else that is incredibly tight. Inside a watch. This component, the balance. Almost floats. And it moves with really low friction.

1:23:39 It's weird'cause it's the opposite. Of everything else that's in the whole watch. And the way it works is The hairspring spins really fast in one direction. And for anyone who's ever taken a spring and tried to uncoil it.

1:23:52 you know, you kinda note that it only goes so far and then it wants to go back to its resting position. And then you try to go the other direction and tighten it a little bit, and that doesn't work either. And it wants to go back to its natural resting position. That's what's happening here. So You've got The hair spring

1:24:08 Which spins really fast in one direction. And then the energy that it has stored is overcome by the mechanical resistance of unwinding the spring. So it stops and then it spins real fast in the other direction. And this cycle goes back and forth, spinning back and forth, tick and tock, and flicking that pallet fork. back and forth to continually release one little interval of energy. And one little

1:24:33 advance of the whole gear train. It is beautiful. Amazing. You can totally see why for The right kind of person.

1:24:41 This is like a portion nine eleven, or like it's just catnip. You can't get enough of this. That's exactly right. And you know, you end up with fancy names and proprietary things that Rolex makes in the far future called a Parchrom hairspring that has these amazing renders and animations and videos of how it works. It's gorgeous. Now this happens really fast. This isn't like I just described it.

1:25:03 Where you go really far in one direction and then you run out of energy and then you come back. This happens three, four, five, six times per second, depending on the watch. And that's if you hold a watch up to your ear and you hear tick tick These beats. That's what you're hearing. So the pallet fork

1:25:20 drives that whole gear train. releasing energy that powers the hands and all the other complications, the day, the date, et cetera, at exactly the right pace. So when you take a step back and you look at it all, The craziest thing is that It depends on the exact physical properties of of the metals that are used.

1:25:37 The time is literally kept by the physical laws of the universe. Elasticity, tensile strength, inertia, Potential energy stored by specific materials. And they have this down to such a precise science today that watches keep time. Certified chronometers keep time. Within

1:25:56 two seconds per day. Bonkers. It's Awesome. I just named four parts of a watch. There are two hundred parts. This is an oversimplification, but kind of the general concept.

1:26:08 Of how a watch works. Yeah. Also amazing. I mean Things like There are jewels in the watch because

1:26:16 All of these gears need to turn on things that create friction. And so you need extremely low friction things. And well, it turns out that like actually rubies and sapphires that are milled into little nuts are the best way to do that. And so their actual jewel stones inside your watch that are being used for a mechanical purpose. And because jewels can be really hard minerals and you don't want these things to wear out. And so when you're slapping something back and forth six times per second, You want to make sure that

1:26:46 I mean most Rolex watches don't need to go in for service until every I don't know. Once a decade, it's crazy that these things just don't wear out. I mean gosh, the Daytona I'm wearing right now. I don't think it's ever been serviced and it's at least fifteen years old, if not more than that. And Keeps time perfectly.

1:27:05 It's so cool. And this is a five hundred year old art. The idea of the Mainspring that applies energy to a escapement that has a balance wheel and a hairspring to oscillate it back and forth. This isn't new. Every piece of digital technology, heck, most analog technologies

1:27:24 R Invented after this. Totally. So To bring us back to the perpetual on your

1:27:31 Rolex watch. You can imagine that adding This element of self winding To the insane complexity that has been developed over centuries with extreme tolerances that are already in these watch movements. Not exactly a trivial thing to do. You can't just code it up in software.

1:27:49 No, and in particular what we're talking about here is Remember I talked about the main spring that stores three days worth of energy inside the barrel all coiled up. There's a ton of resistance on that. I mean, if you think about if you pop open a crown on a watch and you go to turn it with your thumb It's kind of hard to turn.

1:28:06 And so if you're gonna come up with a self winding mechanism You need some way in which you are using mechanical advantage. S wind something that's already wound really tight.

1:28:17 Even tighter. Yes. So Here we are in the late twenties. Right around this time.

1:28:25 A British Watch Inventor. Nam Harwood. Comes up. With

1:28:33 An automatic system. For watches. Now interestingly That wasn't his end goal. He was trying to create a waterproof System.

1:28:42 Just like Rolex was. And The way that he went about it was he said, Oh Yeah, like we were talking about It's

1:28:50 The winding crown that is the weakest link in the element proofness of a watch. What if I just start by eliminating the winding crown? Can I do Yeah. And supposedly he gets inspired one day by watching children play on a seesaw. And that gives him the idea for his method of how he creates something called the hammer system of uh a hammer going up and down and hitting

1:29:13 Different ends inside the watch as the rest moves around. Turning it crank crank crank crank crank. Yeah. So He invents.

1:29:22 This system. And just like uh his Swiss counterparts who invented what became the oyster system under Rolex, he patents it. Now What he decides to do

1:29:33 is rather than making a watch out of this He's gonna create A company That's just an IP company and he's gonna license this self winding IP to other watchmakers. Huh. Which he does, and a couple watchmakers out there take him up on it and incorporate it into their products.

1:29:53 However, it doesn't prove too popular in the marketplace. Because A consequence of how he designed the system. The

1:30:04 Manual winding capability in the crown is eliminated entirely. Oh so if your watch stops If you don't wear it and you lose the charge in the main spring, Good luck getting it going again. You gotta wear it for days or whatever to just get the energy back in there and then you can set the time set the time. Oh, interesting. So that's a pretty big flaw.

1:30:25 In This watch. But Because of how the patent was granted, at least in the UK. He and his company were

1:30:34 End up holding the rights. To all self winding watch technology. In Britain, yeah, no matter what the method is, or at least that's my understanding. Brutal. Hans, of course, and Rolex. S'inos hідs an automatic system.

1:30:54 for the oyster to really unlock the potential of the product and Fully break the wrist watch. product for the marketplace here. But his hands are tied. He can't do anything, at least in Britain, as long as Harwood has

1:31:07 This pattern. And Hans knows that Ultimately the method that Harwood uses Is not good. He's not gonna license from Harwood because He knows it's an inferior

1:31:18 Implementation. Yeah. And then fortunately Fate strikes and the market does its thing. And in nineteen twenty nine, Harwood's company goes bankrupt.

1:31:28 Probably aided along by the stock market crash of nineteen twenty nine and the entering into the Great Depression, et cetera. So Finally the door is now open for Hans and Rolex too. Complete the product here. Yep. And while we're here in nineteen twenty nine, just a quick reference point for folks.

1:31:44 There was an article published at this time that said you could get a Rolex for as little as twenty five dollars. Even if you inflation adjust that. It's like four hundred and fifty bucks today. Or for as high as a thousand dollars. Which is eighteen thousand.

1:31:58 Rolex's top of their line today is a lot more than$18,000, and the bottom of their line is a lot more than$450. But that gives you a sense of the type of wealth you would need. in order to purchase a Rolex at this point in history. It was a meaningful purchase, but not a purchase reserved for only the elite class. Definitely not. Rolex at this point.

1:32:21 is not a luxury brand. Correct. It's going to transform into one over the ensuing decades, but No, now, you know, Hans was really, really focused. And his genius and contribution to the field. was on creating the product.

1:32:37 And he wanted the wristwatch to be on Every wrist in the world. Yeah. Which he achieved.

1:32:44 So here we are in the early thirties. After a couple of years of work. Rolex finally cracks it and patents their own Rotor quote unquote self winding.

1:32:55 Which still to this day is the Primary method of self winding. across the entire industry. This is a Perpetual rotor. at the back of the watch case that spins around in both directions and captures kinetic energy.

1:33:10 As the wearer moves their wrist around. And importantly, unlike the hammer movement, It spins three sixty freely in either direction, so it's not hitting anything. Yep. One of the other problems with the Harwood system. was when the hammer struck each end it made a noise.

1:33:26 Oh really? Yeah, yeah, you'd wear your watch and go like clack clack clack clack clack. One of the initial marketing points for The rotor system, the perpetual system that Rolex comes out with. is the silentness of it, they call it the silent self winding system.

1:33:41 Mm. Oh, that's really interesting. And it's genius. You know, y you can imagine and I'm sure people have seen videos or photos of a self winding watch. Imagine a disc. That sits around A

1:33:53 Center point. And then you cut off half the disc. And so what happens is whenever you're you're swinging your wrist around or Because it's a near frictionless system. Whenever you tilt the watch at all. the heavy side of the rotor falls down due to gravity to whatever side is lower. And so you're just constantly all day

1:34:13 inadvertently spinning this perpetual rotor around and around and around and using that to wind the main spring. Yeah. It's an incredible Innovation and

1:34:24 feet of engineering stacked on top of all these other incredible. feats of engineering that go into mechanical watches. When they first start, you know, you're adding a new layer to the movement when you do this in the back of the watch. It makes the watch back protrude a little bit. Oh, the bubble back? Yeah, yeah, yeah. These early oyster perpetuals that are first launched into the market.

1:34:45 are known by collectors as bubblebacks now because the back of them sticks out a little bit onto the wrist off of the lugs. It's so cool. And the other fun thing about this is it is legitimately an invention by Rolex. Oyster was licensed, the credit for how accurate they were was really all Aigler's innovation. This is the first time we're really seeing Rolex RD. figure out some brand new breakthrough contribution to the watch world. Yeah.

1:35:11 And once this is in place. These are The three key pillars. Of Rolex technology.

1:35:20 And really all mechanical wristwatch technology of quality from this point forward. You've got The accuracy, the chronometer, observatory certified. You've got waterproofness, element proofness via the oyster. And now you've got self winding. With the perpetual.

1:35:35 Oyster Perpetual. Here it is. That's all here. Yeah. So

1:35:41 In nineteen thirty four They launched the full system. The oyster perpetual chronometer, the bubble backs, known by Collectors. And for the first time

1:35:52 de Introduce A new look. For the watches. A two tone mix.

1:35:59 Of steel and gold. Yeah. That they call it. Roll a saur. It really just rolls off the tug. Right there on your wrist, David. Right there. Not on my uh Daytona, but it is on my date just. This is the golden steel mix that is now just An iconic

1:36:18 Rolex look. And that's where that center link is the gold and the outer two link are the steel. Yeah. Now you're talking about the bracelet there. Bracets for a long, long, long time, are made by third party companies. Rolex contracts them out. But That look even

1:36:33 goes on to the case itself. Oh okay. The bracelet usually echoes the case. But combining gold and steel. Within One watch encasement.

1:36:43 Wiza. New look, shall we say. You know what else kinda carry us through to today, which is kinda interesting. Rolex and just most tool watches have fluted bezels. The flutedness

1:36:55 is because it makes it easier to grip. So when you need to screw the back off That was the original reason for fluting was to give you a screw head effectively to get leverage to pop it off. Yes. Want it.

1:37:07 So Okay, while we're in the early thirties, just to breeze us through a bunch of other interesting stuff that's happening. The first time the Crown the logo, the five point crown starts appearing is nineteen thirty one. Nineteen thirty one was a weird year because

1:37:22 Rolex was just starting to figure out this perfect product mix And at the same time the world is heaved into a great depression. And the British pound is devalued. So exports out of Britain drop by two thirds.

1:37:37 Crisis happened. So Rolex is looking to internationally diversify. So they open new offices in Paris, Buenos Aires, and Milan. They organiz these trips to South America, the West Indies. China, Japan, they're really trying to figure out how do we stabilize things while the world is in crisis. But They've got the right product and market.

1:37:57 Yep. I feel like there's an old um. Sequoia saying, or at least a Mike Marit saying that Recessions are the best time to innovate. Mm.

1:38:06 'Cause coming out of the recession, you're gonna have the best product ready to hit the gas. Right, and fewer competitors. Yep. Exactly. I will say very interestingly, in nineteen thirty two, Omega released a waterproof watch. Which is I don't know, half a decade after Rolex. This is considered to be the world's first dive watch. No one talks about this today. You hear Dive Watch, you think Rolex, but Omega had the first dive watch. You think submariner, yeah.

1:38:30 Ooh, I've got some really, really, really fun World War Two dive watch stuff in a second. Oh, great. But before we get to World War Two Okay. In nineteen thirty six, I feel like this is a big moment and kind of exactly what you were saying, as your competitors Fall off a cliff.

1:38:46 Due to economic hardship. there's an opportunity if you have the right product that's working well in the market to kind of consolidate power. This is when Rolex goes to Eggler and says, Hey We wanna take

1:38:57 All of your production. And so Gruen stops buying movements from Aegler. This is where I think Rolex may have bought the shares back from Aegler, but again, we don't know and we'll never know because no one at Rolex will ever talk about that. And this is also when Agl adds Rolex to its name.

1:39:14 Manufacturer of Rolex watches. Yes. So take us into World War Two.

1:39:21 At the beginning of the war in nineteen forty Remember, Rolex is in Switzerland. Exporting to the UK, which was still by far Yeah. gets cut off.

1:39:32 Supply lines from central Europe. to the UK are cut off. After France falls. And so Rolex and all the other Swiss watchmakers are like

1:39:43 Well shoot. Okay. If we can't get to England. find other markets to sell to. It's like the beginning of Covid when you know all these companies were Making up other products and doing uh all sorts of stuff. This is

1:39:56 My very favorite. Sidebar piece of trivia. Ooh, I have no idea where you're going. So do you know What Rolex did in Italy.

1:40:06 During this time. I have no idea. They're casting about. They're trying to find Something. Their retail partner in Italy.

1:40:15 Gets a contract from the Italian Navy. To supply watches to their divers. And so this Italian retail partner comes to Rolex and it's like, Hey We got a contract for dive watches. Can you make dive watches for us?

1:40:28 Hm. And Rolex is like, Yeah. Sure, we can do that. We can't sitting on our hands here. At our factories. Which is funny'cause this is like

1:40:35 A decade and a half before the submariner. Yes, yes, yes, yes. This is the first dive watch that Rolex makes. Can you guess the name of the Italian retail partner? I feel like it's gonna be uh

1:40:47 I don't know, car company. No, no, no. It's even more on the nose. This is Panerai. This is the Panter I Watch. So you know, anybody who knows Paner I Famous, you know, very Art Deco style dive watch. They have two main models now, the Luminore and the Radiomere. Yeah.

1:41:05 Panerite was a retailer before World War Two. They weren't a watchmaker. Whoa. And then after the war. Penna, I kept going, making These watches. Isn't that amazing?

1:41:15 Totally amazing. And this also underscores Another reason why Switzerland was such a watchmaking powerhouse. This is a very engineering heavy industrial thing. And they didn't have to Devote.

1:41:27 Any resources to the war because they were Completely neutral. And so all of their craft people and machinists and everything can keep making watches. Yep. And so here they are selling to the Italian Navy on the Axis side.

1:41:41 Meanwhile, the thing that they're most focused on is trying to figure out some way to start re exporting to Britain, selling to their old main market on the Allied side. They do figure out later in nineteen forty. How to get watches back into Britain.

1:41:56 They sort of launder them first through Spain and Portugal and then Through the Strait of Gibraltar, get up to Britain. Huh. This Becomes.

1:42:04 Critical. Because What is World War Two that World War One was I mean, World War One made the market for the wristwatch, right? But World War Two Made the

1:42:14 Precision. Wrist watch market. super important. If you're a soldier in the trenches in World War One, Yeah, you need to coordinate movements and time and whatnot. If you're

1:42:25 A military service member in World War Two. It is a very technical war involving a lot of technology, involving airplanes, involving aircraft carriers. And synchronized attacks. All sorts of things. Tanks synchronized attacks, all this stuff. Stealth. So the air battle of Britain You know, it's such a key moment in the war, key theater.

1:42:44 All of these British Royal Air Force pilots. They're all wearing Rolex watches. Because at this point Rolex. Make the best.

1:42:53 Wrist watch is the most accurate. The most weatherproof to all the elements. You know, you're going through all sorts of pressure changes, going up, going down, you know, these cabins, quote unquote, if you could call them that of World War Two fighter planes. There's no pressurization in there.

1:43:07 These watches need to be able to withstand a lot of elements Usually you're navigating by them. You might be flying in the dark. Wow. Super, super important stuff.

1:43:18 Again, I would push back on it was just I would suspect Omega is the leading brand. At this time. Omega was thriving in the forties, fifties, even into the sixties in the Swiss watch world.

1:43:30 Yes, that is definitely true. Rolex weren't the only ones. That were Selling to both sides here. Hm. Bye.

1:43:37 Nondetheless, World War Two is Really changing the nature of what you need out of a restwatch. And air battles are maybe the most visceral But then you start to think about all the other stuff that went into World War Two, there's radio communications, there's radar.

1:43:55 There's early computing There's nuclear weapons and technology coming out of that. There's scientists that are building all these things. And time is like a really, really important element for this stuff. So you've really got this birth of a new military use case, but then soon to be transitioned to

1:44:12 Professional need for watches and for time in the world. Hm. So interesting. Well coming out of the war.

1:44:20 Is really when Rolex starts to figure out their product lineup. me we talked about oh they had the perfect product at the perfect time with this Oyster Perpetual Officially Certified Chronograph. Well

1:44:34 What that looked like in product form was all kinds of crap. They all said that. And that's how they all worked. But the cases were everything you could imagine. It's not like you could browse on their website and see, we make these six main families of watches with these sub variations underneath. It was far from it. You look at these old

1:44:54 advertisements and catalogs and you're like, I don't even know what that thing's called. Because it just looks so different than everything else. As they're coming out of the war. this is when they're starting to figure out oh a standardized product lineup and not quite yet, but soon

1:45:08 We're gonna build brand around each one of these things and who it's for and what it says about you if you wear this type of watch. Yes, you are foreshadowing tool watches or sport watches. A watch for a specific technical use case or More accurately.

1:45:25 A watch that says something about you as the wearer. That is The legacy of World War Two to come on the product side. But first, just on the market side. As soon as the war is over

1:45:37 There's no more European market. Europe is in shambles. Oh But you know what market there is It's America. Yeah, you know who didn't have their cities all just destroyed and bombed to oblivion and has disposable in Cub and GIs returning home. Yep.

1:45:54 You know, who is A top the New World Order now. At least on the capitalist side. I don't think communists were buying a lot of Rolexes. I'm sure there's some crazy stories about black market. communist dealers of Rolexes to Russia post world war two. I'm sure that happened.

1:46:10 There must be I'm pretty sure Castro famously loved Rolexes. I think he even wore two. There's like some photos of him where he's wearing two Rolexes. Amazing. Amazing. Yeah, I'm looking at it. Here it is. He's wearing

1:46:30 I think it's a Rolex GMT and a submariner on the same wrist. Yes. He referred to one as a backup in case the first stops working, but that's extremely unlikely. I suspect it's to keep Moscow time. Or he just wanted to wear two Rolexes on his wrist'cause he could. Yeah, right, exactly.

1:46:46 Okay. Well the non black market for Rolexes after the war. If you're gonna go somewhere, you're gonna go to America. Um Hans and the company.

1:46:58 Just about the most genius, you know, three putt scheme to get there. Imagineable. Three putt scheme. Uh get this. So in nineteen forty five. Tiger Woods wouldn't. Rolex brand testimony. Yep. Okay, so nineteen forty five. right after the war ends is also the fortieth anniversary.

1:47:22 of the founding of Willsdorf and Davis, the Ruby Jubilee of the company. For the occasion. Rolex launches their finest model yet. The date just And this is the first

1:47:35 modern Rolex. Still an iconic watch sold by the company today. Yep. It's just beautiful. I've got one here in front of me. For a lot of people, if they don't picture a submariner when you hear Rolex, they picture a date just. Or a Daytona, but we'll get to that. Yeah.

1:47:50 And. Launched alongside the date just is the Jubilee bracelet. Which is the you know iconic beaded Rolex bracelet we all know now. They the Jubilee. Han senior member who wants to get into the American market.

1:48:02 He initially wanted to call it the victory bracelet, but uh his Swiss colleagues were like um That's not very Swiss. We are neutral. Oh so It becomes the Jubilee bracelet. Beautiful. It goes great with a fluted bezel. It just adds a little more pizzazz to the wrist.

1:48:22 Right around this same time. Rolex manufactures their fifty thousandth Officially certified Swronometer. Just happens, of course, that that model is the new. Date just.

1:48:35 So Hans decides that he is going to give this very special Rolex watch. To the Swiss general Henri Guisant.

1:48:45 Who led Switzerland through the war. National hero. In Switzerland. The Dwight Eisenhower of Switzerland, one might say. What does that even look like to lead Switzerland through the war? That's a good question. So Gisong gladly accepts This great watch.

1:49:06 Well, Rolex is really ramping production here now, so it turns out, you know, a few months later They make their hundred thousandth. Chronometer. That they uh have certified here. Oh, this one goes to Winston Churchill. This one, Hans, goes to

1:49:21 General Guissant, you know, newly Christened Rolex Convert and says. Would you please, on our behalf, offer this to your dear friend Sir Winston Churchill. Winston Churchill accepts Now Winston Churchill. Is a Rolex man.

1:49:37 Well, less than a year later, Rolex makes their hundred and fifty thousand officially certified chronometer. Once again In the Now, you know, new top of the line date just model. And Who does Hans go to? For this one.

1:49:54 Through not directly but with some influence of the fact That His friend Sir Winston Churchill wore it. He goes to General Dwight D. Eisenhower. American hero.

1:50:07 Leader of the Allied forces architect of the Allied victory in this new world order. And Eisenhower. Churchill.

1:50:16 Where's Rolex says, How could I not accept? And so now Dwight Eisenhower. becomes a Rolex man. And then a few short years later, in nineteen fifty two.

1:50:26 Eisenhower becomes president of the United States of America. With his iconic Gold Rolex. Date just. On his wrist at almost all times.

1:50:35 Yes. And this is the very first time That Rolex. Kind of gets the idea. of what all of their future marketing and positioning will be.

1:50:47 Which is those who command the world where Rolex. So At this time. Rolex. Finally brings on a third party advertising agency.

1:50:57 The J Walter Thompson advertising agency in New York. Rolex. And Jay Walter Thompson. In collaboration after Eisenhower becomes president wearing his date just

1:51:09 launch a campaign in the US, almost literally what you said, Ben. The tagline of the campaign is Men who guide the destinies of the world wear Rolex watches. They printed this. Yes on the advertisement. All over magazines across America. And maybe the world, too. I don't know. It's incredible. Men who guide the destinies of the world wear Rolex watches. Shameless. Shameless. So many things to say, like obviously today that would be, you know, people not men.

1:51:41 But it's also literally true. You know, you got Eisenhower, you got Churchill. We got Castro wearing Rolexes. I'm gonna save for later in the sixties and seventies, some of their advertising campaigns, but there are a few sentences that we just have to say. do show up. That is along these lines.

1:52:01 There's one that is When a man has the world in his hands You expect to find a Rolex on his wrist. This is Don Draper. This is better than Don Draper. A Rolex will never change the world. We leave that to the people who wear them.

1:52:17 Oh. I mean we could just end the episode here. Now that is brand positioning. That Is true brand positioning. And the fact that they engineered

1:52:29 Getting one on the wrists of the president of the United States is so genius. And interestingly, even though they started with Mercedes Gleitz, this idea of like human achievement and accomplishment and the top of their field. They aren't doing that in this era. It is about the people who command the world. And they later on come back to achievement and uh the people who are scientists and Again, I'll save it for the sixties and seventies, but This is a very clear positioning.

1:52:56 of those who command the world. Yep, yep. Now the problem I guess. with those who command the world as as just absolutely gangster as it is. Is ultimately you're you're talking about a small market. Now it's great aspirational, you know, it helps the brand halo and whatnot, but

1:53:15 More people, especially as we enter the fifties and sixties. wanna be Arnold Palmer, shall we say, then uh Wanna be Dwight Eisenhower. Yeah. One final little product sidebar on the date just that I

1:53:28 Just love. The original date just. had the date window. It's called the date just because it's a regular watch with a little window on the dial that has the number of the date of the month in there. In place of the three and You know, if you're picturing one today, you probably picture that magnifier that's sitting on the magnifier. The Cyclops eye in Rolex marketing system. Of course. Of course.

1:53:51 So the legend of how that came about. Is Hans second wife Betty Wilsdorf Mettler his first wife on a

1:54:01 died tragically in nineteen forty four, right before the end of World War Two. And that is actually when Hans sets up The Hanswaldorf Foundation. And puts all of his ownership of the company into it. Famously he never had any family heirs. There was no one to pass the company to, so he creates this foundation.

1:54:17 Yes. So his second wife, Betty, Love the date just. And still to this day the lady date just I believe is the single best selling. Model. In the Rolex catalogue. Well, yeah, they have like

1:54:29 eight watches for men and one for women. Of course that one's gonna fi fifty percent are bought by women. And you know women wear some mariners and stuff too, but like Come on. Yeah. You're concentrating fifty percent of your sales into one quote unquote model. Yes. So Betty loved the date jest. But had a tough time reading the small

1:54:48 Numbers of the date in the window. So as the story goes One day while Hans is getting ready in his bathroom in the morning. He's wearing a date dress and a drop of water drips. onto it right above the date window and it magnifies the date window. They made this stuff up, yeah, yeah. And he shouts, I got it, I got it. It's like the Eureka moment in the bathtub and

1:55:14 That is the inspiration for the Cyclops. window of the dates just. Uh if you're at Rolex and you're listening to this and you want to tell us no, it really is true, hello at acquire.fm. We will happily come to Geneva and talk to you about it. Yes. Uh okay.

1:55:33 So, Ben, as you were saying, though The date just. It's a dress watch. It's a watch that you wear If you are commanding the world. You're wearing a suit.

1:55:42 And you are amongst other respectable people. Yes. But what Rolex kinda does from nineteen fifty onward is Yeah, of course we make that.

1:55:53 But we wanna make a watch. that you can wear while you're doing your extreme activity. That's gonna look great when you show up to dinner afterwards too. Yeah. And that is the core of the brand today, which gets built in the nineteen fifties.

1:56:07 Under Andre sports watches. It's sports watches. It's the submariner, it's the explorer, it's the GMT master, it's the Daytona. The modern sport watches. And like you said, these are very different than what Churchill and Eisenhower are wearing.

1:56:22 Yeah. So Andre Heiniger, the second CEO of Rolex after Hans. Andre joined the company in nineteen forty eight. Right after the war. And he was a former lawyer, I believe, by training. Hm.

1:56:35 And he first goes to South America and runs the South American market for Rolex. And then he comes back to headquarters in Geneva. And he becomes the director of marketing. So he's the one who brings on Jay Walter Thompson. He's the one who does The Destinies of the World campaign. And then in nineteen fifty five

1:56:57 I believe he becomes the director of watches. And so Bringing on Jay Walter Thompson. revamping the marketing message, opening up the Americas market and really the US market. That's sort of his purview here.

1:57:10 And then later on. He starts working with Mark McCormick and IMG. Which is the Talent agency. And we'll get into further the testimonies. Oh.

1:57:21 What Andre realizes Is that now here in the fifties And into the sixties. Ahead. All the technology

1:57:31 And engineering and innovation that went into Rolex in the thirties to perfect the product of the wristwatch. That's no longer defensible. You mentioned Omega, but Basically anybody else, certainly any other Swiss company. Can make a

1:57:46 Perfectly. on parity watch to what Rolex can make at this point in time. There's thirty Swanies doing this. Yeah. Especially because of the tablissage. All of the component. manufacturers are outside the brand.

1:58:00 And so you just go around all the component manufacturers and Rolex is a little different because they have Aegler, but in general you can go around to find all the different tiny little shops that are making each of these components and buy it and make a watch. Totally. So all the stuff that Hans was a genius at Kinda isn't gonna cut it.

1:58:19 In terms of differentiation for this new era. What Rolex. is move beyond what the actual Product is on your wrist.

1:58:30 to more what does it say about you that you're wearing it. To the brand of The company itself, what a signalling is, what it means about you. This is the first step. Towards becoming a luxury brand. I don't know that

1:58:44 Andre and they were thinking about it necessarily as luxury yet, and it's not really luxury yet. It's much more lifestyle at this point in time. It would later become luxury. But this is his Real, real genius. So

1:58:59 From nineteen fifty three to nineteen fifty five. Rolex, and again, Hans is still running the company. He dies in nineteen sixty, but Rolex, Hans, Andrew. Wants a whole suite of Wild new models. Very different than the Date Just and the Oyster Perpetuals.

1:59:17 That we were talking about before. This is The explorer, the turnograph. The submariner, the mill gouse. And the GMT master.

1:59:26 These are What are Then initially called the tool watches. Yep. But quickly morph into becoming known as the Sport Watches.

1:59:34 Yeah, the industry kind of refers to them as sport watches or tool watches. Rolex calls them professional watches. Which is kinda funny'cause it's like the opposite of what you oh, a professional watch you would think is like the date just, but they're thinking about it more of like a professional driver, a professional race car driver. So that's their yeah. A professional pilot.

1:59:54 Yes. you'll continue to see this in everything that is in the Rolex universe is we don't want to be lumped into any sort of a category. So we have to refer to something entirely different. such that we can't be put into a box. Like they don't make sport watches. They make professional watches. In the same way that there's something called the Rolex Way. Oh, you mean like uh the Vision Pro is not uh Exactly reality. Like the Rolex Way, there's this YouTube video that they put out describing the Rolex Way. And they just list all the things that

2:00:24 They're not. It's not limitless because that's too limiting. Everything in the Rolex universe to be described in a way that it's too impossible for you to describe. It's just simply Rolex. A basic. Amazing.

2:00:39 Ah. Okay. So back to this suite of Really world changing tool watches, or at least watch world changing tool watches. Professional watches. David.

2:00:49 Professional watches, I'm sorry. First is the Turnograph. As perhaps foreshadowed by that uh really great name there. What a horrible name. That's the least successful of these watches that they launch. You're not gonna be buying any turnographs from Authorized Rolex dealers these days. But David, if you look at a turnograph, what's the original one look like?

2:01:11 Well, it looks like the GMT master. We'll get back to that in a sec. So the key feature The key professional feature of the turnograph. was it had a rotating bezel. Around

2:01:24 The dial around the face of the watch. that you could use for timing different events. As this was going to be for international business people who were making international phone calls and needed to time

2:01:38 The length of the cars. That's funny. Swing and a miss. Swingin' a miss. Not exactly really a romantic lifestyle you ought to be uh associated with. Saving pennies on your I guess at the time it was saving, you know, ten dollars at a time on Good long distance calls, but yeah, sure.

2:01:55 But It'll come back. The next least successful one is the Milgaus. I love this watch. I know. This one is awesome. This has a whole second life. Yes. It was designed. In association with the engineers at CERN.

2:02:10 In Switzerland. The particle accelerator. For scientists who are working While exposed to strong magnetic fields. And the idea was that this milgaus

2:02:20 was so well protected from magnetic fields that you could wear it in these environments. And it would still tell. Accurate time. Which you can understand why this would be a big deal if you have a metallic hairspring that is the primary thing making your watch tick. you walk into some of these environments that scientists are operating in and yeah, your watch is gonna speed up or slow down.

2:02:39 Yeah. So A little more romantic than uh timing international business calls in terms of the inspiration for this, but Not a large market for People who are

2:02:50 scientists or, you know, aspiring to work in strong magnetic field. Areas. So they discontinued that after a couple of years, but then they bring it back in two thousand seven. It's awesome. I mean it's got this like lightning bolt secondhand on it. Yeah. It's so cool. And the colors are great. It's got this really fun orange

2:03:08 I've been contemplating whether I want to get an explorer. Or a milgouse, and you know, it's effectively the same watch, but the mill gouse sort of has this very fun scientific origin and look to it. Right. Ooh. I could totally see you.

2:03:23 Rocking either one. It just feels me, doesn't it? Yeah, it does. You definitely have got the explorer, you know, you love Exploring, you know, backpacking, you know, you've got that great iconic picture. Is that still is that picture of you and your dad still up in my studio. Yeah. Yep, that's backpacking. Iceland. Yeah.

2:03:40 But I feel like the Milgals might be more you. I know. Both great watches. Oh, both great watches. Okay. That's number two. And then

2:03:50 The first really big one. The explorer. Ben, like you were talking about. Which The story is so awesome.

2:03:56 For this. So awesome. So supposedly It is made in honor of Sir Edmund Hillary and Tenzing Norgaze. summit of Mount Everest.

2:04:07 The first human summoning. Of Mount. Everest. Nineteen fifty three, I think. I believe it was nineteen fifty three, yes. And they wore

2:04:17 an oyster perpetual up that was sort of a prototype of what the explorer would be. Yep, all of these tool watches here, sorry, professional watches, all of them they prototyped. in partnership with various people who were living these lifestyles, doing these human achievements. Now

2:04:35 The legend is that Sir Edmund Hillary and Tenzing Norgay were working with Rolex. Wearing Rolex is Summoning Everest wearing Rolexes. And that is in the marketing today. That is the lore around the brand today.

2:04:51 And importantly, both of them become official Rolex testimonies, Brandon Bassner's partners. Afterwards. Yep. So they will for the rest of their lives. Tell you how much they love Rolex. However, Sir Edmund Hillary did not prefer his Rolex.

2:05:08 He had a Smith's watch. That he preferred to wear. And I think the Smiths was the official outfitter of the expedition. Okay. And Rolex was not. So I do

2:05:19 believe both watches ended up on the summit. I think that it's likely whether it was on wrists or in backpacks or what the deal is, but it's just funny that There's super tightly associated with Rolex is that summoning of Everest and like eh They were interested. It was sort of there.

2:05:36 Yeah. But the explorer designed for Withstanding extreme pressure changes. being able to go up to the summit of Everest and still work fine and gosh, imagine

2:05:47 Yet another modern endeavor where time keeping is critically important and means the difference between life and death. You need to rely on your watch when you're summoning. Everest. It's a really robust watch. There's not a lot of moving parts. There's not a lot of complications. There's not a spinning dial. Easily readable in the elements.

2:06:07 Exactly. Yep. So that's the explorer. goes on to become iconic. Extremely popular still to this day.

2:06:15 Then there's the submariner. An equally fun Origin myth. Story, shall we say. If you separated Submariner from Rolex, Submariner may actually be a bigger deal.

2:06:28 Submariner is its own whole year. franchise. Absolutely. Almost in the way that's like what if you separated the Dallas Cowboys from the NFL? Who's the more important bread like The sub is If you're gonna get a Rolex.

2:06:42 And you're intending to have multiple, you kinda should start with the sub. 'Cause it's just so iconic. You're right, it is really its own world. It was Sean Connery's watch even before you started playing James Bond and then he wore it and yeah.

2:06:56 All right, all right, all right, all right. Let's get into it. So the submariner is the Rolex dive watch. The professional diving watch. As we talked about, not the first dive watch that Rolex made. That would be the Panera. But that's not what you know. What you know is the sub is a great dive watch that Rolex makes and defines the category.

2:07:12 Yes. Works that is waterproof down to a hundred meters in depth. Not a lot of people who are buying these things are going down to a hundred meters, but here we go. Although I must say I think this is an overlooked thing about this category. That's a hundred meters in depth.

2:07:27 If you there were no pressure changes and you weren't whipping your hand around. It's nice to have a hundred meters of depth. So that if you're going twenty meters in depth.

2:07:37 And things happen. You might at some given second while you're whipping your arm around or something weird happens underwater. Approach the limit. Even though you're actually far from a hundred meters below. And to that point.

2:07:50 I believe at some point Rolex starts actually testing their watches to significantly greater depth than what is advertised for this reason. That's correct. Most of them I think are a ten percent extra margin of safety, but I think the dive watches are an extra twenty five percent. Yeah, you don't want to be like, Oh, I've got a three hundred meter depth watch and uh get down to three hundred meters and think you're good, but actually go to three oh five.

2:08:14 Yeah. You know, a hundred meter. waterproof watch is nice even just for going in swimming pools, and I'm not sure I would want a ten meter waterproof watch. It feels dangerous. Yep.

2:08:26 But It's not really about the waterproofness. So around this time Nineteen fifty two, nineteen fifty three. Much of popular culture is focused on A Frenchman named Jacques Cousteau.

2:08:40 Probably uh rings a bell to many of you. And Jacques Cousteau was the first world famous undersea explorer. He actually invented scuba diving. Oh, interesting. Yeah.

2:08:52 He was a total renaissance man, genius. And in nineteen fifty three, he's filming the documentary The Silent World in the Mediterranean Sea. That is gonna go on to win the Oscar, the Academy Award for Best Documentary, I think, in nineteen fifty six. But the whole world is Watching these exploits, you know, discovering the depths of the ocean, this whole alien world for the first time along with Shock.

2:09:17 And He's doing so and going down in these machines while Wearing Rolex watches. Great.

2:09:24 So great. Now Interestingly. There's not an actual formal relationship. Between Jacques and Rolex. And actually Rolex

2:09:34 was formally working with another undersea explorer who uh it didn't become nearly as famous. But Netheless Jacques was a Rolex fan. And then when the movie comes out

2:09:49 They're all wearing these Rolexes. And it's important to remember for people who scoot I've out there. You have a dive computer these days. I mean, even I remember when I got Patty certified, even your very first few dives, you're you're not wearing a dive watch, you're using a dive computer. At this time.

2:10:04 This was a legitimate tool that you needed. It's not gonna tell you your depth the way that a dive computer is, but In order to know your total bottom time and In the same way if you're summoning Everest. Well, even more so than if you're summoning Everest. You really need

2:10:19 A submariner, a dive watch if you're diving. This isn't cute. This is an essential tool to complete this extreme task. Yes. So, you know, that's great for marketing here. But then nineteen sixty two. The very first James Bond movie.

2:10:35 Doctor No. comes out. And as it is written in Ian Fleming's James Bond books. Yes, because of course Ian Fleming himself was a Rolex man. Of course, James Bond. Where's Frolex's? Now canonically

2:10:49 I didn't know this till doing the research. Did you know that at least according to Ian Fleming Cannon? James Bond's mother is Swiss and his father is British. Kind of like you might say Rolex itself is.

2:11:02 Oh interesting. So Sean Connery wears A submariner in Doctor No. And then Conrie, I believe, would wear subs for all of his spawn movies.

2:11:15 And Ben, like you said, was in real life a sub guy himself. I think that's right. There is no bigger. Peter, if you're trying to build a lifestyle brand One of the first lifestyle brands in the modern world like there's nothing better that you could do.

2:11:28 And this persisted from nineteen sixty two until nineteen ninety five. Yes, with golden eye. Yeah, when Pierce Brosnan came in, they wanted to refresh Bond's brand image. And they chose Omega for that one. Oh wow. Well, that's really charitable of you too. The Bond franchise there. No, it is.

2:11:45 Now come on. Omega paid them a boatload of money for product placement. They did eventually, but initially it was not a paid placement. Really? Uh huh. I was almost certain that ninety five was when they decided to bid out all the stuff. Well, let's put it this way. If it was bid out. Rolex would decline to bid.

2:12:03 Because Rolex does not engage in Ugh. Paid product placement. Well that's I assumed the only way that Bond would stop wearing Rolex. I mean, I guess maybe you could make an argument that You're trying to reboot the franchise around Pierce Brosnan. Piers Brosnan maybe is more of an Omega guy than a Rolex guy. There's some weird line that they used around trying to reboot him with more of a European modern flair or something. Come on. No way. I don't believe it. They freaking bit it out. There's no way that James Bond is not a Rolex guy.

2:12:35 And certainly eventually Omega is paying a boatload of money. to the James Bond franchise, so much so that there's a bump in omega sales every five years when a Bond movie comes out. A huge bump. GoldenEye was when BMW launched the Z three coupe, right? So yeah, gold knight was totally product placement central. And now Bond movies are like you know, the whole budget's covered by

2:12:56 Product placement. They only exist for product placement. Uh. I don't know. One of the sources I found on watches of espionage dot com Details. Apparently the costume designer reached out to Omega and was given for free.

2:13:12 A sea master. And there's a I think even a quote, there was no product placement incentive in nineteen ninety five whatsoever. I went to them and of course they were interested, but It was no more than helping us. They gave us watches for nothing. It definitely turned into a back up the truck boatload of money thing, but the Omega fans will insist That it was a

2:13:34 Organic thing at first. Okay. Maybe that's right. The point is from nineteen sixty two until nineteen ninety five If you

2:13:46 Like James Bond. And you wanted to have a little bit of James Bond in your life too, then you wanted to wear a submariner on your wrist. Yeah. It's perfect. James Bond does a lot of diving and then he goes right from, you know, diffusing the undersea bomb with the Bond girl to then popping up and going to this high class dinner afterwards. He's all wearing the same watch the entire time. It's perfect. It's perfect. It is. Uh. Super fun little coda on the submariner.

2:14:12 few years later in nineteen sixty seven, do you know the story of the sea dweller? Which I believe is still in the Rolex lineup to this day. It is. Is this the one that's like the super sub that's like a submariner, but you can go real deep? It's the super sub. Yes. So Rolex develops this in partnership with the French undersea exploration company Comics.

2:14:34 And There's this issue where helium would get trapped in the watch in the submariner, yeah, and the pressure would break it as you're coming back up. And so they developed the sea dweller, which is waterproof down to six hundred meters. And has a special helium release valve. This is ridiculous. No person who is gonna buy these

2:14:55 actually is gonna use this stuff, except for Comics employees that are being issued them. But It adds to the romance. It adds to the you know, like This is a lifestyle purchase. Okay, if you're already taking us from Submariner to sea dweller, you gotta take us to deep sea challenge.

2:15:11 This is the Ultra version. Yeah. Yeah. All right, go for it. So They develop a watch.

2:15:19 This thing is so thick. You're not putting this on your wrist. But they design a watch and they said, Well, what if we take this idea of originally the submariner? And then the sea dweller, and we make this thing called the deep sea. And there was an earlier version of this before James Cameron, right? Yeah. Well, the Cameron one, I believe, is the deep sea challenge.

2:15:40 Which is a Extra, extra version. And the challenge is the one that's the eleven thousand meter. Whereas the regular deep sea Is just regular all

2:15:52 thirty nine hundred meters. So you get the deep sea for thirty nine hundred meters, the deep sea challenge Uh. really get to the bottom, the eleven thousand meter. James Cameron On a man submersible.

2:16:03 Takes The Sea dweller deep sea challenge. And it actually is, I think, all of those brands. They like include the sub brand with the parent brand in this thing. Down to the Marianas Trench, to the deepest part of the ocean.

2:16:17 And this thing is like clipped onto the outside of the submarine because it's useless to have it inside. Like humans would get crushed by this pressure if they were on the outside. But the watch Keeps perfect time, keeps all the water out. all the way to the deepest part of the ocean.

2:16:34 Amazing. And of course, James Cameron testimony. Yes. Of course, of course. So that's

2:16:42 Going down. To the bottom of the sea. Very romantic. lifestyle, uh association. By the way

2:16:49 Isn't it interesting all these are in English? All these watches have English names. Yeah, what's the market here? It's America. Yes. Come on. So take us airborne, David. Yeah, so we've gone down. Now we'll go up.

2:17:03 That brings us to the GMT master. Grant it to me in time, Master. So In nineteen fifty five. Boeing.

2:17:13 Launched the seven oh seven commercial jet airliner. Based on a Air force air to air refueling. Tanker design. Well didn't know that until we're going to be able to do

2:17:24 This episode. Neither did I. And the next year, in nineteen fifty six, Pan Am The iconic American airline. begins flying intercontinental jet. Flights.

2:17:35 with the Boeing seven oh seven for the first time And the jet age. For the consumer. He's born

2:17:43 Jet lag. Mm-hmm. It's a new concept. Yeah. If you traveled across continents before, you didn't move fast enough that you uh Experience jet lag. So

2:17:53 Pan Am is worried about the effects of jet lag on its pilots. The pilots are, you know, going back and forth all the time. Across the Atlantic Ocean or the Pacific Ocean or whatever. And so they decide that the best thing to do is to keep the pilots operating on their home time.

2:18:11 So let's say the pilots are based out of New York. They need to operate on New York time even if they've just landed in London. Okay. And the way that they're gonna do that is they're gonna work with Rolex. And develop a new

2:18:22 Professional watch for their pilots. that can for the first time tell time simultaneously in two different time zones. Amazing. So Rolex takes the failed turnograph. Which isn't selling well, but has the rotating bezel, remember.

2:18:37 Bidirectional rotating bezel, importantly,'cause the submariner is just one. Mm Well I maybe not at first, but it eventually becomes just one so you don't, you know, screw up and Do something you don't want to with it. Yeah. And they change the markings on the bezel from sixty minutes or sixty demarcations that it was on the turnograph.

2:18:56 to twenty four hours and then they add in A fourth hand on the movement. That moves at a twenty four hour Movement. And so all of a sudden

2:19:06 You can now on one single watch face Keep track of two different Time zones. And the GMT Master.

2:19:14 Is Born, you are the master of time. With this watch. Legitimately very, very useful. Whenever you and I travel for acquired I set the complication in the lower right.

2:19:27 of my Apple Watch to be the home time. 'Cause it's just really nice to keep track of home time in addition to where I am right now. Totally. So That's pretty cool.

2:19:37 And eventually they launch Two tone. on the rotating bezel. The most famous of which being Red on one half and blue on the the other half, and the Pepsi. The Pepsi model.

2:19:49 Yes. So cool. They do all these great limited editions. The Sprite. The Batman. Gray and black. It's great. The community comes up with little nicknames for all the different color schemes that they do here.

2:20:00 Super, super fun. Now this is for air travel and jet travel. But of course the Pinnacle of nineteen sixties and nineteen seventies romance up in the air is Not

2:20:11 Air travel, but Space travel. Yep. Oh yes. Which brings us to the Apollo missions. For which Standard issue from NASA is The Omega Speedmaster.

2:20:24 Yeah, which again, I will say, bolsters my case that In this Omega was the big brand. Like Rolex Had a

2:20:34 target in mind to beat, and that target was Omega, who was bigger. Yep. But Even though Omega was standard issue. On the Apollo missions.

2:20:45 Not all of the Apollo astronauts chose to wear their standard issue watches. So if you go to Rolex headquarters There is An incredible

2:20:58 Signed picture. From Apollo thirteen, you know, the Apollo thirteen mission, the Tom Hanks movie. Signed by Astronaut Jack Swiger. A character who's played by Kevin Bacon in the movie. To my longtime friend Rene Generet.

2:21:14 Who I believe was Rolex head of communications at the time. Who enabled me to always be on time. So Jack and I Think maybe some of the other astronauts too. preferred GMT masters and were their GMT masters during the Apollo missions. Interesting. Yeah, because like you said, the uh Omega Speedmaster famously is the moon watch.

2:21:36 In many ways it's the Big blemish. in Rolex's whole strategy of being the brand for people who accomplished the greatest heights in human history. But this is

2:21:47 A great little way to slide in and take a little slice of that history too. Yeah. And by choice, by the astronauts' choice, much like Sean Connery. Oh, what could be better? Yes. Not gonna wear this inferior product. Now I'm sure this is uh Rolex's version of history. But supposedly

2:22:05 NASA reached out to Rolex. First. Because they knew that Test pilots preferred GMT masters. But there was a mix up in Rolex's New York purchasing office.

2:22:18 that led to this mishap of Omega Being selected instead. Uh If you work at Omega, please contact us and tell us what is the real version of this story. 'Cause we know no one at Rolex is gonna call, so let's hear at least Omega's side of this. Yes.

2:22:35 Okay. So Whatever the case, you know, this is all just Building so much legend and lore and romance and you know the ultimate lifestyle brand here. And like I said earlier.

2:22:45 This really is the architecting of Andre Heinninger. And we talked about the J Walter Thompson relationship, but I had mentioned Mark McCormick and IMG. And Starting here in the mid sixties with IMG is when they really Turbocharge and formalize this testimony.

2:23:02 Brand ambassador. Partnership, relationship. And they are doing two pronged here. These professional watches are happening but they've also advanced their sort of dress line. Yes, they've come out with the day date. Yes. The president.

2:23:15 As it's nicknamed. the first president to wear a Rolex were a date just, not a date date. Right. But future presidents wore day dates. Yes. But anyway, and back to IMG

2:23:27 IMG was the first modern talent celebrity endorsement agency. and really visionary of Mark McCormick. to found it in nineteen sixty. So he brokered Tons of celebrity endorsements.

2:23:40 And He works with Rolex. And they sign The big three. quote unquote in the golf world.

2:23:48 First Arnold Palmer. Then Gary Player and then Jack Nicholas. And for their whole careers, I believe probably their whole lives. They are Rolex, man.

2:23:58 Yeah. And that is effectively the blueprint for everyone from Federer to Tiger Woods forward. Yeah, so just in golf, you know, if you go forward. Tiger Woods, Annika Sornstam. Today Scotty Scheffler, Jordan Speet, Justin Thomas, Brooke Henderson, Lydia Coe.

2:24:14 No, not everybody, but At least a large share of the best players are Rolex players. Well, it's interesting'cause when you list'em off like that, yeah, it sounds like a large group, but I think the strategy is not A lot, the strategy is only the best. Yes.

2:24:29 A large share of the very best players. And that goes for individual athletes, but it also goes for which events they sponsor. I mean, I was talking to Ben Clymer at Hodinky and he pointed out that they don't just sponsor PGA tour. They sponsor the masters. They're not gonna really mess around much beyond that. Similar to tennis. Like, yeah, we'll do Wimbledon. Well, and now they do all four grand slams.

2:24:49 Ah, okay. So yeah, arguably tennis, especially post feder is even more iconic Rolex than golf is. They partner with. many of the top, top players in the world, but Federer really was transformational. Yeah.

2:25:03 I think that's right. I mean, I don't think the Federer Rolex relationship is quite like a Michael Jordan Nike relationship, but It's in that next tier of great athlete partnerships. And there's a couple of really interesting things. About golf and tennis specifically for Rolex. One, just the overall

2:25:21 brands of the sport, you know, mesh very well with Swiss Luxury watch companies. But also even going all the way back to the thirties and the Wilsdorf days, the Hans days of Rolex. proving that you could keep accurate time while playing golf or tennis. was like a really key marketing message because you've got the shocks

2:25:40 Impacting the wrist of hitting the balls all the time. Think about that hairspring. Think about that delicate balance wheel floating there carefully, ticking back and forth, hovering The vibrations. I don't really understand how it keeps working perfectly. Yep, totally. It's also the type of sport where you can be in

2:25:59 elite top of the world player for a very, very long time. As opposed to other sports. I mean, think about Federer's career. Think about Arnold Palmer's career, Jack Nicholas, you know. These people had multiple decades of

2:26:12 Dominance of being a the pinnacle of human achievement. Yep. That's right. So

2:26:18 That wraps up The iconic tool sport professional watches and Rolex. Except for the model that both of us are wearing on our wrists. Right now. The Daytona

2:26:37 really created a market. Yeah. It's own. Yeah. had completely changed the mechanical watch market period.

2:26:46 Yes. The Daytona. Through a complete accident of history, as we shall see in a minute here, created a phenomenon. Created the modern watch collector market. Yes.

2:26:56 And all of the crazy prices and auctions. An insanity that occurs today. I think you can say really is all because of the Daytona. It's one component of it. David, I don't want you to oversell. I've got all Okay, okay. At least from the Rolex side of things. Yes. Yes. The Daytona. Is what?

2:27:14 Created all of it. All right listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team, and deploying them is uh no longer the hard part. Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making.

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2:28:52 Who's managing them all? So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely at scale. Go check out service now.com slash acquired and tell'em that Ben and David sent you. Okay, so David, the Rolex Daytona. Ooh yes.

2:29:09 D. Instant. Worldwide sensation. Hm or not. So

2:29:17 The Daytona. Unlike All of Rolex's other watches. is a chronograph.

2:29:25 Or as they call it a cosmograph. Yes. Because again This is Rolex. We can't use industry standard terms. So what is a chronograph? A chronograph

2:29:36 is a very fancy term. For a stopwatch. However complicated you thought a regular mechanical watch was Now add in Something like the Daytona.

2:29:45 Where you also have a full seconds hand on the main dial that counts seconds, and then another dial to count minutes, and then another dial to count hours. Oh. In addition to the regular watch function. Yes, there are four dials.

2:30:01 On the watch face. Of The they don't know. Incredible. Now it turns out

2:30:07 Rolex has actually made a chronograph. For a very long time. This was the first tool watch. That they introduced. Way back before World War Two, before Andre Heidegger, before anybody was thinking about this stuff. And in large part

2:30:21 It looked like this. But there was no craze around it. Yes. So in nineteen sixty two. Rolex.

2:30:28 becomes the official time keeping the of the then relatively new Daytona International Speedway. Yeah. Daytona Beach, Florida.

2:30:37 And to commemorate This great moment. The next year in nineteen sixty three. Rolex. officially starts calling their chronographs, which again they've been making for like three decades at this point.

2:30:49 Daytonis. They thought about Laman because they were also very closely involved with Lama, the race in France. But to the name Rolex, this has to have international appeal.

2:31:00 And can't have silent letters that Americans can't pronounce. What's better than Daytona? I can look at the word, I can say it out loud. And again, like we've been talking about the market is America post World War Two. What could be

2:31:13 More American glamour in nineteen sixty two than Daytona. Speedway. Fast cars movie stars twenty four hour race Yeah, twenty four hour race.

2:31:28 It's perfect. And then a couple years later one of the true leading man actors of the day. Paul Newman. stars in a nineteen sixty nine film called Winning.

2:31:41 About being a race car driver. And after he stars in the movie. Well, guess what? He develops a hobby of becoming an actual race car driver. Yeah.

2:31:50 And his equally famous wife, the actress Joanne Woodward. Gifts him With a Rolex. Detona.

2:31:59 for his racing activities with the immortal inscription on the back. Drive carefully. Dash. Me. Yeah, again, we've been talking romance, lifestyle, development, the brand here. It's iconic. You can't get any more iconic than that. It's perfect. Yes. You can totally see how this would

2:32:19 Set off. An absolute Інси кріз. in the market. Except to your point.

2:32:27 It doesn't right away. Except it doesn't. There's so many of these moments in Rolex history really in all the stories we tell where the company does everything in their power to align the stars perfectly. And it doesn't work.

2:32:39 But then a butterfly flaps its wings several years later and all of a sudden It does. Say in Italy. So Nineteen sixty nine is when Paul Newman.

2:32:51 stars in this movie. It's some time, you know, in the next year or so after that. When Joanne gives him This watch. Paul Newman absolutely is iconic at this point in time.

2:33:02 He's being photographed all over the world, he's a leading style figure. He's in magazines and this is his watch. He's wearing this watch. And he wears it for about ten, fifteen years or so, and then one day in nineteen eighty four. So

2:33:16 Long, long, long time later. Lots of history passes. Which we will come back to. And one day in nineteen eighty four His daughter Nell

2:33:25 Has her boyfriend over. And Paul asks The daughter's boyfriend. Does he know what time it is? And the boyfriend replies, I don't know, I don't have a watch.

2:33:35 And Paul Onewim Says here, take this one, it keeps good time. And gives the boyfriend the watch. The Paul Newman. Daytona. I actually didn't know this story.

2:33:47 Swear to God this is true. This watch sold at auction for the most money. Every yeah. Ever I think it was seventeen and a half million. Here, take this one. It keeps good time. And at the time, the market such as it existed for Dayton's the secondary market for Daytonas it was like a two hundred dollar watch.

2:34:05 So, you know, hey. I like the boyfriend, sure. Have a watch. I'm done with it. Huh. Yeah.

2:34:13 To have been The boyfriend. Because Two short years later. In Nighty Sex.

2:34:24 For Whatever reason. It is unknown. A bunch Of dealers in Italy.

2:34:31 Start snatching up Versions of the Daytona. From the era when Paul Newman's Daytona was made. And it's important to say here In Italy there

2:34:43 is a real watch culture. This is true in various parts of Europe at this point in time. In a way that in America there's actually not watch culture. They want to market to Americans. There's all this rising wealth and People want to celebrate their successes and all that and they're trying. But America doesn't have a watch culture the way that Italy had both a collecting culture and a style culture. Which is why there are Secondary market dealers. In Italy. Yeah.

2:35:06 So One rumor is that Around this time in the early eighties, Paul Newman had been on the cover of an Italian style magazine Wearing the watch, obviously taken before he gave it to the boyfriend.

2:35:21 And maybe that was the reason. That people in Italy decided this is a cool watch. Nobody really knows and nobody has ever been able to locate that. Magazine cover. So who knows? Hm.

2:35:31 Well For whatever reason a butterfly flapped its wings and Italians thought that the watch was cool. So The dealers start

2:35:40 Buying up. the quote unquote Paul Newman style Daytonas, which is a specific style was made for a couple of years by Rolex. in the late sixties, early seventies, and it had like a art deco style. Face to it.

2:35:54 Yeah, and a a very particular color scheme that sort of feature red around the edges as well. Yes, right around the edges around the track where the minutes and seconds are kept. But also a very specific font. Yeah. Also, we should say we haven't said yet that on the Daytona and really all chronographs.

2:36:12 There's a very cool feature, which is around the edge, and this sort of gives the watch its signature. Design. There is units per hour. I don't know if it's logarithmic. But

2:36:23 Yeah, I should work out the equation in my head. Maybe it is logarithmic. It starts at on the version I'm wearing four hundred and goes all the way down to sixty. And What that means is if you Press start.

2:36:35 And you drive one mile and then you press the same button again to stop. Wherever The second hand is pointed. was your miles per hour. for that one mile that you drove.

2:36:49 So if I was able to drive you know, one mile in one minute. Then it's gonna come all the way around and it's gonna be pointed all the way up to the top and it's gonna say sixty. But you know, it goes up to four hundred because of race car drivers. That's awesome. I actually did not know.

2:37:04 No, you gotta be kidding me. You own this watch. I know, I know, I know. Well, you know, I haven't thought about this watch in Fifteen years. Yeah. For anyone uh who's trying to figure out what's going on over in David Land. David used to work in investment banking and this was a part of the uniform when you got out of college. Well, here's the whole story. So

2:37:26 My dad is big into watches. Uh has been for a long time starting Probably when I was in high school and college, he got really big into watches and watch collecting. So like early before the market here in America. Yeah, I mean that's before it took off in any way in the US. Totally. And I thought he was insane. I was like, Why are you blowing all this money on watches? Which back then it actually wasn't that much money. Regardless.

2:37:48 I graduated, I go to work at investment banking and back then, and I'm sure still to this day, investment banking had a watch culture. And My dad gave me a couple watches. To wear one of which was this stainless white face. Which is an incredible piece. It was an incredible.

2:38:03 Gift back then. I was like, Oh, this is super cool. All my colleagues, especially the senior bankers were like, Who is this frickin' kid? This is not a I got my first bonus, so I went and bought a Rolex. This was an It Watch. This is not a an analyst watch. I don't know if it was necessarily a managing director watch, but it was probably something that like if you made VP, you would go get something like this. Yes. So it was odd for me to wear it. And uh paradoxically, it actually killed my

2:38:30 interest in watches and desire to wear them because I realized it was weird for me to wear this watch. And then I was like, you know what? I need to just stop. So Especially when I got to the West Coast, I was like I should just not wear watches. This is too much. I need to get my bearings again. Yeah, exactly. Exactly. So then I didn't wear watches at all. You know, nothing on my wrists until the Apple Watch. And then when the Apple Watch came out, I've worn that every day since until we went to Taiwan and we were like, Well, we should do a little

2:38:55 Little Easter egg and we broke out. Yeah. The watches out of the safe. So cool. So the question going forward is, listeners, if you're listening to this a few months, years in the future, the question will be Do I keep wearing this? Do I go back to the Apple Watch? What do we do?

2:39:09 I don't know. We'll see. Okay, but what you're foreshadowing here though is the hype over that Paul Newman dial. Which to be clear, I am not wearing a Paul Newman dial. Trickled out into the rest of the Daytonas. It made any detoner extremely desirable. Just sticking with the Paul Newman models here in nineteen eighty six.

2:39:29 Prices for some of these models shoot to like Thirty thousand dollars plus In nineteen eighty six dollars. Yeah. For a watch that Paul Newman gave away to his daughter's boyfriend.

2:39:40 two years before and was worth two hundred dollars. Ben, you're right. This one event didn't create the global watch collecting and investing market. Period. But it was part of it. Absolutely was part of it. This was a huge moment of like oh

2:39:54 Wow, these things aren't just purchases their investments. And you can trade in them. Yeah. Put a pin in that.

2:40:02 There's a whole world of seventies and eighties that's this almost like parallel universe to Rolex that we're gonna go into here in a minute. Before we do that, it's worth resuming our History of Rolex advertising. Because concurrent With

2:40:19 Releasing all of the professional watches. Rolex. expanded their aperture in their marketing. It went from just men who guide the destinies of the world where Rolex to suddenly you've got these scuba divers and these pilots And these race car drivers now at the Daytona.

2:40:37 And they're wearing the professional washes for their craft. We can probably sell a lot of watches by selling that lifestyle. Yes. So this is where the expansion goes from just commanding the world to human achievement, those who sit at atop their fields. And in nineteen sixty seven to nineteen seventy

2:40:56 there's this great campaign they launched, the if you were campaign in a big I mean, Google this. We'll put some links in the show notes too, but Google this and I'm sure we'll tweet it so you can see it on our Twitter account. Big bold Helvetica font. If you were flying the Concorde tomorrow. You'd wear a Rolex.

2:41:15 picture of the Concord go in supersonic Picture the GMT master. So great. This is what these pilots at the top of their field.

2:41:24 are actually wearing. They stayed a million miles away from features. And it was all lifestyle advertising. This is the person you would be if you owned this watch. There's a version speaking at the UN, if you were speaking here tomorrow. You'd wear a Rolex. If you were climbing here tomorrow. Yes, diving down to great depths, taming oil well fires. I think there's even one where they're like walking in a volcano.

2:41:51 It's just this brilliant campaign. That Again, this is the late sixties. It's everything we've learned from the madman era of advertising. completely the opposite of the Mercedes Gleitz era.

2:42:02 We are leaning heavily into Who could you be? Yeah. And I do think this was the very first sort of chip. of what made Rolex a real challenger to Omega, who had been kind of the

2:42:16 standard big Swiss watch brand. Rolex was really the one to bring lifestyle advertising. to bear. Also, I know I keep harping on this Omega thing. Omega was actually worn by the soldiers in the Boar War

2:42:31 That Hans had recognized. Mm. So they had the history too. They had the history too. Yeah. Yeah. Those incredible ads That was really peak.

2:42:40 Rolex lifestyle. Yeah. This kind of second era of Rolex. Of moving beyond the product to selling the lifestyle.

2:42:51 was part of that. And then in the eighties when the Italian thing happens and the Paul Newman thing happens and The collector's market gets built. It's actually I I think the first real big move that Rolex makes

2:43:05 into The luxury world. It did kind of create the one model in their lineup. Where it had real hype around it.

2:43:14 And that just stayed true for decades. I mean, even in I don't know, twenty ten or something, you could walk into a jeweler who's an authorized Rolex dealer and you could just buy something out of the case, which you cannot do today. Yeah. You could buy a Submariner, you could buy an Explorer, you could buy a GMT Master, you could buy a Date Just. But you couldn't buy a Daytona. that sort of from this eighties forward was always this spot in their lineup where

2:43:38 Yeah, we'll we'll have to call you about that one. Today. If you want to buy a Rolex of any model You go in and you put your name on the wait list. And then at some point in time.

2:43:48 Could be a couple months, could be a couple years, you'll get the call that Your model is available. Daytona is I Think The only model that's not.

2:43:57 Where there is no wait list. Oh, I don't think that's true. Is that is that not true? No, it can it's impossible to say that because They work through authorized dealers and so it's not up to Rolex. Mm. And it varies greatly dealer to dealer. I think they're actually called Rolex retailers now. They changed it from authorized dealer, but

2:44:15 It's whatever the local dealer's policy is. Hm interesting. Interesting. At least historically it might be changing amidst the insanity right now. You know, if you go browse the forums. The lingo that I read is the Daytona is not a wait list, it's a wish list.

2:44:31 Uh most of the other models. If you want one and if you get on a list at a Authorized dealer. At some point in time your turn will come up. Whereas with a Daytona, it's like, yeah, you can express desire. I have a few things to say on this, but let's wait till we get to the present day. We have the entire watch industry is going to fall apart and then get rebuilt from scratch.

2:44:53 And we have that in between uh where we currently are and where we'll end up. All right. Let's go there. All right. Take us back.

2:45:02 So this was a whole side quest that I did this episode. Nice term. Thank you. Look at us getting all Gen Z. David and I interpreted the assignment differently to Okay, well you're just pandering to Gen Z right now. Do an episode on how how would I know it. Side quest interpreting the assignment. I'm sorry, is this Gen Z Lingo? I don't even know. I think it I'm pretty sure it is. Oh anyway, we interpreted the assignment differently of do an episode on Rolex. David viewed it as go as deep as possible on

2:45:33 the entire history of the brand itself, the company, the relationship with Aegler, and each of the watch models. And I heard it as go fully understand the entire watch industry. and contextualize Rolex's role within it. So

2:45:48 Here it goes. Here's my best David Rosenthal impression. For the court crisis. And I have two huge thank yous for this section. Ben Clymer, the founder and CEO of Hodinky I spent hours pestering Ben and having phone calls with him

2:46:04 And I probably read thirty things on Hodinky. I mean on the modern watch era, it's the definitive place to read about. Watch culture. And secondly to Joe Thompson.

2:46:14 Joe is the journalist. in the industry. Most recently he's the executive editor of Hodenky. But over the last forty years, he has written all the canonical pieces. He was the editor of Watch Time magazine. He's one of the only people ever to get an interview with a sitting Rolex CEO

2:46:33 He lived the courts crisis firsthand and was flying around to Geneva and Taiwan and Japan and reporting on it live. So okay. You've mentioned The courts crisis, also known as the courts revolution. Yes. What is this? All right.

2:46:48 So Here we are in the early seventies. The Swiss A riding high. They're the undisputed champs of watchmaking. That's where we left.

2:46:59 our heroes here. At one point The Swiss actually made up As much as Eighty five percent of the world's total wristwatches.

2:47:09 Eighty five percent of the market they had. This is in nineteen forty five, so it's right after the war. The analogy here is like T SMC in Taiwan. Making Mechanical wristwatches. Is an extremely difficult specialized skill. Yes.

2:47:22 They made nineteen million of the total twenty one and a half million that year. Another thing to contextualize it to so you can understand what is coming and how technology disruption will happen. This nineteen million watches produced.

2:47:39 was by twenty five hundred individual companies. Ninety percent of which employed fewer than fifty people. How completely decentralized means of production.

2:47:52 In many ways it actually the Taiwan metaphor totally extends. It's like Switzerland was Hinshu Science Park and these places all sort of needed together and collaborate. Yes. Yeah, I was gonna say the exact same thing. And so this is an industry built on skilled labor, fragmented across a ton of suppliers, very little of vertical integration. Someone makes the movement, someone makes the hand, someone makes the case. And all this happens in one of the most expensive labor environments in the world. Yeah, Geneva ain't cheap.

2:48:19 It's kind of amazing that there was this labor intensive industry in Geneva. All right, so that was nineteen forty five. Three decades later, in nineteen seventy three, the It's still going strong. The Swiss peaked at almost ninety million watches made.

2:48:33 In nineteen seventy three. Wow. Up from nineteen million. twenty eight years before they're now at ninety million watches. Handmade.

2:48:43 In this crazy production process. per year. So we keep alluding to this courts crisis. But the quartz was not the first revolutionary new technology that was supposed to disrupt. Mechanical watches.

2:48:56 There was sort of a half step. along the way to a technology that turned out to be a detour that actually wasn't the future. David, do you know what that is? Oh. I would guess like

2:49:07 Digital time keeping, but that's quartz, yeah. Yeah. What else vibrates like a quartz crystal? What Do you think could oscillate to keep time? Something radioactive.

2:49:18 A tuning fork. Ah. That's a great Weird. Thing in history.

2:49:23 And part of this also comes from uh Mark Bridges' great research paper. The whole Swiss watch industry had been marketing that you can judge the quality of a watch by its time keeping. And then suddenly. This tuning fork watch comes out. They're no longer the best at time keeping.

2:49:38 Mechanical watches are worse than the tuning fork watch. There's this crazy watch that comes out, the Bulava Acutron. In practice, though, The Accutron wasn't a disruptive technology. in the sort of Clayton Christiansen term, it was a sustaining innovation.

2:49:55 It took the existing thing and made it a little bit better. The watch is still required though, hundreds of components and handmade craftsmanship in order to make it. Yeah. So it's still difficult to make. Right. So this meant that the existing companies would have to integrate. into their own workflow to produce it, but there really wasn't a wide open window for some new entrant to use it as a disruptive force. That's the thing that you kind of need is Ken A

2:50:19 New producer. come in and take a radically simpler approach. Like say A Japanese company. Right. So quartz.

2:50:28 Well We all think of like oh quartz comes from Japan and Seiko. And then that was this huge disruption of the switch watch industry. People had been exploring quartz technology for a very long time, and in fact The first quartz clock.

2:50:43 was created all the way back in nineteen twenty seven. Do you know where, David? Oh, well I know the Swiss themselves were doing big industry wide consortiums. Correct. But that was in the sixties and seventies.

2:50:56 In nineteen twenty seven. Who possibly could be doing Research with quartz technology. To use for time keeping. I have no idea.

2:51:07 It's in America. Cutting edge technology. Research. Spell Labs. Spell Labs. Yeah, okay, there we go. In New Jersey, the first quartz clock is created.

2:51:20 Wow. Now, unfortunately in nineteen twenty seven The Bell Labs. Quartz clock. was the size of an entire room.

2:51:29 The Eniak of clocks. Yes. Okay. So we've been describing The courts crisis. W what is it? Well, how does it actually work? How do courts watches function? Instead of a main spring that you have in a mechanical watch, You have a battery.

2:51:44 Pretty straightforward. Instead of an escapement. You vibrate the quartz crystal. Mm. Quartz has this crazy thing where w if you apply an electrical current and it's shaped a certain way,

2:51:56 They can vibrate at exactly thirty two thousand seven hundred and sixty eight Hertz. That's right. I remember seeing that number. It's weird. This is called the piezoelectric effect, and interestingly that was discovered all the way back in eighteen eighty in Paris.

2:52:12 Uh. The other important thing you need to know about a quartz watch is it requires an integrated circuit. The modern quartz watch is dependent on using an IC to count the quartz vibrations and Transform them from thirty two thousand seven hundred and sixty eight hertz.

2:52:29 T. Tick one second at a time. Or if you're using a digital watch to increment the seconds by one each time. So by the time you get to the early seventies You've now got integrated circuits. That's exactly right.

2:52:42 the first quartz watch that hit the market in nineteen sixty nine from Seiko was dependent on the invention and miniaturization of the transistor in integrated circuit before it could actually happen. So that's why we're sort of stuck waiting from the twenties all the way to sixty nine before it can be used in a watch. So really the whole thing is Bell Labs. Exactly right. And everything we've talked about so far is a manufacturing story. It's a craft story. It's an apprenticeship story.

2:53:08 This is a technology story. Yeah. So amazingly, as you pointed out, the Swiss did see this coming, just like how Kodak famously invented digital photography in their lab. The Swiss saw what happened with the Toting Fork. and they wanted to be ready. So in sixty seven, two years before the Japanese debut of the Seiko Astron,

2:53:29 There was a quartz chronometer in a lab at CEH, which is Switzerland's electronics watch laboratory. That was twice as accurate as a mechanical watch. They didn't actually have an impetus to be first to market. Right, right.

2:53:43 Why would we This is really dangerous for our industry. We we've made it. Yeah, let's keep this in the lab. Yeah. So over to Japan, the Seiko Astron is launched in 1969. You would not have guessed it was gonna disrupt the whole industry. It cost as much as a new car. And it wasn't more accurate. It could be off by up to five seconds a day.

2:54:02 So What's the big deal? But just like semiconductors, they get on the learning curve. Exactly. That's exactly right. It's a technology story. It's based on semiconductors, so the price value curve that it would follow actually looked a lot more like the early PC from the Microsoft episode we did. The fact that it's in watches because that's the consumer need that's being filled. actually isn't relevant for predicting how much better it's gonna get. You should be looking at the technology.

2:54:30 So the court's watch starts at this Toyota Corolla price point. comes down in price a thousand X. Yeah. It used way fewer parts and required very little know how to assemble it. You could invest up front in machinery and have very, very, very low variable costs and labor costs. So for the first time in watchmaking, you had economies of scale and operating leverage.

2:54:53 It was a technology product in an artisan market. Yeah. So this whole thing. Once it gets going happens so fast. And in the early days, the Swiss industry and a lot of makers, including Rolex

2:55:05 release their own sports models too. Yeah. Hold on to that for a second. So here's how the court's revolution went, and the Japanese sort of think of it as the court revolution, the Swiss think of it as the court's crisis. By the end of the nineteen seventies, you could get a quartz watch for cheaper than a mechanical watch. It was more accurate. So here in nineteen seventy nine, mechanical watches are, for the vast majority of scenarios, functionally obsolete.

2:55:30 Unless you are an astronaut or a pilot or an adventurer who prefers a spring over a battery that could die. There is no practical reason to ever buy a mechanical watch again. And it's like the Olympics are being timed with. Courts, time pieces.

2:55:44 Right. And interestingly omega quartz. At the Olympics. Mm, interesting. But obviously this is not the end of our story. And mechanical watches would go on to be a better business than ever fifty years later. Very different.

2:55:56 But much greater in revenue than ever before. So there's this kind of wild thing that our beautiful mechanical watch hero protagonist here. is now obsolete.

2:56:07 functionally. So there were a few iterations of how this went. The American firms tried to make quartz watches with uh LED Technology. The Hamilton Pulsar came out in seventy two. These were really cool when you look at them.

2:56:22 But in the long run they were A complete failure. You had to push a button. To turn the LED on.

2:56:29 both hands to read the time, one to wear the watch, one to push the button. Some companies follow into the market starting in seventy four and will be very familiar to acquired listeners. national semiconductor. Fairchild semiconductor. T I got into this market too, right? Yeah, yeah, yeah. Yeah, there we go. Yep. Then came the Stampede, Commodore, Intel, HP, Hughes Aircraft, dozens of companed in. Wow, Hughes Aircraft getting into the market. Wow. Yes.

2:56:57 And you know, these companies made integrated circuits and so they thought, Well We can make consumer products around them too, because we make the internals. But A They weren't great at building brands. These were all B2B companies. And B

2:57:10 They were horribly commoditized. This market immediately became commodity, had no barrier to entry, and all the profits. immediately got arbitrage out. So L E D Failure. The next step is twofold.

2:57:24 One Quartz movements powering analog watch faces. And this has started with the Seiko Astron. This was the thing that the Japanese did first in 1969. And the other branch, which every listener will know well, is digital L C D watches with liquid crystal displays that ended up being vastly superior to LEDs since they were always on, and these also worked on a quartz movement. Seiko, Citizen, and later Casio were extremely successful for a time making these out of Japan. So Hong Kong

2:57:54 becomes the powerhouse for inexpensive manufacturing of all of this. Along with Taiwan, South Korea, and mainland China. And so by nineteen eight eighty, just a few years in. I mean think about this, sixty nine The Seiko Astron launches.

2:58:08 Seventy five is when the Swiss are going, Oh crap. And then within four years it's over. Courts completely ran the table. So by nineteen eighty Hong Kong was already exporting one hundred and twenty six million watches a year, half of which were digital. Wow.

2:58:25 Switzerland at peak. Made ninety million. And then Boom, a few years in. Hong Kong has a hundred and twenty six million.

2:58:33 By nineteen eighty one, the next year, Japanese watch exports surpass Switzerland. Seiko actually was great at brand building, advertising, messaging in a way that the American B2B semiconductor firms were horrible at. And then nineteen eighty five Just four years after Japan meets Switzerland.

2:58:52 Japan's exports are three X Switzerland. Wow. And the absolutely incredible thing is Now that you all know this. This is the backdrop that the Paul Newman craze happens. Right. Yeah.

2:59:04 So The Swiss market's global share. would fall from that eighty five at peak in nineteen forty five. to just fifteen percent. By nineteen eighty.

2:59:15 Wow. The number of firms fell from 2,000 companies in nineteen sixty to fewer than five hundred. in nineteen eighty. just absolutely destroyed. Court's output accounted for only three percent of units in nineteen seventy five.

2:59:30 By nineteen seventy nine, thirty one percent of new watches were quartz powered. Wow. From seventy five to eighty one, eighty two. you just have a complete running of the table. And at least for the old reason of why you would buy a mechanical watch.

2:59:47 There is zero reason to buy that anymore. Zero. Yeah, so this is like massively impacting the entire Swiss economy, right? Yeah, extinction event for this huge industry for them. There's a whole separate story about the founding of Swatch Group and how many of the Swiss brands were sort of rolled together or a bunch of them went bankrupt or they got sold off to conglomerates. But interestingly, Rolex was independent.

3:00:10 They were owned by a foundation. They sort of had no shareholders. They also managed to resist joining the sort of Swiss cartel. That was All sort of colluding on what's our national strategy here. So they could sort of do their own thing. I mean they watched this certainly happen and

3:00:28 They had a lot of fear around it. But They weren't as caught up as the rest of the Switzerland companies that were all super, super dependent on each other. the whole watch world by volume became almost entirely quartz. And the market for time telling as a function went entirely to court's full stop.

3:00:44 But a new massive market emerged. That had been lurking in basically niche auctions. Which was watch aficionados who valued pieces for their complexity, their artistry, and their rarity. And Rolex figured out how to build this. Enormous bigger than ever before business in this completely new market.

3:01:05 A of enthusiasts who sort of drive the excitement. That's sort of the auction house world, but then B in this lifestyle aura of success. And this is where we told it as part of the Daytona story,'cause that's where it belongs. But The Italian affair, the Paul Newman. Affair.

3:01:21 It's the luckiest thing that ever happened to Rolex because this gave them the golden opportunity to do that. Right. This is finally kinda clicked in my head. It's not that the mechanical watch made a comeback. It's that there it was an entirely new market that it turned out to be the perfect thing for. after their initial market got

3:01:39 Right. Right. I think there's also another level of nuance here too. Rolex was better positioned than most of the other

3:01:47 Swiss companies because they had already transitioned to lifestyle. However, that would not have been enough. Because eventually Seco and citizen. We're also gonna transition.

3:01:59 Companies. And That in and of itself what wearing your watch says about you

3:02:08 Isn't defensible in the long run against technology disruption. Hey no wearing an Apple Watch, what model, what style, what band says a lot about you too. I wear my Air Mez band on my Apple Watch, that says a lot about me. Hm. But

3:02:22 What is defensible. Is a luxury strategy. And a luxury strategy expands to Managing the entire market and overall brand management. It's

3:02:32 managing the secondary market and supply on it. It's doing things like Oh. The Paul Newman craze is happening, let's pull the model from the market. It's Vertically integrating to ensure absolute product consistency.

3:02:44 It's instituting wait lists. It's Killing or pausing your most successful products. It's not changing your price in response to demand shifts. A purely lifestyle company. wouldn't do all of those things. And you know, I can imagine like uh Remember Fossil, the US watch company that is now basically bankrupt. Yep.

3:03:02 They were a lifestyle watch company. But they were not a luxury company. Yep. Yeah, that was sort of the fashion watch craze, where the court's technology enabled a whole wave of twenty five dollar watches where you could own five, six, seven of them and wear them with different outfits.

3:03:19 that was an interesting market for like twenty years before technology kind of obsoleted that one too. Yep. With the smartwatch. Interestingly, do you know what swatch Stands for. Uh I always thought Swiss watch group, but

3:03:33 Uh that's the common. Perception of it. It's second watch. These watches are so cheap, you can have a second one. Uh exactly. There you go. That is a perfectly viable lifestyle strategy. Yep.

3:03:45 These watches are so cheap you can have a second one and each one says something different. It's a fashion, but it's not a luxury strategy and it's still subject to a functional displacement. Like what happened with the Apple Watch.

3:03:57 Yeah. Totally. Okay. So We're at this like complete demise of Switzerland here. We're like

3:04:04 thinking about how it could get better in the future. But there's a whole parallel story, which is the renaissance of mechanical watches, how they come to fill this new market to be this perfect product for a new market. All right listeners.

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3:05:19 A thing that I had a hard time figuring out until really the end of our research process. How did Rolex respond to the court's crisis? Yep. We knew that there was this transition that happened to Luxury and it was in response to the courts crisis.

3:05:35 You go read. All the stuff that's out there. Nobody actually chronicles this. No one connects the dots. They talk about Courts crisis.

3:05:44 Creation of Swatch Group. saving what's left of the Swiss watch industry. And then separately they talk about Rolex through the years. Building the lifestyle brand and all the race car stuff and the advertising But

3:05:56 Rolex was in Switzerland during the quartz crisis. Right, right. Connect these dots, please. Yeah. And the end of the story, you know, spoiler alert is Rolex is doing probably ten plus billion dollars in annual revenue. Way, way more than any other company.

3:06:12 in the space. Dude, Rolex has thirty percent of the revenue in the entire Swiss watch industry. Right. It's insane. So There's a lesson here. Yes. In part the lesson is

3:06:25 It is incorrect. To describe markets. Buy the products in them. You should describe markets. By the job to be done.

3:06:34 Mm-hmm. And the market Of wrist based time telling. was no longer available to the Swiss. It entirely went quartz. But there was a market for something different.

3:06:45 that the Swiss were great at if they were sort of set up and positioned correctly and managed correctly. And I think that's the lesson here. This isn't the high end of the watch industry and the low end of the watch industry. These are Two completely different customer needs. Totally different things. There's an arc to this story. Rolex sits back They see what not to do.

3:07:03 They see what to do. And then they do it. Yes. So Here's my attempt. at chronicling what happened.

3:07:10 And I would love feedback from watch nerds. If there's anything that I missed here, but this is how it seemed to be after reading five books, talking to Joe, talking to Ben, talking to All sorts of friends in and around the industry.

3:07:23 So There are three concurrent stories here. None of which are Rolexes. There's the Omega Story. Then there's an unlikely corner of Swiss watchmaking with Blanc Pan.

3:07:36 And then there's the auction houses. And once you get those you then kinda get the Rolex story. So first is Omega. They blew a lead in the ninth inning. That's the only way to put it.

3:07:47 As you being my foil throughout the episode here, being like Actually, David. Omega was also big, maybe bigger than Rolex the whole time. Totally. So coming into the seventies.

3:07:56 They just had their watch. Land on the moon in Apollo eleven. They're the sponsor of the Olympics. They're an iconic brand. And incredibly, Joe Thompson tipped me off to this, in a study conducted by Gallup in nineteen seventy eight.

3:08:10 They asked the question. Have you heard of Rolex? Eight out of ten Americans in NT Sevenдіet. Answered no. Wow.

3:08:21 Less than twenty years later, he Eight out of ten said yes. So Rolex did something incredibly right between nineteen seventy eight and nineteen ninety eight. to go from twenty percent brand awareness to eighty percent brand awareness. So

3:08:35 Over to Omega. As late as nineteen seventy seven in the courts crisis, Omega is still the third largest watch brand in the world behind Seiko, the darling of the quartz revolution, and Timex, which was the volume player on the American side of quartz. So in many ways They should have

3:08:51 been Switzerland's most likely horse to ride this thing out. But they reacted extremely poorly. What did they do first? A whole bunch of models. What do they do second?

3:09:01 Go heavy into courts. What'd they do third? Throw the kitchen sink. at strategy. Like we'll just make a bunch of models, branch of price points. really diluted the brand.

3:09:12 They licensed the brand out to other companies. I mean From afar this just looks like panic. Instead of thinking what are we uniquely best at in the world and trying to lean into that, Omega thought this quartz thing is like Absolutely essential to get right. It's the future, so we have to switch all of our production to it.

3:09:30 And this is essentially what the whole Swiss industry did. They either fell into this trap where they went bankrupt or got rolled up. Brightling, Hoyer, you name it. The only issue The the big glaring one here in hindsight is that courts required a completely different set of competencies to do it well.

3:09:47 a totally different culture, a totally different headcount. And a totally different cost structure. Yeah, like you're saying earlier. Quartz is a fixed cost it's a technology business with fixed cost leverage. Swiss mechanical watchmaking is a variable cost business. They happen to both tell time, but the means of how they tell time, the two types of companies that you need to build to get there are entirely different.

3:10:08 They shouldn't resemble each other at all. So The other thing that killed them. Is that they had these

3:10:15 Agencies locally. And so Omega would import their movements and then the agency could design their own case to suit the local market. Oh interesting. So there weren't international standardized models. to build brand around. Interesting. Yeah, yeah, yeah. That is a major luxury no no. Yes. A Birkin is a Birkin people. Exactly.

3:10:38 Rolex by this point, the late seventies, they're importing whole watches. They've got their core six seven watches that people really find iconic, and they're leading into this idea that you need one single global brand and product line. It's so funny. If you look at some of the real like enthusiast type historians out there, They sort of bemoan that Rolex stopped innovating after the golden era in the fifties where they introduced all the sport watches. Right. And it's like no no, that's the point. They got the core product lineup set and then they rode that horse. Once you create the Porsche nine eleven. You should just tweak the Porsche nine eleven once every seven, eight years.

3:11:14 And that way you can buy a nine eleven just like your grandfather bought a nine eleven. And That I think is a huge piece of what Rolex got right. that a lot of other people got wrong. So to close the Omega story, this is crazy. It's the company that governments and militaries wanted to work with. It's the company that Rolex was trying to beat with all their innovative ads and positioning.

3:11:36 This is the first company to ever launch a dive watch before the Submariner. And They rushed into Here's how we fight the courts crisis head on, when they were just not built. to be a part of that at all. So this is the place where we see the divide where Rolex becomes Rolex and Omega doesn't become

3:11:53 You know, they make cool watches, but like It's not the brand. They pay a lot of money to MGM to be in James Bond movies. Right. So That's

3:12:01 Rolex sitting on their hands. Watching Omega and going Okay, don't do that. But of course Rolex had the cash to do it.

3:12:10 you know, Rolex is a privately owned, very successful, very wealthy company where they can take two or three years and see how it plays out. If your ownership structure is different or you have debt or you're not as profitable, you you don't have that luxury. You don't have the margin of safety to do that. So Chapter two. Guy named Jean Claude Bevert.

3:12:28 He's an exec at Omega of all places. Resigns out of frustration. This thing sucks. They're so timid. He's the Morris Chang of Omega. Exactly. So in nineteen eighty three

3:12:39 Bever buys Blanc Pon. which was popular in the nineteen fifties, but had kinda disappeared. And he buys it with this idea that I'm gonna resurrect this thing as a mechanical only luxury brand. That's not the way that the rest of Switzerland was thinking. They were thinking.

3:12:55 How do we take our big, bloated old world companies and ride it out in this tech transition. He's like, I'm just gonna go buy the brand. The goal is to do limited production. Handcrafted watches.

3:13:06 and the scarcity and the high cost to make them will lead to these high prices. He picked up this brand. Again,'cause everyone's panicking. For nothing. Inflation adjust, I think it's like sixteen thousand dollars. This is like the uh the Bernard Arnaud story, buying uh Louis Vuitton out of Busek.

3:13:25 That's exactly right. He would later go on to sell it. A decade later for sixty million Swiss francs. Nice. Which back then, that was real money. Yeah.

3:13:35 So Beaver comes up with this advertising slogan, marketing genius, to describe the essence of the brand. It's an old brandy bot. Here's the the slogan. Since seventeen thirty five, there has never been a quartz blanc pond watch. And there never will be.

3:13:50 Yeah. It's a great slogan because Quartz is thirteen years old, fourteen years old. But he invokes seventeen thirty five. You know, for the first few hundred years it was impossible to have a quartz blog pond watch. Perfect.

3:14:04 So the idea is if you want to buy a commonplace machine made quartz watch, go right ahead. But if you value traditional craftsmanship, you buy a Blanc Pond. We are selling champagne and caviar and they're selling calculators over there. Rolex is watching this all play out and they're like oh That's the playbook. Yes. Joe Thompson has this great quote that it was a feat of jujitsu to take the weakness of the mechanical watch, the old technology.

3:14:26 Inaccurate, labor intensive, expensive to produce, and turn them into strengths. Old world craftsmanships supported by these artisans in accord with 400 year old traditions to make these rare, expensive masterpieces. So blog pond and be very. They should get a lot of credit for this move, but in practice, they had nothing to lose. It's like a fun Hail Mary to try this approach. I don't even think Bever could have predicted how well this strategy

3:14:51 would end up working for Rolex. I think this was sort of a fun Demonstration. Okay. Block Pond.

3:14:59 the right strategy at small scale with nothing to lose. Chapter three. Auction houses. The mechanical watch renaissance really came first from auction houses.

3:15:10 If you think about what auctions do, they value things that are rare. And for a long time this meant vintage pieces. Old things mostly fall apart. That means the ones that are surviving We can pay a lot of money for them.

3:15:24 Well Mechanical watches. Even the new ones. are becoming rare. Mm.

3:15:30 The whole market's going away. Companies are going out of business. And You've got these few extremely high end producers like Patek Philippe. That

3:15:40 could fetch more than ever at auctions even new. So Paddock is the poster child for this. They came out with this thing called the Caliber eighty nine. Have you heard of this this watch? I am Very familiar with

3:15:54 Potek, but I have not heard of this watch. So this thing. You're not wearing it on your wrist. It is multiple pounds in weight. Like you hold it with two hands.

3:16:04 It's the most complicated watch ever made. Wow. They required computer aided design. to manufacture it. The strategy in nineteen seventy nine

3:16:13 Internally at Paddock. was for our big anniversary celebration in ten years. So in seventy nine for nineteen eighty nine. We want to make the most complicated watch ever made. It was something like thirty complications. This thing. made people go nuts.

3:16:28 And at our auction house, it sold for over three million dollars. Landmark high. It gets mentioned on Saturday night live in a skit. For who would pay three million dollars for a watch? Completely high water mark.

3:16:42 completely kicks off this new craze. of complication makers, people see it and they think, Oh, I have to Add as many complications as possible to my watch. They got a little goofy and interestingly, Rolex never participated in that. No.

3:16:56 Again, they do their own thing. Yeah, and they want to make Best engineered, extremely functional, extremely reliable. Not the most flair, not the most artistic, not the most any of that. It is The nine eleven that you could have bought thirty years ago is

3:17:12 the nine eleven that you have today, but the one today is better engineered. Yep. So This auction house story from nineteen seventy seven to nineteen eighty five. is essentially the only interesting part of the mechanical watch world.

3:17:26 And then It sort of Sparks. The idea that Hey.

3:17:31 New mechanical watches, especially these crazy complication ones. can be really interesting too. And so right around nineteen eighty five. That's the same time. that the Paul Newman dial goes nuts in Italy.

3:17:45 I really think a huge Із auction house market sparked the interest in the new Watches.

3:17:56 It totally, totally did. It like highlighted rarity. Yeah. Okay. So we've got Omega what not to do.

3:18:03 We've got Blanc Pon, what to do at small scale with nothing to lose. And we've got the auction houses. Taking the used market for lack of a better term and sparking the new market. So what's Rolex doing?

3:18:16 Well, at first they explored courts like everyone else. But very carefully. The oyster courts. The oyster courts. It's it feels profane to even say that. I kinda want one. I actually think they look extremely cool. Yeah.

3:18:31 But they're very angular. They've got this integrated band into the Watch phase. I quite like it. But They poured a huge amount of R and D. into courts watches, but they didn't productize most of it. They did these small runs of this oyster quartz.

3:18:45 Which It was a very Rolexy way to do quartz that a lot of people have called over engineered. But they pretty quickly got to this idea that if they wanted to lean into mechanical as a differentiation, even though it was a worse time keeper and emphasize brand lifestyle, the incredibly complex thing that was going on in the mechanical watch process. They should just lean into that and the romance of it.

3:19:06 And courts just kind of violated their ability to tell that story. Yep. So there's a great passage in the book Electrifying the Wrist Watch, which is Lucian Trube's book. says Andre Heinegger was a true visionary. His opinion was that the originally very costly courts would soon be banal. This had already happened with transistor radios, TV sets, and pocket calculators. Top quality mechanical movements would always remain expensive and exclusive. due to the large amount of highly qualified labor required for manufacturing these parts and assembling them.

3:19:40 The inescapable fact that a mechanical device can only tell time approximately is could easily be hidden by writing superlative chronometer officially certified on the dial. Wealthy people don't need an instrument that tells time. They want a beautiful and exclusive object on their wrist. It's amazing. It's kinda like this full circle moment back to the Original wrist.

3:20:02 Watch market. Which was as ladies' jewelry. Yes. Where part of the signifying aspect of it was I don't care about the accurateness of the time. Right. I care about its beauty and what it says about me. That's exactly right. The thing I was trying to dig on this is Was this

3:20:20 A risk that Rolex took. Hm. Was it Counterintuitive And I asked Joe Thompson about it.

3:20:28 And he said In the late seventies, every watch reporter knew one thing. Mechanical watches were doomed. Every company told you that, including all those in Switzerland, it was a tremendously ballsy move to continue emphasizing the mechanical watch. But they also were

3:20:44 Like Jensen or or or Morris were like, Well, yeah, I bet the company, but I knew I'd be right. You know. They took their time, they waited. They watched What Not To Do and then they saw the playbook with blank pen of what to do. Yes. And then they hit the gas. And they were starting to see what was happening in Italy that as you described. The other thing that was making it take off in Italy is The Daytona became part of a uniform.

3:21:06 Like for young men wearing a bomber jacket and a stainless steel chronograph on your wrist was like a hook. All right, I need to go get a bomber jacket now. Yeah. Right. Midlife crazy, here we come. But yes, I think your thing about Jensen's exactly right. I also think Rolex had a built-in hedge. because of their independents and because of their cash position.

3:21:29 Everybody else is just gonna do all the scrambly stuff fast. They're all super reliant on each other. And they're all Overextended. And Rolex is this incredibly conservative company.

3:21:41 Yeah. We should say another word on that now. So in nineteen forty four when Hans's first wife died, He created the Willsdorf Foundation.

3:21:50 He put all of his ownership into that foundation. Much like The IKEA foundations that we talked about on that episode. The primary perpass

3:22:02 of the Willsdorf Foundation is to ensure the continued operations of Rolex. It's even more ironclad. than Ikea, because Ikea is this rat's nest of all these different structures. And all these different, you know, country foundations that they're in. Rolling's just one foundation.

3:22:18 In Switzerland, the most ironclad privacy foundation friendly laws in the world. Now, the foundation is also a charitable foundation and disperses huge amounts of money, much of it locally there in Geneva. But make no mistake, they're not responsible for shareholder return. Profits, you know, number one is

3:22:37 Continued operations of Rolex. They can have three bad years in a row. And the CEO might not get fired. Yeah. And they're playing a different game. Yeah.

3:22:46 Very emblematic of this in nineteen seventy eight. Right in the middle of the courts crisis. This is when Omega's thrown stuff at the wall. They released the C Dweller four thousand. More of the same. You know, what should we do? More of the same. Let's go down to four thousand meters. Right.

3:23:03 So Rolex sort of had this built in hedge. They would have been in great shape if they needed to go courts. They had the brand. They had developed the technology to do it well. They had the product, oyster quartz. Yeah.

3:23:14 They Just sort of hoped it wouldn't come to that. And also, as we've talked about, it would require dramatic change at Rolex. If it became a quartz company. They really just wanted to be able to make their six watches.

3:23:26 And so I think if they had gone quartz, Rolex would be fine today. that would be a way to build a good business. But the way to potentially build a great business. was to try this crazy blanc pon esque Strategy.

3:23:41 but at scale with one of the biggest and most successful brands in the world. And I think the important thing is they maintained the option. to go play the other strategy. That Omega was playing if they really needed to, but they sort of just hoped it wouldn't come to that.

3:23:56 Yeah. And it didn't. Yep. So by nineteen eighty nine, it's extremely clear that their strategy is working. Along with Patek Philippe, they had record sales that year.

3:24:07 Record. Amidst this craziness. Paddock was similar to Relics in their strategy. They had early exploration into courts. But they came to the same conclusion. Our company is not going to be good at this. So we either need to

3:24:19 Die Trying, but Or we need to really lean into this heritage handcrafted craftsmanship thing. But it was actually an easier decision for them because they're only making nine thousand watches a year at this point. Rolex is making like

3:24:34 A hundred thousand. Yeah. It really was as you say uh Incredibly well managed. But

3:24:40 Ballsy decision on Rolex's part. Yeah. Pot tech also, at least now, I don't know if it was the case back then. They're in a very different part of the market than Rolex. They're in the dress watch complication world. Yes.

3:24:53 Listeners, we've been lying to you this whole episode. Rolex is actually not a luxury company. Oh interesting. I would totally disagree. That is my opinion. And it's arguably not even a craft product.

3:25:05 It's an exceptionally well made industrial product with exquisite engineering. and amazing branding. But the luxury world of watches It's Atomar P Gay, it's Patek Philippe. These watches sell for

3:25:18 Eight, ten. Thirty times as much as Rolex watches. And they produce way fewer of them. Rolex is a industrial

3:25:27 Engineered. Beautiful, consistent, reliable. Product. It's not Art or complications.

3:25:35 Or Fashion. It's mass. I mean this thing sells. A million one, a million two. Products a year.

3:25:44 I agree with you. I think maybe our definitions of a luxury company are different. If you were to define a luxury company as the most expensive highest end items Yes, totally agree. That is not Rolex. That is Patek. That is Some of the other low volume companies.

3:26:00 The reason I think that Rolex is a luxury company extraordinaire is Managing the market. Hm. As opposed to participating in it. To me, that's what Hermes does better than anybody else out there.

3:26:12 They manage the market. They're in control. They're in control. And Rolex does the same thing. Yeah, Rolex is in control. Rolex is completely in control.

3:26:21 they could sell their products for much, much more than they do, and they do not Because it is the right long term decision. To do so. And there's a whole bunch of other elements too.

3:26:34 the luxury strategy that they manage with, which really comes into the next CEO. Andre Heiniger's son Patrick, who takes over in nineteen ninety two. And if we look at luxury versus premium, those definitions we used on the LVMH episode. It is absolutely luxury. You're not buying Rolex for the features.

3:26:51 Right. You're buying Rolex for what it says about you. Yeah. And They are a high volume luxury player. Again, in comparison to a Patek or a Automar or something like that.

3:27:02 Yes. I think the Birkenbag is a really good comp for it'cause price wise they're actually pretty similar. You're gonna burk him for I don't know, twelve thousand, fifteen thousand dollars. Like I mean it's it's an insane amount of money, but it relative to what they could charge or what the secondary market prices are. Totally fair.

3:27:18 All right, take us to nineteen ninety. So Everything we've been talking about managing through the courts crisis and this Transition to luxury, the auction houses, the Paul Newman craziness. In

3:27:30 Nineteen ninety two, Andre retires and his only son Patrick takes over as See you. He had joined in nineteen eighty six as commercial director. Right at the height of the Paul Newman crazy and All of this that we've been talking about.

3:27:44 What Patrick really did Within Rolex. was he vertically integrated the company. He presided over most importantly the Eggler acquisition in two thousand four.

3:27:56 for rumored roughly a billion Swiss francs. Rolex. Buys Achler and makes it. officially in house. But the other thing that he did that people talk about

3:28:06 He consolidated all the factories. Every physical location where parts That went into Rolex Watches were made, whether those were in house Rolex made or a third party supplier.

3:28:18 from call it thirty different locations throughout Switzerland. Down to four. four big massive consolidated sites. The way they own and produce everything in house. This is super important and all in service of this luxury strategy of brand management. And

3:28:35 I owe a big thank you to James Dowling, one of the co-authors of The Best of Time, which is a great Rolex history. He's actually working on a new book that's gonna come out in October, The Rolex Legacy. Hm. He helped me understand this.

3:28:47 Ben, what you were talking about a little while back about what Omega did where you had the core movement. But then you had Different. And models and cases and products in different regions around the world. Yep.

3:28:59 That is the Absolute. Opposite. Of what you need to do. As

3:29:04 A luxury company. It can't be like this one's better than that one, or different levels of quality, or these imperfections here, and it's cute like Абсолютні. That is critically important. Because all the clientele that are buying these products

3:29:19 our global clientele, they're comparing it against one another. You can't sweep this stuff under the rug. In the watch industry, because of Ben what you were saying, that there was this history of all these fragmented different little suppliers. Or providing all these different parts to the different N brands. You had a wide variation in quality.

3:29:39 Among products. And Patrick said We need to make sure. Every Submariner that comes in a Rolex box.

3:29:47 Is Of uniform quality. So he shrinks the suppliers. From twenty seven Down to just four.

3:29:55 Yeah. Rolex bought their bracelet maker. They started forging their own metals in house, gold, steel, you name it. proprietary stuff beyond just their famous nine oh four L steel. And they brand it. Rolex nerds all recognize Rollasaur and Oyster Steel and Ever Rose.

3:30:10 They already had a lot of control over their future from before from their private ownership, but now they really do'cause production is also in their own hands. Yep. And this also starts to build into The Lore, you know, just like Hermes has

3:30:24 Oh we have artisans that we train and we have our own schools and our own pipeline and there's eight thousand people that work in Ateliers that we've developed in France. Rolex now has the same thing. In these four mega sites

3:30:38 They have their own technology, their own people, their own machines. In when was this? Twenty fifteen, I think, they invited Four bloggers, Ben and James were two of them. To come and tour the facilities. Yeah, Ben Clymer has this unbelievable piece on Hodinky about his experience. Right, and you read these pieces and you see the photos and you hear them talk about

3:30:59 All of our machining all of our tooling we make in house custom. And we've designed these facilities to be able to fit like there's this one giant hallway. And Banner James is like

3:31:11 Why is this hallway so big? Like, Oh, well we designed it so that the width Of our biggest machine that we have. We multiplied that by two. So that we can get bigger ones to the future. It's all about vertical integration and this creates that uniformity and that myth and that uniqueness of what you're buying when you buy a Submariner or a Daytona. It is so true. I mean, after I read Ben's piece, I kinda took a step back and thought, huh.

3:31:36 Rolex actually is the highest quality thing. Yeah. It's the brand. But I mean

3:31:41 Who else makes their own machine that is gonna open and close the clasp a thousand times in just a few minutes to test it? Right. Who else is forging their own metals? Who else makes all their own movements? Who else is quietly inventing new components of the watch and then not advertising them because they just wanted to make it a little bit better, even though they kept the reference number the same.

3:32:02 They're going to absurd lengths. to make these things the highest quality engineered and produced products in the entire industry or Uh in any other industry too. Totally. So that's sort of the product and production side.

3:32:14 And that's the story of Patrick's time as CEO. In Two thousand eight. Sadly he develops a health issue and ends up passing away.

3:32:23 Way too young. They transitioned leadership first to Bruno Meyer, who had been the CFO. And then in twenty eleven to Gian Riccardo Marini Who was a forty year Rolex veteran. And had come up through Italy and this is kinda weird to have two new CEOs in short succession.

3:32:39 Over nineti years They had three CEOs. Yeah. That kinda speaks to the ethos of small iterative changes.

3:32:49 over long periods of time. One other company has had three CEOs in the better part of a century. Yeah. And I think it was just sort of a accident of timing that they then had These two CEOs for relatively short tenure and just

3:33:02 was because they were older, but they were both long term. Rolex Veterans. And what they do together through Two thousand eight and the financial crisis. I think is the other side, the demand side of the equation.

3:33:15 That cements in my mind role XPing. A luxury player is the financial crisis was Huge for the watch industry. in sort of a counterintuitive way. And I remember I lived through this as a banker on Wall Street right out of college.

3:33:29 I graduated in two thousand seven. And that first year that I was on Wall Street before the crash. Was the height of watches. It was sort of borderline okay for me to wear my Daytona because it was good times, you know? But everybody was spending their bonuses on Swiss watches. The craze was on.

3:33:49 Then the crash happened and all that dried up. Overnight, you know. Austerity was the name of the day. And That really, really hurt. A lot of

3:33:59 Other watch brands. Yeah. To try and save revenue. Rolex didn't do that. And zeroed out ad spend. Yeah.

3:34:07 Rolex. Didn't cut prices, didn't stop sponsoring the US Open. So this is another spot where If you're Rolex, you're like, Well, how long is this financial crisis gonna last? Five years. What's five years?

3:34:19 Probably more like two years. we don't know shareholders. I don't need to make my quarter. I don't need to make next year. We have enough cash cushion that We can ride this thing out. So we're gonna make the right five, ten, twenty years bets.

3:34:32 And this is all noise. So interestingly Rolex actually massively doubled down on their marketing spend in the US. During the 2008 financial crisis, while everyone else is not only cutting marketing spend, but cutting prices on existing products in stores. to move inventory, as you said.

3:34:51 The first time I saw this I was like Who at Rolex I mean, how did they make this decision? How could you possibly make this bet? And then as you start to learn more about it.

3:35:03 It's kind of the obvious move. Yep. There's a secular thing that's happening, which is the American watch aficionado market. It really wasn't A thing until the early two thousands. But it was really starting to take off.

3:35:16 Yep, this is when Ben found a do Dinky. Exactly. Enthusiast blogs, YouTube channels. I mean not yet in two thousand eight YouTube channels, but Here's an example. Rolex and other Swiss watch brands used to throw these events to generate interest in their watches.

3:35:33 And it would be for a one person we talked to called him old Fuddy Duddies who would show up. Or they would be for Chinese tourists and they would have them in the Chinese language. That's how small America's wash aficionado market was in the early two thousands. By

3:35:48 Oh six, oh seven, oh eight, it's really taking off. And so it's just a logical move. to double down on this. And in retrospect, it looks like so ballsy. But given Rolex's unique position versus what everybody else could do.

3:36:02 The opportunity's there for the taking. Advertise hard. Go get that new customer. Right. So

3:36:08 Here's the thing. This was the easy half of the decision. For Rolex. was to double down

3:36:16 Keep going. During and after the great financial crisis. That's easy, of course. Textbook, playbook the thing to do. When you're in a position like Rolex. The hard thing was

3:36:28 The watch industry did a hard bounce back up in the next couple of years once Zerp kicked in. In response to the financial crisis. As crazy as things felt in two thousand seven in the watch market. By the time you get to twenty eleven, twenty twelve, twenty thirteen

3:36:44 We're way beyond that in excesses. And so many of the other brands totally did this whiplash Seesaw thing. Where they were pricing really high Trying to become exclusive before two thousand eight. Two thousand eight hits they panic. They cut prices, they cut marketing spend.

3:37:00 Now the market comes roaring back and all of a sudden they're raising prices back up again. And trying to cash in on the good times. What does Rolex do? They stay the course. Same thing. They don't raise prices. But they control supply.

3:37:12 Yeah. They raise prices slowly every year. It's a modest. price increase every year that kind of sets the floor. And frankly, if they do it over enough decades, everybody just believes forever that these things are going to appreciate because It's almost like they're the Fed.

3:37:27 And they're guaranteeing a certain rate of return on these things. There's this really awesome New York Times article. In the last couple months talking about this dynamic. How all the other luxury houses over the past couple of years, you know, during the post COVID craziness.

3:37:45 Really raised prices. And price gouged themselves out of the market. Once the reset happened and Hermes didn't. And Rolex followed this exact playbook over the last ten years. not price gagging themselves out of the market, but intentionally limiting supply, letting the secondary market go nuts.

3:38:03 And then but keeping an even keel for themselves. And then Now that there's been a bit of a reset they're stronger than ever, I think. All right, so This is a question I was

3:38:14 sort of had on my list to ask you. A very very common narrative about Rolex right now. Is they have burned all of their biggest fans.

3:38:25 These wait lists have gotten out of hand, the authorized dealers are being disrespectful. They are intentionally limiting supply. Have they gone too far in their unavailability? I think it's a really good point. One dimension where Rolex

3:38:41 Historically Has been very different in their strategy versus uh Hermes or other luxury Companies. Is they don't control the last mile of retail and the customer relationship.

3:38:53 They've always had the authorized dealer model, as we talked about. So right now, or at least until recent times. These crazy waitlist things are actually sort of somewhat out of Rolex's control. Yeah. in a way that Ermes or Louis Vuitton or Chanel or the like They're managing their own customer relationships.

3:39:12 Rolex doesn't have their own stores. And this was one of my really big questions as I was doing the research, like Why? Seems obvious they should have their own stores. This works so well for L VMH and Hermes and et cetera, et cetera. Why doesn't Rolex do this? Historically at least.

3:39:28 The key difference between Rolex and other luxury houses Is Rolex is a one category company. Armads can have their own stores because they sell furniture and they sell ready to wear and they sell jewelry and they sell handbags. So like even though in any one category They sell a lot less of a given skew, like far fewer Birkenbags than Rolex sells. Watches.

3:39:51 the totality of all the products they sell. allows them to support a retail, a dedicated owned and operated retail footprint. Nah, I don't buy this. You don't buy this for a second? Okay. Well, I do think this is changing now. Rolex has fifteen hundred authorized dealer locations.

3:40:07 And if all fifteen hundred of those were Rolex. Stores. they would absolutely do a great job paying rent. Yes. They don't need to sell a whole bunch of other things to lure people into the store to Well, I think that's true now, and I think that's why they bought Booster and

3:40:22 Twenty twenty three. All right, let's have that debate and then let's come back to scarcity. Okay. Okay, so why buy Boucher. Twenty twenty three, they spend a rumored five billion dollars. Five?

3:40:33 Five. Yeah. I mean nobody knows the the details of the transaction. But to buy One of if not their largest single retail partner. The jewellery becher, eh? And They have a hundred year old relationship.

3:40:47 This was one of the first retail partners for Rolex in the super early days. And actually this alliance Plus the Eggler. Alliance helped them

3:40:58 stay out of the Swartel. So in many ways they have Boucher to thank for their independence and their freedom while the rest of the industry was panicking. So they've got this like tradition. But the question is Everybody jumps to

3:41:12 Shouldn't they own their own retail? They own their own everything else, shouldn't they own their own retail. Why? What are the reasons? Well you there's control over the buying experience. And to your point, list management. Yep. As weight list management becomes more important, I think that becomes more critical. Yes.

3:41:28 That's legitimate. There's eking out every dollar of margin. And there's getting full visibility into data on customers. Which actually is interesting. They they don't get that today. They they like don't have their customers' email address or names or addresses.

3:41:43 because that data belongs to the authorized dealer. Rolex doesn't actually know who's buying their product or who likes their product. Which is kinda crazy for a modern company of this. Scale and size. When then the elephant in the room to me with all this is

3:41:56 All these authorized dealers. Sell other brands too. Boucheret sells Omega. And Boucherie uses the fact that they're a Rolex dealer.

3:42:05 To attract those other Brands. And to attract the customers who will buy a bunch of stuff in the store. Once you have Rolex, uh someone in the research put it to me, You're a made man. Yeah. But historically Rolex has been like, That's fine.

3:42:18 sell Petac, sell Alemar, sell Omega. in the same physical location. Will that change now? Right.

3:42:27 Okay, so just walk through the logic tree. Rolex mostly didn't need to take on the burden or the fixed costs or the complexities. of owning retail. Rolex dictates terms to retailers on how their products should be sold, displayed, marketed. They have exacting standards. And over time, retailers actually have less room to differentiate their own brand and experience. And increasingly you walk in and you're like, Oh, is this a Rolex store?

3:42:52 And Rolex doesn't have to take on managing the store. They have sixteen thousand employees. Doing 10 billion a year in sales. Amazing. This business is so efficient from a headcount perspective. And everybody talks about it like it's craftsmanship. It's high.

3:43:07 Economies to scale production. Like, yeah, th there's people working on these things. But there's a tremendous amount of machines And they don't have to operate the stores. But they mostly get

3:43:18 All the good parts. of uh highly controlled retail experience without having to also be in the Very crappy. retail business. I mean industry wide third party retailers

3:43:31 make a thirty seven percent gross margin after they mark up from the the wholesale price. That's their margin. For Rolex in particular, It's lower than average'cause Rolex. you only get to keep thirty three to thirty four percent. I've heard that actually went down one percent this year.

3:43:46 Rolex kind of gets to have their cake and eat it too by not owning retail stores. and having all the benefits of as if they did. At least over the last thirty years or so. I think your points are valid about they s are increasingly kind of wanting that customer touch point. Um, especially as it comes to things like wait lists. Yep.

3:44:06 The thing about Rolex in pursuing this strategy until now, at least. They don't necessarily do things for The gross margins. You know, this is a foundation owned company. They do things for long term strategic reasons.

3:44:21 And I think If at least you buy the premise. That if they were to operate their own retail locations. They would be pushed

3:44:32 By customers to have more Things in those stores than just the Six or seven core Rolex models. Which you probably can't walk out of the store holding one of them anyway. You're just going there to sign up for, you know, a a a wait list. Which again is a very different experience than the Hermes retail experience. You can't walk out of there with a Birkin.

3:44:51 But you sure as hell can walk out of there with a scarf or a piece of furniture or uh you know Apple watch strap, you know, et cetera, et cetera. It is astounding. that Rolex has had the discipline to remain just a watch company. Imagine the opportunity to become a fully diversified luxury company. Rolex jackets, Rolex sunglasses, Rolex fragrance.

3:45:14 Rolex, you know. You name it, Rolex luggage. Why are they not in the luggage business? You could make nine oh four L steel carry ons. Right. You know, make Ramoa look like child's play. And I suspect that this is part of

3:45:31 The reason not to have gone directly into retail. Maybe. I don't know. I don't think so. Do you think Rolex is gonna give in to customers saying, I wish I could buy other things in this store.

3:45:42 Or ignoring the free money. I could be way off base here, but just like really imagine like Okay. What does it take? to operate these retail locations. These days

3:45:53 You're competing for physical space with L VMH. So you are in the most expensive, highest rent. Highest end places on earth. Yep. And again, you may not necessarily care about your margins and maybe you can take that hit. And they have tons of cash, maybe you can even buy the real estate. But just as a shopper experience for the people that are now visiting those locations.

3:46:15 They wanna go and they wanna have an experience, right? And they walk out with product. And so if there's a Rolex only store and all there is is the Six, seven, eight models there that you cannot walk out of the store with. Like what is it doing? Right. Yeah. It's a high end bonobos. Except you have no idea when you'll get the call. Right, exactly.

3:46:34 Now compare that to a Boucheret, where like, yeah, you can't walk out of there with Rolex, but you can walk out of there with uh Yeah, I don't know. A whole bag full of tag hoyers. Yeah, exactly. And it's a non exclusive market. Anybody who's a watch collector isn't just a Rolex collector. Or like just because you buy uh maybe I'm sure there's some people, but I think for a lot of people who love Rolex. They're also gonna own a Paneri or they're gonna own uh whatever and

3:46:59 That doesn't hurt their relationship with Rolex. Yeah. Fair. So the question kinda remains why did they buy

3:47:07 Yeah. So here's my Supposition. Yes, it will help them improve their economics for watches that they sell through Boucher. But not why they did it.

3:47:16 Yes, it will help them improve leverage over other retailers. But they didn't need that. They already do things like Gee. It would be nice if you wanted to remain a Rolex Authorized dealer. If you sunk

3:47:29 a whole bunch of capital costs into rebuilding this part of the store to make it better. Oh. No no we mean you. We would like you to do that. We will get back to you this December.

3:47:40 if we're gonna renew the contract for next year for you to stay a dealer or not. Um but let us know in those renovations. They have all the leverage. All of it. So I don't think it's like oh now we own this retailer and um They didn't need that at all. Yep. Okay. Yes, it will also let them have a tighter grip on watch allocation and the customer touch point. Weightless management, which I agree is a huge liability for them right now. But they didn't need to own

3:48:03 the A D is to do that. Yeah, they had the leverage to take control anyway. They could easily have said, Hey, in the contract for next year's renewal We're putting in a clause. that you are no longer allowed to maintain

3:48:16 wait lists on your own for customers. We're centralizing that. And if we catch you doing it, w y you lose your license for the next year. Great point. They absolutely could have done that. Now, maybe they didn't feel that was ethical. They're like, look, it's the dealer's business and we have to let them run their business. But

3:48:32 You could solve this without Buying. Someone who represents eight percent or whatever Boucher is of their total sales. I honestly think The biggest reason to do it was so no one else buys it.

3:48:44 Mm. Boucher is a one hundred year old relationship. The family didn't have anyone to pass it to. They're looking to sell. Rolex is a very private company. They don't want anyone else owning an asset that has a lot of visibility into Rolex itself since they sell so much of Rolex's inventory.

3:49:01 They don't want to public company to own it and start reporting How many Rolex watches were sold that year through that? I mean, that'd be horrible for Rolex. And I'm sure L VMH would have loved to have owned. Absolutely. I mean they own Sephora. You don't think they want to own Bocher? Yeah. And a Boucher also comes with um what's the Terneau, the American retailer, which I'm sure Rolex doesn't really want to own Terneau, but here they are.

3:49:26 So I think it was so no one else buys it. Yeah, I think you're probably right. I do agree though. I mean the the reason that people are all up in arms about this. I never got the call from my authorized dealer and The whole wait list thing is because Weightless.

3:49:41 We're only really a thing. for until honestly like twenty fifteen. for like steel daytonas. Yeah. The rest of it, you could just buy. Like it's this whole this new notion of having the privilege to go spend

3:49:55 seven to twenty thousand dollars on something and getting told no by the local jeweler. That's crazy. Most of the time they're gonna say, Yes, absolutely, let me walk you to the checkout aisle. So Because it's kind of a new motion, the old way of doing it.

3:50:12 They basically didn't have the infrastructure to have a properly managed I know you are taking out the luxury strategy and you're showing me the page of May I please remind you of anti-law of marketing number six, dominate the client. And number seven, make it difficult for clients to buy. Oh, also number five, do not respond to rising demand. But honestly, until twenty fifteen, like you could just buy a Rolex for most of'em, except for the ones that they deliberately wanted to use as Hey, this one's hard to get. I should just be able to walk in and buy a sub, you know?

3:50:45 Yes. And so that's how customers feel because that's how it always was. And then they're each A D is using their own mystical portal of wait list, which really means how many Instagram followers do you have, or are you famous enough for me to allocate one of the six that I get to sell this month to you? And so it's a customer hostile experience. If Rolex was Just put in the contracts.

3:51:06 Guess what? We're managing the list. And uh we're gonna actually manage it. And we're gonna publish. How it works. I think they can earn a lot of customer goodwill and they wouldn't have to go buy a bunch of retailers and and figure this whole thing out.

3:51:19 Totally agree. They absolutely could do that. Yeah. I will say I don't think Rolex wanted to be in the luxury business.

3:51:29 Hm. I think they wanted to be a lifestyle brand. I think they wanted to have fantastic engineering. I think they wanted to continue making things a little bit better every year. They wanted to have the very Best brand they could with customers. But I think global luxury kind of happened to them. Yeah.

3:51:45 And they didn't really have a good choice after the courts crisis. Yeah. Uh, I heard an anecdote that um Richemont and in particular Cartier. decided that they were going to start acting like a luxury watch brand and they sort of reconvened the watch industry around them in a luxury way.

3:52:06 uh an example being to compete with Basel World or the Basel Fair. Richmond started their own thing in Geneva and they said, Look, the industry gathers here in Geneva now and we're gonna be fancy about it. And no one's eating bratwurst anymore on the show floor. we're gonna sell watches to customers with champagne and caviar and a presentation ceremony.

3:52:26 And so if you're not doing that Guess what? That's what watches are now. I don't think Rolex was the driver of that, I guess is what I'm saying. I think the industry went that way and they happened to be the most prestigious high volume player in it. And so they're sort of trying to figure out

3:52:42 w what it means to be an accidental luxury brand. Hm. I can totally believe that. I mean go back to Hans Wildstorf, right? Like That was totally not his vision for the company. His vision was a Rolex watch on every wrist. Yeah.

3:52:56 Okay, so now g now that we're like over in scarcity land, I wanna revisit the question. Have they gone too far in their unavailability? Well The main reason I honestly believe this. that they didn't ramp production to meet customer demand. Isn't it?

3:53:11 positioning. It's not We're a luxury brand, we don't do that. It is They don't want to destabilize the business. Good times come.

3:53:19 Bad times come. We do not want to be the brand. That ramped. twenty percent in one year. and is now slashing MSRP, which lots of watch brands have to do.

3:53:31 and it embarrasses their customers who just bought it at full price and now suddenly it's twenty percent off. Like that's a horrible way to destroy your brand. Yeah. Cartier overproduced watches in twenty sixteen and had to destroy hundreds of millions of dollars of inventory. This kind of thing doesn't happen to Rolex.

3:53:47 very incremental slow increases to production over time. That's the thing that has served them well. They never want to be anywhere close to the line of what the real demand is. There's sort of this business physics lesson here. It's very hard for a business to ever get smaller than its largest ever. Yes.

3:54:06 It's like a down round in venture back companies. Yeah. Customers don't like it, employees don't like it. It's hard to shrink your overhead to rational r new realities after bubbles pop. Like it just doesn't feel the same as when It was always your biggest best year ever. Yeah. And I think Rolex just really doesn't want to ever be in a position of that. So they're like Conservative to a fault.

3:54:29 On slow modest increases in production slow changes And when there's a bubble and a whole bunch of new fans of your brand come in. It's like an immovable object meeting an unstoppable force. Like They're just not gonna meaningfully ramp.

3:54:43 The biggest thing they did do is they started this new production facility construction that will be open in twenty twenty seven or something, but even that, I don't know, that that'll be maybe 10, maybe 15% bump when that comes online. But I think they're torn right now because they don't want to have all these customers whose demands they can't meet, but they also don't want to risk destabilizing the next hundred years. Yeah, new demand is actually like

3:55:06 A risk if you're Taking a very long term view. Yes. And managing Valuable customers. who want a long term relationship with you and who are angry

3:55:17 While you're trying to protect your own stability. Yeah. Which coming back to the wait list, I think this is the positive justification for a wait list. Making sure Yeah.

3:55:29 Those people who become clients and buy your products and participate in your brand really want it. And aren't just there because it's the hot flavor of the week and they're gonna be gone. Next month. Right.

3:55:42 And Rolex cares about that. But not as much as like a Patekphiliap. I mean, for tech Philippe, they want to make sure that they are appeasing the collectors and the true fans like. Rolex.

3:55:52 I think they acknowledge that they're very commercial. They're here for the the the executive who got a promotion and the doctors and the dentists and the lawyers and the finance guys That's their bread and butter. And I don't think they wanna like lose the brand Patina with the that

3:56:07 Huge volume of material wealth. In aggregate. Yeah. James Dowling again put this to me, uh, in a really good visceral way. The typical Rolex buyer

3:56:17 is not comparison shopping with a pot tech. Or any other brand. Mm-hmm. They are comparison shopping with Do I buy this Rolex or do I upgrade my nine eleven? Hm.

3:56:30 That's interesting. One more rumor I heard. And this should totally justify. Rolex isn't happy that they're not able to make enough watches.

3:56:40 Like I really maintain this. Steel Daytonas. Sure. Rainbow, whatever, sure. Those can maintain rare, but like Submariners should be on shelves, or at least two weeks later you should get a call about it.

3:56:52 I heard that in twenty twenty to twenty twenty two. They asked employees to come in six days a week instead of five to meet demand. Mm. Wow. So if that's true, that's a pretty telling

3:57:04 simple about how they feel about it. Yeah. Now is a good time I think to bring up. There's one more piece. of Rolex the Corporation, uh and the story.

3:57:14 Which for the longest time I think both of us were totally puzzled by. And when we were in Taipei to interview Morris in January We went into Taipei one oh one and we were walking around in the shopping mall. Oh we walked by Tutor. Well

3:57:28 It was an authorized dealer. that had both Rolex and Tutor, which I think a lot of A D's or maybe all A D's, if you take Rolex, you have to take Tutor. Yes. So what is Tutor? Tutor.

3:57:42 uh like the uh uh British uh royal uh Tudor family. Is Rolex his sub brand? Sort of. Technically, it's another company owned by the Hans Wilsdorf Foundation, but in practice. Yeah. Sure. This is Rolex's sub brand.

3:57:57 And Ben to your earlier point, if you're gonna make an argument that Rolex does not wanna be a luxury company A textbook violation of the luxury strategy is to have a sub brand. Right. And so we're like, what the hell is this tutor thing? Why do they have it? And if you look at the tutor products. A lot of them like Art.

3:58:15 The Rolex products. Dude. Okay, so Tutor was started by Hans Wolfsdorf in nineteen twenty six. with the stated purpose to be a more affordable brand to Rolex, While maintaining high quality standards.

3:58:27 And originally they actually were Rolex cases and bracelets, but with off the shelf movements from a third party vendor, ETA, which is actually now part of Swatch Group. versus the ones that Rolex was getting from Egler. You'd look at it. And it would look like a submariner. Totally.

3:58:43 You walk into a tutor authorized dealer, you go on the website and you're like Wow, that sure looks like a GMT master, and that looks like an explorer, and that looks like a submariner. Right. Yeah, even today it it almost feels like knockoff y, except that the Rolex knockoffs are shockingly good. You go a decade owning a knockoff and not realizing it.

3:59:02 Yeah, yeah. For the longest time, you know, I at least and I think you were too like Whoa, what is going on here? And then we realized the real limiting factor to Rolex production is movements.

3:59:14 Movements are the hard thing to make. And all their movements are igler movements, you know, now in house Rolex movements. Tudor does not use Egler movements, does not use Rolex movements, they use third party movements. This is funny, I hadn't had this insight. Yeah, so Tudor is kind of the release valve here. They can ramp up production.

3:59:32 of the Tor quote unquote submariner or GMT master or explorer or whatever. with third party movements, and that's okay. Hm. But what do you mean release valve? Like customers can't get a Rolex, so they get a tutor? I think that probably rarely happens, but

3:59:48 I want everybody to Be able to own a Rolex. This is the way that they can have that happen. I don't think that's it. I don't think they care at all about that.

3:59:59 Mm. Here's my logic. It is a shockingly low. percent of Rolex's production. Less than one percent.

4:00:09 If that were true, they would sell a lot more tutors in volume. Let's take a Black Bay. This is the sort of the Tudor submariner. Four thousand dollars. Most people Don't know or care.

4:00:24 About the Black Bay. And if they walk in thinking they want a Rolex They're not walking out with a black bay. They sell so few of these things. So

4:00:33 What are they doing? I think it's kind of an innovation lab. It's a way to protect Rolex's brand. Because if there's something new and interesting that might be a fad That customers seem to be caring about.

4:00:47 In the watch world. Tutor can go and implement it. And they can figure out how to produce it. If it's a flop. That's fine.

4:00:54 The watch aficionados who know about Tudor Expect them to come out with weird stuff that flops. But if it's durable then Rolex might get it in five to ten years with even more polish and thoughtness. They've tested all sorts of stuff with Tudor, dial colors, ceramic bezels.

4:01:12 titanium watches A lot of these now are slowly making their way into Rolexes. And I think the key thing is they can use Tudor to go and compete with Omega Tag hoyer.

4:01:25 in the mid market. And Tutor basically can punch up so that Rolex doesn't ever have to punch down. Mm. Yeah, yeah, yeah. I heard a great phrase that the shield protects the crown. The Tudor Shield protects the Rolex crown. Which makes total sense. It's so that they don't ever have to risk doing something dumb. chasing a competitor with Rolex and Tutor can always go figure it out.

4:01:48 I love it. It's like we used to think about the L P show. Right. It's our innovation lab. And we still think about A C Q two that way. This is like

4:01:55 if this is something we find interesting, but we wouldn't do it on the main show, or it's we just don't have a place in our lineup for it. Yeah, it makes sense. And it still provides value for all sides. Like it's still great for listeners. It's still great for the guests. It's still great for us. Yeah. Yeah. But what is it? It's less than ten percent of our show with listenership. It's a great experimentation ground.

4:02:14 Yeah. The real watch nerds will tell you that they actually love Tutors. Even though it's a four thousand dollar watch. The movements are incredibly high quality. And I think

4:02:25 Consumers actually might be getting a pretty good deal. on Tudor watches. mean if I go out tomorrow and buy uh an explorer That's whatever it MSRP is for eight thousand dollars or something. Rolex is making phenomenal margins on that thing.

4:02:39 Tutor. They don't sell that many of them. So at a four thousand dollar price point That's only twenty five hundred dollars wholesale. for a very high quality movement. And there's not a lot of

4:02:51 them made. So economies of scale are really low. So whatever the fixed costs are, there's not that many watches to amortize those across. And I think there's actually pretty significant Up front fixed costs. So I don't know, I'm sure they're not losing money. By having tutor. But it's a great deal for customers.

4:03:07 Yeah. Ha, you're totally right. I like your rationale better than mine. Well, we both had a lot of good conversations to try to figure this out. Cause you and I were texting each other. We were like, what are they doing? This is the worst luxury company ever. Yeah. Okay.

4:03:22 Well To wrap up at least the history here. level set us on today. What is the company today? All right. First of all. No one knows.

4:03:31 Yeah, right. But there's a lot of really good ways to guess. And Shout outs here.

4:03:38 One is to our good friend of the show, Arvin Navarotnam. He as usual did an amazing long form write up of the business of Rolex. And he found Awesome. public sources of data.

4:03:50 We'll link to that in the show notes. Secondly, The industry report that everyone kinda refers to is this Morgan Stanley Lux consult report. Who sent us a copy in in preparation for the episode. So We did our own

4:04:03 ways of trying to guess at these numbers and the shape of the business today. And then we kinda looked at the Morgan Stanley one and thought, okay, what's the Most reputable. Well connected. person who's networking with all the dealers. Coming up with.

4:04:17 I would bet all this is within ten to twenty percent of right. So I think they make about One point one million watches a year. Maybe a little higher.

4:04:27 Margaret Stanley said one point two four. So think one point one to one point two million a year. Yep. Sounds right to me. For revenue.

4:04:35 Think about it as around eleven billion dollars in revenue that they do in sales. So The interesting thing is to start to look at market share. The share of The Swiss watch market.

4:04:48 that Rolex has By revenue. is completely insane. Morgan Stanley and Lux Consult estimate it at thirty point three percent. Of the whole Swiss watch industry.

4:05:00 No one else even comes close. Cartier and Omega have seven point five percent each. Truly, the number two and three player. All right. What is that, a quarter?

4:05:10 Yeah, the number two and three player are at Slightly less than half of the scale of Combined of Rolex. Yeah, exactly. Patek Philippe is at five point six percent again by revenue.

4:05:20 A tech fleet makes frickin' expensive watches. And they still only are at five point six percent, one sixth of Rolex. Autom RPK is at five percent, and then you just have massive fragmentation down from there. Rolex makes something that

4:05:33 Isn't crazy expensive. But it's pretty expensive. And they sell the absolute crap out of them. On a units basis, so that was revenue that we just talked about. Units, they make something like fifteen times the number of watches that Patek Felite makes. Twenty two times autumn RP gay?

4:05:50 It's crazy people even talk about these brands like they're in the same sentence, just based on the volume of output. Yeah. They're totally different. Segments of the market. Yes. In terms of price, Rolex's average selling price. Not

4:06:05 Rolex's price, but what the retailers sell it for. It's around thirteen thousand dollars. Adam RPA is forty eight thousand dollars. Vacharon Constantine is thirty eight thousand dollars. Patek Philippe Forty thousand dollars. I mean

4:06:20 Totally different categories. This is Part of my argument that Rolex really isn't luxury at all. They have hit the sweet spot in the market. If you think about a curve, like an XY axis. They have found the sweet spot. Where you can maximize revenue.

4:06:34 where you just sell an absolute ton of watches that let people express something about themselves. But you stay away from that insanity of the true luxury market that limits you to a very small number of production. So they're almost like their own thing entirely. Yeah. It's interesting, right? The secondary market. really lets them do this, I think. Yeah.

4:06:56 Because Even though the model lineup of Rolex has remained stable for so many decades now, or relatively stable for so many decades. Because of the minute Changes. In

4:07:10 all the reference numbers in the models, you actually have Incredible scarcity and rarity for For people who care. You segment the market. Yeah, certain flavors and that can become the multi hundred thousand dollar watch market for Rolex, the multi million dollar watch market for Rolex. They can participate in the same Yeah.

4:07:27 That's Patek and Automar, et cetera, participate again. Just do it through the secondary market. Or even special editions in the primary. I mean you look at the Rainbow Dial Daytona. Oh, the emoji watch. Right. That thing is pretty baller. They can do these extremely you know, they play in Patek Philippe land.

4:07:46 Both to your point in the secondary market, but also in their sort of limited edition special watch. Market. Yep. But I think if they weren't as strong a player in the secondary market, because obviously they don't really monetize that directly. Right. I think they wouldn't then have the permission to go put out these special editions that sell for Couple hundred thousand dollars in the primary market. Right.

4:08:06 The thing they've done so genius and beautifully well. is to create something that the whole world knows about. that everybody looks at as a sign of success. That you've made it. that you're like those divers and you're like those pilots and you're like those explorers.

4:08:23 If you have one. And because it's universally agreed upon As global wealth grew. They basically just got to index it. Yeah.

4:08:33 Think about it, right? Like I certainly don't want to imply that a Rolex is not a lot of money. It is a lot of money that is inaccessible to the vast majority of people. Yeah. However Let's say you work a solid white collar job in America these days. You get a big promotion, you have a big life event.

4:08:51 You have a kid. Etc. Is it reasonable that you could purchase a Rolex? It's right on the edge of unreasonable. Which is exactly where they need to be to have this market. Exactly. If you make sacrifices, you can probably do it. Yeah. Depending on what your salary is.

4:09:07 Yeah. I mean, truly, since the nineteen fifties. There is a wealth class that has emerged, doctors, lawyers. finance people, recently tech people, if they can really figure out that market. That

4:09:21 Absolutely can go by. A ten plus thousand dollar watch. If it's the thing they choose to buy. Yeah. Like a Porsche.

4:09:29 A nine eleven. Is not. That is completely inaccessible. It is a impractical car for ten times as much money. Yeah.

4:09:36 It's a pretty sweet little market to have. that it's this almost unreasonable thing that a whole lot of people can buy. And to your point about the confoundingness of like lecture, I still maintain it it is managed in the same fashion as the world's best luxury brands. However

4:09:54 It kinda sounds a lot like a BMW to me or a Mercedes. A Mercedes or a BMW Again, most people Can't afford them and don't buy them or lease them. But

4:10:05 For a lot of people, well beyond the one percent. If it's something you really want in your life, there's probably a way you can make it happen. Yeah. Well, most people finance BMWs. But nobody's f well, I think people probably finance Rolexes. That's yeah, I think there's ways to finance Rolexes. Yeah. It's interesting. I did some thinking about allegories to other categories like handbags or fashion or cars. It's quite tempting to say that Rolex is Louis Vuitton and that Paddock is Hermes. But Rolex isn't quite Louis Vuitton. That's not giving Rolex enough credit. No. It's not managed like LVMH at all. Yeah, they are very careful stewards of the brand in a way that Louis Vuitton will slap it on T shirts.

4:10:44 My best comparison that I think I came up with is Rolex is Porsche. And I know they're different. categories of price, but like cars are expensive things. And you do need one anyway. It's real scale manufacturing with a high quality engineered product with extremely good margins. differentiated by their brand.

4:11:04 You stick to six core models. You iterate and refine each one of them once or twice a decade. The submariner's the nine eleven You can buy what your grandpa had fifty years ago and it still looks like that modernized. And it's actually a pretty good comp to call the Techfully Ferrari. Yeah.

4:11:20 Totally. We don't care what you think. We are making this for us. We are making it for collectors. It's very small volume production. Very small volume production. It's Five times more expensive. Totally. Yeah, and that's a completely different market. Ferrari, Lamborghini, you're talking about million dollar plus cars is a very, very different thing than an eighty thousand dollar car. Right.

4:11:41 Bottom line of what I'll stick to is Paddock is Ferrari and Porsche is Rolex. And it's a really good business to be in. Yes. Yes. I mean it's kind of ideal to your point. They have found the ideal point on the curve here. I think that's it.

4:11:55 They multiplied two pretty big numbers together instead of one big number and one small number. Yeah. And the way it manifests in watches is unique and different than other markets too. Thirty percent. of the Swiss watch industry.

4:12:09 Other categories don't have this kinda outsized winner, even in handbags where Louis Vuitton is so I mean they print money. Print money. Somewhere around twenty percent. I think Rolex defines the category.

4:12:23 Of Watches. Herbes doesn't do this, Livutan doesn't do this, Porsche doesn't do this. Those are all much more fragmented markets. Yeah. Totally.

4:12:33 And for people who think we're like blowing smoke here of how is Rolex not a You know, high end luxury. Rolex, we were just saying, average price of thirteen thousand. You look at Richard Meal.

4:12:44 I mean this is like a two hundred and eighty thousand, maybe three hundred thousand average price point. Jacob and Co. Uh hundred thousand. Automarp gay that we were just talking about, Van Cleef, Protect Filip, Vacheron Constantine. Blanc Pon, P

4:13:01 These are all meaningfully more expensive average price points than Rolex. Rolex is the name you know, but it's not. the most expensive watch by a mile you could buy. And there's fifteen other brands that are higher end.

4:13:15 Yeah. But success in America in owning an ice watch is a Rolex. Yeah. I think that's what's so Amazingly unique about this company.

4:13:23 Yes. Okay, so Employee count. They have about sixteen thousand people worldwide, about nine thousand of those are in Switzerland. I had a lot of fun trying to size this market.

4:13:35 Try to figure out Swiss watches versus watches. The Swiss watch industry is something like thirty five billion dollars. wholesale before the retail markup. Across All players, including the super high end.

4:13:48 And Omega and Swatch and everyone else. Rolex does about eleven billion of that thirty five billion. But We've talked about. Holy crap. But where it gets very interesting is when we zoom out from just Swiss watches.

4:14:01 Switzerland produces Two percent. Of the world's watches. Two percent. Yeah, and everything else is a ten dollar piece of crap. And to put some real numbers on that, Switzerland makes seventeen million watches a year.

4:14:14 And most estimates are that there are between seven hundred and nine hundred million watches made in the world every year. Seven to nine hundred million. Including smart watches. Cheap twenty five dollar watches. You have it. So

4:14:29 This two percent of units sold that happens in Switzerland. Accounts for forty five percent of the dollars. In all watches. Smart watches. Time X's.

4:14:41 All the stuff that's made in Hong Kong and China. I mean Two percent of units are made in Switzerland and forty five percent of the revenue. Is captured there. Totally.

4:14:51 Apple loan ships way more. Apple watches every year than the entire Swiss watch industry. Way more. Oh, absolutely. Estimates on the smartwatch industry are like eighty million smartwatches a year. Yep. And I think Apple, depending on the year, does like thirty to fifty.

4:15:06 Yeah. It's funny, the seventeen million watches. That includes a whole bunch of swatches and fashions and Yeah, Switzerland makes a lot of courts also, so It is true that

4:15:17 Forty five percent Of the dollars come from 17 million watches out of seven to nine hundred million, but it's actually even more concentrated than just that 17 million because. None of the courts watches contribute that much to the revenue. Yeah. To make that point specifically, eighty-six percent of Switzerland's watch export comes from mechanical watches.

4:15:38 that whole move in the courts crisis to lean hard into mechanical really, really, really worked from a dollar's perspective. So forty percent Of all watch revenue. in the world came from Swiss mechanicals. Mechanicals.

4:15:52 Amazing. So Then you start to look at net profit. Well, Rolex has thirty percent of the Swart by revenue. But probably even more by profit.

4:16:02 Oh yeah. It's totally an Apple situation here. Morgan Stanley and Lux Consult estimate that of the thirty five billion dollars in total revenue for Swiss watch manufacturers, There's about eleven point eight billion of total profit. implying that the industry wide operating margin is twenty nine percent.

4:16:20 Okay. Do you think Rolex has an operating margin of just twenty nine percent? Hell no. And frankly, there's a lot of people in this category who have negative operating margin. There are these big conglomerates that are trying to get into watches. they're not generating a lot of profit there right now. There are a lot of estimates between thirty and forty percent. I would bet. it's way closer to forty percent for Rolex's operating margin.

4:16:42 My best guess is that while they account for thirty percent of the industry's revenue. It's in the neighborhood of forty percent of the total Swiss profit. Yeah. Totally agree. They're also so vertically integrated, except for retail, that

4:16:56 You have to imagine that ultimately that would create a better profit structure too. Has to be. So then you get to balance sheet. This is truly anyone's guess. They're spitting off something like three, three and a half billion dollars a year. Maybe more, maybe four.

4:17:13 Yeah. And they've done Call it two to three billion for at least a decade or two. And so it's not crazy to think that they've piled up fifty billion dollars plus in cash even Before investment returns. It's totally an IKEA situation.

4:17:29 There's tons and tons of cash. Sitting there. And in IKEA, we can see it in an annual reports. I have no idea. What? Rolex's

4:17:38 Assets look like. So the Hans Wilsdorf Foundation. Of course doesn't. publish any numbers publicly, but they have said and people have estimated that they give away around three hundred million Swiss francs every year. Which by your numbers would be about one tenth.

4:17:54 of the cash that the business is generating. Or less. And still that makes them one of the Most active annual Dispersing foundations on the planet. It's unbelievable, and it's a very broad base of philanthropic initiatives. Environmental, science, arts

4:18:10 And it's not like they're just doing things that help Rolex. This is like a very legitimate charitable foundation. Not to mention it seems like they're just giving money away all over Geneva. Yes. This is the coolest thing about it. A core part of the mission of the foundation that Hans put in its bylaws is

4:18:29 is to help the city and people of Geneva. And so I think they've found sort of over the years uh come to a belief that the best way to do that often is just giving people money. If people need money Family can't make rent, have a health issue come up or something.

4:18:44 They can apply for grants and just give'em money and they Don't make a big deal about it. It's pretty interesting. One thing they definitely do with their money. Again, I think it's safe to just ballpark there's fifty.

4:18:57 before investment return sitting there. But Again. Plus or minus fifty percent. They own some of the most expensive real estate in the world. They own Their own buildings in Switzerland.

4:19:09 They own in the Bond Street house area in London, some really, really prime real estate. in Milan in Melbourne and Tokyo, famously in New York City. There's a gorgeous building that they're building about a block from Rockefeller Center and Radio City Music Hall. I mean, the old Rolex building was nice. This new one that's gonna be done next year, the architectural drawings look unbelievable. In

4:19:33 Manhattan. I mean They own a building. In Manhattan. Hey, you gotta put the money somewhere, right? Real estate is as good a place as any. They own a lot of real estate in Geneva. They own a big service center in Dallas. The school in Pennsylvania.

4:19:49 Hilariously, they just bought the building where Omega has their flagship store in Geneva. So Omega makes a rent check out to Rolex every month. Amazing. That's not in the category of asset management, but it is in the category of Spite, I don't know. Yeah. Pretty funny.

4:20:07 Yeah, one hundred percent safe assumption that there's a boatload of money sitting there. Yeah. So that's the shape of the business today. The question is how would you value it? If this were a publicly traded company today.

4:20:20 You could look at it based on a sector multiple of other watch companies. But come on, applying the swatch multiple is not the right way to value Rolex. Maybe Patech Philippe, since it's also a vertically integrated, very strong brand, but it's privately held. We have no idea. Petech Philippe is very Rolexy in a lot of ways.

4:20:38 Other than the fact that They're multiplying a big number by a small number instead of two pretty big numbers. You could look at conglomerates like L VMH or Richmond, but there's too much other stuff in there. I mean, that Rolex is a pure play mono brand with the leading brand in the sector. There's only one comp for this business. There's maybe two with Portia and Hermes.

4:20:58 But I think you're right that Termes. I'm assuming that's where you're going. That's where I was going. Yeah. Porsche trades at fifteen X earnings, Air Mez trades at sixty X earnings. And my best estimates on Rolex's growth rate is actually in the same neighborhood as Ermes's growth rate.

4:21:14 And Airmez's margin profile is also pretty similar to a forty ish percent. operating margin. Yeah. That's where this business differs from Porsche. Right.

4:21:24 I actually think if growth rate's close and if the operat's close And if it's a single premium brand that's the best in the sector is the same. You totally could value it at what Airmes is valued at. Which is roughly a twenty X revenue multiple. Or a sixty X earnings multiple.

4:21:41 Right, but we have no idea what Rolex his earnings are. But I think you can kinda back into Role X's earnings being like in the neighborhood of three to four billion a year. Yeah. Pre-tax, pre all this stuff.

4:21:52 I think. But you're right. Maybe you just Put it on the revenue multiple and Well, okay, here would be an argument for putting it on the revenue multiple. Again, not that you could ever do this'cause this business is never gonna trade. But

4:22:05 There are a million things that Rolex could do differently to improve their operating margins And they're just not going to. There's the long term aspect of like, well, if they were to do that, then that would erode their positioning in the space. Right. So all this to say The range is too wide to just give you a single number and say, Here's what I think Rolex is worth.

4:22:22 But There are plausible scenarios all the way from forty, fifty billion to two hundred billion. Agree. Before assets. Yeah.

4:22:31 That's just enterprise value. Yep. Before any cash they have in the balance to your real estate, who God knows what other investments they have. This is insane. There's no way that this business is worth forty. I don't know if it's worth two hundred, but it's worth a hundred plus.

4:22:47 Zero doubt in my mind. And before assets, I mean keep in mind market cap includes assets. And so if this thing were to publicly trade, listing with its assets. It's probably

4:22:59 Top. Fifty companies? In the world. Yeah, I mean again, Ermes has a two hundred and ninety two billion Euro market cap and Depending on what the assets are within

4:23:10 Relax, yeah. There's a chance this thing's worth more than American Express. Or Goldman Sachs or Adobe. Or Pepsi or Disney or Qualcomm. Or ATT.

4:23:21 Kinda like the Rolex business better than a lot of those businesses. All that to say this all feels profane because Ugh, they would never. Yeah. Can't trade this thing. Yeah, that I think the issue if I were to

4:23:35 buy any shares of Rolex would be that I could never do anything with them'cause I could never sell the shares. Well you'd have to ask yourself, why am I getting these shares? Who is selling them to me? Right. Is it a fake? Which by the way, we didn't talk about that. I don't think it's worth much detail, but I think actually for a long time the fake market was great for Rolex. Hmm, interesting. Just that Rolex.

4:23:57 certainly was and I I'm sure probably still is the most faked Certainly watch brand, if not any brand in the world. Yeah. And I think That was

4:24:07 Good for them not so much recently. Other brand. I'd say like nineties and maybe early two thousands. Probably a good thing. Yeah.

4:24:20 You go to New York City to hope to get to Canal Street to try to buy some fake Rolexes on your trip to New York. I think that's totally right. Exactly. It just adds to the myth and the legend. Yeah. But now No, yeah, probably not a big deal. It's also so weird that these fakes are so good. I mean you can go to like reasonably reputable online retailers. And

4:24:39 not be sure that you're getting an authentic Rolex. I mean a lot of times it's like the wrong movement in the right case or Part of its counterfeit, but not all of it. All right, should we move into analysis? Yeah, let's do it.

4:24:50 All right. Power. So this is where we use Hamilton Helmer's framework of seven powers. to analyze what is it that helps a business to achieve persistent differential returns. Or what makes this business

4:25:04 More profitable than their closest competitor. Sustainably. So branding. Should we just move on or uh just for new listeners, these seven options are counter positioning, scale economies, network economies, switching costs. Process power, branding and cornered.

4:25:24 Resources. I think the interesting thing is to stack them against who is their closest competitor. And in some senses it's protectfully. In some senses I would say it's Omega.

4:25:36 Yeah. In some senses it's Apple. That I completely disagree on. I'll go to the mattresses on Relics. It's not a time telling device. This has nothing to do with function.

4:25:46 Totally agree. However, there's only so much real estate space on your wrist. And most people are not gonna wear two things on each rest. Right. I've been dual watching all week, one on each wrist and It's a little much. Oh.

4:25:59 Do you feel a little funny? Feel a little funny. You're right. It is competitive for risk real estate. And it's kind of irrelevant that they both tell the time. Yeah. Neither of them tell the time. Right. One is a piece of craftsmanship on my wrist and the other is notification center. Yes. Totally.

4:26:15 And fitness. Yeah, yeah, yeah. That is actually a huge reason I wear my Apple Watch and I've worn it every day to bed for nine years. Same. Yeah. Just that instrumenting of both Calories and sleep.

4:26:27 Yeah, same every day for years and years. Yeah. Okay, so that's competitive. But interestingly. I don't think about The Prices of those.

4:26:36 Since they don't achieve the same function. I don't compare their prices. So when you're thinking about what enables Apple's profits versus Rolex's profits. I mean if I go by a Rolex, I will pay.

4:26:48 About ten times more than I paid for my Apple Watch. Yeah. In some ways this is a silly exercise because the whole point of the last God knows how many hours here is They actually don't have any competitors. So

4:27:01 There's nobody for them to counterposition against. Right. I think the interesting thing is to think about in the forties, fifties, and sixties. what was the source of their power? What activities were they performing

4:27:13 that gave them power. Because Today's almost boring. It's just branding. I think. Yeah.

4:27:21 Branding and just Yeah, category ownership. Yeah. There just is nobody else. In Nineteen eighty five

4:27:28 It was interestingly like capital structure. Maybe why did Omega do dumb stuff and Rolex didn't? That doesn't really fit into this framework,'cause that's not about strategy. That's about tactics. That's a failure of execution. to make the wrong decision. Yep.

4:27:44 Okay, so yeah I I think maybe the more interesting question is Rewind back to the lifestyle era post World War Two. When they're launching all the Professional watches, the sport watches. Was that counter positioning versus the rest of the industry?

4:27:57 I don't think so. 'Cause I don't think they were doing anything that the rest of the industry couldn't. I mean they were executing really well on a brand strategy. that was really cohesive with their product strategy around the professional watches.

4:28:11 But I don't know that their competitors couldn't do that. There was some structural reason why they couldn't. I mean courts was counter positioned against Switzerland. But I don't think Rolex was counter positioned against other Swiss

4:28:23 I think it was tactics. Yeah. Good point. I agree. The only other one I could see on here is once they hit escape velocity in the nineties. Scale economies is a big one.

4:28:33 I mean the reason why They truly are among the very highest quality watches in the world. is because they throw their scale economies around. They do absolutely unreasonable things.

4:28:45 and build and test these watches. that other people in the industry just can't. Yeah. And they're leverage over retailers, you know, too.

4:28:55 I think at the end of the day though, I maintained uh We can debate the semantics of luxury products, price points, et cetera. This company has managed like the best luxury companies and

4:29:06 That Playbook sort of exists outside of Seven Powers. I know. It is. The goal of managing a successful Luxury brand is to manage for the long term. And by the long term, I mean like

4:29:20 Centuries. And so You're actually willing to sacrifice huge amounts of profits. To do so. Oh right.

4:29:29 it would be wrong to look at this year's or even the next five years operating profits when analyzing a business like this. Totally. You almost want to have it worse. Margin structure. At any given moment, especially during the good times. If it strengthens your intangible asset.

4:29:43 Huh, that's an interesting insight. Okay. Playbook? Playback. If I were to pose the question to you

4:29:50 How does Rolex have thirty percent market share of dollars when the next highest only has seven and a half percent? What's the main reason? Why are they able to have such a massive lead? in this industry. And maybe let me lead the witness with like a little bit of what I'm stuck on.

4:30:07 When did Rolex actually take risk? Because typically outsize winners with outsize rewards Come from doing something risky or counterintuitive. At the right time. Mm.

4:30:20 A lot of the time I think Rolex just made a rational decision. And execute it better than anyone. Yeah. I'm thinking about the you know, the three putt to get on the rest of Eisenhower. Or had really good ideas. Or the lifestyle marketing and Yeah, working with both Jay Walter Thompson and

4:30:37 IMG and uh You know, testimonies Yeah, they just did better than everyone else. And that advantage compounded over time. Right. It wasn't

4:30:45 Trying to was it really a risk how they played the court's crisis? I don't know. they just they looked around and they were in a privileged position where they had the resources and the structure to do that. And same with two thousand eight. Did they take a risk? Not really.

4:30:59 They did the logical thing and they had the structure and resources to pull it off to go hard into marketing in the United States. I think a lot of the time They just had resources and structure. That let them

4:31:12 find these opportunities to do a rational Logical. low risk thing and continue to pull away from competitors. Maybe it's a little dangerous to uh speak for Rolex because Rolex doesn't speak and nobody speaks for them. But

4:31:26 I suspect if they were to answer the question. They would say some version of Continuity. Yeah. Not that there haven't been major

4:31:36 changes and different eras of the company. But They have stuck with a strategy and a positioning and a product lineup and a culture.

4:31:48 longer than just about anybody else. Yeah. You know, I was reflecting on the question, the one time I think they really did take risk was the wrist watch order from Aegler. Yeah, yeah, yeah. That's not w the answer to why they have thirty percent market share today. But That was huge.

4:32:04 Yeah, that's kinda the only real Bet the Company move. And when they did that, that huge order, I don't think we talked about this, it was The order that they placed was for five times the capital that they had in the business. God. So either it was a multi year order or they financed it and probably both. Yeah. And I'm sugar extended them some credit. Yeah.

4:32:25 Huh. But yeah, since then you know th they they read made Really, really shrewd decisions executed. Immensely well. I think that's the answer. Feels very Swiss.

4:32:35 Yes, yes it does. Alright, another weird playbook question I have for you. Occasionally they do these weird exceptions to the rule. Like The jigsaw puzzle day date with the emojis.

4:32:49 Yes. Yeah the emoji art. Or Uh Domino's Pizza Deal. They've got just enough whimsy.

4:32:58 Is it whimsy? Is it like it's not a Cohesive weirdness. That's the thing. You look at Hermes and you're like, oh, all of the fun that you're having is the same sort of fun. This is like Once every ten years they make a befuddling decision that doesn't seem super impactful on their strategy, So I guess it was fine.

4:33:17 Yeah. Tutor. With Tiger Woods as the spokesperson. Why would you blow Tiger Woods on Tutor? There's just occasionally these very odd like how did this make it out the door things about Rolex, and I don't really have an answer for how that happens.

4:33:32 Yeah. Sometimes I think it works really well. I don't know sales numbers, nobody does, but the relaunch of the Mil Gauss. Awesome.

4:33:41 Great decision. Yeah. Totally. It's also funny, the the way that they do product naming, man. The Milhouse.

4:33:48 used to basically be a submariner and when they relaunched it it was basically an explorer. The only thing it has in common is the name and the fact that it can go up to a thousand gas. Similar to The Explorer Two.

4:34:01 Completely new watch, different than the Explorer. The GMT Master 2. Basically a GMT master exactly. What does two mean when they release a sequel to a watch? How come the

4:34:14 Deep sea sea dweller is both a deep sea and a sea dweller. Their product naming is confusing. Yes. All right. We touched on smart watches a little bit. It's worth a minute of analysis here.

4:34:28 The Apple Watch comes out in twenty fourteen. Fascinatingly, and I'm not sure if this is counterintuitive or not, I don't remember. twenty fourteen thinking about the watch industry'cause I Didn't you? But

4:34:39 It was the best thing to ever happen to Rolex. PK, PTEC, et cetera. A huge amount of awareness raised for the category. Oh, now I wear a thing on my wrist. Oh, I spent hundreds of dollars on the thing. Would I be open to spending thousands of dollars on the thing?

4:34:53 Huh, I never even thought about that before. I've had a a smartphone. for a long time and so I haven't been wearing anything on my wrist. Uh yeah, sure, maybe. Oh, other people I look up to are doing that. Okay.

4:35:05 Yeah, I guess I'm potentially into Going up one level even from a smartwatch. We it was this very strange progression. That definitely helped them. However.

4:35:16 It destroyed low end luxury. Long Jean Tissot, Tag Hoyer. Anybody that was making a quote unquote luxury mechanical watch between five hundred and a thousand dollars. Why?

4:35:28 Toast. Complete toast. It doesn't signal anything. I spent the same amount of money on this obsolete thing that I could have spent on an Apple Watch. Why? Are you stupid? It's funny, there's a great uh New York Times piece.

4:35:41 Uh before the Apple Watch. That quotes. A source at Apple as saying that Johnny I was bragging around uh around the company about how The forthcoming watch from Apple was

4:35:53 gonna destroy the Swiss watch industry. Well, I guess the addition, they really did think they were playing here. Right. Well, it's hilarious because he was both one hundred percent spot on. And one hundred percent wrong. He was spot on that, like you were saying, this sort of lower fat end of the market. In the Swiss.

4:36:13 industry To the extent it even existed after the courts crisis, this was the total final nail in the coffin. But for the tie end, like Looks the Apple Watch edition, you know, gold apple watch, get out of here. Right. Yeah, it's crazy. The Apple Watch.

4:36:27 It's weird how they managed to Decimate. The low end, but No one took the addition seriously. the Apple Watch addressed a completely new market.

4:36:36 So high end watch people weren't going to buy an Apple Watch, period. But for all the new people who were willing to buy an Apple Watch, there was no reason to buy a ten thousand dollar watch. Yeah. And for A small subset of those people who bought Apple Watches. It then became the gateway.

4:36:55 into the high end mechanical watch industry. And again, because of the way the market works It doesn't matter that that's a very small number of people. those very small number of people are spending a lot of money. Yeah. That's exactly right.

4:37:06 The other thing that it destroyed is the fashion watch industry. We didn't touch on that this episode, just because it was one more story that we couldn't fit in, but the whole Swatch. Swatch group. Is an amazing story. Yeah. Fossil

4:37:18 Who else guess? I mean in the nineties these quartz watches suddenly made twenty five dollar watches possible. And like That market went entirely away. With The Apple Watch. The uh the fossil watch stock went down ninety nine percent.

4:37:33 since the Apple Watch came out. Yeah, that product category doesn't exist anymore. Yep. You know what would be amazing and will never happen. You know how uh

4:37:43 Car manufacturers except for Tesla have CarPlay and Android Auto. Yeah. There needs to be Apple watch play for High end.

4:37:51 Never gonna happen, of course. But I would love that. I don't even understand what you mean by that. Where Rolex beget the fitness tracking. Oh oh that's funny. The question is, is there someone at Rolex who's working on this? Do they treat it the same way they treat quartz, or do they feel entirely safe?

4:38:11 There are research labs somewhere that's trying to figure out what a Rolex smartwatch looks like. I'm sure there is. And they're never gonna release it unless they absolutely have to. No, those people must be pariahs around the building. Ha ha ha.

4:38:26 You know, it brings up this interesting w talking about smart watches kinda makes me remember This moment that we didn't talk about was when the smartphone came out. And really when uh cell phones came so think like the popularization of cell phones two thousand two ish, two thousand three ish. And certainly by two thousand ten when smartphones were popular. That was the moment you didn't need to watch anymore.

4:38:47 Yeah. But in the very recent history Pre two thousand five. You needed a watch. Everybody needed a watch.

4:38:54 And now it's just a thing you don't need. There's no more functioning alibi. for this category. Everybody needs a car. Yeah, you can go spend a lot of money and buy a nine eleven, but you have the functioning alibi of Well I needed a car and I wanted a a car I liked driving. Or like a handbag. Tell that to your spouse. Look, I I needed this because I I need a purse. I gotta carry stuff with me.

4:39:14 Yeah. Nobody for any reason needs a watch. It it has no functioning alibi anymore. And so it is a pure display of

4:39:25 I feel like a better version of me when I wear this, and that's the only reason. why I'm owning this thing. And y and like, yo, I love the gears and like and I do truly like I the engineering is so unbelievable to me. But it's a much weaker, thinner alibi. Than these other categories.

4:39:42 Yeah. Which probably also uh is uh no accident that it coincides with With its Real. Take off as a luxury item.

4:39:51 Yeah. Okay, so in the vein of a functioning alibi. Here's a question I have for you. Why did this become the status symbol associated with success.

4:40:03 This Two hundred geared. Steel thing. That I wear on my wrist. Like why not something else? What was it about this object? Easy answer, obvious.

4:40:14 It was for basically the entirety of the twentieth century the only acceptable form of male jewelry. Mm. Not to say that the the women's watch market wasn't all so big and important. It was But

4:40:28 kinda also bled into the jewelry market. In the man's world, like like This is men's jewelry. Yeah. You could wear your wedding ring and your watch. The only broadly socially acceptable form of jewelry for men. That's interesting.

4:40:42 And for a long time it was well, you need to have one. Yeah, there's an alibi. There's a functioning alibi. But there's not for jewelry, for the practical man who doesn't need jewelry. So I was a little bit setting you up. So then the follow up question is

4:40:56 Can a status symbol stay a status symbol? Even after you get a hundred years away, the from the last time it had utility. Thirty to forty years is one thing. I remember my parent. I remember my grandparent. But what about five generations after any one?

4:41:12 really legitimately believes that the utility of a watch is justified. Right. Is there a risk that this becomes a version of the home telephone or something like that? At some point.

4:41:25 Or the fax machine. Or of uh I don't I don't think pieces of technology Yeah, maybe that's a bad analogy. I'm trying to think of something else that

4:41:36 Had utility. then became a status symbol. Then we got so far away from its utility. That it just failed to be a credible thing that people decided to use for their status anymore.

4:41:50 It just became too thin of an alibi. Well, maybe to uh my previous answer Maybe over time these just become bracelets. And jewelry. Hm.

4:41:59 Yep. I could see that. I don't know. I don't know the real answer to this, but I'm trying to think of other I don't think it's happening anytime soon, though. Right. All right. I've got just two more.

4:42:08 One, we talked a lot about slow iterations and don't change the line too much. The real answer here Is That it helps your customers feel smart. There is great value.

4:42:20 in the fact that when I look down at my wrist and you look down at yours right now, the thing that they're selling today It's pretty much the same thing and Because of that, it means I made a good decision twenty years ago when I bought this. And of course I didn't buy this one and you didn't buy that one. You feel really dumb if you bought a turnograph. Yes. And you'd feel really dumb if you bought

4:42:39 the iPhone three G and then two years later the iPhone five S is out and you're like Wow. That was a dumb decision to buy that product. Or at least that now I own something that's not valuable. It helps Rolex's long term value. To help their customers feel like they made a good decision when they bought the product.

4:42:57 Yeah. So Then the last one. Have you ever heard the phrase former Rolex employee? Ha ha ha.

4:43:07 No. I'm sure that's by design. Yeah, I only did once in the research. You start working at Rolex and you stay there. And it's a loyalty thing, but it's also an incentives thing. I think they pay very well, great benefits, great perks.

4:43:20 You're at the best company in the industry. This works really well for their secrecy. And they're actually doing cutting edge stuff. It's not like you're just sitting there, you know, cranking the machine every day. That's right. That's absolutely right.

4:43:32 Although I mean I'm sure a lot of people are sitting there doing the, you know, final finishing of There. Ten thousand submariner they've done final finishing on. Oh, yeah. But it's constantly changing the parts that are going into it, how it's done into all of it. Yeah.

4:43:48 Yeah, that's true. All right. Quintance. Hm.

4:43:54 I had this blank. I often have this blank going in because I feel like we s we sort of arrive there. Throughout the episode. Mine is Rolex is

4:44:06 positioned at the perfect point on the curve. of price and quantity. They are the most Optimally positioned. Supply demand curve company

4:44:18 I think we've ever covered. Hm, that's interesting. The curve being supply and demand. I was thinking of the curve of units and price. But I guess that's sort of the same thing as supply and demand. Yeah, I think it's sort of the same thing.

4:44:32 Yeah. That is certainly how you get thirty percent market share by revenue. Certainly how you produce ten billion dollars a year making watches. That makes total sense. And how you have a wait list years and years long for most of your models while also making over a million units a year. Yeah.

4:44:49 They make So many people. think they are buying something very special. And they are. And they are.

4:44:56 And that's why I have great admiration for this company. We've thrown a lot of missives here and there, but we should just say like this is an unbelievable fantastic company that makes a remarkable product and the strategy and execution Best in the world ever. I have one more addendum uh appendix that I did write down ahead of time to my quintessence that I will say before I hand the floor over to you. Which is um

4:45:20 There's no way to know for sure, of course. He's been dead a long time. So it could be way off base. But as best as I can tell Hans Wilsdorf seems like he was a really great dude. And that's not always the case of protagonists that we cover or founders that we cover here on Acquired. Like I mean

4:45:37 sometimes we cover actual Nazis. But uh you know, I could be wrong. Maybe he was a big jerk and and that's just been lost to history because there's not that much out there. But He seems like he was a genuinely good person. I get the sense, really loved and was devoted to both of his wives. And then devoted himself to the company and the legacy, even though he never had children, and then putting

4:45:56 The foundation together obviously was in very large part motivated by the long term legacy of the company, but also like This foundation gives away three hundred million Swiss francs a year. A huge portion of it just directly giving money to people in need in Geneva in their home town, like

4:46:12 That's amazing. Yeah. He also made a star out of This secretary in London, Mercedes Cleitz in nineteen twenty seven? Like he seems like a genuinely really good dude. It's pretty cool. You know.

4:46:23 People ask us every now and then. Oh, do you have to be a certain type of person to found a company like this? And Still yes. Well, I think you have to be Crazy, but like

4:46:34 Sometimes people ask, like, do you have to be, you know, ruthless or do you have to be a bad person or whatever? And like I think it's just On this dimension. It's just a microcosm of the world. Some people are good, some people are not good. Well, you just have to be extremely something. And that extremely something.

4:46:48 has to fit well with your product and your market and your timing. Yes. But that's something. is variable. Yeah.

4:46:56 All right. I've got a quintessence. And then I've got a fun Notion to leave you with I know it's Blasphemous to put things after a quintessence, but

4:47:05 Yeah, I did it. You can do it. My quintessence is that Calling this the high end of the watch industry or the middle end of the watch industry or whatever is just wrong. Mechanical watches. are an industry today.

4:47:18 that serves an entirely different job to be done than they ever served in the past. And this is a new industry that has nothing to do with telling the time. And it's just goofy. to compare to Other quote unquote.

4:47:31 parts of the watch industry, like The smart watch, the quartz watch, the fashion. They look the same. So we call them watches. Yeah. They both occupy risk real estate. Right. But we should define markets by the actual job to be done for customers.

4:47:47 And it is so, so, so incredible that coming out of the courts crisis This company found a completely new job to be done for their product. And had kind of positioned themselves there the previous two decades with the

4:48:00 professional watches, the tool watches, and the advertising. Yeah. Could not agree more. So here's the thing to leave you with. Rolex interestingly.

4:48:09 is the watch you want when you start getting into watches. But then it's also the watch you end up at. After you study the whole industry. Yes. Yes. You go through these exotic steps along the way on your journey with more artistry, more complications. Certainly you'll find more expensive price points, but when it comes down to the most exquisite engineering, quality, serviceability,

4:48:30 For a mechanical watch. That is precise, waterproof, and self winding. Amazingly, the brand with mass appeal that all the newbies want that sells a million a year. is also the one of the highest quality. Yep.

4:48:45 A different version of this that I read somewhere I don't remember where in the research was Rolex is a company. That the more you study it, the more you like it. Yes. I didn't want to record this episode because it meant I was going to stop researching. I mean, truly, like I have loved just bathing myself in this industry and this company and their products. Well boy Ben.

4:49:04 Do I have good news for you? Because if you decide to go down the watch rabbit hole. It is deep. It is deep out there. They watch product blogs and Hoodiki and uh everything beyond it.

4:49:16 Oh. I also came to this realization when you describe this curve, like when you start it's Rolex and when you finish it's Rolex. And it's a company that owns this category and all that. The comp Is Apple.

4:49:27 If you go to Rolex's website and you click any watch, it looks just like an Apple product page. The named components inside the proprietary Paracrom hairspring. akin to a Neural Engine or a liquid retina display. I mean their YouTube channel looks exactly like Apple's high gloss promotional videos, products whizzing through space, plunging into water. The product is both mass produced

4:49:49 And high margin. There's a big brand premium, but it's also the highest quality engineering in the industry. their financials look so good because they found the spot on the curve that lets them multiply two large numbers together, the large number of units and dollars per unit. You know, billionaires have iPhones.

4:50:07 People buying their first smartphone have iPhones. And unlike handbag or car categories The phone and smart watch do have a single company that defines it. Apple.

4:50:17 Yeah. Rolex and Apple are mirror image companies in a lot of ways. Totally. Uh Well, I guess we gotta do Apple now. I guess so. That is not gonna be one episode. No. And in retrospect this one shouldn't have been either.

4:50:32 I don't know where we would have broken it up, though, is the thing. Yeah. Eh, precoce crisis post, but here we are. Thank you, listeners. Yeah, thanks, listeners.

4:50:42 This was a blast. It really was. David, I have one piece of trivia for you. Oh. Before carve outs? Yes. Mm.

4:50:50 Can it top my uh my panorama trivia though. Uh that was pretty good. I'm I'm pretty proud of that one. Rolex has gotten so sophisticated in its manufacturing. that they

4:51:01 Actually. Ultraviolet lithography. In making their watches. Hell yeah. It's not an etching silicon,'cause God forbid they should ever get anywhere near a semiconductor. It is etching a very specialized and precise type of gear.

4:51:17 That in the Rolex Daytona. Insures. the teeth are perfectly meshed together. So when you start your chronograph There's no jumping around. There's no accidental tick back. It just starts exactly right.

4:51:31 Oh, that's amazing. I actually have one more piece of trivia for you too. Oh lay on me. David. What watch company holds the record today for the watch that's gone the deepest in the ocean.

4:51:43 Uh this is Gotta be a trick. question, right? Like I mean it of course Rolex. It went down the But uh I I was even now. Omega.

4:51:51 But To Rolex's marketing ability. Guess what watch everyone thinks it is. Right. Wait, how did Omega go deeper? I thought Rolex went down that trench. So as you know, the Rolex Deep C challenge happened in twenty twelve. And in twenty nineteen, the Omega Seamaster Planet Ocean Ultra Deep Professional

4:52:12 Went twenty meters deeper. What did they do? Like drill a hole in the ground at the bottom of the trench? I think they found a deeper part of the trench or something. Okay. But this is just this is the most classic, classic Omega versus Rolex thing in the world. If you technically look at something, it doesn't actually sit at the top. But for all intents and purposes they do.

4:52:32 Amazing. Yeah. All right. Carve outs. Car about.

4:52:38 I just have one between The incredible amount of research for this episode and My entire family of ladies. All being very, very sick of the flu over the last uh week plus. I've literally had zero time for anything else in my life.

4:52:53 So I have a carve out that I don't think I've ever made a carve out before. Okay. maybe impacts my life more than like anything else. And I owe an extreme debt of gratitude to for entertaining my very, very sick three year old.

4:53:07 Over the last week, uh, which is blewy. So thank you. So much, Joe Brum and the Australian broadcasting company. for creating the most wonderful children's cartoon ever That

4:53:20 My Three old and millions and millions and millions of others out in the world will sit and watch and I can watch with her and will not make me want to rip my eyeballs out. Great. My fifteen month old will be into that soon enough and I am sure I'll take your recommendation. Oh Dude, it's so good.

4:53:36 It's so Good. Oh, great. There is not even a comparison, it is the greatest. Children's content ever created.

4:53:44 Alright. Soon. You're in for a real treat. Great. I have two One is uh

4:53:51 On the podcast Armchair Expert, David and I went and joined Dax and Monica a couple of weeks ago. to uh review the business of the NFL. It was very fun to do a update to our episode and to do it with Dax and Monica. Who are Just

4:54:06 Great. My second one is an app called Eleven Reader by Eleven Labs. I mean, I'm sure it does more. But the thing that I use it for, which is totally amazing. is you either paste a link or the killer use case for me, you paste in a uh you upload a PDF.

4:54:22 And in a very convincing AI voice that sounds remarkably human. It will read you Something that was text. I'm the person fifteen years ago who was highlighting emails, right clicking and using Apple's built in speech thing on laptops.

4:54:39 to read it to me because I'm so much better at processing it information audially than Visually. For this episode. I had so many PDFs to read as a part of my research that were not audiobooks, that were not podcasts. I mean, I I willed myself to read two physical books'cause th this frickin' Rolex's a whole pile of coffee table books is how people have published these. There's no

4:55:01 Kindles or anything available. Eleven reader totally saved my butt. by letting me listen to a large amount of what I needed to research. So The app is just awesome if you like turning text into a very compelling human narrated voice. Nice.

4:55:16 I would say I'll have to give it a try, but Fortunately, I think this is a great strength of acquired, is you have the opposite. We have the opposite research consumption styles. I need physical hard copies in front of me with a pencil. That I am

4:55:28 Writing on. And I'm best on a ten mile run listening to something and stopping to take notes along the way. Love it. Love it. All right.

4:55:35 Well, with that, listeners, special thank you to all the Rolex aficionados, buyers, dealers, and fans that we spoke with. A few in particular that we want to thank on air are Mark Bridge, the founder and CEO of At Present, a Jewelry Marketplace. And good friend of David and mine. Ben Climber, the founder and CEO of Hodenky, who let me talk his ear off and answer a zillion questions over text.

4:55:59 Thank you so much, Ben. Hodinky Rocks. Joe Thompson. Executive editor of Hodinky legendary watch journalist. I even have in my inbox right now Joe sending me more follow up information that I manage to see just in time to get the right stats into the episode. So Joe, you rock. Thank you so much.

4:56:17 That's amazing. Thank you as well. Big thank you to James Dowling. Co author of The Best of Time. Which is

4:56:25 I think probably you know we went through all the Big coffee table books on Rolex and Probably the best one out there. Regardless. Really, really great. I thought the Rolex story was good too, heel by heel.

4:56:38 Mm, yeah, yeah. That's a good one. James was very generous with his time, especially because he was right in the middle of Crunch. for his deadline for his next Rolex book, The Rolex Legacy, coming out in October. So thank you James. And

4:56:52 Also uh thank you to Sleep Well Capital on Twitter. Oh yeah. Who Like a year ago DM'd us and was like, You guys gotta do Rolex and then pointed us to a whole bunch of resources out there on the internet. Uh that was very, very helpful. And thank you to the over one hundred people who have either in Slack or in email told us to do Rolex over the years. This is probably our most requested episode. Yeah, there are gonna be at least a hundred of you that listen to this. Yes. To Morgan Stanley and Lux Consult for providing

4:57:20 the industry research report was very helpful. And always to Arvin Navarotnam at Worly Partners for his fantastic write up on the company that we will link to from the show notes. If you like this episode, go check out LVMH, Airmes, or Porsche by searching in any podcast player. Listen to ACQ Two. Because we won't have another episode for another month. So enjoy our conversation with Guillermo Rausch, the founder and CE of Vercell, in the meantime.

4:57:46 And come join the Slack, acquire.fm slash Slack hangout with all the other smart, kind members of the acquired community. And you can sign up for email updates to make sure you don't miss corrections or trivia in the future acquire.fm slash email without listeners. We'll see you next time. We'll see you next time. Who got the truth?

4:58:08 Is it you, is it you, is it you who got the truth now

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