Rolex

Rolex is a series of paradoxes. They sell obsolete and objectively inferior mechanical devices for 10-1000x the price of their superior digital successors… and demand is stronger than ever in history! Their products are comparable to a Hermès Birkin bag in price, luxury status and waitlist times… yet they produce over 1m units / year (roughly 10x annual Birkin production). They make the most universally recognized and desired Swiss watches… yet their founder wasn’t Swiss and didn’t start the company in Switzerland! If Rolex were publicly traded, they’d almost certainly be among the top 50 market cap companies in the world… yet they’re 100% owned by a charitable foundation in Geneva that (among other things) literally just gives away money to local people in the city. Tune in for one of the most fascinating and admirable companies we’ve ever covered on Acquired. We had an absolute blast making the episode, and hope you enjoy it as much as we did! This episode was released on February 23, 2025. Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26Links: The Renaissance of the Swiss Watch Industry - Marc Bridge https://atpresent.substack.com/p/the-renaissance-of-the-swiss-watchHODINKEE - Inside All Four Rolex Manufacturing Facilities https://www.hodinkee.com/articles/inside-rolex“If you were…” campaign https://www.watchprosite.com/rolex/if-you-were-reading-the-new-yorker-tomorrow--you-d-wear-a-rolex-/732.1577316.15622151/Worldly Partners’ Multi-Decade Rolex Study https://worldlypartners.com/businesshistoryEpisode sources https://docs.google.com/document/d/13jbg_6wzcNt7KwCbJAiKhJ0ifcsgkh8AowXoovIfkiU/edit?usp=sharingCarve Outs: Bluey https://www.imdb.com/title/tt7678620/Acquired on Armchair Expert https://open.spotify.com/episode/6xGGNXHVEVrEqH0kh0xbbz?si=mzd5tDwOTcOIh8zScIqk2AEleven Reader https://elevenreader.io More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC ‍Note: Acquired hosts and guests may hold assets discussed in this episode. This podcast is not investment advice, and is intended for informational and entertainment purposes only. You should do your own research and make your own independent decisions when considering any financial transactions.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Ben Gilbert?

  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 23, 2025. All right, David, what's on your wrist?

• 0:16David Rosenthal?

  Well, currently on the wrist is my stainless whiteface Daytona that my dad gave me. I think it was still quite popular when he gave it to me, probably close to 15 years ago, but not like it is today.

• 0:28Ben Gilbert?

  A strong choice. I'm actually also wearing a Daytona that I am borrowing from a good friend of the show.

• 0:34David Rosenthal?

  Mmm, love it.

• 0:35Ben Gilbert?

  Well, fun fact for 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.

• 0:46David Rosenthal?

  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, my Rolosor Day Just.

• 0:55Ben Gilbert?

  Dude, you gotta go one on each wrist.

• 0:57David Rosenthal?

  Yeah.

• 0:59David Rosenthal?

  Great.

• 1:00Ben Gilbert?

  All right.

• 1:17Ben Gilbert?

  Welcome to the Spring 2025 Season of Acquired, the podcast about great companies and the stories and playbooks behind them. I'm Ben Gilbert.

• 1:25David Rosenthal?

  I'm David Rosenthal.

• 1:26Ben Gilbert?

  And we are your hosts. All you need for timekeeping is something that happens at a constant rate 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. Or 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.

• 2:03David Rosenthal?

  Ooh.

• 2:03Ben Gilbert?

  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, 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 IKEA or Mars.

• 2:28David Rosenthal?

  Oh, yeah. It's funny that the closer to the present day we get, the less we know.

• 2:33Ben Gilbert?

  Totally. They operate like an intelligence agency over there.

• 2:36David Rosenthal?

  Yes, like James Bond, one might say.

• 2:38Ben Gilbert?

  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, and for an average price of $13,000 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.

• 3:07David Rosenthal?

  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. Hermès doesn't sell a million Birkins every year.

• 3:21Ben Gilbert?

  There's probably 10 times more Rolexes sold than Birkins sold, or at least on that order. It's a success built on the back of craftsmanship, engineering, and manufacturing honed and perfected over 120 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, but it wasn't founded in Switzerland or even by a Swiss person.

• 3:49David Rosenthal?

  No, no, it was not.

• 3:51Ben Gilbert?

  It's a $10-plus billion 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 $10 Casio, for that matter. So what is going on here? How did Rolex become Rolex? This is a story we've been giddy to share.

• 4:10David Rosenthal?

  Oh, so excited.

• 4:11Ben Gilbert?

  Well, one big disclaimer upfront. 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.

• 4:23David Rosenthal?

  Yes.

• 4:24Ben Gilbert?

  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 learn from previous episodes. That's acquired.fm/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/Slack. And if you want more Acquired between monthly episodes, check out ACQ2, our interview show where we talk to 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 Versel,

• 5:07Ben Gilbert?

  about really the whole history of web development frameworks and their latest and greatest product, V0, a startup within a startup that lets you code web apps from scratch in just English instead of a programming language.

• 5:20David Rosenthal?

  Yes.

• 5:21Ben Gilbert?

  Search ACQ2 in any podcast player. And listeners, this is not investment advice, but you can invest in this and you can invest in many of the other great brands that we are going to talk about on this episode either. There's something kind of remarkable about the 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?

• 5:45David Rosenthal?

  All right. Well, we start. 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 22 in 1881, in Kolmbach, Bavaria, about 30 miles north of Nuremberg in present day Germany, where Hans Eberhard Wilhelm Wilsdorf is born to young Anna and Johann Wilsdorf.

• 6:14Ben Gilbert?

  And you might say, this sounds like a German name. Bavaria wasn't a part of Germany, right?

• 6:19David Rosenthal?

  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 development, as the Count Otto von Bismarck had only just 10 years earlier convinced Bavaria to join forces and unite with Prussia to form the Greater German State, German Empire, in the aftermath of the Franco-Prussian War, where they battled Napoleon III over in 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. They are also Protestant, not Catholic,

• 7:03David Rosenthal?

  which puts them in the great minority in Bavaria at the time. Now, I say all of this deep European history here for two reasons. One, because it's sort of a fun story and calls back to our Hermes and LVMH episodes, and it's gonna call back very directly to those episodes in a minute here. But also, I think it's important to paint the picture of Hans as, even from birth, he's kind of this consummate outsider. He doesn't really 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 Europe, which Rolex itself is going to do, as we shall see, in a very big way.

• 7:48Ben Gilbert?

  Yep.

• 7:49David Rosenthal?

  Now, back to young Hans and his family. His father, Johann, came from a line of successful ironmongers. And very likely, Hans was destined to go into this business as well. However, when Hans is 12 years old, Tragedy strikes and both his father and his mother die within a couple of months of each other. So he's orphaned, just like, this should sound familiar, Ben.

• 8:16Ben Gilbert?

  Oh, yeah. Louis Vuitton and Hermès.

• 8:19David Rosenthal?

  This is absolutely freaking nuts. The founders of arguably maybe the three biggest and most significant luxury brands in the world today were all orphans from the 1800s. This is wild.

• 8:33Ben Gilbert?

  And I wonder how much of a statistical bias there is here. If we were studying anyone from this era, how many of them would be orphans because of disease and war and?

• 8:44David Rosenthal?

  Yes, all sorts of stuff.

• 8:45Ben Gilbert?

  Just lots of people died for lots of reasons.

• 8:47David Rosenthal?

  Yes, totally, totally true. But it's just so interesting, right? These brands, I mean, much less so Rolex, but Hermès, LVMH are so steeped in this European history and the tradition of the nobility, but it's actually these orphaned outsiders that founded them.

• 9:04Ben Gilbert?

  Well, I think that's a great point. Rolex doesn't share that heritage at all. This is not steeped in nobility. This is not an artifact like a leather bag or a saddle that any kings ever had.

• 9:16David Rosenthal?

  When you buy a Submariner or a Daytona or even a Datejust, you are not buying Swiss history here. You are buying 20th century modernity, as we will get into. So in the wake of this tragedy, 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 sending Hans and his siblings off to boarding school.

• 9:44Ben Gilbert?

  I see.

• 9:44David Rosenthal?

  So Hans would later write in this amazing document that is essentially his autobiography. It's the first volume of a four book set that the company published in 1945 for the company's 40th anniversary, the Ruby Jubilee. Hans writes, "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, looking back, I believe that it is to this that much of my success is due."

• 10:17Ben Gilbert?

  Hmm.

• 10:18David Rosenthal?

  So Hans goes off to boarding school and becomes an excellent student there. He excels in math and he also excels in foreign languages, particularly English. And while he's there in boarding school there in Bavaria, 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, which he does. He moves to Geneva and he finds work there first for a large pearl merchant. So this business was buying like raw pearls from fishermen and then selling them to

• 11:02David Rosenthal?

  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 Kuno Korten. Kuno Korten turns out isn't in just any industry. As far as Switzerland goes, they are in the industry besides banking. They are in the watch trade.

• 11:25Ben Gilbert?

  Well, you need something to bank.

• 11:27David Rosenthal?

  Yeah, you need something to bank. Exactly.

• 11:30Ben Gilbert?

  A country can't just have banking as an industry. It needs a real economy to build banking on top of.

• 11:35David Rosenthal?

  Exactly. You start with jewelry, watches, then you get into banking. And Kuno Korten is actually a major player in the watch trade. Now, they are not watchmakers. 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. And at this time, this is like the late 1890s. 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 in 1900, but today the Swiss franc is stronger than the dollar. It's about one to one.

• 12:12Ben Gilbert?

  They're pretty close.

• 12:13David Rosenthal?

  So call it a million dollars of business a year in the 1890s. Like this is big. They're a big player.

• 12:18Ben Gilbert?

  And it's important to remember, too, it's not like watches were this little corner of the Swiss economy. Exporting watches was a huge part of the Swiss economy and a huge employer in the nation.

• 12:31David Rosenthal?

  Yes. Now, we're saying watches here. It's important to note, what were watches at the time? They weren't something you wore on your wrist. It was not wristwatches because basically Hans and Rolex hadn't invented that yet. They didn't exactly invent it, but hadn't popularized it yet. We're talking about pocket watches.

• 12:48Ben Gilbert?

  Yes.

• 12:49David Rosenthal?

  That's what the industry was at this time.

• 12:51Ben Gilbert?

  And part of the reason is functional. Pocket watches were bigger, so the movement to accomplish a certain amount of precision didn't require as little teeny tiny of tools. And you had more margin of safety in 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 wristwatches. They called them wristlets and they were mostly worn by women.

• 13:19David Rosenthal?

  Wristlets, yes. We'll get more into that later. And I know you're chomping at the bit to give you the technical explanation of the crazy human craft and engineering that goes into watches.

• 13:32Ben Gilbert?

  It's amazing. It's so unbelievably cool.

• 13:35David Rosenthal?

  But back to the Hans 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. He is a secretary, which means that he's answering letters from clients all around the world and then responding and coordinating with them. Because remember, he's really good at languages and what is his best language?

• 14:01Ben Gilbert?

  English.

• 14:02David Rosenthal?

  So he's coordinating with most of their clients in the British market in the UK.

• 14:09Ben Gilbert?

  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.

• 14:21David Rosenthal?

  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 the buyers in Britain.

• 14:34David Rosenthal?

  Who are not individual people, these are retailers, these are the jewelers in Britain, these are the distribution points for watches.

• 14:40Ben Gilbert?

  Yep.

• 14:41David Rosenthal?

  So he's getting the perfect business market strategic background, distribution relationships for going on to ultimately found Rolex. But it's not just that he falls in love with the business of watches there. He also falls in love with the objects and watches themselves and their performance. So he starts this habit of 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 Kuno Corten was trading in. So he would set them all at the same time and let them go overnight and then he would check them in the morning, how much they are disparate from one another, check their accuracy.

• 15:21David Rosenthal?

  And the legend goes that one day he gets the idea that he's going to take three watches that he's found to be quite accurate, and this whatever this recent batch that he's testing is, and he's going to go get them tested at the local astronomical observatory and have them measure these watches according to the strict observatory timekeeping tests, which are also called chronometer tests, if you've ever heard the term chronometer. A chronometer is a timekeeping piece, could be a watch, could be a larger clock, could be all sorts of devices that has passed these astronomical observatory tests for being accurate enough for celestial navigation.

• 16:00Ben Gilbert?

  Yes. David, I'm looking down at this Daytona right now and it says Rolex, Oyster, Perpetual, which 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.

• 16:22David Rosenthal?

  Yes. And today, this is like, oh, you know, cool, that's cute, 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- Critical. If you have a crappy timepiece.

• 16:41Ben Gilbert?

  You're going to 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.

• 16:57David Rosenthal?

  But 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 test and they get certified as chronometers. And he takes them back to his bosses at Kuno and they're like, whoa, well, let's market this.

• 17:11Ben Gilbert?

  Gotta market that. Yeah.

• 17:13David Rosenthal?

  Slap that on the tin, baby.

• 17:16David Rosenthal?

  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.

• 17:26Ben Gilbert?

  Yep. The other thing to realize here is we are in an era where, and this era would last the next 100 plus years, but an era where having a watch is super important.

• 17:40David Rosenthal?

  Yes.

• 17:41Ben Gilbert?

  It's not a fashion accessory. It's not a nice to have. 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.

• 17:56David Rosenthal?

  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, you take your pocket watch out, you're going to open the clasp. This is what people did. It was just so ingrained in everyone's day to day existence, just like a smartphone is today.

• 18:23Ben Gilbert?

  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 over 100 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.

• 18:45David Rosenthal?

  Totally. So after working at Kuno for a couple of years and liaising with the British market, in 1903, Hans decides that, hey, I'm good at English.

• 18:57David Rosenthal?

  I like London. I might actually want to move there. So he moves to London at age 22 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.

• 19:10Ben Gilbert?

  Mm hmm. What you and I read probably five books between us and wasn't in any of them.

• 19:14David Rosenthal?

  Yeah, he works there for two years and he writes, "Two things struck me most forcibly about my new employers, this British watch company. On the one hand, their commercial competence and on the other hand, their lack of specialization. I soon gained confidence in myself and in 1905, at the age of 24, decided to set up in business alone, feeling that my training and education had prepared me." So he strikes out on his own, starts his own watch importing company there in London. But remember the specialization piece, that'll come back in a sec. So Hans is out on his own. There's one problem though,

• 19:54David Rosenthal?

  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, he needs some capital in order to finance the buy.

• 20:09Ben Gilbert?

  Got to place the order.

• 20:10David Rosenthal?

  Yes. So through his lawyer, he gets connected with a local man in London named Alfred James Davis, who has some money to invest. And so they meet through the lawyer, they hit it off immediately and decide to go into business together. And thus in 1905, Wilsdorf and Davis Limited, the world famous merchant watch trading firm is born. And yes, none of you know Wilsdorf and Davis. However, Wilsdorf and Davis Limited is Rolex.

• 20:43Ben Gilbert?

  Yep.

• 20:43David Rosenthal?

  As we shall see. Now it's often said that if you read anything about the history, 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 Anna met Davis through Hans.

• 21:06Ben Gilbert?

  But really, it is Willzendorf's company. It's kind of funny that Davis's name is on it. I kind of get the sense he's mostly capital. Yeah, he's there a little bit, but it's almost as if Atari, instead of being Atari, is Bushnell and Valentine. That's the equivalent here.

• 21:22David Rosenthal?

  I think that's right. And obviously, they get closer over time as they become family when Davis marries Hans's sister. But yeah, I think this is Hans's business. He's running it. Davis trusts him.

• 21:34Ben Gilbert?

  Yep. And so what is the business doing?

• 21:37David Rosenthal?

  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 into the London market where there is high demand for them.

• 21:54Ben Gilbert?

  And they're not selling directly to consumers, right?

• 21:56David Rosenthal?

  No. Just like back at Cuny-Corton, the 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.

• 22:12Ben Gilbert?

  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. 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. Now, there's a little bit of detail in there where sometimes the importer would import a fully-built watch. Sometimes the importer would just import a movement, and then they would import a case differently, and then they would put 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.

• 22:53David Rosenthal?

  Yes, there is no brand for the product.

• 22:56Ben Gilbert?

  Right. So Wilsdorf and Davis is occupying the spot in the value chain where they are importing the watches and then selling them to retailers, to brand.

• 23:05David Rosenthal?

  Yes. Now, you said there 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 Switzerland, a whole product, so to speak, and either a trading firm like Wilsdorf and Davis would do this, or Kuno Korten would export it, or maybe the retailers would buy directly from Kuno Korten, et cetera.

• 23:26Ben Gilbert?

  If they were big enough.

• 23:27David Rosenthal?

  If they were big enough, yep. What Wilsdorf and Davis are doing is they're saying, well, Hans knows through his time at Kuno Korten, all the best movement makers, all the best case makers.

• 23:41Ben Gilbert?

  Right. He operated one click up the value chain, sort of aggregating on the Swiss side.

• 23:46David Rosenthal?

  Exactly.

• 23:47Ben Gilbert?

  So now that he's operating down on the importer level, one click down the value chain, he's like, I can still aggregate all these producers and start building a watch myself.

• 23:56David Rosenthal?

  Yes. So he's not making anything, but he is assembling the finished product. So he would have watchmakers there in Britain assemble the best movements that he would import from Switzerland with the best cases that he would find. And that was part of his value that he's adding to the industry here.

• 24:14Ben Gilbert?

  And this is probably an important time. There is so much lingo in the watch industry. And we're going to do our very best on this episode to demystify it. Movement in lay speak is the whole inside that makes the watch tick and drives the hands.

• 24:30David Rosenthal?

  Yep. Not the dial, right?

• 24:32Ben Gilbert?

  Correct. No dial, no hands, no case, no glass front.

• 24:39David Rosenthal?

  And the movement, I think, like you said, is kind of the critical piece.

• 24:44Ben Gilbert?

  Absolutely. That's the hard thing.

• 24:46David Rosenthal?

  Case is important, dial's important, hands are important, but that's all aesthetics. And as far as performance goes, 100% movement. It's like semiconductor production. If you're a movement maker, you're like TSMC here.

• 24:58Ben Gilbert?

  Right. Chronometer officially certified refers to the movement. Actually, in fact, only the movements are tested, not the whole final case watch.

• 25:06David Rosenthal?

  Not the finished watches, yes.

• 25:08Ben Gilbert?

  So David, who is he importing movements from and how does he meet said movement maker?

• 25:13David Rosenthal?

  Well, that brings us to the other half of the Rolex equation, one Jean Agler.

• 25:21David Rosenthal?

  Based in Bieren, Switzerland, which is in the mountains of the north of the country.

• 25:26Ben Gilbert?

  Importantly, not Geneva.

• 25:28David Rosenthal?

  Yeah, not Geneva. Geneva's in the southwest of the country in Switzerland, right next to France. So Agler 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 at watch movement making. And in particularly, 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 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 Kuhn & Korten and kind of thought like, oh, hey, man, this guy's a diamond in the rough up there in the mountains.

• 26:12David Rosenthal?

  He's as good or better as any movement maker.

• 26:15Ben Gilbert?

  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.

• 26:22David Rosenthal?

  Totally. It's like his hobby horse. I'm going to push the limits of human achievement of how small can I make this thing?

• 26:27Ben Gilbert?

  Yes.

• 26:28David Rosenthal?

  I think he's probably known and respected in the industry, but wasn't a large player. And Hans is like, oh, actually, this guy is my ticket to differentiation here.

• 26:38Ben Gilbert?

  I'm keeping his address so I can write him a letter when I get to...

• 26:41David Rosenthal?

  When I start my own company.

• 26:42Ben Gilbert?

  Yeah.

• 26:43David Rosenthal?

  So here we are at the beginning of Will's Dorf and Davis. Hans is importing these movements from Agler that he's putting into cases, selling his watches here in the UK. This is 1905. This carries through, this relationship, for the next 99 years, until Rolex finally buys Agler in 2004, where Agler is making the movements for Rolex watches. And I don't think there's ever any real formal arrangement here. It's basically a handshake deal.

• 27:17Ben Gilbert?

  Yep, that's correct. We will make your movements, handshake deal for 99 years.

• 27:21David Rosenthal?

  Yes. All of Rolex, everything it becomes, this is the basis of it.

• 27:26Ben Gilbert?

  And so they weren't exclusive yet. So in 1905, they're placing their first order. And there's already a little bit of a dance that's starting to happen where, 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 rub Hans the wrong way. He kind of feels like, these are my watches. Why does the retailer get to put their name on it? And so he goes to Agler and says, the ones we're going to sell, these are Will's Dorf and Davis watches. I understand you made the movement, but we got to brand it somewhere. And so he gets Agler to buy in on this idea that on the movement, they're going to put a W and D. And then also, inside the case back, for whoever they're buying the case from, they

• 28:11Ben Gilbert?

  also inscribe W and D. And so that's the state of things here in 1905 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.

• 28:24David Rosenthal?

  Yep. Which gets into the type of watches that they're making here. Now, we're still in pocket watch land. The wristwatch vision hasn't really entered Hans's brain yet, even though Agler's specialty is these small miniature movements. So remember what Hans said about his earlier British employers and their lack of specialization? He continues in his autobiography, talking about how he decided to do things differently here at Will's Dorf 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 horological products, and especially in new lines. The first specialty

• 29:06David Rosenthal?

  we adopted was the traveling watch, called a portfolio watch, cased in the finest quality leathers. 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 going to succeed and break through here is through differentiation.

• 29:27Ben Gilbert?

  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 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.

• 29:43David Rosenthal?

  Yeah, because he's not right with traveling watches.

• 29:45Ben Gilbert?

  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.

• 29:57David Rosenthal?

  Yeah. And, you know, I don't know, I guess, reading what Hans wrote there, maybe he was right. It sounds like the traveling watch was a success enough. He probably thought it was a success at the time.

• 30:06Ben Gilbert?

  Yeah.

• 30:07David Rosenthal?

  So then, 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 of that, like, European, AP European history lessons.

• 30:25Ben Gilbert?

  I tweeted this yesterday.

• 30:27David Rosenthal?

  I know, I know. Who knew that our livelihoods would depend on AP European history someday?

• 30:33Ben Gilbert?

  That's right.

• 30:35David Rosenthal?

  Anyway, Hans is reading an account of the Second Boer War in South Africa. And he reads that the soldiers that had fought had worn wristwatches so that they could coordinate their movements and their firing times and all the troop movements, even while they were holding guns.

• 30:52Ben Gilbert?

  Do you know why in particular this war had them wearing wristwatches?

• 30:57David Rosenthal?

  Oh, I don't. I just assumed that the technology had progressed enough because wristwatches existed at this point in time. They just weren't thought of as serious watches.

• 31:07Ben Gilbert?

  That was part of it. Climate.

• 31:09David Rosenthal?

  Oh, yes, of course.

• 31:10Ben Gilbert?

  They can't wear their jackets, and so they can't reach into their pocket and grab a pocket watch.

• 31:15David Rosenthal?

  Of course, because it's hot there.

• 31:17Ben Gilbert?

  Yep.

• 31:17David Rosenthal?

  Well, climate is going to become important again here in the development of the wristwatch industry. So the soldiers and officers there would use these wristwatches because even though they weren't as accurate 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.

• 31:40Ben Gilbert?

  The axis upon which you evaluate value is a different axis than when you're hanging out on the streets of London.

• 31:47David Rosenthal?

  Yes. Supposedly, as Hans is reading this, like a bolt of lightning, he has the key insight. 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 timepiece on their wrist that they could just turn their wrist and look down and look at instead of a pocket watch.

• 32:07Ben Gilbert?

  Now, the funny thing is, he calls Agler, maybe he writes to Agler, I don't exactly know.

• 32:12David Rosenthal?

  He sends him a text.

• 32:14Ben Gilbert?

  He places the largest order in Agler's company history, several hundred thousand Swiss francs 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 wristwatches yet. The Boer War was not the shove that the world needed to say, whoa, wristwatches. The soldiers come back from the Boer War, and it's still kind of the wristlets era. There's not really enough inertia to make it take off everywhere. Now, it's kind of okay, because Willstorf and Davis is still this small company, so they don't need that big of a market to address to feed

• 32:54Ben Gilbert?

  the needs of the business. But it would be another 10 years before World War I happened, and you had this incredible unfortunate tailwind saying, oh, my God, we need tons of wristwatches now.

• 33:07David Rosenthal?

  Yeah, there does start to be a market for serious timekeeping wristwatches, particularly in the far reaches of the empire. So Australia, 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 market for Willstorf and Davis.

• 33:33Ben Gilbert?

  So interesting.

• 33:35David Rosenthal?

  But Hans is like a true believer at this point in time. This is going to be the future, way beyond just the empire. People in Britain are going to 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.

• 33:50Ben Gilbert?

  He's like a zealot.

• 33:51David Rosenthal?

  He's a total zealot. So he's like, all right, we've got this killer product. We're first to market. We're basically going to invent this whole market. We need a name for the product. We need something that's gonna... 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.

• 34:12Ben Gilbert?

  Yes.

• 34:13David Rosenthal?

  Which by then had been around for a while and was made not by the Kodak company, but by the Eastman company. And Kodak, I believe, was the first invented product brand name. And it was a name that meant nothing.

• 34:27Ben Gilbert?

  Yeah, I think that's right. And it intentionally meant nothing. It was easy to pronounce. It was easy to say. You could see at once. It was very memorable.

• 34:35David Rosenthal?

  It worked in any language. It was five letters. It had a great sound to it. So supposedly, Eastman came up with the name Kodak with his mother using an anagram set. And he said that there were three principal concepts that he was looking for in the name. 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.

• 34:59Ben Gilbert?

  Yep.

• 35:00David Rosenthal?

  Anyway, 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, 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."

• 35:31David Rosenthal?

  He's good at mythmaking.

• 35:33Ben Gilbert?

  Many startups are named this way today.

• 35:35David Rosenthal?

  Totally. And a few days after this fruitful journey, the Rolex brand was filed and then officially registered in Switzerland by Willsdorf and Davis. Now, this is a brand name. This is not yet the company name. It's Rolex by Willsdorf and Davis. So they trademark it in Switzerland. A couple of years later, they trademark it in London.

• 35:55Ben Gilbert?

  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, which is when 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. And there's also the X kind of has a timekeeping 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.

• 36:37David Rosenthal?

  Yes, totally. So Hans is like, okay, great. I've got my Kodak name, got the brand, invent this new category. How am I gonna legitimize this with customers?

• 36:50Ben Gilbert?

  Well, I have this one cool trick that I've used before.

• 36:53David Rosenthal?

  Exactly. I had the one cool trick. I'm gonna do the one cool trick, just with wristwatches instead of pocket watches. In 1910, he sends the first wristwatch movement to the School of Horology in Switzerland to be awarded the world's first wristwatch chronometer rating.

• 37:15Ben Gilbert?

  Which is a big deal because people just did not think these things were accurate before. And without Agler, they kind of weren't.

• 37:21David Rosenthal?

  Exactly. Now, getting certified at the School of Horology in Switzerland is nice and all, but this isn't an astronomical observatory. This doesn't carry the same weight as something like, oh, say, the Royal Observatory there in England. So Hans and Agler keep working on these products, refining the movements. Agler's getting better and better at making wristwatch movements that are truly great.

• 37:48Ben Gilbert?

  1910 goes by, 1911 goes by. We're here in 1912. Wilsdorf asks Agler specifically, hey, can you produce a wristwatch capable of achieving an observatory timekeeping certificate?

• 38:02Ben Gilbert?

  And David, as you mentioned, the Royal Observatory. And Agler says, let me try and let me get to work. It still takes a couple more years.

• 38:11David Rosenthal?

  So he works for two years. And then finally, in early summer 1914, Hans takes one of Agler's movements to the Kew Royal Observatory in England, K E W Q, for testing. Now, Kew is not only a well-respected observatory for astronomical and specifically timepiece testing there in England. It's where all the marine chronometers for the British Royal Navy are tested. The British Royal Navy at this point in time. We're talking the British Empire, the greatest navy in the world.

• 38:46Ben Gilbert?

  And it takes 45 days. They put it through the wringer to make sure that this marine chronometer is going to get our soldiers, our sailors, where they need to go.

• 38:56David Rosenthal?

  And even more than that, it is, of course, affiliated with the other great observatory in England, the Greenwich Royal Observatory.

• 39:06Ben Gilbert?

  Yes.

• 39:06David Rosenthal?

  Which you know, was where Greenwich Mean Time was invented. We are talking like probably the most important timekeeping institution in the world.

• 39:16Ben Gilbert?

  Have you been there, David, to Greenwich?

• 39:18David Rosenthal?

  No, no, I want to go. Have you?

• 39:20Ben Gilbert?

  There's an awesome museum with the history of timekeeping. When I spent some time in London of summer, geez, 15 years ago, I went and spent a day there. It was amazing.

• 39:29David Rosenthal?

  Oh, we gotta go.

• 39:30Ben Gilbert?

  Yeah.

• 39:30David Rosenthal?

  We'll stop by on our way to Geneva.

• 39:32Ben Gilbert?

  Perfect.

• 39:33David Rosenthal?

  So again, here we are. It's early summer 1914. Hans has submitted this wristwatch movement to Kew. And after the 45-day rigorous battery of testing, on July 15th, 1914, it comes back. It is passed. And it receives the first Class A Precision Certificate, known as the QA K E W dash A Certification, ever awarded to a wristwatch. Cause for great, great celebration and fanfare all around the world. Except that it is three weeks after World War I starts.

• 40:14Ben Gilbert?

  Yeah.

• 40:15David Rosenthal?

  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, the whole world is at war.

• 40:32Ben Gilbert?

  On the one hand, nobody cares about watches. There's a war breaking out. On the other hand.

• 40:36David Rosenthal?

  Everybody cares about watches.

• 40:37Ben Gilbert?

  Right.

• 40:38David Rosenthal?

  Exactly, exactly. So World War I is truly the first crucible moment for Rolex, because it's the best thing that ever happened to the company and the industry. It made the whole world care about wristwatches. Also, 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 British people call German shepherds Alsatians?

• 41:09Ben Gilbert?

  Yeah, because they don't want to call them German.

• 41:11David Rosenthal?

  It's because of this.

• 41:12Ben Gilbert?

  Yeah.

• 41:12David Rosenthal?

  There's all sorts of racism against Germans in England and in Britain, which is utterly ridiculous, because the British royal family was German. So Queen Victoria 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.

• 41:32Ben Gilbert?

  Oh, that's right.

• 41:32David Rosenthal?

  Because before Windsor, their family name was Saxacoburgota.

• 41:37Ben Gilbert?

  Which isn't going to play well when you're at war against the Germans.

• 41:39David Rosenthal?

  No, no, no, no, no, no.

• 41:41Ben Gilbert?

  Speaking of things that aren't going to play well when you're at war against the Germans, you're not building a strong consumer brand in Britain in 1914 called Wilsdorf.

• 41:51David Rosenthal?

  I mean, if the British royal family is rebranding.

• 41:54Ben Gilbert?

  Changing their name, yeah.

• 41:55David Rosenthal?

  Wilsdorf and Davis also needs to rebrand, despite the fact that at this point, Wilsdorf is a naturalized British citizen.

• 42:03Ben Gilbert?

  And feels no affiliation to Germany. He really doesn't ever in his life consider himself German.

• 42:08David Rosenthal?

  Totally, totally. But this is the birth of the company Rolex. So in 1915, they renamed the whole company after the brand name Rolex and the Rolex Watch Company Limited is founded.

• 42:23Ben Gilbert?

  Well, David, I was about to ask you, how does this become a Swiss watch company? And the answer is definitely right around this time in World War I. All right, listeners, now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 42:52David Rosenthal?

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• 43:13Ben Gilbert?

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• 43:35David Rosenthal?

  In half, which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 43:53Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you.

• 44:21Ben Gilbert?

  So how are we getting to Switzerland?

• 44:24David Rosenthal?

  How does Rolex become a Swiss watchmaking company? Well, obviously, the anti-German sentiment was part of it. I think if that were the only factor, Rolex probably would have stayed in England.

• 44:36Ben Gilbert?

  Yeah, at this point, Wilsdorf is a naturalized citizen.

• 44:39David Rosenthal?

  His wife is British.

• 44:41Ben Gilbert?

  The company is called Rolex now, or they're working on it. It would have been fine.

• 44:45David Rosenthal?

  Yep. However, the other reason that World War II in Britain is bad for business for the new Rolex company is that Britain imposes a 33% import tax on watches early on in the war. That's going to kill your importing business.

• 45:03Ben Gilbert?

  Well, it's interesting. I read that, and yeah, it's going to 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 1916, the British government puts the nail in the coffin. They completely banned the import of all gold and silver. They made it impossible for Wilsdorf to build this business based out of Britain. Because a lot of times, he's actually exporting 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

• 45:46Ben Gilbert?

  out the nose for these movements. This is stupid to run my business here.

• 45:50David Rosenthal?

  Yep. And I assume then, as now, Rolex's margins in the precious metal watches are way, way, way higher than in non-precious metal watches.

• 46:02Ben Gilbert?

  It's insane. A $10,000 watch becomes a $30,000 watch when-

• 46:06David Rosenthal?

  Yeah, add gold to it, or platinum, or whatever. Yep. The delta between-

• 46:11Ben Gilbert?

  It's like Apple selling memory.

• 46:12David Rosenthal?

  Exactly, exactly. Yes.

• 46:15Ben Gilbert?

  Interestingly, in the hype of 2020 to 2022, 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 were flying off the shelves and there were huge lines for them.

• 46:34David Rosenthal?

  Totally. So on the back of this, in 1916, Rolex first moves the assembly of the watches to Biennin, the Swiss mountainside near where Eglar is.

• 46:45Ben Gilbert?

  Which makes sense. They set up an office and basically say, hey, you're making the movements next door. We're going to put a case on them right here.

• 46:53David Rosenthal?

  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 1919, Hans moves both himself and the official company headquarters 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 while production of the movement still happens up in the mountains in Biennin.

• 47:22Ben Gilbert?

  It's super interesting. It would make sense if you are Britain to throw on some tariffs 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.

• 47:36David Rosenthal?

  Yep.

• 47:37Ben Gilbert?

  But there's this alternative reason to move the business to Switzerland and Hans knows it. If he's going to build a globally renowned watch company, he wants to do it in Switzerland. This company becomes Rolex of Geneva, not just Rolex. Again, I'm going to 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, Geneva, right there on the face of every Patek Philippe watch. They are extremely proud of this.

• 48:08David Rosenthal?

  Geneva, I love it. Geneve, Ben, Geneve.

• 48:13Ben Gilbert?

  Oh, I'm gonna hear about that one, aren't I?

• 48:16David Rosenthal?

  It's okay, it's okay. We're ugly Americans here.

• 48:19Ben Gilbert?

  Okay, so then the question is, why does Geneva have this prestige? Why is Switzerland an amazing place for watchmaking? Well, David, will you indulge me and let me wind the clock back? I actually thought you were gonna start the timeline for this episode back in the 1500s. I was shocked that you only started it in the 1800s. So perhaps this is a good time to go and tell the history of watchmaking in Switzerland's story.

• 48:44David Rosenthal?

  By all means.

• 48:45Ben Gilbert?

  Okay, great. A lot of this comes from Mark Bridge, who is the founder and CEO of AtPresent, 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 20 years ago on the renaissance of the Swiss watch industry.

• 49:06David Rosenthal?

  Amazing.

• 49:06Ben Gilbert?

  He sent me a copy of it. We're gonna link to it in the show notes. It's awesome to have this resource available, just 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, it is very focused on moral uprightness.

• 49:29David Rosenthal?

  Yes, the Protestant work ethic.

• 49:31Ben Gilbert?

  Yes. One of these tenets was banning frivolous things like ornamental jewelry. 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.

• 49:50David Rosenthal?

  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. Status always finds a way.

• 49:58Ben Gilbert?

  That's 100% 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. 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, 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. Third, there's a cultural reason. So David, are you familiar with the term établissage?

• 50:43David Rosenthal?

  Ooh, no.

• 50:44Ben Gilbert?

  Are you sure?

• 50:45David Rosenthal?

  It's supposed to be Swiss, not French.

• 50:46Ben Gilbert?

  I was gonna say.

• 50:49David Rosenthal?

  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 établissage, I don't know.

• 50:59Ben Gilbert?

  Okay. Well, it's Swiss for establishment, basically. But what établissage means in this context 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 10 people, 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.

• 51:30David Rosenthal?

  Ah, so this is where Egler comes from. This is why he's got the workshop in the mountains.

• 51:34Ben Gilbert?

  Établissage, 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 by artisanal craftsmen, these very labor-intensive companies, got really, really, really good and pretty efficient at making their one thing. So that's kind of the backdrop of how the Swiss are producing things. And lastly, in the late 1500s, the French had been rising as a watchmaking powerhouse. And when the balance of power changed in France and the Catholics came to power, the French Huguenot refugees,

• 52:18Ben Gilbert?

  who had talents in jewelry and metalwork and watchmaking, fled to Geneva.

• 52:23David Rosenthal?

  Yeah, these are the Protestants that got kicked out of France.

• 52:25Ben Gilbert?

  That's exactly right. And so the Protestant safe haven of Geneva, they brought their watchmaking expertise, or if they didn't have watchmaking expertise, that's all they could really do if they were jewelers or metalworkers, since you can't make anything too shiny and too off-putting.

• 52:41David Rosenthal?

  Yep. So this is how Switzerland gets the reputation as the watchmaking capital of the world.

• 52:48Ben Gilbert?

  Yeah, exactly. Basically, this creates centuries of momentum, especially in this distributed établissement system of how Swiss watches were made. I kind of think about it as this beautiful blend of French beauty and appreciation for aesthetic and Swiss precision.

• 53:08David Rosenthal?

  Yeah. 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 Hans is like, OK, we got to move Rolex to Geneva to participate in this tradition as we're now going to be selling to the world. But the other reason is after World War I, they're like, well, we're going to be selling to the world now. Britain is still going to be our largest market likely, but every country in the world is fighting, or at least every European country, has troops fighting in World War I. They're all seeing the benefits of the wristwatch. This is going to be way, way, way bigger after World War I. I need to be able to serve the whole world.

• 53:47Ben Gilbert?

  So they want to be in a neutral country.

• 53:50David Rosenthal?

  Yeah, yeah. And you just experience 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.

• 54:02Ben Gilbert?

  Who's not going to put on a big tariff to finance a war? Switzerland.

• 54:05David Rosenthal?

  Switzerland, yeah.

• 54:07Ben Gilbert?

  Super interesting. You know what else happens in 1919? Well, now that we've set up shop next to Eglert for putting their movements in our cases, it's time for us to get a little bit closer. So Rolex and Eglert arrange for a deal where in 1919, 1920, Hermann Eglert, who's the son of the founder Jean, buys shares in Rolex, unclear what the purchase price was, that seems to have been lost to history, and joins the board. So he owns about 15%. And so the board is Willsdorf, Davis, and Eglert. There's a second part of the deal, which is Rolex actually buys shares in Eglert, too. And this one's less talked about, but there were two companies that were big purchasers

• 54:52Ben Gilbert?

  of the movements. 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 bought Eglert shares also.

• 55:04David Rosenthal?

  Yeah, because Rolex did not focus on the American market until after World War II.

• 55:08Ben Gilbert?

  Correct. So the companies are a little bit more joined at the hip, but still not an exclusive partnership.

• 55:15David Rosenthal?

  Yep. And like we said before, I believe still, even though there's this equity relationship, there's no formal contract governing the provision of movements here.

• 55:25Ben Gilbert?

  Crazy. But, you know, it's in both their best interest to keep it going.

• 55:29David Rosenthal?

  Of course. So here we are now. World War I is over. We've had the ChatGPT moment, shall we say, for wristwatches. All these soldiers from countries all over Europe and the world experience the power of having an accurate watch on your wrist. They go and hum to their civilian lives. They want to bring it into their life. And who makes the best and most accurate wristwatch, chronometer, timekeeping pieces in the world? Rolex. And so of course, they're going to buy Rolex.

• 55:59Ben Gilbert?

  No, that's not true.

• 56:00David Rosenthal?

  No, no, that is not what they're going to do.

• 56:03Ben Gilbert?

  It's Omega, right?

• 56:04David Rosenthal?

  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-flung reaches of the British Empire before, to now like, all of a sudden, it's this giant European wide market. Most of which has, 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.

• 56:32Ben Gilbert?

  Right. There was just massive demand for this new product category, of which there were many good options.

• 56:37David Rosenthal?

  And also, there was massive demand, but it was kind of like search engines before Google. The product still kind of sucked. You know, even really, in many ways, the Rolex product. Rolex probably kept better time than competitors.

• 56:54Ben Gilbert?

  They were QA certified.

• 56:56David Rosenthal?

  QA certified, right? But 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 these 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.

• 57:22Ben Gilbert?

  Yep.

• 57:23David Rosenthal?

  So I finally 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, Rolex is all the other brands that are like waterproof to 57,000 million meters. And I'm just like, what? There's no depth that exists.

• 57:41Ben Gilbert?

  David Rosenthal, watch aficionado, ladies and gentlemen.

• 57:43David Rosenthal?

  Exactly. But like, why? Who cares? And I was like, oh, this is why waterproof watches are a big thing. It's not about water necessarily.

• 57:53Ben Gilbert?

  It's actually dust more than water.

• 57:54David Rosenthal?

  It's dust, it's humidity. It's if you're waterproof, that's shorthand for saying you're element proof. You're durable. Nothing is gonna get inside this watch and mess up your movement if water can't get in.

• 58:06Ben Gilbert?

  You could subject it in 100 meters of still water and no impurities would get in.

• 58:11David Rosenthal?

  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.

• 58:19Ben Gilbert?

  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.

• 58:28David Rosenthal?

  Yes, exactly.

• 58:30Ben Gilbert?

  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?

• 58:45David Rosenthal?

  Oyster. Yeah, so like I said, there's demand for these products, but they all suck because they're not element proof. Well, oyster is Rolex marketing speak for waterproof. So there's this great race among high-end Swiss watchmakers to now produce a waterproof wristwatch. And a Swiss case-making company called Francis Baumgartner, which supplied cases to Patek and many other great watch brands, in the early 1920s, they invent a new case style called the Hermetic. You'll notice that your Rolex does not say hermetic. The way they do it is they put the watch case inside another watch case.

• 59:29Ben Gilbert?

  Oh, that's right. This is the weird hinge thing, right?

• 59:31David Rosenthal?

  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. And most importantly, you have to unscrew the outside case, the seal, and take out the inside case every day in order to wind the watch.

• 59:53Ben Gilbert?

  Right. Because famously, the crown is the most dangerous 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.

• 1:00:04David Rosenthal?

  Yep. So that's the state of play through the early 20s. And Rolex gets into this, too. They buy cases from Baumgartner and they make these hermetic watches. You can go find them. You see pictures of them in collector's books.

• 1:00:19Ben Gilbert?

  It's got a hinge on the left side and a little clasp on the right side that goes around the crown.

• 1:00:23David Rosenthal?

  Yep. And then, this is so awesome. This is like a Forest Mars moment from Hans. In October 1925, two Swiss case makers file a patent for a moisture-proof winding stem and button. Ben, just like you're saying, 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 to.

• 1:00:49Ben Gilbert?

  Yep. And mind you, Rolex has been dying to solve this problem. They had at least three failed attempts to create a waterproof seal in-house.

• 1:00:58David Rosenthal?

  Yes, the whole industry has. And Hans, like Forest Mars, 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. 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 to making a waterproof mechanical wristwatch that doesn't need to be put in a jar.

• 1:01:34Ben Gilbert?

  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. But that doesn't really matter. They saw that this was absolutely essential and Willstorf 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.

• 1:01:55David Rosenthal?

  This is his genius. He's not a watchmaker. And Rolex were not watchmakers until they finally bought Aegler in 2004. Hans's genius is he sees the vision for where the market's going. He recognizes talent and innovation and he pulls it together and he makes it commercially viable and marketable.

• 1:02:15Ben Gilbert?

  Yep.

• 1:02:16David Rosenthal?

  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 he jumped on it.

• 1:02:26Ben Gilbert?

  Yep.

• 1:02:27David Rosenthal?

  I mean, really, he's like the Mark Zuckerberg of his time.

• 1:02:30Ben Gilbert?

  Ooh, that's a good analogy.

• 1:02:31David Rosenthal?

  Yeah, I mean, this Instagram, you know, and then copying stories from Snap. Hans doesn't care. He's like, I'm going to market this and I'm going to make this the most successful thing possible. I don't care that we didn't invent it.

• 1:02:41Ben Gilbert?

  Hmm. It needs to be in our product.

• 1:02:43David Rosenthal?

  Yeah.

• 1:02:44Ben Gilbert?

  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 screw down crown. The hermetic seal on the all Oyster watches going forward. And of course, it's named the Oyster because 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 that keep any impurities out.

• 1:03:20David Rosenthal?

  So in July 1926, Hans and Rolex goes and registers the product name Oyster. This is really, really big. And Hans is like, I am going to go big. Everybody in the whole world needs to know the Rolex name, needs to know that we are the exclusive owners of the Oyster system. He prepares to spend, in Britain alone, annual expenditures of over £10,000 just on advertising for the Oyster models.

• 1:03:52Ben Gilbert?

  Dude knows how to build a brand. He's already naming components. He's not just marketing Rolex. This is Rolex, the only watch that has Oyster.

• 1:04:03David Rosenthal?

  Yes. Oyster technology.

• 1:04:06David Rosenthal?

  A18 Bionic.

• 1:04:08Ben Gilbert?

  Yes.

• 1:04:10David Rosenthal?

  Really, the parallels to Apple are just like incredible.

• 1:04:12Ben Gilbert?

  Ah. Four hours from now, I was gonna make that point, but.

• 1:04:18David Rosenthal?

  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 want to just buy regular ads in the newspaper here." So in 1927, towards the end of the year, the timing is right. And that brings us to a young British woman named Mercedes Glytts. Now, Glytts was a secretary and bilingual stenographer in London, much like young Hans was back at Kuno, who happened to have a sort of unique hobby of endurance swimming in the River Thames in her free time.

• 1:04:56Ben Gilbert?

  Which is insanely cold.

• 1:04:58David Rosenthal?

  Very cold. And I assume even back then, quite polluted, but so be it. And she was so good at endurance swimming. Apparently, she would swim for like 10 hours at a time in the River Thames. And so in October of 1927, she decided that she was going to attempt to swim across the English Channel.

• 1:05:19Ben Gilbert?

  Maybe even more cold.

• 1:05:21David Rosenthal?

  Definitely cold. Definitely pretty choppy. And she did. She became the first British woman to successfully do so that year in October 1927. However, a couple of days after she completed her swim, another woman emerged and claimed to have also swum the Channel, but have done it faster. And now, it turns out that that actually was a hoax, 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.

• 1:05:54Ben Gilbert?

  Which, mind you, she's doing this vindication swim. She's already spent 15 hours swimming across the Channel.

• 1:06:01David Rosenthal?

  Yeah, it's a miracle she's still alive at this point. 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 while wearing a new Rolex Oyster model. And what Rolex doesn't talk about to these days is a footnote to history of it wasn't actually on her wrist.

• 1:06:29Ben Gilbert?

  It's on like a lanyard around her neck.

• 1:06:32David Rosenthal?

  Yeah, it was on a small chain that she wore around her neck. But nonetheless, this is an incredible stunt.

• 1:06:37Ben Gilbert?

  Nothing ruins a good story like data. Let's just smooth it over.

• 1:06:41David Rosenthal?

  Like the truth.

• 1:06:41Ben Gilbert?

  Yes.

• 1:06:43David Rosenthal?

  This is still featured prominently on the Rolex website today.

• 1:06:47Ben Gilbert?

  Mercedes' photo is everywhere, but it doesn't matter. I mean, at the end of the day, who cares if it was on her wrist or not?

• 1:06:52David Rosenthal?

  Yeah, she also doesn't actually make it. But that doesn't matter either.

• 1:06:57Ben Gilbert?

  That's the other crazy thing. I think it was an especially cold day or especially choppy or something. She makes it 10 of the 15 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.

• 1:07:12David Rosenthal?

  It was still in the water for a long time.

• 1:07:14Ben Gilbert?

  For 10 hours.

• 1:07:15David Rosenthal?

  Yeah, pretty good product testimonial, shall we say.

• 1:07:18Ben Gilbert?

  For a testimony.

• 1:07:20David Rosenthal?

  So Hans, after this event happens the next day, he buys the front page of the Daily Mail newspaper, which is a nationally syndicated newspaper in Britain at the time. I didn't realize you could do this back in the day. You could actually buy the front page as an advertisement.

• 1:07:41Ben Gilbert?

  I think it was common. I think it 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.

• 1:07:50David Rosenthal?

  Yeah, so Hans does this and proclaims the success and announcement of the world's first waterproof wristwatch, fully enclosed in its own case without a second hermetic seal around it and the triumphant launch of the Rolex Oyster.

• 1:08:08Ben Gilbert?

  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. It is kind of buried. Maybe this is what the advertising style was back in the day, but the big words are not "watch survives English channel swim." The big words are "Rolex Oyster," and it says, "Rolex introduces, for the first time, the greatest triumph in watchmaking." 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

• 1:08:50Ben Gilbert?

  the Rolex Oyster. And then it says, "The wonder watch that defies the elements." 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, "Moistureproof, waterproof, heatproof, 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, our TikTok-ified 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.

• 1:09:31David Rosenthal?

  It's hard to know how much of this is just the state-of-the-art in advertising at the time 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.

• 1:09:50Ben Gilbert?

  Oh, I didn't realize that.

• 1:09:52David Rosenthal?

  Yeah. We'll get to it later, but they do bring on the J. Walter Thompson Agency before he dies. Probably the rest of the company's like, "All right, Hans. We gotta professionalize a little bit here."

• 1:10:02Ben Gilbert?

  And that's when they get extremely good, is in the 60s.

• 1:10:04David Rosenthal?

  Extremely good. Yes.

• 1:10:07Ben Gilbert?

  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, advertising hadn't really been professionalized in a way that we would see in the Mad Men era.

• 1:10:20David Rosenthal?

  Totally. We're still before World War II here. We're not yet in the modern world.

• 1:10:25Ben Gilbert?

  Yep.

• 1:10:26David Rosenthal?

  The other thing that's really interesting is, there was something about this that was sitting with me too, doing this research. This is a major, major, major moment. The Mercedes-GLITES moment. The first brand ambassador of Rolex. It's interesting.

• 1:10:42David Rosenthal?

  That the moment and the person that Hans chose for this launch was a woman.

• 1:10:47Ben Gilbert?

  Super interesting.

• 1:10:48David Rosenthal?

  Back in 1927. Super interesting. Yes, the wristwatch was a ladies' item before World War I, but after World War I, really, I would think the big market is the men's market. It's interesting, I dug into it. In this era, Rolex still was primarily a ladies' product. The men's market was growing.

• 1:11:07Ben Gilbert?

  Oh.

• 1:11:08David Rosenthal?

  But if you look at their product catalogs, really up until World War II, ladies' models outnumbered men's models two to one.

• 1:11:18Ben Gilbert?

  Whoa. These are the little, like, Prince watches?

• 1:11:21David Rosenthal?

  Yep, yep. And definitely Hans's vision was like, a wristwatch is for everybody, men and women. 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 50/50, men and women.

• 1:11:41Ben Gilbert?

  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 read the amazing journalism about watches on Hodinkee and the whole world around appreciating watches. It's kind of male-focused.

• 1:12:08David Rosenthal?

  It's like a portion of 9/11.

• 1:12:09Ben Gilbert?

  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.

• 1:12:21David Rosenthal?

  Well, it's certainly not where the enthusiast market is focused.

• 1:12:24Ben Gilbert?

  Yes.

• 1:12:24David Rosenthal?

  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.

• 1:12:36Ben Gilbert?

  Oh, yes.

• 1:12:37David Rosenthal?

  Whereas Rolex, yeah, it really is 50/50.

• 1:12:40Ben Gilbert?

  Amazing. All right. So that's Mercedes Glights.

• 1:12:43David Rosenthal?

  That's the Oyster story, and that really is a huge watershed moment for Rolex and for the wristwatch industry.

• 1:12:50Ben Gilbert?

  And she's effectively the first testimony. I'm not sure they'd come up with that terminology yet, but this 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.

• 1:13:04David Rosenthal?

  Yes, partner. It's Rolex Partner is what they call it.

• 1:13:06Ben Gilbert?

  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. And it's different than influencer marketing. It's different than the way that someone appears in 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.

• 1:13:29David Rosenthal?

  Flashing all the way forward, Roger Federer is the purest embodiment of this today, but that is to come in the future. It turns out, though, back to the product of the wristwatch, Oyster was huge, but it had a problem. Ben, 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, 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. Well, if you know anything about humans, probably at least half the humans on the planet are

• 1:14:14David Rosenthal?

  not going to be exactly fastidious about screwing the crown back in.

• 1:14:18Ben Gilbert?

  Yes. There are three pillars to what makes this a breakout product that enables the wristwatch to really have its iPhone moment. And that third of being perpetual, of being self-winding, is the magic.

• 1:14:33David Rosenthal?

  Yes. And these things are so intrinsically linked. And I didn't realize until getting so deep into the research, self-winding watches are kind of 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. It's actually because it's tied to the Oyster and the screw-down mechanism. If you forget to screw your crown back down, you lose the element-proofness of the Oyster.

• 1:15:05Ben Gilbert?

  Yes. Oh, okay. I can't wait. The way that The perpetual movement works is totally genius. 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 no longer the hard part.

• 1:15:28David Rosenthal?

  Yeah, the hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 1:15:42Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 1:15:52David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 1:16:09Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise, the workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 1:16:25David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually, and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 1:16:42Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 1:16:51David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them 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, the element-proofness of the oyster works fine for everybody because nobody actually has to unscrew the crown.

• 1:17:21Ben Gilbert?

  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-

• 1:17:27David Rosenthal?

  Set it and forget it.

• 1:17:28Ben Gilbert?

  Yep. You walk around all day. Your watch keeps perfect time-ish and it's waterproof and you never need to wind it. Sounds like an amazing product. Who doesn't want that?

• 1:17:39David Rosenthal?

  That's a Steve Jobs-like product right there.

• 1:17:41Ben Gilbert?

  Okay, before going into the nuance of how Rolex's particular 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-

• 1:17:58David Rosenthal?

  It's like alchemy.

• 1:17:59Ben Gilbert?

  Is one of the coolest things ever done to prepare for an 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.

• 1:18:17David Rosenthal?

  Which seems like, oh yeah, of course you could do that these days with a battery and electronics, but imagine doing that without a battery and without electronics.

• 1:18:26Ben Gilbert?

  Exactly. So yes, on that first one, storing energy, there is something called a mainspring. Did you read about this in the research, David?

• 1:18:34David Rosenthal?

  Yep.

• 1:18:35Ben Gilbert?

  A mainspring can store potential energy. So imagine a foot-long 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 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 kind of begs the question, what is a battery?

• 1:19:04David Rosenthal?

  Right. Yes, I said a battery. Technically, that is a battery.

• 1:19:07Ben Gilbert?

  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 mainspring can store on the order of three days of potential energy to tick the watch forward. It's amazing.

• 1:19:27David Rosenthal?

  Amazing.

• 1:19:28Ben Gilbert?

  Okay, so moving on, obviously, this isn't sufficient on its own. If you just release the mainspring 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.

• 1:19:39David Rosenthal?

  Break the watch.

• 1:19:40Ben Gilbert?

  Yes. So you need something to control the energy release from that mainspring and do it in slow, fixed time intervals.

• 1:19:48David Rosenthal?

  All mechanically.

• 1:19:49Ben Gilbert?

  Yes. You need something to make the watch tick.

• 1:19:52David Rosenthal?

  Ayo.

• 1:19:53Ben Gilbert?

  Yes. Watchmakers call this an escapement. Now, an escapement in a mechanical watch has two key components to harness that potential energy from the mainspring. One is a pallet fork, come back to that, and two is something called the balance. 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 tock, like the pendulum of a grandfather clock. And as it flicks back and forth, it moves all the gears on the watch forward one tick or one beat.

• 1:20:35David Rosenthal?

  And there's this element that, this may be several steps down the chain, where it's actually usually like the hour movement, right, that then drives all the other movements off of that?

• 1:20:47Ben Gilbert?

  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 allowing what's called the escape wheel to turn one click, and that drives whatever else is in the gear chain for that particular watch.

• 1:21:10David Rosenthal?

  Gotcha. Which some watches is, you know, just hours and minutes. Some watches is hours and minutes and seconds. Some watches is date, day, moon phase, what you had for breakfast, et cetera.

• 1:21:21Ben Gilbert?

  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 31 days.

• 1:21:38David Rosenthal?

  Yeah, these are not computers.

• 1:21:39Ben Gilbert?

  Right. All of the logic is encoded mechanically in a gear chain. It's beautiful.

• 1:21:45David Rosenthal?

  Yeah.

• 1:21:46Ben Gilbert?

  So where we left off here is our escapement, where we've got the pallet fork, and it's this little T, and it's a tick and a tock. 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, the balance. And the balance also has two parts. There's a balance wheel and a hairspring. And these two things are stuck together around the same center point. So picture the wheel of a bike. That would be the balance wheel, kind of like a hula hoop. And then the gears go around the same axle on a bike.

• 1:22:30Ben Gilbert?

  You know, you can imagine that you've seen the rear wheel of a bike. In this analogy, those gears are the hairspring and the outer wheel is the balance wheel. 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. Unlike everything else that is incredibly tight inside a watch, this component, the balance, almost floats and it moves with really low friction. It's weird because 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.

• 1:23:14Ben Gilbert?

  And for anyone who's ever taken a spring and tried to uncoil it, You know, you kind of 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 hairspring, 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 tuck, and flicking that pallet fork back and forth to continually release one little

• 1:23:55Ben Gilbert?

  interval of energy and one little advance of the whole gear train. It is beautiful.

• 1:24:02David Rosenthal?

  Amazing. You can totally see why for the right kind of person, this is like a Porsche 911. It's just catnip. You can't get enough of this.

• 1:24:11Ben Gilbert?

  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 Paracrom 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, where you go really far in one direction, 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 tic, tic, tic, tic, tic, tic, tic, tic, tic, tic, tic. These beats, that's what you're hearing. So the pallet fork drives that whole gear train, releasing energy that powers the hands and all the other complications, the day, the date, etc. at exactly the right pace. So when you take a step back and you

• 1:24:54Ben Gilbert?

  look at it all, the craziest thing is that it depends on the exact physical properties of the metals that are used. 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 two seconds per day.

• 1:25:24David Rosenthal?

  Bonkers.

• 1:25:24Ben Gilbert?

  It's awesome. I just named four parts of a watch. There are 200 parts. This is an oversimplification, but kind of the general concept of how a watch works.

• 1:25:35David Rosenthal?

  Yeah, the other parts are also amazing. I mean, things like there are jewels in the watch because 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 there are actual jewel stones inside your watch that are being used for a mechanical purpose.

• 1:26:01Ben Gilbert?

  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, 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.

• 1:26:20David Rosenthal?

  Yeah, I mean, gosh, the Daytona I'm wearing right now, I don't think has ever been serviced and it's at least 15 years old, if not more than that, and keeps time perfectly.

• 1:26:30Ben Gilbert?

  It's so cool. And this is a 500-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 are invented after this.

• 1:26:52David Rosenthal?

  Totally. So to bring us back to the perpetual on your 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.

• 1:27:14Ben Gilbert?

  No. And in particular, what we're talking about here is, remember I talked about the mainspring 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. And so if you're going to come up with a self-winding mechanism, you need some way in which you are using mechanical advantage to wind something that's already wound really tight even tighter.

• 1:27:44David Rosenthal?

  Yes. So. Here we are in the late twenties. Right around this time, a British watch inventor named John Harwood comes up with an automatic system for watches. Now, interestingly, that wasn't his end goal. He was trying to create a waterproof system, just like Rolex was. And the way that he went about it was he said, oh, yeah, like we were talking about, it's 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 that?

• 1:28:25David Rosenthal?

  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 a hammer going up and down and hitting different ends inside the watch as the wrist moves around. You could imagine that, turning a crank, crank, crank, crank. Yep. So he invents this system. And just like his Swiss counterparts who invented what became the Oyster system under Rolex, he patents it. Now, what he decides to do is rather than making a watch out of this, he's going to create a company that's just an IP company and he's going to license this self-winding

• 1:29:10David Rosenthal?

  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. However, it doesn't prove too popular in the marketplace because a consequence of how he designed the system, the manual winding capability and the crown is eliminated entirely. Oh. So if your watch stops, if you don't wear it and you lose the charge in the mainspring... 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-

• 1:29:47Ben Gilbert?

  Set the time.

• 1:29:47David Rosenthal?

  Set the time.

• 1:29:48Ben Gilbert?

  Oh, interesting.

• 1:29:49David Rosenthal?

  So it's a pretty big flaw in this watch. But because of how the patent was granted, at least in the UK, he and his company end up holding the rights to all self-winding watch-

• 1:30:04Ben Gilbert?

  Oh.

• 1:30:05David Rosenthal?

  -technology.

• 1:30:06Ben Gilbert?

  Wow, that is broad.

• 1:30:07David Rosenthal?

  In Britain, yeah, no matter what the method is, or at least that's my understanding.

• 1:30:12Ben Gilbert?

  Brutal.

• 1:30:13David Rosenthal?

  So Hans, of course, and Rolex sees this. He knows he needs an automatic system for the Oyster to really unlock the potential of the product and fully break the wristwatch product for the marketplace here. But his hands are tied. He can't do anything, at least in Britain, as long as Harwood has this patent. And Hans knows that ultimately, the method that Harwood uses is not good. He's not going to license from Harwood because he knows it's an inferior implementation.

• 1:30:44Ben Gilbert?

  Yep.

• 1:30:45David Rosenthal?

  And then fortunately, fate strikes and the market does its thing. And in 1929, Harwood's company goes bankrupt, probably aided along by the stock market crash of 1929 and the entering into the Great Depression, et cetera. So finally, the door is now open for Hans and Rolex to complete the product here.

• 1:31:06Ben Gilbert?

  Yep. And while we're here in 1929, just a quick reference point for folks. There was an article published at this time that said you could get a Rolex for as little as $25. Even if you inflation adjust that, it's like 450 bucks today. Or for as high as $1,000, which is 18,000. 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.

• 1:31:45David Rosenthal?

  Definitely not. Rolex at this point is not a luxury brand.

• 1:31:49Ben Gilbert?

  Correct.

• 1:31:49David Rosenthal?

  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 of the wristwatch. And he wanted the wristwatch to be on every wrist in the world.

• 1:32:07Ben Gilbert?

  Yep.

• 1:32:08David Rosenthal?

  Which he achieved. So here we are in the early 30s. After a couple of years of work, Rolex finally cracks it and patents their own rotor, quote unquote, self-winding system, 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 as the wearer moves their wrist around. And importantly, unlike the hammer movement, it spins 360 freely in either direction. So it's not hitting anything.

• 1:32:45Ben Gilbert?

  Yep.

• 1:32:45David Rosenthal?

  One of the other problems with the hardwood system was when the hammer struck each end, it made a noise.

• 1:32:52Ben Gilbert?

  Oh, really?

• 1:32:52David Rosenthal?

  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 silent, they call it the silent self-winding system.

• 1:33:07Ben Gilbert?

  Hmm. Oh, that's really interesting. And it's genius. You know, 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 center point and then you cut off half the disc. And so what happens is whenever 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 inadvertently spinning this perpetual rotor around and around and around and using that to wind the mainspring.

• 1:33:47David Rosenthal?

  Yep, it's an incredible innovation and feat 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.

• 1:34:05Ben Gilbert?

  Oh, the bubble back?

• 1:34:06David Rosenthal?

  Yeah, yeah, yeah. These early Oyster perpetuals that are first launched into the market are known by collectors as bubble backs now because the back of them sticks out a little bit onto the wrist off of the lugs.

• 1:34:17Ben Gilbert?

  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 Agler's innovation. This is the first time we're really seeing Rolex R and D figure out some brand new breakthrough contribution to the watch world.

• 1:34:36David Rosenthal?

  Yep. And once this is in place, these are the three key pillars of Rolex technology 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, Oyster perpetual.

• 1:35:02Ben Gilbert?

  Here it is. It's all here.

• 1:35:04David Rosenthal?

  Yep. So in 1934, they launched the full system, the Oyster perpetual chronometer, the bubble backs known by collectors. And for the first time, they introduce a new look for the watches, a two-tone mix of steel and gold for these new Oyster perpetuals that they call Rolosor. It really just rolls off the tongue.

• 1:35:34Ben Gilbert?

  Right there on your wrist, David.

• 1:35:35David Rosenthal?

  Right there. Not on my Daytona, but it is on my Datejust. This is the gold and steel mix that is now just an iconic. Rolex look.

• 1:35:45Ben Gilbert?

  And that's where that center link is the gold and the outer two links are the steel.

• 1:35:50David Rosenthal?

  Yep. Now, you're talking about the bracelet there. Bracelets, for a long, long, long time, are made by third-party companies. Rolex contracts them out. But that look even goes on to the case itself.

• 1:36:01Ben Gilbert?

  Oh, okay.

• 1:36:02David Rosenthal?

  The bracelet usually echoes the case, but combining gold and steel within one watch encasement was a new look, shall we say, from Rolex at this time.

• 1:36:12Ben Gilbert?

  You know what else kind of carries through today, which is kind of interesting? Rolex and just most tool watches have fluted bezels. The flutedness 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.

• 1:36:31David Rosenthal?

  Yes. Love it.

• 1:36:33Ben Gilbert?

  So, okay, while we're in the early 30s, 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 1931. 1931 was a weird year because Rolex was just starting to figure out this perfect product mix, and at the same time, the world has heaved into a Great Depression, and the British pound is devalued. So, exports out of Britain dropped by 2/3. Crisis happens. So Rolex is looking to internationally diversify. So they opened new offices in Paris, Buenos Aires, and Milan. They organized these trips to South America, the West Indies, China, Japan. They're really trying to figure out

• 1:37:17Ben Gilbert?

  how do we stabilize things while the world is in crisis. But they've got the right product and market.

• 1:37:23David Rosenthal?

  Yep. I feel like there's an old Sequoia saying, or at least a Mike Moritz saying, that recessions are the best time to innovate.

• 1:37:31Ben Gilbert?

  Hmm.

• 1:37:31David Rosenthal?

  Because coming out of the recession, you're going to have the best product, ready to hit the gas.

• 1:37:35Ben Gilbert?

  Right, and fewer competitors.

• 1:37:37David Rosenthal?

  Yep, exactly.

• 1:37:38Ben Gilbert?

  I will say, very interestingly, in 1932, 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.

• 1:37:54David Rosenthal?

  You think Submariner, yeah. Ooh, I've got some really, really, really fun World War II dive watch stuff in a second.

• 1:38:00Ben Gilbert?

  Oh, great.

• 1:38:00David Rosenthal?

  But before we get to World War II.

• 1:38:02Ben Gilbert?

  Okay, in 1936, I feel like this is a big moment and kind of exactly what you were saying. As your competitors fall off a cliff 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 Eglar and says, hey, we want to take all of your production. And so Gruen stops buying movements from Eglar. This is where I think Rolex may have bought the shares back from Eglar, but again, we don't know and will never know because no one at Rolex will ever talk about that. And this is also when Eglar adds Rolex to its name.

• 1:38:39David Rosenthal?

  The Eglar manufacturer of Rolex watches.

• 1:38:43Ben Gilbert?

  Yes. So take us into World War II.

• 1:38:46David Rosenthal?

  At the beginning of the war in 1940, remember Rolex is in Switzerland, exporting to the UK, which was still by far their biggest market, gets cut off. 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, well, shoot, okay, if we can't get to England, we got to go 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 all sorts of stuff. This is my very favorite sidebar piece of trivia.

• 1:39:26Ben Gilbert?

  Ooh, I have no idea where you're going.

• 1:39:27David Rosenthal?

  So do you know what Rolex did in Italy during this time?

• 1:39:33Ben Gilbert?

  I have no idea.

• 1:39:34David Rosenthal?

  They're casting about, they're trying to find something. Their retail partner in Italy gets a contract from the Italian Navy to supply watches to their divers. And so this Italian retail partner comes to Rolex and is like, hey, we got a contract for dive watches. Can you make dive watches for us?

• 1:39:53Ben Gilbert?

  Hmm.

• 1:39:54David Rosenthal?

  And Rolex is like, yeah, sure, we can do that. We're sitting on our hands here at our factories.

• 1:40:00Ben Gilbert?

  Which is funny because this is like a decade and a half before the Submariner.

• 1:40:03David Rosenthal?

  Yes, yes, yes, yes. This is the first dive watch that Rolex makes. Can you guess the name of the Italian retail partner?

• 1:40:11Ben Gilbert?

  I feel like it's gonna be a, I don't know, car company.

• 1:40:15David Rosenthal?

  No, no, no, it's even more on the nose. This is Panerai. This is the Panerai watch.

• 1:40:19Ben Gilbert?

  Oh, really?

• 1:40:20David Rosenthal?

  Rolex makes the Panerai watch. So, you know, anybody who knows Panerai, famous, you know, very art deco style dive watch. They have two main models now, the Luminor and the Radiumir. Yeah, Panerai was a retailer before World War II. They weren't a watchmaker.

• 1:40:34Ben Gilbert?

  Whoa.

• 1:40:35David Rosenthal?

  And then after the war, Panerai kept going making these watches. Isn't that amazing?

• 1:40:40Ben Gilbert?

  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 any resources to the war because they were completely neutral. And so all of their craftspeople and machinists and everything can keep making watches.

• 1:41:02David Rosenthal?

  Yep. And so here they are selling to the Italian Navy on the Axis side. 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 1940 how to get watches back into Britain. They sort of launder them first through Spain and Portugal and then through the Strait of Gibraltar, get up to Britain.

• 1:41:27Ben Gilbert?

  Huh.

• 1:41:28David Rosenthal?

  This becomes critical because what is World War II that World War I was? I mean, World War I made the market for the wristwatch, right? But World War II made the precision wristwatch market super important. If you're a soldier in the trenches in World War I, yeah, you need to coordinate movements and time and whatnot. If you're a military service member in World War II, it is a very technical war involving a lot of technology, involving airplanes, involving aircraft carriers.

• 1:42:00Ben Gilbert?

  And synchronized attacks.

• 1:42:01David Rosenthal?

  All sorts of things, tanks, synchronized attacks, all this stuff, stealth. So the air battle of Britain, you know, is such a key moment in the war, a key theater. All of these British Royal Air Force pilots. They're all wearing Rolex watches because at this point Rolex make the best wristwatches, the most accurate, the most weatherproof to all the elements. You're going through all sorts of pressure changes, going up, going down. These cabins, quote unquote, if you could call them that, of World War II fighter planes. There's no pressurization in there. 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.

• 1:42:41Ben Gilbert?

  Wow.

• 1:42:42David Rosenthal?

  Super, super important stuff.

• 1:42:44Ben Gilbert?

  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 40s, 50s, even into the 60s in the Swiss watch world.

• 1:42:56David Rosenthal?

  Yes, that is definitely true. Rolex weren't the only ones that were selling to both sides here. But nonetheless, World War II is really changing the nature of what you need out of a wristwatch. And air battles are maybe the most visceral, but then you start to think about all the other stuff that went into World War II. There's radio communications, there's radar, 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 professional need for watches and for time in the world.

• 1:43:43Ben Gilbert?

  So interesting. Well, coming out of the war is really when Rolex starts to figure out their product lineup. I mean, we talked about, oh, they had the perfect product at the perfect time with this Oyster Perpetual officially certified chronograph. Well, 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 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.

• 1:44:26Ben Gilbert?

  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, we're going to 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.

• 1:44:43David Rosenthal?

  Yes, you are foreshadowing tool watches or sport watches. A watch for a specific technical use case, or more accurately, a watch that says something about you as the wearer. That is the legacy of World War II to come on the product side. But first, just on the market side, as soon as the war is over, there's no more European market. Europe is in shambles.

• 1:45:06Ben Gilbert?

  Oh.

• 1:45:07David Rosenthal?

  But you know what market there is? Is America.

• 1:45:11Ben Gilbert?

  Hmm. Yeah, you know who didn't have their cities all just destroyed and bombed to oblivion and has disposable income and GIs returning home?

• 1:45:19David Rosenthal?

  Yep. You know who is atop the new world order now? At least on the capitalist side. I don't think communists were buying a lot of Rolexes.

• 1:45:27Ben Gilbert?

  I'm sure there's some crazy stories about black market communist dealers of Rolexes to Russia post-World War II. I'm sure that happened.

• 1:45:35David Rosenthal?

  There must be. I'm pretty sure Castro famously loved Rolexes.

• 1:45:41Ben Gilbert?

  I think he even wore two. There's like some photos of him where he's wearing two Rolexes.

• 1:45:46David Rosenthal?

  Amazing, amazing.

• 1:45:49Ben Gilbert?

  Yeah, I'm looking it up right now.

• 1:45:50David Rosenthal?

  Nothing screams communism like multiple Rolexes on your wrist.

• 1:45:53Ben Gilbert?

  Here it is. He's wearing, I think it's a Rolex GMT and a Submariner on the same wrist.

• 1:45:59David Rosenthal?

  Yes.

• 1:46:01Ben Gilbert?

  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.

• 1:46:07David Rosenthal?

  Or he just wanted to wear two Rolexes on his wrist because he could.

• 1:46:10Ben Gilbert?

  Yeah, right, exactly.

• 1:46:12David Rosenthal?

  Okay, well, the non-black market for Rolexes after the war, if you're gonna go somewhere, you're gonna go to America. And Hans and the company devise just about the most genius, you know, three-putt scheme to get there imaginable.

• 1:46:28Ben Gilbert?

  Three-putt scheme.

• 1:46:31David Rosenthal?

  Get this. So in 1945-

• 1:46:33Ben Gilbert?

  Rolex would never three-putt.

• 1:46:37David Rosenthal?

  Tiger Woods wouldn't. Rolex brand testimony.

• 1:46:41Ben Gilbert?

  Yep.

• 1:46:42David Rosenthal?

  Okay, so 1945, right after the war ends, is also the 40th anniversary of the founding of Willstorf and Davis, the ruby jubilee of the company. For the occasion, Rolex launches their finest model yet, the Datejust. And this is the first modern Rolex, still an iconic watch sold by the company today.

• 1:47:05Ben Gilbert?

  Yep.

• 1:47:06David Rosenthal?

  It's just beautiful. I've got one here in front of me.

• 1:47:08Ben Gilbert?

  For a lot of people, if they don't picture a Submariner, when you hear Rolex, they picture a Datejust.

• 1:47:14David Rosenthal?

  Or a Daytona, but we'll get to that.

• 1:47:15Ben Gilbert?

  Yep.

• 1:47:16David Rosenthal?

  And launched alongside the Datejust is the Jubilee bracelet, which is the iconic beaded Rolex bracelet we all know now. They name it the Jubilee. Hans, remember, he wants to get into the American market. He initially wanted to call it the Victory bracelet, but his Swiss colleagues were like, that's not very Swiss. We are neutral.

• 1:47:40David Rosenthal?

  So it becomes the Jubilee bracelet.

• 1:47:43Ben Gilbert?

  Beautiful. It goes great with a fluted bezel. It just adds a little more pizzazz to the wrist.

• 1:47:48David Rosenthal?

  Right around this same time, Rolex manufactures their 50,000th officially certified Swiss chronometer. And just happens, of course, that that model is the new Datejust. So Hans decides that he is going to give this very special Rolex watch to the Swiss general Henri Guissain, who led Switzerland through the war, national hero in Switzerland, the Dwight Eisenhower of Switzerland, one might say.

• 1:48:18Ben Gilbert?

  What does that even look like to lead Switzerland through the war?

• 1:48:21David Rosenthal?

  That's a good question.

• 1:48:21Ben Gilbert?

  A lot of sitting.

• 1:48:23David Rosenthal?

  Well, remember, this is a three putt. This is just the first putt here.

• 1:48:28David Rosenthal?

  So, Guisant gladly accepts this great watch. Well, Rolex is really ramping production here now. So it turns out, you know, a few months later, they make their 100,000th chronometer that they have certified.

• 1:48:42Ben Gilbert?

  Oh, this one goes to Winston Churchill.

• 1:48:44David Rosenthal?

  This one, Hans, goes to General Guisant, you know, newly christened Rolex convert and says, would you please on our behalf offer this to your dear friend, Sir Winston Churchill?

• 1:48:56Ben Gilbert?

  There it is.

• 1:48:57David Rosenthal?

  Winston Churchill accepts. Now Winston Churchill is a Rolex man. Well, less than a year later, Rolex makes their 150,000th officially certified chronometer once again in the now, you know, new top of the line Datejust model. And who does Hans go to for this one? 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, leader of the Allied forces, architect of the Allied victory and this new world order.

• 1:49:38David Rosenthal?

  And Eisenhower, because his good friend Churchill wears Rolex, says, how could I not accept? And so now Dwight Eisenhower becomes a Rolex man. And then a few short years later, in 1952, Eisenhower becomes president of the United States of America with his iconic gold Rolex Datejust on his wrist at almost all times.

• 1:50:01Ben Gilbert?

  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, which is those who command the world wear Rolex.

• 1:50:16David Rosenthal?

  So at this time... Rolex finally brings on a third-party advertising agency, the J. Walter Thompson Advertising Agency in New York. Rolex and J. Walter Thompson, in collaboration after Eisenhower becomes president, wearing his Datejust, 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."

• 1:50:46Ben Gilbert?

  They printed this.

• 1:50:47David Rosenthal?

  Yes.

• 1:50:48Ben Gilbert?

  That is on the advertisement.

• 1:50:50David Rosenthal?

  All over magazines across America, and maybe the world, too. I don't know. It's incredible.

• 1:50:55Ben Gilbert?

  "Men who guide the destinies of the world wear Rolex watches." Shameless. Shameless.

• 1:51:03David Rosenthal?

  So many things to say. Like, obviously, today, that would be people, not men. But it's also literally true. You got Eisenhower, you got Churchill, you got Castro.

• 1:51:13Ben Gilbert?

  Totally.

• 1:51:14David Rosenthal?

  Wearing Rolexes.

• 1:51:15Ben Gilbert?

  I'm gonna save for later in the 60s and 70s 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. There's one that is, "When a man has the world in his hands, you expect to find a Rolex on his wrist."

• 1:51:33David Rosenthal?

  Oh, this is Don Draper. This is better than Don Draper.

• 1:51:38Ben Gilbert?

  "A Rolex will never change the world. We leave that to the people who wear them."

• 1:51:43David Rosenthal?

  Oh.

• 1:51:45Ben Gilbert?

  I mean.

• 1:51:46David Rosenthal?

  We could just end the episode here.

• 1:51:47Ben Gilbert?

  Now, that is brand positioning.

• 1:51:49David Rosenthal?

  That is true brand positioning. And the fact that they engineered getting one on the wrist of the President of the United States is so genius.

• 1:51:59Ben Gilbert?

  And interestingly, even though they started with Mercedes-GLITES, 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 the people who are scientists. And again, I'll save it for the 60s and 70s, but this is a very clear positioning of those who command the world.

• 1:52:23David Rosenthal?

  Yep. Yep. Now, the problem, I guess, with those who command the world is just absolutely gangster as it is.

• 1:52:34David Rosenthal?

  Is ultimately, you're talking about a small market. Now, it's great aspirational, you know, it helps the brand halo and whatnot, but more people, especially as we enter the 50s and 60s, want to be Arnold Palmer, shall we say, than want to be Dwight Eisenhower.

• 1:52:49Ben Gilbert?

  Yeah.

• 1:52:49David Rosenthal?

  One final little product sidebar on the Datejust that I just love. The original Datejust had the date window. It's called the Datejust because it's a regular watch with a little window on the dial that has the number of the date of the month on there.

• 1:53:05Ben Gilbert?

  In place of the three, and you know, if you're picturing one today, you probably picture that magnifier that's sitting on this.

• 1:53:11David Rosenthal?

  Well, the magnifier, the Cyclops eye in Rolex marketing speak.

• 1:53:15Ben Gilbert?

  Of course.

• 1:53:16David Rosenthal?

  Of course. So the legend of how that came about is Hans's second wife, Betty Wilsdorf Mettler. His first wife, Anna, died tragically in 1944, right before the end of World War II. And that is actually when Hans sets up the Hans Wilsdorf Foundation and puts all of his ownership of the company into it.

• 1:53:36Ben Gilbert?

  Famously, he never had any family heirs. There was no one to pass the company to, so he creates this foundation.

• 1:53:42David Rosenthal?

  Yes. So his second wife, Betty, loved the Datejust. And still to this day, the Lady Datejust, I believe, is the single best-selling model in the Rolex catalog.

• 1:53:54Ben Gilbert?

  Well, yeah, they have like eight watches for men and one for women. Of course, that one's good, 50% are bought by women. And you know, women wear Submariners and stuff too, but like, come on.

• 1:54:03David Rosenthal?

  Yeah.

• 1:54:03Ben Gilbert?

  You're concentrating 50% of your sales into one quote unquote model.

• 1:54:07David Rosenthal?

  Yes. So Betty loved the Datejust, but had a tough time reading the small 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.

• 1:54:31Ben Gilbert?

  I tell you, you can't make this stuff up, but they made this stuff up.

• 1:54:34David Rosenthal?

  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 that is the inspiration for the Cyclops window of the Datejust.

• 1:54:47Ben Gilbert?

  If you're at Rolex and you're listening to this and you want to tell us, no, it really is true, hello at acquired.fm.

• 1:54:52David Rosenthal?

  We will happily come to Geneva and talk to you about it.

• 1:54:55Ben Gilbert?

  Yes.

• 1:54:56David Rosenthal?

  Uh, okay. So Ben, as you were saying, though, the date just-

• 1:55:02Ben Gilbert?

  It's a dress watch. It's a watch that you wear if you are commanding the world, you're wearing a suit, and you are amongst other respectable people.

• 1:55:11David Rosenthal?

  Yes.

• 1:55:12Ben Gilbert?

  But what Rolex kinda does from 1950 onward is, yeah, of course, we make that. 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.

• 1:55:27David Rosenthal?

  Yep. And that is the core of the brand today, which gets built in the 1950s under Andre.

• 1:55:34Ben Gilbert?

  Sports watches.

• 1:55:35David Rosenthal?

  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.

• 1:55:47Ben Gilbert?

  Yep.

• 1:55:48David Rosenthal?

  So Andre Heinegger, the second CEO of Rolex after Hans, Andre joined the company in 1948, right after the war. And he was a former lawyer, I believe, by training. 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 J. Walter Thompson. He's the one who does the destinies of the world campaign. And then in 1955, I believe, he becomes the director of watches. And so bringing on J. Walter Thompson, revamping the marketing message, opening up

• 1:56:31David Rosenthal?

  the Americas market, and really the US market, that's sort of his purview here. And then later on, he starts working with Mark McCormick and IMG, which is the talent agency that we'll get into for the testimonies.

• 1:56:45Ben Gilbert?

  Oh.

• 1:56:47David Rosenthal?

  What Andre realizes is that now, here in the 50s and into the 60s ahead-

• 1:56:54David Rosenthal?

  All the technology and engineering and innovation that went into Rolex in the 30s 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 perfectly on-parity watch to what Rolex can make at this point in time.

• 1:57:16Ben Gilbert?

  There's 30 Swiss companies doing this, yeah. Especially because of the Établissement Sage, all of the component manufacturers are outside the brand. And so you just go around to all the component manufacturers, and Rolex is a little different because they have Agler, 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.

• 1:57:37David Rosenthal?

  Totally. So all the stuff that Hans was a genius at kinda isn't gonna cut it in terms of differentiation for this new era. What Rolex now needs to do is move beyond what the actual product is on your wrist to more, what does it say about you that you're wearing it? To the brand of the company itself, what a signaling is, what it means about you. This is the first step towards becoming a luxury brand. And I don't know that 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.

• 1:58:18David Rosenthal?

  It would later become luxury, but this is his real, real genius. So from 1953 to 1955, Rolex, and again, Hans is still running the company, he dies in 1960, but Rolex, Hans, Andre, launch a whole suite of wild new models, very different than the Datejust and the Oyster Perpetuals that we were talking about before. This is the Explorer, the Ternograph, the Submariner, the Milgauss, and the GMT Master. These are what are Then initially called the Tool Watches.

• 1:58:56Ben Gilbert?

  Yep.

• 1:58:57David Rosenthal?

  But quickly morph into becoming known as the Sport Watches.

• 1:59:00Ben Gilbert?

  Yeah, the industry kind of refers to them as sport watches or tool watches. Rolex calls them professional watches, which is kind of funny because it's like the opposite of what you, oh, a professional watch you would think is like the Datejust, but they're thinking about it more of like a professional driver, a professional race car driver. So that's their-

• 1:59:18David Rosenthal?

  Yeah, a professional pilot.

• 1:59:20Ben Gilbert?

  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, there's something called the Rolex Way.

• 1:59:39David Rosenthal?

  Oh, you mean like the Vision Pro is not-

• 1:59:42Ben Gilbert?

  Exactly.

• 1:59:42David Rosenthal?

  ...on to reality?

• 1:59:43Ben Gilbert?

  Like, the Rolex Way, there's this YouTube video they put out describing the Rolex Way, and they just list all the things that they're not. It's not limitless because that's too limiting. Everything in the Rolex universe needs to be described in a way that it's too impossible for you to describe. It's just simply Rolex.

• 2:00:02David Rosenthal?

  Amazing, amazing. Okay, so back to this suite of really world-changing tool watches, or at least watch world-changing tool watches.

• 2:00:12Ben Gilbert?

  Professional watches, David.

• 2:00:15David Rosenthal?

  Professional watches, I'm sorry. First is the Turnograph, as perhaps foreshadowed by that really great name there.

• 2:00:24Ben Gilbert?

  What a horrible name.

• 2:00:25David Rosenthal?

  That's the least successful of these watches that they launch. You're not going to be buying any Turnographs from authorized Rolex dealers these days.

• 2:00:33Ben Gilbert?

  But David, if you look at a Turnograph, what's the original one look like?

• 2:00:36David Rosenthal?

  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.

• 2:00:48David Rosenthal?

  Around the dial, around the face of the watch, that you could use for timing different events. And the way Rolex marketed this as this was going to be for international business people who were making international phone calls and needed to time the length of the phone call.

• 2:01:05Ben Gilbert?

  Really?

• 2:01:05David Rosenthal?

  Yeah.

• 2:01:06Ben Gilbert?

  That's funny. Swing and a miss.

• 2:01:08David Rosenthal?

  Swing and a miss. Not exactly really a romantic lifestyle you want to be associated with.

• 2:01:14Ben Gilbert?

  Saving pennies on your... I guess at the time it was saving $10 at a time on your long-distance calls.

• 2:01:19David Rosenthal?

  Yeah, sure. But it'll come back. The next least successful one is the Milgauss.

• 2:01:26Ben Gilbert?

  I love this watch.

• 2:01:28David Rosenthal?

  I know, this one is awesome. This has a whole second life.

• 2:01:30Ben Gilbert?

  Yes.

• 2:01:31David Rosenthal?

  It was designed in association with the engineers at CERN in Switzerland, the particle accelerator, for scientists who are working while exposed to strong magnetic fields. And the idea was that this Milgauss was so well-protected from magnetic fields that you could wear it in these environments and it would still tell accurate time.

• 2:01:52Ben Gilbert?

  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 going to speed up or slow down.

• 2:02:05David Rosenthal?

  Yep. So a little more romantic than timing international business calls in terms of the inspiration for this, but not a large market for people who are scientists or aspiring to work in strong magnetic field areas. So they discontinued that after a couple of years. But then they bring it back in 2007. It's awesome. I mean, it's got this lightning bolt secondhand on it.

• 2:02:29Ben Gilbert?

  Yeah, it's so cool. And the colors are great. It's got this really fun orange... I've been contemplating whether I want to get an Explorer or a Milgauss. And it's effectively the same watch, but the Milgauss sort of has this very fun, scientific origin and look to it.

• 2:02:45David Rosenthal?

  Right.

• 2:02:47David Rosenthal?

  I could totally see you rocking either one.

• 2:02:50Ben Gilbert?

  It just feels me, doesn't it?

• 2:02:52David Rosenthal?

  Yeah, it does. You definitely have got the Explorer. You know, you love exploring, you know, backpacking. You've got that great iconic picture. Is that still, is that picture of you and your dad still up in?

• 2:03:01Ben Gilbert?

  Oh, yeah, behind me in my home studio.

• 2:03:03David Rosenthal?

  Yeah. Yep, backpacking.

• 2:03:04Ben Gilbert?

  Iceland.

• 2:03:05David Rosenthal?

  Yep. But I feel like the Milgals might be more you.

• 2:03:08Ben Gilbert?

  I know. Both great watches.

• 2:03:10David Rosenthal?

  Oh, both great watches. Okay. That's number two. And then the first really big one, the Explorer. Ben, like you were talking about.

• 2:03:19Ben Gilbert?

  Which the story is so awesome for this.

• 2:03:23David Rosenthal?

  So awesome. So supposedly it is made in honor of Sir Edmund Hillary and Tenzing Norgay's Summit of Mount Everest, the first human summoning of Mount Everest.

• 2:03:36Ben Gilbert?

  1953, I think.

• 2:03:39David Rosenthal?

  I believe it was 1953, yes.

• 2:03:41Ben Gilbert?

  And they wore an oyster perpetual up that was sort of a prototype of what the Explorer would be.

• 2:03:49David Rosenthal?

  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, the legend is that Sir Edmund Hillary and Tenzing Norgay were working with Rolex, wearing Rolexes, summoning Everest, wearing Rolexes.

• 2:04:12Ben Gilbert?

  And that is in the marketing today. That is the lore around the brand today.

• 2:04:17David Rosenthal?

  And importantly, both of them become official Rolex testimonies, Brandon Bassner's partners afterwards.

• 2:04:24Ben Gilbert?

  Yep.

• 2:04:25David Rosenthal?

  So they will, for the rest of their lives, tell you how much they love Rolex.

• 2:04:30Ben Gilbert?

  However, Sir Edmund Hillary did not prefer his Rolex. He had a Smiths watch that he preferred to wear.

• 2:04:37David Rosenthal?

  And I think the Smiths was the official outfitter of the expedition.

• 2:04:41Ben Gilbert?

  Okay.

• 2:04:42David Rosenthal?

  And Rolex was not.

• 2:04:43Ben Gilbert?

  So I do 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.

• 2:05:01David Rosenthal?

  Yep. 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 yet another modern endeavor where timekeeping is critically important and means the difference between life and death. You need to rely on your watch when you're summoning Everest.

• 2:05:23Ben Gilbert?

  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.

• 2:05:30David Rosenthal?

  Easily readable in the elements.

• 2:05:32Ben Gilbert?

  Exactly.

• 2:05:33David Rosenthal?

  Yep. So that's the Explorer. It goes on to become iconic, extremely popular still to this day. Then there's the Submariner, an equally fun origin myth story, shall we say.

• 2:05:47Ben Gilbert?

  If you separated Submariner from Rolex, Submariner may actually be a bigger deal. Submariner is its own whole franchise.

• 2:05:57David Rosenthal?

  Absolutely.

• 2:05:58Ben Gilbert?

  Almost in the way that's like, what if you separated the Dallas Cowboys from the NFL? Who's the more important brand? Like, the sub is, if you're gonna get a Rolex and you're intending to have multiple, you kind of should start with the sub, because it's just so iconic.

• 2:06:14David Rosenthal?

  You're right. It is really its own world.

• 2:06:17Ben Gilbert?

  It was Sean Connery's watch, even before he started playing James Bond. And then he wore it and, yeah.

• 2:06:22David Rosenthal?

  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 Panerai.

• 2:06:33Ben Gilbert?

  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.

• 2:06:38David Rosenthal?

  Yes. Works and is waterproof down to 100 meters in depth. Not a lot of people who are buying these things are going down to 100 meters, but there we go.

• 2:06:46Ben Gilbert?

  Although I must say, I think this is an overlooked thing about this category. That's 100 meters in depth if there were no pressure changes and you weren't whipping your hand around. It's nice to have 100 meters of depth so that if you're going 20 meters in depth 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 100 meters below.

• 2:07:14David Rosenthal?

  And to that point, I believe at some point Rolex starts actually testing their watches to significantly greater depth than what is advertised for this reason.

• 2:07:25Ben Gilbert?

  That's correct. Most of them, I think, are a 10% extra margin of safety, but I think the dive watches are an extra 25%.

• 2:07:33David Rosenthal?

  Yeah, you don't want to be like, oh, I've got a 300-meter-depth watch and get down to 300 meters and think you're good, but actually go to 305.

• 2:07:40Ben Gilbert?

  Yep. You know, 100-meter waterproof watch is nice, even just for going in swimming pools. And I'm not sure I would want a 10-meter waterproof watch. It feels dangerous.

• 2:07:51David Rosenthal?

  Yep. But it's not really about the waterproofness. So around this time, 1952, 1953, much of popular culture is focused on a Frenchman named Jacques Cousteau, probably rings a bell to many of you. And Jacques Cousteau was the first world famous undersea explorer. He actually invented scuba diving.

• 2:08:16Ben Gilbert?

  Oh, interesting.

• 2:08:17David Rosenthal?

  Yep. He was a total Renaissance man genius. And in 1953, he's filming the documentary, The Silent World, in the Mediterranean Sea that is going to go on to win the Oscar, the Academy Award for Best Documentary, I think in 1956. But the whole world is watching these exploits, discovering the depths of the ocean, this whole alien world for the first time, along with Jacques. And he's doing so and going down in these machines while wearing Rolex watches.

• 2:08:49Ben Gilbert?

  Great.

• 2:08:50David Rosenthal?

  So great. Now, interestingly, there's not an actual formal relationship between Jacques and Rolex. And actually, Rolex was formally working with another undersea explorer, who didn't become nearly as famous. But nonetheless, Jacques was a Rolex fan, was wearing Rolexes while doing all this, as was much of his crew. And then when the movie comes out, they're all wearing these Rolexes.

• 2:09:17Ben Gilbert?

  And it's important to remember, for people who scuba dive out there, you have a dive computer these days. I mean, even, I remember when I got Paddy certified, even your very first few dives, you're not wearing a dive watch. You're using a dive computer. At this time, this was a legitimate tool that you needed. It's not going to tell you your depth the way that a dive computer is, but in order to know your total bottom time and...

• 2:09:39David Rosenthal?

  In the same way, if you're summoning Everest, well, even more so than if you're summoning Everest, you really need a submariner, a dive watch, if you're diving.

• 2:09:46Ben Gilbert?

  This isn't cute. This is an essential tool to complete this extreme task.

• 2:09:51David Rosenthal?

  Yes. So, you know, that's great for marketing here. But then 1962, the very first

• 2:09:58Ben Gilbert?

  Doctor No.

• 2:09:59David Rosenthal?

  James Bond movie, Doctor No, comes out.

• 2:10:02Ben Gilbert?

  And as it is written in Ian Fleming's James Bond books.

• 2:10:06David Rosenthal?

  Yes, because of course Ian Fleming himself was a Rolex man. Of course, James Bond wears Rolexes. Now, canonically, I didn't know this till doing the research. Did you know that, at least according to Ian Fleming canon, James Bond's mother is Swiss and his father is British? Kind of like you might say Rolex itself is.

• 2:10:28Ben Gilbert?

  Oh, interesting.

• 2:10:31David Rosenthal?

  So Sean Connery wears a submariner in Doctor No. And then Connery, I believe, would wear subs for all of his Bond movies. And Ben, like you said, was in real life, a sub guy himself.

• 2:10:44Ben Gilbert?

  I think that's right.

• 2:10:45David Rosenthal?

  There is no bigger. You know, 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.

• 2:10:54Ben Gilbert?

  And this persisted from 1962 until 1995.

• 2:10:57David Rosenthal?

  Yes, with GoldenEye.

• 2:10:59Ben Gilbert?

  Yeah, when Pierce Brosnan came in, they wanted to refresh Bond's brand image. And they chose Omega for that one.

• 2:11:05David Rosenthal?

  Oh, wow. Wow, that's really charitable of you two, the Bond franchise there.

• 2:11:10Ben Gilbert?

  No, it is.

• 2:11:11David Rosenthal?

  No, come on. Omega paid them a boatload of money for product placement.

• 2:11:15Ben Gilbert?

  They did eventually, but initially it was not a paid placement.

• 2:11:18David Rosenthal?

  Really?

• 2:11:19Ben Gilbert?

  Uh huh.

• 2:11:20David Rosenthal?

  I was almost certain that 95 was when they decided to bid out all the stuff.

• 2:11:24Ben Gilbert?

  Well, let's put it this way. If it was bid out, Rolex would decline to bid. Because Rolex does not engage in, ugh, paid product placement.

• 2:11:33David Rosenthal?

  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. Pierce Brosnan maybe is more of an Omega guy than a Rolex guy.

• 2:11:47Ben Gilbert?

  There's some weird line that they used around trying to reboot him with more of a European, modern flair or something.

• 2:11:54David Rosenthal?

  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.

• 2:12:00Ben Gilbert?

  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.

• 2:12:11David Rosenthal?

  GoldenEye was when BMW launched the Z3 Coupe, right? So yeah, GoldenEye was totally product placement central.

• 2:12:18Ben Gilbert?

  And now Bond movies are like, you know, the whole budget's covered by product placement.

• 2:12:23David Rosenthal?

  They only exist for product placement.

• 2:12:27Ben Gilbert?

  I don't know. One of the sources I found on watchesofespionage.com details, apparently the costume designer reached out to Omega and was given for free a Seamaster. And there's a, I think even a quote, "There was no product placement incentive in 1995 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 organic thing at first.

• 2:13:01David Rosenthal?

  Okay. Maybe that's right.

• 2:13:05David Rosenthal?

  Anyway, the point is, from 1962 until 1995, if you 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.

• 2:13:18Ben Gilbert?

  Yep. 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.

• 2:13:33David Rosenthal?

  It's perfect. It's perfect.

• 2:13:34Ben Gilbert?

  It is.

• 2:13:34David Rosenthal?

  Super fun little coda on the Submariner. A few years later in 1967, do you know the story of the Sea Dweller? Which I believe is still in the Rolex lineup to this day.

• 2:13:45Ben Gilbert?

  It is. Is this the one that's like the super-sub? That's like a Submariner, but you can go real deep?

• 2:13:50David Rosenthal?

  It's the super-sub, yes. So Rolex develops this in partnership with the French undersea exploration company Comex. And there's this issue where helium would get trapped in the watch, in the Submariner.

• 2:14:05Ben Gilbert?

  Yep.

• 2:14:05David Rosenthal?

  And the pressure would break it as you're coming back up. And so they developed the Sea Dweller, which is waterproof down to 600 meters and has a special helium release valve.

• 2:14:18David Rosenthal?

  This is ridiculous. No person who is gonna buy these 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.

• 2:14:31Ben Gilbert?

  Okay, if you're already taking us from Submariner to Sea Dweller, you gotta take us to Deep Sea Challenge.

• 2:14:37David Rosenthal?

  Oh.

• 2:14:38Ben Gilbert?

  This is the ultra, ultra version. Yeah.

• 2:14:41David Rosenthal?

  Yeah. All right, go for it.

• 2:14:42Ben Gilbert?

  So they develop a watch. 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?

• 2:14:58David Rosenthal?

  And there was an earlier version of this before James Cameron, right?

• 2:15:01Ben Gilbert?

  Yeah, well, the Cameron one, I believe, is the Deep Sea Challenge, which is a extra, extra version. And the Challenge is the one that's the 11,000 meter, whereas the regular Deep Sea is just regular old 3,900 meters. So you get the Deep Sea for 3,900 meters, the Deep Sea Challenge to really get to the bottom, the 11,000 meter. James Cameron, on a manned submersible, 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. And this thing

• 2:15:45Ben Gilbert?

  is like clipped on to 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.

• 2:16:00David Rosenthal?

  Amazing.

• 2:16:01Ben Gilbert?

  And of course, James Cameron testimony.

• 2:16:03David Rosenthal?

  Yes, of course, of course. So that's going down to the bottom of the sea, very romantic, lifestyle, you know, association.

• 2:16:14Ben Gilbert?

  By the way, isn't it interesting, all these are in English? All these watches have English names.

• 2:16:19David Rosenthal?

  Yeah, what's the market here? It's American.

• 2:16:20Ben Gilbert?

  Yes.

• 2:16:22David Rosenthal?

  Come on.

• 2:16:24Ben Gilbert?

  So take us airborne, David.

• 2:16:26David Rosenthal?

  Yeah, so we've gone down, now we'll go up. That brings us to the GMT Master, Greenwich Mean Time Master. So in 1955, Boeing launched the 707 Commercial Jet Airliner, based on a Air Force air-to-air refueling tanker design. I didn't know that until this episode.

• 2:16:50Ben Gilbert?

  Neither did I.

• 2:16:50David Rosenthal?

  And the next year, in 1956, Pan Am, the iconic American airline, begins flying intercontinental jet flights with the Boeing 707 for the first time. And the jet age for the consumer is born, and along with it, jet lag. It's a new concept.

• 2:17:11Ben Gilbert?

  Yep.

• 2:17:12David Rosenthal?

  If you traveled across continents before, you didn't move fast enough that you experienced jet lag. So Pan Am is worried about the effects of jet lag on its pilots. The pilots are 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. 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.

• 2:17:43Ben Gilbert?

  Okay.

• 2:17:44David Rosenthal?

  And the way that they're going to do that is they're going to work with Rolex and develop a new professional watch for their pilots that can, for the first time, tell time simultaneously in two different time zones.

• 2:17:56Ben Gilbert?

  Amazing.

• 2:17:56David Rosenthal?

  So Rolex takes the failed turnograph, which isn't selling well, but has the rotating bezel, remember?

• 2:18:03Ben Gilbert?

  Bidirectional rotating bezel, importantly, because the Submariner is just one. Well, maybe not at first, but it eventually becomes just one, so you don't screw up and do something you don't want to with it.

• 2:18:14David Rosenthal?

  Yep. And they change the markings on the bezel from 60 minutes, or 60 demarcations that it was on the turnograph, to 24 hours. And then they add in a fourth hand on the movement that moves at a 24-hour.

• 2:18:30David Rosenthal?

  Movement. And so all of a sudden, you can now, on one single watch face, keep track of two different time zones. And the GMT Master is born. You are the master of time with this watch.

• 2:18:44Ben Gilbert?

  Legitimately, very, very useful. Whenever you and I travel for acquired, I set the complication in the lower right of my Apple Watch to be the home time because it's just really nice to keep track of home time in addition to where I am right now.

• 2:19:00David Rosenthal?

  Totally. So that's pretty cool. And eventually they launch two-tone on the rotating bezel, the most famous of which being red on one half and blue on the other half.

• 2:19:13Ben Gilbert?

  And the Pepsi.

• 2:19:14David Rosenthal?

  The Pepsi model.

• 2:19:15Ben Gilbert?

  Yes.

• 2:19:15David Rosenthal?

  So cool.

• 2:19:16Ben Gilbert?

  They do all these great limited editions, the Sprite.

• 2:19:19David Rosenthal?

  The Batman, gray and black.

• 2:19:21Ben Gilbert?

  It's great. The community comes up with little nicknames for all the different color schemes that they do here.

• 2:19:25David Rosenthal?

  Super, super fun. Now, this is for air travel and jet travel. But of course, the pinnacle of 1960s and 1970s romance up in the air is not air travel, but space travel.

• 2:19:39Ben Gilbert?

  Yep. Oh, yes.

• 2:19:41David Rosenthal?

  Which brings us to the Apollo missions, for which standard issue from NASA is the Omega Speedmaster.

• 2:19:50Ben Gilbert?

  Yeah, which, again, I will say bolsters my case that in this 40s, 50s, 60s, Omega was the big brand. Like Rolex had a target in mind to beat, and that target was Omega, who was bigger.

• 2:20:04David Rosenthal?

  Yep. But even though Omega was standard issue on the Apollo missions, not all of the Apollo astronauts chose to wear their standard issue watches. So if you go to Rolex headquarters.

• 2:20:20David Rosenthal?

  There is an incredible signed picture from Apollo 13, you know, the Apollo 13 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 Genere, who I believe was Rolex's 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.

• 2:20:56Ben Gilbert?

  Interesting. Yeah, because like you said, the Omega Speedmaster famously is the moon watch. In many ways, it's the big blemish in Rolex's whole strategy of being the brand for people who accomplish the greatest heights in human history. But this is a great little way to slide in and take a little slice of that history, too.

• 2:21:16David Rosenthal?

  Yep.

• 2:21:17Ben Gilbert?

  And by choice, by the astronauts' choice, much like Sean Connery.

• 2:21:20David Rosenthal?

  Oh, what could be better?

• 2:21:21Ben Gilbert?

  Yes.

• 2:21:22David Rosenthal?

  Not going to wear this inferior product. Now, I'm sure this is Rolex's version of history, but supposedly 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 that led to this mishap of Omega being selected instead.

• 2:21:49Ben Gilbert?

  Ah. If you work at Omega, please contact us and tell us what is the real version of this story. Because we know no one at Rolex is going to call, so let's hear at least Omega's side of this.

• 2:22:00David Rosenthal?

  Yes. 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, this really is the architecting of Andre Heinecker. And we talked about the J. Walter Thompson relationship, but I had mentioned Mark McCormick and IMG. And starting here in the mid 60s with IMG is when they really... Turbocharge and formalize this testimony brand ambassador partnership relationship.

• 2:22:31Ben Gilbert?

  And they are doing two pronged here. These professional watches are happening, but they've also advanced their sort of dress line.

• 2:22:37David Rosenthal?

  Yes, they've come out with the day date.

• 2:22:39Ben Gilbert?

  Yes, the president, as it's nicknamed.

• 2:22:42David Rosenthal?

  The president. It was so ironic that the first president to wear a Rolex wore a date just, not a day date.

• 2:22:47Ben Gilbert?

  Right. But future presidents wore day dates.

• 2:22:50David Rosenthal?

  Yes. But anyway, back to IMG. IMG was the first modern talent celebrity endorsement agency and really visionary of Mark McCormick to have founded in 1960. So he brokered tons of celebrity endorsements and he works with Rolex and they sign the big three, quote unquote, in the golf world. First Arnold Palmer, then Gary Player, and then Jack Nicklaus. And for their whole careers, I believe probably their whole lives, they are Rolex men.

• 2:23:24Ben Gilbert?

  Yep. And that is effectively the blueprint for everyone from Federer to Tiger Woods forward.

• 2:23:30David Rosenthal?

  Yeah. So just in golf, if you go forward, Tiger Woods, Annika Sorenstam, today Scottie Scheffler, Jordan Spieth, Justin Thomas, Brooke Henderson, Lydia Ko. Not everybody, but at least a large share of the best players are Rolex players.

• 2:23:44Ben Gilbert?

  Well, it's interesting because when you list them 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.

• 2:23:54David Rosenthal?

  Yes. A large share of the very best players.

• 2:23:57Ben Gilbert?

  And that goes for individual athletes, but it also goes for which events they sponsor. I mean, I was talking to Ben Clymer at Hodinkee and he pointed out that they don't just sponsor PGA Tour. They sponsor the Masters. They're not going to really mess around much beyond that. Similar to tennis. Like, yeah, we'll do Wimbledon.

• 2:24:13David Rosenthal?

  Well, and now they do all four Grand Slams.

• 2:24:15Ben Gilbert?

  Ah, okay.

• 2:24:16David Rosenthal?

  So yeah, arguably tennis, especially post-Federer, 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.

• 2:24:28Ben Gilbert?

  Yeah, I think that's right.

• 2:24:29David Rosenthal?

  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 brands of the sport mesh very well with Swiss luxury watch companies. But also even going all the way back to the 30s 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 impacting the wrist of hitting the balls all the time.

• 2:25:08Ben Gilbert?

  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.

• 2:25:20David Rosenthal?

  Yep, totally. It's also the type of sport where you can be an 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 Nicklaus. These people had multiple decades of dominance, being at the pinnacle of human achievement.

• 2:25:41Ben Gilbert?

  Yep, that's right.

• 2:25:42David Rosenthal?

  So that wraps up the iconic tool, sport, professional watches of Rolex.

• 2:25:52Ben Gilbert?

  I don't, there's a thing you haven't said.

• 2:25:55David Rosenthal?

  Except for the model that both of us are wearing on our wrists right now. The Daytona really created a market.

• 2:26:05Ben Gilbert?

  Yeah.

• 2:26:05David Rosenthal?

  In and of its own.

• 2:26:07Ben Gilbert?

  Yeah, and completely changed the mechanical watch market, period.

• 2:26:11David Rosenthal?

  Yes, the Daytona, through a complete accident of history, as we shall see in a minute here.

• 2:26:17Ben Gilbert?

  Created a phenomenon.

• 2:26:19David Rosenthal?

  Created the modern watch collector market.

• 2:26:21Ben Gilbert?

  Yes.

• 2:26:22David Rosenthal?

  And all of the crazy prices and auctions and insanity that occurs today. I think you can say really is all because of the Daytona.

• 2:26:31Ben Gilbert?

  It's one component of it, David. I don't want you to oversell. I've got a lot.

• 2:26:35David Rosenthal?

  Okay, at least from the Rolex side of things.

• 2:26:37Ben Gilbert?

  Yes.

• 2:26:38David Rosenthal?

  The Daytona is what created all of it.

• 2:26:42Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 2:26:55David Rosenthal?

  Yep. It's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Logora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 2:27:11Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 2:27:26David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Logora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 2:27:50Ben Gilbert?

  And they recently launched Logora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 2:28:09David Rosenthal?

  And Logora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Logora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Logora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 2:28:39Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at logora.com/acquired and just tell them that Ben and David sent you. Okay, so David, the Rolex Daytona.

• 2:29:08David Rosenthal?

  Ooh, yes, the instant worldwide sensation. Hmm, or not. So the Daytona, unlike all of Rolex's other watches, is a chronograph, or as they call it, a cosmograph.

• 2:29:27Ben Gilbert?

  Yes, because again, this is Rolex.

• 2:29:30David Rosenthal?

  We can't use industry standard terms. So what is a chronograph? A chronograph is a very fancy term for a stopwatch.

• 2:29:39Ben Gilbert?

  However complicated you thought a regular mechanical watch was, now add in something like the Daytona, 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, all in addition to the regular watch function.

• 2:30:00David Rosenthal?

  Yes, there are four dials on the watch face of the Daytona. Incredible. Now, it turns out 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 II, before Andre Heinegger, before anybody was thinking about this stuff.

• 2:30:19Ben Gilbert?

  And in large part, it looked like this, but there was no craze around it.

• 2:30:23David Rosenthal?

  Yes. So in 1962, Rolex becomes the official timekeeper of the then relatively new Daytona International Speedway in Daytona Beach, Florida. And to commemorate this great moment, the next year in 1963, Rolex officially starts calling their chronographs, which again, they've been making for like three decades at this point, Daytonas.

• 2:30:50Ben Gilbert?

  They thought about Le Mans, because they were also very closely involved with Le Mans, the race in France. But to the name Rolex, this has to have international appeal 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.

• 2:31:08David Rosenthal?

  And again, like we've been talking about, the market is America post-World War II. What could be more American glamour in 1962 than Daytona Speedway, fast cars, movie stars? 24-hour race? Yeah, 24-hour race. It's perfect. And then, a couple of years later, one of the true leading men actors of the day, Paul Newman, stars in a 1969 film called Winning, 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.

• 2:31:50David Rosenthal?

  And his equally famous wife, the actress Joanne Woodward, gifts him with a Rolex Daytona of his very own for his racing activities with the immortal inscription on the back, "Drive carefully, dash, me." Signed, me. Again, we've been talking romance lifestyle development. Iconic. 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 set off an absolute insane craze in the market. Except, to your point, it doesn't right away. Except it doesn't. There's so many of these moments in Rolex history,

• 2:32:32David Rosenthal?

  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. But then a butterfly flaps its wings several years later, and all of a sudden, it does. Say, in Italy? So, 1969 is when Paul Newman 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. 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 10, 15 years or so. And then, one day in 1984, so, long, long, long time later,

• 2:33:17David Rosenthal?

  lots of history passes, which we will come back to. And one day in 1984, his daughter Nell 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." And Paul, on a whim, says, "Here, take this one, it keeps good time." And gives the boyfriend the watch. The Paul Newman Daytona.

• 2:33:45Ben Gilbert?

  I actually didn't know this story.

• 2:33:47David Rosenthal?

  Swear to God, this is true.

• 2:33:48Ben Gilbert?

  This watch sold at auction for the most money ever.

• 2:33:51David Rosenthal?

  Ever. I think it was 17 and a half million.

• 2:33:55Ben Gilbert?

  Here, take this one, it keeps good time.

• 2:33:56David Rosenthal?

  And at the time, the market such as it existed for Daytonas, the secondary market for Daytonas, it was like a $200 watch. So, you know, hey, I like the boyfriend, sure, have a watch.

• 2:34:10David Rosenthal?

  I'm done with it.

• 2:34:13David Rosenthal?

  Man, to have been the boyfriend.

• 2:34:18David Rosenthal?

  Because, two short years later, in 1986, for whatever reason, it is unknown, a bunch of dealers in Italy start snatching up versions of the Daytona from the era when Paul Newman's Daytona was made.

• 2:34:40Ben Gilbert?

  And it's important to say here, in Italy, there 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 a 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.

• 2:35:02David Rosenthal?

  Which is why there are secondary market dealers in Italy.

• 2:35:05Ben Gilbert?

  Yep.

• 2:35:06David Rosenthal?

  So, one rumor is that around this time, in the early 80s, Paul Newman had been on the cover of an Italian style magazine, wearing the watch, obviously taken before he gave it to the boyfriend. 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?

• 2:35:31Ben Gilbert?

  Hmm.

• 2:35:31David Rosenthal?

  Well, for whatever reason, a butterfly flapped its wings and Italians thought that the watch was cool. So the dealers start 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 60s, early 70s, and it had like an Art Deco style face to it.

• 2:35:54Ben Gilbert?

  Yeah, and a very particular color scheme that sort of featured red around the edges as well.

• 2:35:59David Rosenthal?

  Yes, red around the edges, around the track where the minutes and seconds are kept, but also a very specific font.

• 2:36:05Ben Gilbert?

  Yep. Also, we should say, we haven't said yet that on the Daytona, and really all chronographs, 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 I should work out the equation in my head. Maybe it is logarithmic. It starts at, on the version I'm wearing, 400, and goes all the way down to 60. And what that means is if you press start and you drive one mile, and then you press the same button again to stop, wherever the second hand is pointed around the edge of the watch was your miles

• 2:36:46Ben Gilbert?

  per hour for that one mile that you drove. So if I was able to drive, you know, one mile in one minute, then it's going to come all the way around, and it's going to be pointed all the way up to the top, and it's going to say 60. But, you know, it goes up to 400 because of race car drivers.

• 2:37:01David Rosenthal?

  That's awesome. I actually did not know that that's what those numbers-

• 2:37:05Ben Gilbert?

  No, you gotta be kidding me. You own this watch.

• 2:37:08David Rosenthal?

  I know, I know, I know. Well, you know, I haven't thought about this watch in 15 years.

• 2:37:13Ben Gilbert?

  Yeah, for anyone who's trying to figure out what's going on over in Davidland, David used to work in investment banking, and this was a part of the uniform when you got out of college.

• 2:37:24David Rosenthal?

  Well, here's the whole story. So my dad is big into watches, 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.

• 2:37:37Ben Gilbert?

  Yeah, I mean, that's before it took off in any way in the US.

• 2:37:40David Rosenthal?

  Totally. And I thought he was insane. I was like, why are you blowing all this money on watches?

• 2:37:44Ben Gilbert?

  Which, back then, it actually wasn't that much money.

• 2:37:46David Rosenthal?

  Regardless, I graduated, I go to work in 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 of watches to wear, one of which was this stainless white face Rolex Daytona, which is an incredible piece. It was an incredible gift back then. I was like, oh, this is super cool. And all my colleagues, especially the senior bankers, were like, who is this fricking kid?

• 2:38:10Ben Gilbert?

  This is not a, I got my first bonus, so I went and bought a Rolex. This was an it watch.

• 2:38:15David Rosenthal?

  This is not 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.

• 2:38:24Ben Gilbert?

  Yes.

• 2:38:25David Rosenthal?

  So it was odd for me to wear it. And paradoxically, it actually killed my 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.

• 2:38:43Ben Gilbert?

  I need to get my bearings again.

• 2:38:44David Rosenthal?

  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 Easter egg. And we broke out

• 2:38:57Ben Gilbert?

  Yeah.

• 2:38:57David Rosenthal?

  the watches out of the safe.

• 2:38:59Ben Gilbert?

  So cool.

• 2:39:00David Rosenthal?

  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? I don't know.

• 2:39:10Ben Gilbert?

  We'll see. Okay, but what you're foreshadowing here, though, is the hype over that Paul Newman dial.

• 2:39:16David Rosenthal?

  Which, to be clear, I am not wearing a Paul Newman dial.

• 2:39:19Ben Gilbert?

  Trickled out into the rest of the Daytonas. It made any Daytona extremely desirable.

• 2:39:24David Rosenthal?

  Just sticking with the Paul Newman models here in 1986, prices for some of these models shoot to like $30,000 plus.

• 2:39:34Ben Gilbert?

  In $1986.

• 2:39:36David Rosenthal?

  Yeah, for a watch that Paul Newman gave away to his daughter's boyfriend two years before and was worth $200. Ben, you're right. This one event didn't create the global watch collecting and investing market, period. But it was part of it.

• 2:39:51Ben Gilbert?

  Absolutely was part of it.

• 2:39:52David Rosenthal?

  This was a huge moment of like, oh, wow, these things aren't just purchases, they're investments. And you can trade in them.

• 2:39:59Ben Gilbert?

  Yeah. Put a pin in that. There's a whole world of 70s and 80s that's this almost like parallel universe to Rolex that we're going to go into here in a minute. Before we do that, it's worth resuming our history of Rolex advertising because concurrent with 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, and they're wearing the professional watches for their craft. We can probably sell a lot of watches by selling that lifestyle.

• 2:40:45Ben Gilbert?

  Yes. So this is where the expansion goes from just commanding the world to human achievement, those who sit atop their fields. And in 1967 to 1970, 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." Picture of the Concorde going supersonic. Picture of the GMT Master. So great. This is what these pilots at the top of their field are actually wearing. They

• 2:41:26Ben Gilbert?

  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. It's just this brilliant campaign that, again, this is the late 60s. It's everything we've learned from the Mad Men era of advertising, completely the opposite of the Mercedes Glights era. We are leaning heavily into who could you be? Yeah.

• 2:42:07Ben Gilbert?

  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 standard, big Swiss watch brand. Rolex was really the one to bring lifestyle advertising to bear.

• 2:42:23Ben Gilbert?

  Also, I know I keep harping on this Omega thing. Omega was actually worn by the soldiers in the Boer War that Hans had recognized.

• 2:42:32David Rosenthal?

  Hmm. So they had the history too.

• 2:42:34Ben Gilbert?

  They had the history too. Yeah.

• 2:42:36David Rosenthal?

  Yep. Those incredible ads, that was really peak Rolex lifestyle era. This kind of second era of Rolex, of moving beyond the product to selling the lifestyle. And the Daytona 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 think, the first real big move that Rolex makes into the luxury world.

• 2:43:07Ben Gilbert?

  It did kind of create the one model in their lineup where it had real hype around it. And that just stayed true for decades. I mean, even in, I don't know, 2010 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.

• 2:43:26David Rosenthal?

  Yep. You could buy a Submariner, you could buy an Explorer, you could buy a GMT Master, you could buy a Datejust.

• 2:43:31Ben Gilbert?

  But you couldn't buy a Daytona. That sort of from this eighties forward was always this spot in their lineup where, eh, we'll have to call you about that one.

• 2:43:40David Rosenthal?

  Today, if you want to buy a Rolex of any model, you go in and you put your name on the waitlist. And then at some point in time, could be a couple of months, could be a couple of years, you'll get the call that your model is available. The Daytona is, I think, the only model where there is no waitlist.

• 2:43:59Ben Gilbert?

  Oh, I don't think that's true.

• 2:44:00David Rosenthal?

  Is that, is that not true?

• 2:44:01Ben Gilbert?

  No, it's impossible to say that because they work through authorized dealers. And so it's not up to Rolex.

• 2:44:08David Rosenthal?

  Hmm.

• 2:44:09Ben Gilbert?

  And it varies greatly dealer to dealer. I think they're actually called Rolex retailers now. They changed it from authorized dealer, but it's whatever the local dealer's policy is.

• 2:44:18David Rosenthal?

  Hmm. Interesting. Interesting.

• 2:44:19Ben Gilbert?

  At least historically. It might be changing amidst the insanity right now.

• 2:44:22David Rosenthal?

  You know, if you go browse the forums, the lingo that I read is, "The Daytona is not a waitlist, it's a wish list."

• 2:44:31Ben Gilbert?

  That's awesome.

• 2:44:32David Rosenthal?

  Like, 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, you can express desire.

• 2:44:45Ben Gilbert?

  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. And we have that in between where we currently are and where we'll end up.

• 2:44:58David Rosenthal?

  All right. Let's go there.

• 2:45:00Ben Gilbert?

  All right.

• 2:45:01David Rosenthal?

  Take us back.

• 2:45:02Ben Gilbert?

  So this was a whole side quest that I did this episode.

• 2:45:08David Rosenthal?

  Nice term.

• 2:45:09Ben Gilbert?

  Thank you.

• 2:45:09David Rosenthal?

  Look at us getting all Gen Z.

• 2:45:11Ben Gilbert?

  David and I interpreted the assignment differently to...

• 2:45:15David Rosenthal?

  OK, well, you're just pandering to Gen Z right now.

• 2:45:17Ben Gilbert?

  Do an episode on, how would I?

• 2:45:20David Rosenthal?

  Side quest, interpreting the assignment.

• 2:45:23Ben Gilbert?

  I'm sorry, is this Gen Z lingo? I don't even know.

• 2:45:25David Rosenthal?

  I think it, I'm pretty sure it is.

• 2:45:26Ben Gilbert?

  Oh, anyway, we interpreted the assignment differently of do an episode on Rolex. David viewed it as go as deep as possible on the entire history of the brand itself, the company, the relationship with Agler, 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 here it goes. Here's my best David Rosenthal impression for the quartz crisis. And I have two huge thank yous for this section. Ben Kleimer, the founder and CEO of Hodinkee. I spent hours pestering Ben and having phone calls with him. And I probably read 30 things on Hodinkee. I mean, in the modern watch era,

• 2:46:08Ben Gilbert?

  it's the definitive place to read about watch culture. And secondly, to Joe Thompson. Joe is the journalist in the industry. Most recently, he's the executive editor of Hodinkee. But over the last 40 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. He lived the quartz crisis firsthand and was flying around to Geneva and Taiwan and Japan and reporting on it live.

• 2:46:41David Rosenthal?

  So, OK, you've mentioned the quartz crisis, also known as the quartz revolution.

• 2:46:45Ben Gilbert?

  Yes.

• 2:46:46David Rosenthal?

  What is this?

• 2:46:47Ben Gilbert?

  All right. So... Here we are in the early 70s. The Swiss are riding high. They're the undisputed champs of watchmaking. That's where we left our heroes here. At one point, the Swiss actually made up as much as 85% of the world's total wristwatches. 85% of the market they had. This is in 1945, so it's right after the war.

• 2:47:13David Rosenthal?

  The analogy here is like TSMC in Taiwan. Making mechanical wristwatches is an extremely difficult specialized skill.

• 2:47:21Ben Gilbert?

  Yes. They made 19 million of the total 21 and 1/2 million that year. Another thing to contextualize it, so you can understand what is coming and how technology disruption will happen. This 19 million watches produced was by 2,500 individual companies, 90% of which employed fewer than 50 people.

• 2:47:47David Rosenthal?

  Wow.

• 2:47:49Ben Gilbert?

  Completely decentralized means of production. In many ways, it actually, the Taiwan metaphor totally extends. It's like Switzerland was Hinzhu Science Park, and these places all sort of need it together and collaborate.

• 2:48:01David Rosenthal?

  Yes, yeah, I was gonna say the exact same thing.

• 2:48:04Ben Gilbert?

  And so this is an industry built on skilled labor, fragmented across a ton of suppliers, very little 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.

• 2:48:18David Rosenthal?

  Yeah, Geneva ain't cheap.

• 2:48:19Ben Gilbert?

  It's kind of amazing that there was this labor-intensive industry in Geneva. All right, so that was 1945. Three decades later, in 1973, it's still going strong. The Swiss peaked at almost 90 million watches made in 1973.

• 2:48:35David Rosenthal?

  Wow.

• 2:48:36Ben Gilbert?

  Up from 19 million 28 years before, they're now at 90 million watches handmade in this crazy production process per year. So we keep alluding to this quartz crisis, but the quartz was not the first revolutionary new technology that was supposed to disrupt mechanical watches. 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 digital timekeeping, but- That's quartz, yeah. Yeah. What else vibrates like a quartz crystal? What do you think could oscillate to keep time? Something radioactive? A tuning fork. Ah.

• 2:49:20Ben Gilbert?

  That's a great weird thing in history. And part of this also comes from Mark Bridges' great research paper. The whole Swiss watch industry had been marketing that you can judge the quality of a watch by its timekeeping. And then suddenly, this tuning fork watch comes out. They're no longer the best at timekeeping. Mechanical watches are worse than the tuning fork watch. There's this crazy watch that comes out, the Bulova Accutron. In practice, though, the Accutron wasn't a disruptive technology. In the sort of Clayton Christensen term, it was a sustaining innovation. 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.

• 2:50:04Ben Gilbert?

  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 can a new producer come in and take a radically simpler approach- Like, say, a Japanese company? Right, so quartz. Well, we all think of like, oh, quartz comes from Japan and Seiko. And then that was this huge disruption of the Swiss watch industry. People had been exploring quartz technology for a very long time. And in fact, the first quartz clock was created all the way back in 1927. Do you know where, David?

• 2:50:48Ben Gilbert?

  Oh, well, I know the Swiss themselves were doing big industry-wide consortiums. Correct, but that was in the 60s and 70s. In 1927, who possibly could be doing research with quartz technology to use for timekeeping? I have no idea. It's in America. Cutting-edge technology. Research. Bell Labs? Bell Labs. Yeah, okay, there we go. In New Jersey, the first quartz clock is created. Wow. Now, unfortunately, in 1927, the Bell Labs quartz clock was the size of an entire room. The Eniac of clocks.

• 2:51:31Ben Gilbert?

  Yes. Okay, so we've been describing the quartz crisis. What is it? Well, how does it actually work? How do quartz watches function? Instead of a mainspring that you have in a mechanical watch, you have a battery. Pretty straightforward. Instead of an escapement, you vibrate the quartz crystal. Quartz has this crazy thing where if you apply an electrical current and it's shaped a certain way, they can vibrate at exactly 32,768 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 1880 in Paris. Wow.

• 2:52:12Ben Gilbert?

  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 32,768 hertz to 1 hertz to 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 70s, you've now got integrated circuits. That's exactly right. The first quartz watch that hit the market in 1969 from Seiko was dependent on the invention and miniaturization of the transistor and integrated circuit before it could actually happen. So that's why we're sort of stuck waiting from the 20s

• 2:52:56Ben Gilbert?

  all the way to 69 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. This is a technology story. Yep. 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 tuning fork and they wanted to be ready. So in 67, two years before the Japanese debut of the Seiko Astron, 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 just didn't actually have an impetus to be first to market.

• 2:53:42Ben Gilbert?

  Right, right. Why would we? This is really dangerous for our industry. 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 going to 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. So what's the big deal?

• 2:54:04David Rosenthal?

  But just like semiconductors, they get on the learning curve.

• 2:54:06Ben Gilbert?

  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 going to get. You should be looking at the technology. So the quartz watch starts at this Toyota Corolla price point, comes down in price 1,000x. It used way fewer parts and required very little know-how to assemble it. You could invest upfront in machinery and have very, very, very low variable costs and labor costs.

• 2:54:49Ben Gilbert?

  So for the first time in watchmaking, you had economies of scale and operating leverage. It was a technology product in an artisan market.

• 2:54:56David Rosenthal?

  Yeah.

• 2:54:57Ben Gilbert?

  So this whole thing, once it gets going, happens so fast.

• 2:55:01David Rosenthal?

  And in the early days, the Swiss industry and a lot of makers, including Rolex, released their own quartz models too.

• 2:55:08Ben Gilbert?

  Yeah. Hold on to that for a second. So here's how the quartz revolution went. And the Japanese sort of think of it as the quartz revolution. The Swiss think of it as the quartz crisis. By the end of the 1970s, you could get a quartz watch for cheaper than a mechanical watch. It was more accurate. So here in 1979, mechanical watches are, for the vast majority of scenarios, functionally obsolete. 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.

• 2:55:41David Rosenthal?

  And it's like the Olympics are being timed with quartz timepieces.

• 2:55:44Ben Gilbert?

  Right. And interestingly, omega quartz at the Olympics.

• 2:55:47David Rosenthal?

  Hmm, interesting.

• 2:55:48Ben Gilbert?

  But obviously, this is not the end of our story. And mechanical watches would go on to be a better business than ever 50 years later. Very different, 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, functionally.

• 2:56:09Ben Gilbert?

  So there were a few iterations of how this went. The American firms tried to make quartz watches with LED technology. The Hamilton pulsar came out in 72. These were really cool when you look at them. But in the long run, they were a complete failure. You had to push a button to turn the LED on. So it actually took both hands to read the time, one to wear the watch, one to push the button. Some companies followed into the market, starting in 74. And it will be very familiar to our quiet listeners. National Semiconductor, Fairchild Semiconductor.

• 2:56:43David Rosenthal?

  TI got into this market too, right? Yeah, yeah, yeah, there we go.

• 2:56:46Ben Gilbert?

  Yep. Then came the stampede. Commodore, Intel, HP, Hughes Aircraft, dozens of companies flooded in.

• 2:56:53David Rosenthal?

  Wow, Hughes Aircraft getting into the market. Wow.

• 2:56:56Ben Gilbert?

  Yes. 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 B to B companies. And B, they were horribly commoditized. This market immediately became commodity, had no barrier to entry, and all the profits immediately got arbitrage'd out. So LED failure. The next step is twofold. One quartz movements powering analog watch faces. And this 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 LCD watches with

• 2:57:39Ben Gilbert?

  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 becomes the powerhouse for inexpensive manufacturing of all of this, along with Taiwan, South Korea, and mainland China. And so by 1980, just a few years in, I mean, think about this. 69, the Seiko Astron launches. 75 is when the Swiss are going, oh crap. And then, within four years, it's over. Quartz completely ran the table. So by 1980, Hong Kong was already exporting 126 million watches a year, half of which were digital.

• 2:58:25David Rosenthal?

  Wow.

• 2:58:25Ben Gilbert?

  Switzerland at peak made 90 million. And then boom, a few years in, Hong Kong has 126 million. By 1981, the next year, Japanese watch exports surpassed Switzerland. Seiko actually was great at brand building, advertising, messaging in a way that the American B2B semiconductor firms were horrible at. And then 1985, just four years after Japan meets Switzerland, Japan's exports are 3X Switzerland.

• 2:58:55David Rosenthal?

  Wow. And the absolutely incredible thing is, now that you all know this, this is the backdrop

• 2:59:01Ben Gilbert?

  Yes.

• 2:59:01David Rosenthal?

  that the Paul Newman craze happens.

• 2:59:02Ben Gilbert?

  Right?

• 2:59:03David Rosenthal?

  Yeah.

• 2:59:04Ben Gilbert?

  So the Swiss market's global share would fall from that 85 at peak in 1945 to just 15% by 1980.

• 2:59:15David Rosenthal?

  Wow.

• 2:59:16Ben Gilbert?

  The number of firms fell from 2,000 companies in 1960 to fewer than 500 in 1980. Just absolutely destroyed. Quartz output accounted for only 3% of units in 1975. By 1979, 31% of new watches were quartz powered.

• 2:59:35David Rosenthal?

  Wow.

• 2:59:36Ben Gilbert?

  From 75 to 81, 82, you just have a complete running of the table. And at least for the old reason of why you would buy a mechanical watch, there is zero reason to buy that anymore. Zero.

• 2:59:50David Rosenthal?

  Yeah, so this is like massively impacting the entire Swiss economy, right?

• 2:59:54Ben Gilbert?

  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. 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 happened, and 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.

• 3:00:39Ben Gilbert?

  And the market for time telling as a function went entirely to quartz, full stop. 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. 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.

• 3:01:13David Rosenthal?

  And this is where, we told it as part of the Daytona story, because that's where it belongs. But the Italian affair, the Paul Newman affair, is the luckiest thing that ever happened to Rolex, because this gave them the golden opportunity to do that.

• 3:01:26Ben Gilbert?

  Right. This is finally kind of clicked in my head. It's not that the mechanical watch made a comeback. It's that there was an entirely new market that it turned out to be the perfect thing for after their initial market got wrecked.

• 3:01:40David Rosenthal?

  Right. I think there's also another level of nuance here, too. Rolex was better positioned than most of the other Swiss companies because they had already transitioned to lifestyle. However, that would not have been enough because eventually Seiko and Citizen were also going to transition to lifestyle companies. And that in and of itself, what wearing your watch says about you isn't defensible in the long run against technology disruption. Wearing an Apple Watch, what model, what style, what band says a lot about you, too. I wear my Hermes band on my Apple Watch. That says a lot about me. But what is defensible is a luxury strategy.

• 3:02:25David Rosenthal?

  And a luxury strategy expands to managing the entire market and overall brand management. It's 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. 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, remember Fossil, the US watch company?

• 3:03:00Ben Gilbert?

  Oh, my God.

• 3:03:00David Rosenthal?

  That is now basically bankrupt.

• 3:03:02Ben Gilbert?

  Yep.

• 3:03:02David Rosenthal?

  They were a lifestyle watch company, but they were not a luxury company.

• 3:03:06Ben Gilbert?

  Yep. Yeah, that was sort of the fashion watch craze where the quartz technology enabled a whole wave of $25 watches where you could own five, six, seven of them and wear them with different outfits. That was an interesting market for like 20 years before technology kind of obsoleted that one, too.

• 3:03:24David Rosenthal?

  Yep.

• 3:03:24Ben Gilbert?

  With the smartwatch. Interestingly, do you know what SWATCH stands for?

• 3:03:30David Rosenthal?

  I always thought Swiss Watch Group, but...

• 3:03:33Ben Gilbert?

  That's the common perception of it. It's second watch. These watches are so cheap, you can have a second one.

• 3:03:40David Rosenthal?

  Exactly. There you go. That is a perfectly viable lifestyle strategy.

• 3:03:44Ben Gilbert?

  Yep.

• 3:03:45David Rosenthal?

  These watches are so cheap, you can have a second one and each one says something different.

• 3:03:48Ben Gilbert?

  It's a fashion strategy, but it's not a luxury strategy. And it's still subject to a functional displacement, like what happened with the Apple Watch.

• 3:03:57David Rosenthal?

  Yep, totally.

• 3:03:59Ben Gilbert?

  Okay, so we're at this like complete demise of Switzerland here. We're like 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.

• 3:04:17David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 3:04:24Ben Gilbert?

  Yes, there is a reason why the best product teams rely on Statsig, whether they are iterating on their core product features or shipping AI-powered experiences at scale.

• 3:04:35David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 3:04:55Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 3:05:07David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 3:05:18Ben Gilbert?

  Okay, so a thing that I had a hard time figuring out until really the end of our research process, how did Rolex respond to the quartz crisis?

• 3:05:28David Rosenthal?

  Yeah, we knew that there was this transition that happened to luxury and it was in response to the quartz crisis. But you go read all the stuff that's out there and nobody actually chronicles this.

• 3:05:39Ben Gilbert?

  No one connects the dots. They talk about quartz crisis, 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 Rolex was in Switzerland during the quartz crisis.

• 3:05:59David Rosenthal?

  Right, right.

• 3:06:00Ben Gilbert?

  Connect these dots, please.

• 3:06:01David Rosenthal?

  Yeah. And the end of the story, spoiler alert, is Rolex is doing probably 10-plus billion dollars in annual revenue, way, way more than any other company in the space.

• 3:06:13Ben Gilbert?

  Dude, Rolex is 30% of the revenue in the entire Swiss watch industry.

• 3:06:17David Rosenthal?

  Right.

• 3:06:20Ben Gilbert?

  It's insane.

• 3:06:21David Rosenthal?

  So, there's a lesson here.

• 3:06:22Ben Gilbert?

  Yes. In part, the lesson is, it is incorrect to describe markets by the products in them. You should describe markets by the job to be done. 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 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.

• 3:06:57David Rosenthal?

  Totally different things. There's an arc to this story. Rolex sits back, they see what not to do, they see what to do, and then they do it.

• 3:07:05Ben Gilbert?

  Yes. So, here's my attempt at chronicling what happened. 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. 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 Blancpain. And then there's the auction houses. And once you get those, you then kind of get the Rolex story. So first is Omega. They blew a lead in the ninth inning. That's the only way to put it.

• 3:07:47David Rosenthal?

  As you being my foil throughout the episode here, being like, actually, David, Omega was also big, maybe bigger than Rolex the whole time.

• 3:07:54Ben Gilbert?

  Totally. So coming into the 70s, they just had their watch, land on the moon, an Apollo 11. 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 1978, they asked the question, have you heard of Rolex? Eight out of 10 Americans in 1978 answered no.

• 3:08:19David Rosenthal?

  Wow.

• 3:08:20Ben Gilbert?

  Less than 20 years later, eight out of 10 said yes. So Rolex did something incredibly right between 1978 and 1998 to go from 20% brand awareness to 80% brand awareness. So over to Omega. As late as 1977 in the quartz 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 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 did they do second? Go heavy into quartz.

• 3:09:03Ben Gilbert?

  What'd they do third? Throw the kitchen sink at strategy. Like, just make a bunch of models, brunch of price points, really diluted the brand. 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. And this is essentially what the whole Swiss industry did. They either fell into this trap where they went bankrupt or got rolled up. Breitling, Hoyer, you name it. The only issue, the big glaring one here in hindsight, is that quartz required a completely different set of competencies to do it well.

• 3:09:47Ben Gilbert?

  A totally different culture, a totally different headcount, and a totally different cost structure.

• 3:09:52David Rosenthal?

  Yeah, like you're saying earlier, quartz is a fixed cost. It's a technology business with fixed cost leverage. Swiss Pecatical watchmaking is a variable cost business.

• 3:10:00Ben Gilbert?

  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. They shouldn't resemble each other at all. So the other thing that killed them is that they had these agencies locally. And so Omega would import their movements. And then the agency could design their own case to suit the local market.

• 3:10:24David Rosenthal?

  Oh, interesting. So there weren't international standardized models.

• 3:10:29Ben Gilbert?

  To build brand around.

• 3:10:30David Rosenthal?

  Interesting. Yeah, yeah, yeah. That is a major luxury no-no.

• 3:10:34Ben Gilbert?

  Yes.

• 3:10:35David Rosenthal?

  A Birkin is a Birkin, people.

• 3:10:37Ben Gilbert?

  Exactly. Rolex, by this point, the late 70s, they're importing whole watches. They've got their core 67 watches that people really find iconic. And they're leading into this idea that you need one single global brand and product line.

• 3:10:50David Rosenthal?

  It's so funny. If you look at some of the real enthusiast-type historians out there, they sort of bemoan that Rolex stopped innovating after the golden era in the 50s, where they introduced all the sport watches.

• 3:11:02Ben Gilbert?

  Right.

• 3:11:02David Rosenthal?

  And it's like, no, no, that's the point.

• 3:11:04Ben Gilbert?

  Yes.

• 3:11:05David Rosenthal?

  They got the core product line upset, and then they rode that horse.

• 3:11:08Ben Gilbert?

  Once you create the Porsche 911, you should just tweak the Porsche 911 once every seven, eight years. And that way, you can buy a 911 just like your grandfather bought a 911. 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. This is the first company to ever launch a dive watch before the Submariner. And They rushed into, here's how we fight the quartz 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,

• 3:11:53Ben Gilbert?

  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 Rolex sitting on their hands, watching Omega and going, okay, don't do that.

• 3:12:08Ben Gilbert?

  But of course Rolex had the cash to do it. You know, Rolex is a privately owned, very successful, very wealthy company where they could 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 don't have that luxury. You don't have the margin of safety to do that. So, chapter two. Guy named Jean-Claude Biver, 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 1983, Biver buys Blancpain, which was popular in the 1950s, but had kind of disappeared. And he buys it with this idea that, I'm going to resurrect this thing as a mechanical only luxury brand.

• 3:12:51Ben Gilbert?

  That's not the way that the rest of Switzerland was thinking. They were thinking, how do we take our big, bloated, old world companies and ride it out in this tech transition? He's like, I'm just going to buy the brand. The goal is to do limited production, handcrafted watches. And the scarcity and the high cost to make them will lead to these high prices. He picked up this brand, again, because everyone's panicking for nothing. Inflation adjusted, I think it's like $16,000.

• 3:13:21Ben Gilbert?

  This is like the Bernard Arnault story, buying Louis Vuitton out of Buseck. That's exactly right. He would later go on to sell it a decade later for 60 million Swiss francs. Nice. Which, back then, that was real money. Yeah. So Biver comes up with this advertising slogan, marketing genius, to describe the essence of the brand. It's an old Brandy Bot. Here's the slogan. Since 1735, there has never been a quartz Blancpain watch, and there never will be. Yeah.

• 3:13:52Ben Gilbert?

  It's a great slogan because Quartz is 13 years old, 14 years old, but he invokes 1735. For the first few hundred years, it was impossible to have a Quartz Blancpain watch.

• 3:14:03David Rosenthal?

  Perfect.

• 3:14:04Ben Gilbert?

  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 Blancpain. We are selling champagne and caviar, and they're selling calculators over there.

• 3:14:15David Rosenthal?

  Rolex is watching this all play out, and they're like, oh, that's the playbook.

• 3:14:19Ben Gilbert?

  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, inaccurate, labor-intensive, expensive to produce, and turn them into strengths. Old world craftsmanship, supported by these artisans in accord with 400-year-old traditions to make these rare, expensive masterpieces. So Blancpain and Bevair, 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 Bevair could have predicted how well this strategy would end up working for Rolex. I think this was sort of a fun demonstration. Okay, Blancpain, the right strategy at small scale with nothing to lose.

• 3:15:03Ben Gilbert?

  Chapter three, auction houses. The mechanical watch renaissance really came first from auction houses. 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. Well, mechanical watches, even the new ones, are becoming rare.

• 3:15:30Ben Gilbert?

  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 could fetch more than ever at auctions, even new. So Patek is the poster child for this. They came out with this thing called the Caliber 89. Have you heard of this, this watch?

• 3:15:51David Rosenthal?

  I am very familiar with Patek, but I have not heard of this watch.

• 3:15:56Ben Gilbert?

  So this thing, you're not wearing it on your wrist. It is multiple pounds in weight, like you hold it with two hands. It's the most complicated watch ever made.

• 3:16:06David Rosenthal?

  Wow.

• 3:16:07Ben Gilbert?

  They required computer-aided design to manufacture it. The strategy in 1979 internally at Paddock was for our big anniversary celebration in 10 years. So in 79 for 1989, we want to make the most complicated watch ever made. It was something like 30 complications. This thing made people go nuts. And at an auction house, it sold for over $3 million. Landmark high. It gets mentioned on Saturday Night Live in a skit. For who would pay $3 million for a watch? Completely high watermark, completely kicks off this new craze of complication makers. People see it and they think, oh,

• 3:16:47Ben Gilbert?

  I have to add as many complications as possible to my watch. They got a little goofy. And interestingly, Rolex never participated in that.

• 3:16:55David Rosenthal?

  No. Again, they do their own thing.

• 3:16:57Ben Gilbert?

  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 9/11 that you could have bought 30 years ago is the 9/11 that you have today, but the one today is better engineered.

• 3:17:15David Rosenthal?

  Yep.

• 3:17:16Ben Gilbert?

  So this auction house story from 1977 to 1985 is essentially the only interesting part of the mechanical watch world. And then it sort of sparks the idea that, hey, new mechanical watches, especially these crazy complication ones, can be really interesting too. And so, right around 1985, that's the same time that the Paul Newman dial

• 3:17:43David Rosenthal?

  Yeah.

• 3:17:44Ben Gilbert?

  goes nuts in Italy. I really think a huge piece of this story is that the auction house market sparked the interest in the new watches.

• 3:17:56David Rosenthal?

  It totally, totally did.

• 3:17:57Ben Gilbert?

  And like highlighted rarity.

• 3:17:59David Rosenthal?

  Yep.

• 3:18:00Ben Gilbert?

  Okay. So we've got Omega, what not to do. We've got Blancpain, 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? Well, at first, they explored quartz like everyone else, but very carefully.

• 3:18:20David Rosenthal?

  The oyster quartz.

• 3:18:21Ben Gilbert?

  The oyster quartz.

• 3:18:23David Rosenthal?

  It feels profane to even say that.

• 3:18:26Ben Gilbert?

  I kind of want one. I actually think they look extremely cool.

• 3:18:30David Rosenthal?

  Yeah.

• 3:18:31Ben Gilbert?

  They're very angular. They've got this integrated band into the watch face. I quite like it. But they poured a huge amount of R and D into quartz watches, but they didn't productize most of it. They did these small runs of this oyster quartz, which was a very Rolex-y 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 timekeeper and emphasized 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. And quartz just kind of violated their ability to tell that story.

• 3:19:11David Rosenthal?

  Yep.

• 3:19:11Ben Gilbert?

  So there's a great passage in the book Electrifying the Wrist Watch, which is Lucien Troube's book, says, "Andre Heinegger was a true visionary. His opinion was that the originally very costly quartz 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. The inescapable fact that a mechanical device can only tell time approximately 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."

• 3:19:57David Rosenthal?

  It's amazing. It's kind of like this full circle moment back to the original wristwatch market, which was as ladies' jewelry.

• 3:20:05Ben Gilbert?

  Yes.

• 3:20:05David Rosenthal?

  Where part of the signifying aspect of it was... I don't care about the accurateness of the time.

• 3:20:12Ben Gilbert?

  Right.

• 3:20:12David Rosenthal?

  I care about its beauty and what it says about me.

• 3:20:15Ben Gilbert?

  That's exactly right. The thing I was trying to dig on this is, was this a risk that Rolex took?

• 3:20:23David Rosenthal?

  Hmm.

• 3:20:23Ben Gilbert?

  Was it counterintuitive? And I asked Joe Thompson about it, and he said, in the late 70s, 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.

• 3:20:42David Rosenthal?

  But they also were like Jensen or Morris, really 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 Blancpain of what to do.

• 3:20:54Ben Gilbert?

  Yes.

• 3:20:55David Rosenthal?

  And then they hit the gas.

• 3:20:56Ben Gilbert?

  And they were starting to see what was happening in Italy, as you described. The other thing that was making it take off in Italy is the Daytona became part of a uniform, like for young men, wearing a bomber jacket and a stainless steel chronograph on your wrist was like a look.

• 3:21:12David Rosenthal?

  All right, I need to go get a bomber jacket now.

• 3:21:14Ben Gilbert?

  Yeah, right.

• 3:21:15David Rosenthal?

  Midlife crazies, here we come.

• 3:21:18Ben Gilbert?

  But yes, I think your thing about Jensen's exactly right. I also think Rolex had a built-in hedge because of their independence and because of their cash position. Everybody else is just going to 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.

• 3:21:41David Rosenthal?

  Yeah, we should say another word on that now. So in 1944, when Hans's first wife died, he created the Wilsdorf Foundation. He put all of his ownership into that foundation, much like the IKEA foundations that we talked about on that episode.

• 3:22:01David Rosenthal?

  The primary purpose of the Wills Dorf 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. Rolex is just one foundation 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 are not responsible for shareholder return, profits. You know, number one is continued operations of Rolex.

• 3:22:39Ben Gilbert?

  They can have three bad years in a row and the CEO might not get fired.

• 3:22:42David Rosenthal?

  Yeah.

• 3:22:43Ben Gilbert?

  And they're just playing a different game.

• 3:22:45David Rosenthal?

  Yeah.

• 3:22:46Ben Gilbert?

  Very emblematic of this, in 1978, right in the middle of the quartz crisis, this is when Omega's throwing stuff at the wall, they released the Sea Dweller 4000. More of the same. You know, what should we do? More of the same.

• 3:23:00David Rosenthal?

  Let's go down to 4,000 meters.

• 3:23:02Ben Gilbert?

  Right. So Rolex sort of had this built-in hedge. They would have been in great shape if they needed to go quartz. They had the brand, they had developed the technology to do it well.

• 3:23:12David Rosenthal?

  They had the product, Oyster Quartz.

• 3:23:14Ben Gilbert?

  Yeah. 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. 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 Blancpain-esque strategy, 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.

• 3:23:56David Rosenthal?

  Yeah. And it didn't.

• 3:23:57Ben Gilbert?

  Yep. So by 1989, it's extremely clear that their strategy is working. Along with Patek Philippe, they had record sales that year. Record amidst this craziness. Patek was similar to Rolex in their strategy. They had early exploration into quartz, but they came to the same conclusion. Our company is not going to be good at this. So we either need to die trying, 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 9,000 watches a year at this point. Rolex is making like 100,000.

• 3:24:35David Rosenthal?

  Yeah. It really was, as you say, incredibly well managed, but ballsy decision on Rolex's part.

• 3:24:42Ben Gilbert?

  Yeah.

• 3:24:43David Rosenthal?

  Patek 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.

• 3:24:52Ben Gilbert?

  Yes. Listeners, we've been lying to you this whole episode. Rolex is actually not a luxury company.

• 3:24:58David Rosenthal?

  Oh, interesting. I would totally disagree.

• 3:25:01Ben Gilbert?

  That is my opinion, and it's arguably not even a craft product. It's an exceptionally well-made industrial product with exquisite engineering and amazing branding. But the luxury world of watches, it's Audemars Piguet, it's Patek Philippe. These watches sell for eight, 10, 30 times as much as Rolex watches, and they produce way fewer of them. I mean, Rolex is a industrial, engineered, beautiful, consistent, reliable product. It's not art, or complications, or fashion. It's mass. I mean, this thing sells a million one, a million two products a year.

• 3:25:43David Rosenthal?

  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. The reason I think that Rolex is a luxury company extraordinaire is managing the market.

• 3:26:07Ben Gilbert?

  Hmm.

• 3:26:07David Rosenthal?

  As opposed to participating in it? To me, that's what Hermes does better than anybody else out there. They manage the market.

• 3:26:14Ben Gilbert?

  They're in control.

• 3:26:15David Rosenthal?

  They're in control. And Rolex does the same thing.

• 3:26:18Ben Gilbert?

  Yeah, Rolex is in control.

• 3:26:19David Rosenthal?

  Rolex is completely in control. 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 to the luxury strategy that they manage with, which really comes into the next CEO, Andre Heinecker's son, Patrick, who takes over in 1992.

• 3:26:43Ben Gilbert?

  And if we look at luxury versus premium, those definitions we used on the LVMH episode, it is absolutely luxury.

• 3:26:49David Rosenthal?

  You're not buying Rolex for the features.

• 3:26:51Ben Gilbert?

  Right.

• 3:26:51David Rosenthal?

  You're buying Rolex for what it says about you.

• 3:26:53Ben Gilbert?

  Yeah.

• 3:26:54David Rosenthal?

  And they are a high-volume luxury player. Again, in comparison to a Patek or a Audemars or something like that. Yes. I think the Birkin bag is a really good comp for it because price-wise, they're actually pretty similar. You can get a Birkin for, I don't know, $12,000, $15,000. Like, I mean, it's an insane amount of money, but relative to what they could charge or what the secondary market prices are.

• 3:27:16Ben Gilbert?

  Totally fair. All right, take us to 1990.

• 3:27:21David Rosenthal?

  So, everything we've been talking about managing through the quartz crisis and this transition to luxury, the auction houses, the Paul Newman craziness. In 1992, Andre retires and his only son, Patrick, takes over as CEO. He had joined in 1986 as commercial director, right at the height of the Paul Newman craze and all of this that we've been talking about. What Patrick really did within Rolex was he vertically integrated the company. He presided over, most importantly, the Aegler acquisition in 2004. For rumored roughly a billion Swiss francs, Rolex buys Aegler and makes it officially in-house.

• 3:28:03David Rosenthal?

  But the other thing that he did that people will talk about, 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, from, call it 30 different locations throughout Switzerland, down to four. Four big, massive, consolidated sites where they own and produce everything in-house.

• 3:28:28Ben Gilbert?

  Hmm.

• 3:28:29David Rosenthal?

  This is super important and all in service of this luxury strategy of brand management. And 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 going to come out in October, The Rolex Legacy. He helped me understand this. 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 end models and cases and products in different regions around the world.

• 3:28:59Ben Gilbert?

  Yep.

• 3:28:59David Rosenthal?

  That is the absolute opposite of what you need to do as 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, it's like, absolutely not. That is critically important because all the clientele that are buying these products are 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 who are providing all these different parts to the different end brands. You had a wide variation in quality among products. And Patrick said, "We need to make sure

• 3:29:44David Rosenthal?

  every submariner that comes in a Rolex box is of uniform quality."

• 3:29:49Ben Gilbert?

  So he shrinks the suppliers from 27 down to just four.

• 3:29:55David Rosenthal?

  Yep.

• 3:29:55Ben Gilbert?

  Rolex bought their bracelet maker. They started forging their own metals in-house, gold, steel, you name it, proprietary stuff beyond just their famous 904L steel. And they branded it. Rolex nerds all recognize Rolosor and Oyster steel and Everrose. They already had a lot of control over their future from before, from their private ownership. But now they really do because production is also in their own hands.

• 3:30:19David Rosenthal?

  Yep. And this also starts to build into the lore, just like Hermes has, "Oh, we have artisans that we train, and we have our own schools and our own pipeline. And there's 8,000 people that work in ateliers that we've developed in France." Rolex now has the same thing. In these four mega sites, they have their own technology, their own people, their own machines. And when was this, 2015, I think? They invited four bloggers, Ben and James were two of them, to come and tour the facilities.

• 3:30:51Ben Gilbert?

  Yeah, Ben Clymer has this unbelievable piece on Hodinkee about his experience.

• 3:30:55David Rosenthal?

  Right? And you read these pieces and you see the photos and you hear them talk about 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 Benner James was like, why is this hallway so big? And 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.

• 3:31:31Ben Gilbert?

  It is so true. I mean, after I read Ben's piece, I kind of took a step back and thought, huh, Rolex actually is the highest quality thing.

• 3:31:38David Rosenthal?

  Yep.

• 3:31:38Ben Gilbert?

  It's the brand, but, I mean, who else makes their own machine that is going to open and close the clasp 1,000 times in just a few minutes to test it?

• 3:31:48David Rosenthal?

  Right.

• 3:31:48Ben Gilbert?

  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? They're going to absurd lengths to make these things the highest quality engineered and produced products in the entire industry or in any other industry, too.

• 3:32:11David Rosenthal?

  Totally. So that's sort of the product and production side. And that's the story of Patrick's time as CEO. In 2008, sadly, he develops a health issue and ends up passing away way too young. They transition leadership first to Bruno Meyer, who had been the CFO, and then in 2011 to Gian Riccardo Marini, who was a 40-year Rolex veteran and had come up through Italy.

• 3:32:35Ben Gilbert?

  And this is kind of weird to have two new CEOs in short succession. Over 90 years, they had three CEOs.

• 3:32:43David Rosenthal?

  Yep.

• 3:32:43Ben Gilbert?

  That kind of speaks to the ethos of small iterative changes over long periods of time. What other company has had three CEOs in the better part of a century?

• 3:32:54David Rosenthal?

  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 was because they were older, but they were both long-term Rolex veterans. And what they do together through 2008 and the financial crisis, I think is the other side, the demand side of the equation that cements in my mind Rolex being 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. I graduated in 2007, and that first year that I was on Wall Street before the crash was the height of watches. It was sort of borderline okay

• 3:33:38David Rosenthal?

  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. 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 other watch brands who then cut their prices to try and save revenue. Rolex didn't do that.

• 3:34:05Ben Gilbert?

  And zeroed out ad spend.

• 3:34:06David Rosenthal?

  Yeah. Rolex didn't cut prices, didn't stop sponsoring the US Open.

• 3:34:11Ben Gilbert?

  So this is another spot where if you're Rolex, you're like, well, how long is this financial crisis going to last? Five years? What's five years? It's probably more like two years. We don't have 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 going to make the right five, 10, 20 years bets. 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. The first time I saw this, I was like,

• 3:34:54Ben Gilbert?

  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, it's kind of the obvious move.

• 3:35:05David Rosenthal?

  Yep.

• 3:35:05Ben Gilbert?

  There's a secular thing that's happening, which is the American watch aficionado market. It really wasn't a thing until the early 2000s, but it was really starting to take off.

• 3:35:16David Rosenthal?

  Yep, this is when Ben founded Houdinki.

• 3:35:19Ben Gilbert?

  Exactly. Enthusiast blogs, YouTube channels, I mean, not yet in 2008 YouTube channels, but here's an example. Rolex and other Swiss watch brands used to throw these events to generate interest in their watches. And it would be for one person we talked to who called them 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 watch aficionado market was in the early 2000s. By 06, 07, 08, it's really taking off. And so it's just the 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, the opportunity is there for the taking.

• 3:36:04Ben Gilbert?

  Advertise hard. Go get that new customer.

• 3:36:06David Rosenthal?

  Right. So here's the thing. This was the easy half of the decision for Rolex was to double down, 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 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 2007 in the watch market, by the time you get to 2011, 2012, 2013, we're way beyond that in excesses.

• 3:36:47David Rosenthal?

  And so many of the other brands totally did this whiplash seesaw thing where they were pricing really high, trying to become exclusive before 2008. 2008 hits, they panic, they cut prices, they cut marketing spend. 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.

• 3:37:12Ben Gilbert?

  Yep. Well, 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 and they're guaranteeing a certain rate of return on these things.

• 3:37:31David Rosenthal?

  There is this really awesome New York Times article in the last couple of months talking about this dynamic, how all the other luxury houses over the past couple of years, during the post-COVID craziness, really raised prices and price gouged themselves out of the market once the reset happened. And Hermès didn't. And Rolex followed this exact playbook over the last 10 years of not price gouging themselves out of the market, but intentionally limiting supply, letting the secondary market go nuts, 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.

• 3:38:11Ben Gilbert?

  All right, so this is a question I was 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. These waitlists have gotten out of hand. The authorized dealers are being disrespectful. They are intentionally limiting supply. Have they gone too far in their unavailability?

• 3:38:37David Rosenthal?

  I think it's a really good point. One dimension where Rolex historically has been very different in their strategy versus Hermès or other luxury companies is they don't control the last mile of retail and the customer relationship. 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.

• 3:39:05Ben Gilbert?

  Yep.

• 3:39:05David Rosenthal?

  In a way that Hermès or Louis Vuitton or Chanel or the like, they're managing their own customer relationships. Rolex doesn't have their own stores. And this was one of my really big questions as I was doing the research, like, why? It seems obvious they should have their own stores. This works so well for LVMH and Hermès, et cetera, et cetera. Why doesn't Rolex do this? Historically, at least, the key difference between Rolex and other luxury houses is Rolex is a one-category company. Hermès 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 SKU, like far fewer Birken bags than Rolex

• 3:39:49David Rosenthal?

  sells watches, the totality of all the products they sell allows them to support a retail, a dedicated owned and operated retail footprint.

• 3:39:59Ben Gilbert?

  Nah, I don't buy this.

• 3:40:00David Rosenthal?

  You don't buy this for a second? Okay. Well, I do think this is changing now.

• 3:40:03Ben Gilbert?

  Rolex has 1,500 authorized dealer locations. And if all 1,500 of those were Rolex stores, they would absolutely do a great job paying rent.

• 3:40:14David Rosenthal?

  Yes.

• 3:40:15Ben Gilbert?

  They don't need to sell a whole bunch of other things to lure people into the store to...

• 3:40:18David Rosenthal?

  Well, I think that's true now. And I think that's why they bought Bouchard in 2023.

• 3:40:22Ben Gilbert?

  Oh, okay. All right. Let's have that debate and then let's come back to scarcity.

• 3:40:26David Rosenthal?

  Okay.

• 3:40:26Ben Gilbert?

  Okay. So why buy Bouchard?

• 3:40:29David Rosenthal?

  2023, they spend a rumored $5 billion.

• 3:40:32Ben Gilbert?

  Five?

• 3:40:33David Rosenthal?

  Five. Yeah, that's what I read. I mean, nobody knows the details of the transaction. But to buy one of, if not their largest single retail partner, the jeweler Bouchard.

• 3:40:43Ben Gilbert?

  And they have a 100-year-old relationship. This was one of the first retail partners for Rolex in the super early days. And actually, this alliance, plus the Agler alliance, helped them stay out of the Swiss cartel. So in many ways, they have Bouchard 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, 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, there's control over the buying experience and to your point, list management.

• 3:41:22David Rosenthal?

  Yeah. As waitlist management becomes more important, I think that becomes more critical.

• 3:41:27Ben Gilbert?

  Yes. 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 don't get that today. They like don't have their customers' email address or names or addresses 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 kind of crazy for a modern company of this scale and size.

• 3:41:52David Rosenthal?

  Well, then the elephant in the room to me with all this is all these authorized dealers sell other brands too. Bouchere sells Omega.

• 3:42:01Ben Gilbert?

  And Bouchere uses the fact that they're a Rolex dealer to attract those other brands and to attract the customers who will buy a bunch of stuff in the store. Once you have Rolex, someone in the research put it to me, you're a made man.

• 3:42:15David Rosenthal?

  Yeah, but historically Rolex has been like, that's fine. Sell Petec, sell Audemars, sell Omega in the same physical location. Will that change now?

• 3:42:26Ben Gilbert?

  Right. 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? And Rolex doesn't have to take on managing the store. They have 16,000 employees doing 10 billion a year in sales.

• 3:43:00David Rosenthal?

  Amazing.

• 3:43:00Ben Gilbert?

  This business is so efficient from a headcount perspective and everybody talks about it like it's craftsmanship. It's high economies of scale production. Like, yeah, 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 all the good parts of highly controlled retail experience without having to also be in the very crappy retail business. I mean, industry-wide, third-party retailers make a 37% gross margin after they mark up from the wholesale price. That's their margin. For Rolex in particular, it's lower than average because Rolex, you only get to keep 33% to 34%. I've heard that actually

• 3:43:44Ben Gilbert?

  went down 1% this year. 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 30 years or so. I think your points are valid about they are increasingly kind of wanting that customer touch point, especially as it comes to things like wait lists.

• 3:44:05David Rosenthal?

  Yep. 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. And I think if at least you buy the premise that if they were to operate their own retail locations, they would be pushed 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 waitlist, which again is a very different experience than the Hermès retail experience. You can't walk out of there with

• 3:44:50David Rosenthal?

  a Birkin, but you sure as hell can walk out of there with a scarf or a piece of furniture or, you know, an 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, Rolex, you know, you name it. Rolex luggage. Why are they not in the luggage business?

• 3:45:19Ben Gilbert?

  You could make 904L steel carry-ons.

• 3:45:22David Rosenthal?

  Right. You know, make Ramoa look like child's play.

• 3:45:27David Rosenthal?

  And I suspect that this is part of the reason not to have gone directly into retail.

• 3:45:34Ben Gilbert?

  Yeah.

• 3:45:35David Rosenthal?

  Maybe. I don't know.

• 3:45:36Ben Gilbert?

  I don't think so. You think Rolex is going to give in to customers saying, I wish I could buy other things in this store or ignoring the free money?

• 3:45:43David Rosenthal?

  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, you're competing for a physical space with LVMH. So you are in the most expensive, highest rent, highest end places on earth.

• 3:46:01Ben Gilbert?

  Yep.

• 3:46:02David Rosenthal?

  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, they want to go and they want to 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?

• 3:46:27Ben Gilbert?

  It's a high-end bonobos.

• 3:46:28David Rosenthal?

  Right, yeah, it's a high-end bonobos.

• 3:46:31Ben Gilbert?

  Except you have no idea when you'll get the call.

• 3:46:33David Rosenthal?

  Right, exactly. Now, compare that to a Bouchere, where like, yeah, you can't walk out of there with Rolex, but you can walk out of there with a, you know, I don't know.

• 3:46:41Ben Gilbert?

  A whole bag full of Tag Heuer's.

• 3:46:43David Rosenthal?

  Yeah, exactly, 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 a, maybe, I'm sure there's some people, but I think for a lot of people who love Rolex, they're also going to own a Panerai, or they're going to own a whatever, and that doesn't hurt their relationship with Rolex.

• 3:47:01Ben Gilbert?

  Yeah, fair. So the question kind of remains, why did they buy Bouchere?

• 3:47:07David Rosenthal?

  Yeah.

• 3:47:08Ben Gilbert?

  So here's my supposition. Yes, it will help them improve their economics for watches that they sell through Bouchere, but not why they did it. 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 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 if we're going to renew the contract for next year for you to stay a dealer or not, 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 they didn't need that at all.

• 3:47:53David Rosenthal?

  Yep.

• 3:47:54Ben Gilbert?

  Okay. Yes, it will also let them have a tighter grip on watch allocation and the customer touchpoint.

• 3:47:58David Rosenthal?

  Waitlist management, which I agree is a huge liability for them right now.

• 3:48:01Ben Gilbert?

  But they didn't need to own the ADs to do that.

• 3:48:04David Rosenthal?

  Yeah, they had the leverage to take control anyway.

• 3:48:07Ben Gilbert?

  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 wait lists on your own for customers. We're centralizing that. And if we catch you doing it, you lose your license for the next year.

• 3:48:23David Rosenthal?

  Great point.

• 3:48:24Ben Gilbert?

  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 you could solve this without buying someone who represents 8% or whatever Bouchard is of their total sales. I honestly think the biggest reason to do it was so no one else buys it.

• 3:48:44David Rosenthal?

  Hmm.

• 3:48:45Ben Gilbert?

  Bouchard is a 100-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. They don't want a 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.

• 3:49:09David Rosenthal?

  And I'm sure LVMH would have loved to have owned Bouchard, eh?

• 3:49:13Ben Gilbert?

  Absolutely. I mean, they own Sephora. You don't think they want to own Bouchard?

• 3:49:18David Rosenthal?

  Yeah.

• 3:49:18Ben Gilbert?

  And Bouchard also comes with, what's the, Ternau, the American retailer, which I'm sure Rolex doesn't really want to own Ternau, but here they are. So I think it was so no one else buys it.

• 3:49:29David Rosenthal?

  Yeah, I think you're probably right.

• 3:49:30Ben Gilbert?

  I do agree, though. I mean, the reason that people are all up in arms about this, I never got the call from my authorized dealer and the whole waitlist thing is because waitlists were only really a thing for, until honestly, like 2015, for like steel Daytonas.

• 3:49:47David Rosenthal?

  Yep.

• 3:49:48Ben Gilbert?

  The rest of it, you could just buy. Like, it's this whole, this new notion of having the privilege to go spend $7,000 to $20,000 on something and getting told no by the local jeweler. That's crazy. Most of the time, they're going to 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, 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...

• 3:50:19David Rosenthal?

  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.

• 3:50:31Ben Gilbert?

  But honestly, until 2015, like you could just buy a Rolex for most of them, 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?

• 3:50:45David Rosenthal?

  Yes.

• 3:50:45Ben Gilbert?

  And so that's how customers feel because that's how it always was. And then their, each AD is using their own mystical portal of waitlist, 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, guess what? We're managing the list and we're going to actually manage it. And we're going to publish how it works. I think they could earn a lot of customer goodwill and they wouldn't have to go buy a bunch of retailers and figure this whole thing out.

• 3:51:19David Rosenthal?

  Totally agree. They absolutely could do that.

• 3:51:21Ben Gilbert?

  Yeah. I will say, I don't think Rolex wanted to be in the luxury business. 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.

• 3:51:44David Rosenthal?

  Yep. And they didn't really have a good choice after the courts crisis.

• 3:51:50Ben Gilbert?

  Yeah.

• 3:51:50David Rosenthal?

  Other than to do this.

• 3:51:52Ben Gilbert?

  I heard an anecdote that 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. An example being to compete with Baselworld or the Basel fair, Richemont started their own thing in Geneva. And they said, look, the industry gathers here in Geneva now and we're going to be fancy about it. And no one's eating bratwurst anymore on the show floor. We're going to sell watches to customers with champagne and caviar and a presentation ceremony. 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.

• 3:52:33Ben Gilbert?

  I think the industry went that way and they happen to be the most prestigious, high-volume player in it. And so they're sort of trying to figure out what it means to be an accidental luxury brand.

• 3:52:46David Rosenthal?

  I can totally believe that. I mean, go back to Hans Willstorf, right? Like, that was totally not his vision for the company. His vision was a Rolex watch on every wrist.

• 3:52:55Ben Gilbert?

  Yep. Okay, so now that we're like over in scarcity land, I want to 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 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, bad times come. We do not want to be the brand that ramped 20% in one year and is now slashing MSRP, which lots of watch brands have to do, and embarrasses their customers who just bought it at full price and now suddenly it's 20% off? Like, that's a horrible way to destroy your brand.

• 3:53:39David Rosenthal?

  Yep.

• 3:53:39Ben Gilbert?

  Cartier overproduced watches in 2016 and had to destroy hundreds of millions of dollars of inventory. This kind of thing doesn't happen to Rolex. 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.

• 3:54:05David Rosenthal?

  Hmm, yes. It's like a down round in venture-backed companies.

• 3:54:08Ben Gilbert?

  Yeah. Customers don't like it, employees don't like it. It's hard to shrink your overhead to rational new realities after bubbles pop. It just doesn't feel the same as when it was always your biggest, best year ever.

• 3:54:22David Rosenthal?

  Yeah.

• 3:54:22Ben Gilbert?

  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 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 going to meaningfully ramp. The biggest thing they did do is they started this new production facility construction that will be open in 2027 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 100 years.

• 3:55:04David Rosenthal?

  Yeah, new demand is actually like a risk if you're taking a very long-term view.

• 3:55:10Ben Gilbert?

  Yes, and managing valuable customers who want a long-term relationship with you and who are angry while you're trying to protect your own stability.

• 3:55:20David Rosenthal?

  Yep.

• 3:55:21Ben Gilbert?

  Is hard.

• 3:55:22David Rosenthal?

  Which, coming back to the waitlist, I think this is the positive justification for a waitlist. Making sure that 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 going to be gone next month.

• 3:55:41Ben Gilbert?

  Right. And Rolex cares about that, but not as much as like a Patek Philippe. I mean, Patek Philippe, they want to make sure that they are appeasing the collectors and the true fan. Like Rolex, I think they acknowledge that they're very commercial. They're here for 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 want to like lose the brand patina with that huge volume of material wealth in aggregate.

• 3:56:11David Rosenthal?

  Yeah, James Dalling again put this to me in a really good visceral way. The typical Rolex buyer is not comparison shopping with a Patek or any other brand.

• 3:56:21Ben Gilbert?

  Hmm.

• 3:56:22David Rosenthal?

  They are comparison shopping with, do I buy this Rolex or do I upgrade my 911?

• 3:56:28Ben Gilbert?

  Hmm, that's interesting.

• 3:56:31Ben Gilbert?

  One more rumor I heard, and this should totally justify Rolex isn't happy that they're not able to make enough watches. 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. I heard that in 2020 to 2022, they asked employees to come in six days a week instead of five to meet demand.

• 3:56:58David Rosenthal?

  Hmm, wow.

• 3:57:01Ben Gilbert?

  So if that's true, that's a pretty telling symbol about how they feel about it.

• 3:57:06David Rosenthal?

  Yep. And now is a good time, I think, to bring up, there's one more piece of Rolex, the corporation, and the story, 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 101, and we were walking around in the shopping mall.

• 3:57:26Ben Gilbert?

  Oh, yes.

• 3:57:26David Rosenthal?

  We walked by Tudor.

• 3:57:28Ben Gilbert?

  Well, it was an authorized dealer that had both Rolex and Tudor, which I think a lot of ADs, or maybe all ADs, if you take Rolex, you have to take Tudor.

• 3:57:38David Rosenthal?

  Yes. So what is Tudor? Tudor, like the British royal Tudor family, is Rolex's sub-brand.

• 3:57:49Ben Gilbert?

  Sort of. Technically, it's another company owned by the Hans Wiltzendorf Foundation, but in practice, yeah, sure.

• 3:57:55David Rosenthal?

  This is Rolex's sub-brand. And Ben, to your earlier point, if you're going to make an argument that Rolex does not want to be a luxury company, a textbook violation of the luxury strategy is to have a sub-brand.

• 3:58:06Ben Gilbert?

  Right.

• 3:58:07David Rosenthal?

  And so we're like, what the hell is this Tudor thing? Why do they have it? And if you look at the Tudor products, a lot of them, like, are the Rolex products.

• 3:58:16Ben Gilbert?

  Dude, okay, so Tudor was started by Hans Wiltzendorf in 1926 with the stated purpose to be a more affordable brand to Rolex while maintaining high-quality standards. 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 Aegler. You'd look at it, and it would look like a Submariner.

• 3:58:42David Rosenthal?

  Totally. You walk into a Tudor 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.

• 3:58:52Ben Gilbert?

  Right. Yeah, even today, 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.

• 3:59:02David Rosenthal?

  Yep, yep. So for the longest time, you know, I at least, and I think you were too, like, well, what is going on here? And then we realized the real limiting factor to Rolex production is movements. Movements are the hard thing to make. And all their movements are Agler movements, you know, now in-house Rolex movements. Tudor does not use Agler movements, does not use Rolex movements. They use third-party movements.

• 3:59:25Ben Gilbert?

  This is funny. I hadn't had this insight.

• 3:59:27David Rosenthal?

  Yeah, so Tudor is kind of the release valve here. They can ramp up production of the Tudor quote-unquote Submariner, GMT Master, Explorer, or whatever with third-party movements, and that's okay.

• 3:59:39Ben Gilbert?

  Hmm. But what do you mean, release valve? Like, customers can't get a Rolex, so they get a Tudor?

• 3:59:45David Rosenthal?

  I think that probably rarely happens, but to Hans's original vision of, I want everybody to be able to own a Rolex, this is the way that they can have that happen.

• 3:59:56Ben Gilbert?

  I don't think that's it. I don't think they care at all about that.

• 3:59:59David Rosenthal?

  Hmm.

• 4:00:00Ben Gilbert?

  Here's my logic. It is a shockingly low percent of Rolex's production, less than 1%. If that were true, they would sell

• 4:00:11David Rosenthal?

  They would sell a lot more.

• 4:00:12Ben Gilbert?

  Tudors in volume. Let's take a Black Bay. This is sort of the Tudor Submariner. $4,000. Most people don't know or care 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 what are they doing? I think it's kind of an innovation lab.

• 4:00:37David Rosenthal?

  Hmm.

• 4:00:38Ben Gilbert?

  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 in the watch world. Tudor can go and implement it and they can figure out how to produce it. If it's a flop, that's fine. 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 10 years with even more polish and thoughtfulness. They've tested all sorts of stuff with Tudor. Dial colors, ceramic bezels, titanium watches. A lot of these now are slowly making their way into Rolexes.

• 4:01:17Ben Gilbert?

  And I think the key thing is they can use Tudor to go and compete with Omega, Tag Heuer in the mid-market and Tudor basically can punch up so that Rolex doesn't ever have to punch down.

• 4:01:32David Rosenthal?

  Hmm, yeah, yeah, yeah.

• 4:01:33Ben Gilbert?

  I heard a great phrase that the shield protects the crown.

• 4:01:36David Rosenthal?

  Ah.

• 4:01:37Ben Gilbert?

  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 Tudor can always go figure it out.

• 4:01:48David Rosenthal?

  I love it. It's like we used to think about the LP show.

• 4:01:51Ben Gilbert?

  Right.

• 4:01:52David Rosenthal?

  It's our innovation lab.

• 4:01:53Ben Gilbert?

  And we still think about ACQ 2 that way. This is like, 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 guest, it's still...

• 4:02:07David Rosenthal?

  Great for us, yeah.

• 4:02:08Ben Gilbert?

  Yeah. But what is it? It's less than 10% of our show's listenership. It's a great experimentation ground.

• 4:02:14David Rosenthal?

  Yep.

• 4:02:15Ben Gilbert?

  The real watch nerds will tell you that they actually love Tudors. Even though it's a $4,000 watch, the movements are incredibly high quality and I think consumers actually might be getting a pretty good deal on Tudor watches. I mean, if I go out tomorrow and buy an Explorer that's whatever an MSRP is for, $8,000 or something, Rolex is making phenomenal margins on that thing. Tudor, they don't sell that many of them. So at a $4,000 price point, that's only $2,500 wholesale for a very high-quality movement and there's not a lot of 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.

• 4:02:57Ben Gilbert?

  And I think there's actually pretty significant upfront fixed costs. So I don't know, I'm sure they're not losing money by having Tudor, but it's a great deal for customers.

• 4:03:07David Rosenthal?

  Yeah. You're totally right. I like your rationale better than mine.

• 4:03:12Ben Gilbert?

  Well, we've both had a lot of good conversations to try to figure this out. Because you and I were texting each other. We were like, what are they doing? This is the worst luxury company ever.

• 4:03:20David Rosenthal?

  Yeah. Okay, well, to wrap up at least the history here, level set us on today. What is the company today?

• 4:03:27Ben Gilbert?

  All right. First of all, no one knows.

• 4:03:30David Rosenthal?

  Yeah, right.

• 4:03:33Ben Gilbert?

  But there's a lot of really good ways to guess. And two great shout outs here. One is to our good friend of the show, Arvind Navarathnam. He, as usual, did an amazing long form write up of the business of Rolex. And he found awesome public sources of data. We'll link to that in the show notes. Secondly, the industry report that everyone kind of refers to is this Morgan Stanley Luxe Consult report, who sent us a copy in preparation for the episode. So we did our own ways of trying to guess at these numbers and the shape of the business today. And then we kind of 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?

• 4:04:17Ben Gilbert?

  I would bet all this is within 10 to 20% of right. So I think they make about 1.1 million watches a year, maybe a little higher. Morgan Stanley said 1.24. So think 1.1 to 1.2 million a year.

• 4:04:32David Rosenthal?

  Yep, sounds right to me.

• 4:04:34Ben Gilbert?

  For revenue, think about it as around $11 billion 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 that Rolex has by revenue is completely insane. Morgan Stanley and Luxe Consult estimate it at 30.3%. Of the whole Swiss watch industry, no one else even comes close. Cartier and Omega have 7.5% each. Truly, the number two and three player are at, what is that, a quarter?

• 4:05:10David Rosenthal?

  Yeah, the number two and three player are at slightly less than half of the scale of combined of Rolex.

• 4:05:15Ben Gilbert?

  Yeah, exactly. Patek Philippe is at 5.6% again by revenue. Patek Philippe makes fricking expensive watches and they still only are at 5.6%, one-sixth of Rolex. Audemars Piguet is at 5% and then you just have massive fragmentation down from there. Rolex makes something that 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 15 times the number of watches that Patek Philippe makes, 22 times Audemars Piguet. It's crazy. People even talk about these brands like they're in the same sentence, just based on the volume of output.

• 4:05:57David Rosenthal?

  Yeah, they're totally different segments of the market.

• 4:06:00Ben Gilbert?

  Yes. In terms of price, Rolex's average selling price, not Rolex's price, but what the retailers sell it for, is around $13,000. Audemars Piguet is $48,000. Vacheron Constantin is $38,000. Patek Philippe, $40,000. I mean, 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 X, Y axis, they have found the sweet spot where you can maximize revenue, 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.

• 4:06:45Ben Gilbert?

  So they're almost like their own thing entirely.

• 4:06:48David Rosenthal?

  Yep. And it's interesting, right? The secondary market really lets them do this, I think.

• 4:06:55Ben Gilbert?

  Yeah.

• 4:06:56David Rosenthal?

  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 all the reference numbers in the models, you actually have incredible scarcity and rarity for-

• 4:07:15Ben Gilbert?

  For people who care. You segment the market.

• 4:07:17David Rosenthal?

  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 thing that Patek and Audemars, et cetera, are participating in. Just do it through the secondary market.

• 4:07:32Ben Gilbert?

  Or even special editions in the primary. I mean, you look at the rainbow dial Daytona.

• 4:07:37David Rosenthal?

  Oh, the emoji watch.

• 4:07:38Ben Gilbert?

  Right.

• 4:07:39David Rosenthal?

  That thing is pretty baller.

• 4:07:41Ben Gilbert?

  They can do these extremely, you know, they play in Patek Philippe land, both to your point in the secondary market, but also in their sort of limited edition special watch market.

• 4:07:52David Rosenthal?

  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.

• 4:07:58Ben Gilbert?

  Right.

• 4:07:58David Rosenthal?

  I think they wouldn't then have the permission to go put out these special editions that sell for a couple hundred thousand dollars in the primary market.

• 4:08:05Ben Gilbert?

  Right. 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, if you have one. And because it's universally agreed upon, as global wealth grew, they basically just got to index it.

• 4:08:33David Rosenthal?

  Yeah. 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.

• 4:08:42Ben Gilbert?

  Yep.

• 4:08:43David Rosenthal?

  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. You have a kid, et cetera. Is it reasonable that you could purchase a Rolex?

• 4:08:57Ben Gilbert?

  It's right on the edge of unreasonable, which is exactly where they need to be to have this market.

• 4:09:02David Rosenthal?

  Exactly. If you make sacrifices, you can probably do it.

• 4:09:05Ben Gilbert?

  Yeah.

• 4:09:06David Rosenthal?

  Depending on what your salary is.

• 4:09:07Ben Gilbert?

  Yep. I mean, truly, since the 1950s, there is a wealth class that has emerged, doctors, lawyers, finance people, recently tech people, if they can really figure out that market, that absolutely can go buy a $10,000 plus watch if it's the thing they choose to buy.

• 4:09:27David Rosenthal?

  Yep.

• 4:09:28Ben Gilbert?

  Like a Porsche, a 911 is not. It is completely inaccessible. It is a impractical car for 10 times as much money.

• 4:09:36David Rosenthal?

  Yep.

• 4:09:36Ben Gilbert?

  It's a pretty sweet little market to have, that it's this almost unreasonable thing that a whole lot of people can buy.

• 4:09:44David Rosenthal?

  And to your point about the confoundingness of like luxury, I still maintain it is managed in the same fashion as the world's best luxury brands. However, it kind of 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 for a lot of people, well beyond the 1%, if it's something you really want in your life, there's probably a way you can make it happen.

• 4:10:12Ben Gilbert?

  Yeah, well, most people finance BMWs, but nobody's, well, I think people probably finance Rolexes.

• 4:10:17David Rosenthal?

  That's, yeah, I think there's ways to finance Rolexes.

• 4:10:20Ben Gilbert?

  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 Patek is Hermes. But Rolex isn't quite Louis Vuitton. That's not giving Rolex enough credit.

• 4:10:36David Rosenthal?

  No, it's not managed like LVMH at all.

• 4:10:39Ben Gilbert?

  Yeah, they are very careful stewards of the brand, in a way that Louis Vuitton will slap it on t-shirts. 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. You stick to six core models, you iterate and refine each one of them once or twice a decade, the Submariner's the 9/11, you can buy what your grandpa had 50 years ago, and it still looks like that, modernized. And it's actually a pretty good comp to call Patek Philippe Ferrari.

• 4:11:19David Rosenthal?

  Yeah, totally.

• 4:11:20Ben Gilbert?

  We don't care what you think. We are making this for us, we are making it for collectors.

• 4:11:24David Rosenthal?

  It's Very small volume production.

• 4:11:26Ben Gilbert?

  Very small volume production. It's five times more expensive.

• 4:11:30David Rosenthal?

  Totally. Yeah, and that's a completely different market. Ferrari, Lamborghini, you're talking a million-dollar-plus cars, is a very, very different thing than an $80,000 car.

• 4:11:40Ben Gilbert?

  Right. Bottom line of what I'll stick to is Patek is Ferrari, and Porsche is Rolex.

• 4:11:46David Rosenthal?

  And it's a really good business to be in.

• 4:11:48Ben Gilbert?

  Yes. Yes.

• 4:11:50David Rosenthal?

  I mean, it's kind of ideal to your point. They have found the ideal point on the curve here.

• 4:11:54Ben Gilbert?

  I think that's it. They multiplied two pretty big numbers together instead of one big number and one small number.

• 4:12:00David Rosenthal?

  Yep.

• 4:12:00Ben Gilbert?

  And the way it manifests in watches is unique and different than other markets, too. Thirty percent of the Swiss watch industry, other categories don't have this kind of outsized winner. Even in handbags where Louis Vuitton is so, I mean, they print money, print money. Somewhere around 20%. I think Rolex defines the category of watches. Hermes doesn't do this. Louis Vuitton doesn't do this. Porsche doesn't do this. Those are all much more fragmented markets.

• 4:12:31David Rosenthal?

  Yep, totally.

• 4:12:33Ben Gilbert?

  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 13,000. You look at Richard Mille, I mean, this is like a 280,000, maybe 300,000 average price point. Jacob & Co., 100,000. Audemars Piguet, that we were just talking about, Van Cleef, Patek Philippe, Vacheron Constantin, Blancpain, Piaget. 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 15 other brands that are higher end.

• 4:13:15David Rosenthal?

  Yep.

• 4:13:16Ben Gilbert?

  But success in America in owning a nice watch is a Rolex.

• 4:13:19David Rosenthal?

  Yep. I think that's what's so amazingly unique about this company.

• 4:13:23Ben Gilbert?

  Yes. Okay, so employee count, they have about 16,000 people worldwide. About 9,000 of those are in Switzerland. I had a lot of fun trying to size this market, trying to figure out Swiss watches versus watches. The Swiss watch industry is something like $35 billion wholesale before the retail markup across all players, including the super high-end at Omega and Swatch and everyone else. Rolex does about 11 billion of that 35 billion, which we've talked about. Holy crap. But work that's very interesting is when we zoom out from just Swiss watches. Switzerland produces 2% of the world's watches. 2%.

• 4:14:07David Rosenthal?

  Yeah, and everything else is a $10 piece of crap.

• 4:14:09Ben Gilbert?

  And to put some real numbers on that, Switzerland makes 17 million watches a year. And most estimates are that there are between 700 and 900 million watches made in the world every year. 700 to 900 million, including smartwatches, cheap $25 watches, you have it. So this 2% of units sold that happens in Switzerland accounts for 45% of the dollars in all watches. Smartwatches, Timexes, all the stuff that's made in Hong Kong and China. I mean, 2% of units are made in Switzerland and 45% of the revenue is captured there.

• 4:14:51David Rosenthal?

  Totally. Apple alone ships way more Apple watches every year than the entire Swiss watch industry. Way more.

• 4:14:57Ben Gilbert?

  Oh, absolutely. Estimates on the smartwatch industry are like 80 million smartwatches a year.

• 4:15:02David Rosenthal?

  Yep, and I think Apple, depending on the year, does like 30 to 50.

• 4:15:06Ben Gilbert?

  Yeah. It's funny, the 17 million watches, that includes a whole bunch of swatches and fashion watches. And Switzerland makes a lot of quartz also. So it is true that 45% of the dollars come from 17 million watches out of 700 to 900 million. But it's actually even more concentrated than just that 17 million because none of the quartz watches contribute that much to the revenue.

• 4:15:30David Rosenthal?

  Yep.

• 4:15:31Ben Gilbert?

  To make that point specifically, 86% of Switzerland's watch export comes from mechanical watches. That whole move in the quartz crisis to lean hard into mechanical really, really, really worked from a dollar perspective. So 40% of all watch revenue in the world came from Swiss mechanicals. Mechanicals.

• 4:15:53David Rosenthal?

  Amazing.

• 4:15:54Ben Gilbert?

  So then you start to look at net profit. Well, Rolex has 30% of the Swiss market by revenue, but probably even more by profit.

• 4:16:02David Rosenthal?

  Oh, yeah. It's totally an Apple situation here.

• 4:16:05Ben Gilbert?

  Morgan Stanley and Lux Consult estimate that of the $35 billion in total revenue for Swiss watch manufacturers, there's about 11.8 billion of total profit, implying that the industry-wide operating margin is 29%.

• 4:16:20David Rosenthal?

  Okay, okay.

• 4:16:21Ben Gilbert?

  Do you think Rolex has an operating margin of just 29%?

• 4:16:25David Rosenthal?

  Hell, no.

• 4:16:27Ben Gilbert?

  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 30 and 40%. I would bet it's way closer to 40% for Rolex's operating margin. My best guess is that while they account for 30% of the industry's revenue, it's in the neighborhood of 40% of the total Swiss profit.

• 4:16:51David Rosenthal?

  Yep, totally agree. They're also so vertically integrated, except for retail, that you have to imagine that ultimately that would create a better profit structure, too.

• 4:17:00Ben Gilbert?

  Has to be. So then you get to balance sheet. This is truly anyone's guess. They're spitting off something like $3, $3.5 billion a year, maybe more, maybe four.

• 4:17:13David Rosenthal?

  Yep.

• 4:17:13Ben Gilbert?

  And they've done, call it $2 to $3 billion, for at least a decade or two. And so it's not crazy to think that they've piled up $50 billion plus in cash, even before investment returns.

• 4:17:26David Rosenthal?

  It's totally an IKEA situation. There's tons and tons of cash sitting there.

• 4:17:32Ben Gilbert?

  And in IKEA, we can see it in annual reports. I have no idea what Rolex's assets look like.

• 4:17:39David Rosenthal?

  So the Hans Willsdorf Foundation, of course, doesn't publish any numbers publicly, but they have said, and people have estimated, that they give away around 300 million Swiss francs every year, which by your numbers would be about 1/10 of the cash that the business is generating.

• 4:17:57Ben Gilbert?

  Or less.

• 4:17:57David Rosenthal?

  And still, that makes them one of the most active annual dispersing foundations on the planet.

• 4:18:04Ben Gilbert?

  It's unbelievable, and it's a very broad base of philanthropic initiatives, environmental, science, arts. 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.

• 4:18:21David Rosenthal?

  Yes, this is the coolest thing about it. A core part of the mission of the foundation that Hans put in its bylaws is to help the city and people of Geneva. And so I think they've found sort of over the years, 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, they can apply for grants and they'll just give them money and they don't make a big deal about it.

• 4:18:49Ben Gilbert?

  It's pretty interesting. One thing they definitely do with their money, again, I think it's safe to just ballpark, there's 50 billion before investment returns sitting there, but again, plus or minus 50%. They own some of the most expensive real estate in the world. They own their own buildings in Switzerland. They own, in the Bond Street House area in London, some really, really prime real estate in Milan, in Melbourne, in 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 going to be done next year, the architectural drawings look unbelievable.

• 4:19:32Ben Gilbert?

  In Manhattan, I mean, they own a building in Manhattan.

• 4:19:39David Rosenthal?

  Hey, you gotta put the money somewhere, right? Real estate is as good a place as any.

• 4:19:42Ben Gilbert?

  They own a lot of real estate in Geneva. They own a big service center in Dallas, the school in Pennsylvania. 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.

• 4:19:59David Rosenthal?

  Amazing.

• 4:20:01Ben Gilbert?

  That's not in the category of asset management, but it is in the category of spite. I don't know. It's pretty funny.

• 4:20:07David Rosenthal?

  Yeah, 100% safe assumption that there's a boatload of money sitting there.

• 4:20:11Ben Gilbert?

  Yep. 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, 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 Patek Philippe, since it's also a vertically integrated, very strong brand, but it's privately held. We have no idea. Patek Philippe is very Rolex-y in a lot of ways, 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 LVMH or Richemont, but there's too much other stuff in there. I mean, Rolex is a pure play mono brand with the leading brand in the sector.

• 4:20:52David Rosenthal?

  There's only one comp for this business.

• 4:20:55Ben Gilbert?

  There's maybe two with Porsche and Hermès, but I think you're right that it's Hermès. I'm assuming that's where you're going.

• 4:21:02David Rosenthal?

  That's where I was going, yeah.

• 4:21:04Ben Gilbert?

  Porsche trades at 15x earnings. Hermès trades at 60x earnings. And my best estimates on Rolex's growth rate is actually in the same neighborhood as Hermès's growth rate. And Hermès's margin profile is also pretty similar to a 40-ish% operating margin.

• 4:21:20David Rosenthal?

  Yeah, that's where this business differs from Porsche.

• 4:21:23Ben Gilbert?

  Right. I actually think if growth rate's close and if the operating margin'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 Hermès is valued at.

• 4:21:37David Rosenthal?

  Which is roughly a 20x revenue multiple.

• 4:21:39Ben Gilbert?

  Or a 60x earnings multiple.

• 4:21:41David Rosenthal?

  Right, but we have no idea what Rolex's earnings are.

• 4:21:43Ben Gilbert?

  But I think you can kind of back into Rolex's earnings being like in the neighborhood of 3 to 4 billion a year.

• 4:21:49David Rosenthal?

  Yep.

• 4:21:50Ben Gilbert?

  Pre-tax, pre all this stuff. I think, but you're right. Maybe you just put it on the revenue multiple.

• 4:21:58David Rosenthal?

  Well, okay, here would be an argument for putting it on the revenue multiple. Again, not that you could ever do this because this business is never going to trade. But 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.

• 4:22:15Ben Gilbert?

  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. But there are plausible scenarios all the way from 40, 50 billion to 200 billion.

• 4:22:28David Rosenthal?

  I agree.

• 4:22:29Ben Gilbert?

  Before assets.

• 4:22:30David Rosenthal?

  Yep.

• 4:22:31Ben Gilbert?

  That's just enterprise value.

• 4:22:32David Rosenthal?

  Yep. Before any cash they have in the balance sheet, real estate. Who, God knows what other investments they have.

• 4:22:40Ben Gilbert?

  This is insane.

• 4:22:41David Rosenthal?

  There's no way that this business is worth 40. I don't know if it's worth 200, but it's worth 100 plus. Zero doubt in my mind.

• 4:22:49Ben Gilbert?

  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 top 50 companies in the world.

• 4:23:02David Rosenthal?

  Yeah, I mean, again, Hermes has a 292 billion euro market cap. And depending on what the assets are within Rolex, yeah.

• 4:23:11Ben Gilbert?

  There's a chance this thing's worth more than American Express or Goldman Sachs or Adobe or Pepsi or Disney or Qualcomm or AT&T.

• 4:23:21David Rosenthal?

  Kind of like the Rolex business better than a lot of those businesses.

• 4:23:26David Rosenthal?

  All that to say, this all feels profane because.

• 4:23:29Ben Gilbert?

  Ugh, they would never.

• 4:23:30David Rosenthal?

  Yeah, can't trade this thing.

• 4:23:32Ben Gilbert?

  Yeah, I think the issue, if I were to buy any shares of Rolex, would be that I could never do anything with them because I could never sell the shares.

• 4:23:40David Rosenthal?

  Well, you'd have to ask yourself, why am I getting these shares? Who is selling them to me?

• 4:23:44Ben Gilbert?

  Right.

• 4:23:45David Rosenthal?

  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.

• 4:23:54Ben Gilbert?

  Hmm, interesting.

• 4:23:55David Rosenthal?

  Just that Rolex certainly was, and I'm sure probably still is, the most faked, certainly watch brand, if not any brand in the world.

• 4:24:03Ben Gilbert?

  Yep.

• 4:24:03David Rosenthal?

  And I think that was good for them, not so much recently.

• 4:24:10Ben Gilbert?

  Because it raised awareness while they were still.

• 4:24:12David Rosenthal?

  Raising awareness and then building the prestige of the brand.

• 4:24:15Ben Gilbert?

  I'd say like 90s and maybe early 2000s, probably a good thing.

• 4:24:19David Rosenthal?

  Yep.

• 4:24:20Ben Gilbert?

  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.

• 4:24:25David Rosenthal?

  Exactly. It just adds to the myth and the legend.

• 4:24:28Ben Gilbert?

  Yeah, but now.

• 4:24:30David Rosenthal?

  Now, yeah, probably not a big deal.

• 4:24:32Ben Gilbert?

  It's also so weird that these fakes are so good. I mean, you can go to like reasonably reputable online retailers and 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?

• 4:24:49David Rosenthal?

  Yeah, let's do it.

• 4:24:50Ben Gilbert?

  All right. Power. So this is where we use Hamilton-Helmers framework of seven powers to analyze what is it that helps a business to achieve persistent differential returns? Or what makes this business more profitable than their closest competitor sustainably?

• 4:25:11Ben Gilbert?

  So branding.

• 4:25:13David Rosenthal?

  Quite the task for us here.

• 4:25:14Ben Gilbert?

  And should we just move on, or?

• 4:25:16David Rosenthal?

  Just for new listeners, the seven options are counter positioning, scale economies, network economies, switching costs, process power, branding, and cornered resources.

• 4:25:25Ben Gilbert?

  I think the interesting thing is to stack them against who is their closest competitor. And in some senses, it's Patek Philippe. In some senses, I would say it's Omega.

• 4:25:36David Rosenthal?

  Yep. In some senses, it's Apple.

• 4:25:38Ben Gilbert?

  That I completely disagree on. I'll go to the mattresses on Rolex. It's not a time-telling device. This has nothing to do with the function.

• 4:25:46David Rosenthal?

  Totally agree. However, there's only so much real estate space on your wrist. And most people are not going to wear two things on each wrist.

• 4:25:53Ben Gilbert?

  Right. I've been dual-watching all week, one on each wrist, and it's a little much.

• 4:25:58David Rosenthal?

  Oh, do you feel a little funny?

• 4:26:00Ben Gilbert?

  Feel a little funny. You're right. It is competitive for wrist real estate. And it's kind of irrelevant that they both tell the time.

• 4:26:06David Rosenthal?

  Yeah. Neither of them tells the time.

• 4:26:08Ben Gilbert?

  Right. One is a piece of craftsmanship on my wrist, and the other is notification center.

• 4:26:12David Rosenthal?

  Yes.

• 4:26:14David Rosenthal?

  Totally. And fitness.

• 4:26:16Ben Gilbert?

  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.

• 4:26:22David Rosenthal?

  Same. Yeah. Just that instrumenting of both calories and sleep. Yeah, same. Every day for years and years.

• 4:26:29Ben Gilbert?

  Yeah. Okay, so that's competitive. But interestingly, I don't think about the prices of those. 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 buy a Rolex, I will pay about 10 times more than I paid for my Apple Watch.

• 4:26:51David Rosenthal?

  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 there's nobody for them to counter position against.

• 4:27:03Ben Gilbert?

  Right. I think the interesting thing is to think about in the 40s, 50s, and 60s, what was the source of their power? What activities were they performing that gave them power? Because today's almost boring. It's just branding.

• 4:27:19Ben Gilbert?

  I think.

• 4:27:20David Rosenthal?

  Yeah, branding and just, yeah, category ownership.

• 4:27:23Ben Gilbert?

  Yeah.

• 4:27:24David Rosenthal?

  There just is nobody else.

• 4:27:25Ben Gilbert?

  In 1985, it was interestingly like capital structure. I mean, why did Omega do dumb stuff and Rolex didn't? That doesn't really fit into this framework because that's not about strategy. That's about tactics. That's a failure of execution to make the wrong decision.

• 4:27:44David Rosenthal?

  Yep. Okay, so I think maybe the more interesting question is rewind back to the lifestyle era, post-World War II, when they're launching all the professional watches, the sport watches. Was that counter positioning versus the rest of the industry?

• 4:27:57Ben Gilbert?

  I don't think so because 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. But I don't know that their competitors couldn't do that. There was some structural reason why they couldn't. I mean, quartz was counter positioned against Switzerland, but I don't think Rolex was counter positioned against other Swiss tactics.

• 4:28:25David Rosenthal?

  Yep, good point, I agree.

• 4:28:27Ben Gilbert?

  The only other one I could see on here is once they hit escape velocity in the 90s, the scale economies is a big one. 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 to engineer and build and test these watches that other people in the industry just can't.

• 4:28:51David Rosenthal?

  Yep, and they're leverage over retailers, you know, too. I think at the end of the day, though, I maintain we can debate the semantics of luxury products, price points, et cetera. This company has managed like the best luxury companies and that playbook sort of exists outside of seven powers.

• 4:29:11Ben Gilbert?

  I know, it is.

• 4:29:12David Rosenthal?

  The goal of managing a successful luxury brand is to manage for the long term. And by the long term, I mean, like centuries. And so you're actually willing to sacrifice huge amounts of profits to do so.

• 4:29:27Ben Gilbert?

  Oh, right. It would be wrong to look at this year's or even the next five years' operating profits when analyzing a business like this.

• 4:29:34David Rosenthal?

  Totally. You almost want to have a worse margin structure at any given moment, especially during the good times.

• 4:29:41Ben Gilbert?

  If it strengthens your intangible asset. Huh, that's an interesting insight.

• 4:29:45David Rosenthal?

  Okay.

• 4:29:46Ben Gilbert?

  Playbook?

• 4:29:47David Rosenthal?

  Playbook.

• 4:29:48Ben Gilbert?

  If I were to pose the question to you, how does Rolex have 30% market share of dollars when the next highest only has 7.5%? 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. When did Rolex actually take risk? Because typically outsized winners with outsized rewards come from doing something risky or counterintuitive at the right time.

• 4:30:20Ben Gilbert?

  A lot of the time, I think Rolex just made a rational decision.

• 4:30:24David Rosenthal?

  And executed better than anyone.

• 4:30:26Ben Gilbert?

  Yeah.

• 4:30:27David Rosenthal?

  I'm thinking about the, you know, the three putt to get on the wrist of Eisenhower.

• 4:30:31Ben Gilbert?

  Or had really good ideas.

• 4:30:33David Rosenthal?

  Or the lifestyle marketing and yeah, working with both J. Walter Thompson and IMG and the, you know, testimonies. Yeah, they just did better than everyone else and that advantage compounded over time.

• 4:30:44Ben Gilbert?

  Right. It wasn't, I'm trying to, was it really a risk how they played the quartz 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 2008, did they take a risk? Not really. 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 find these opportunities to do a rational, logical, low-risk thing and continue to pull away from competitors.

• 4:31:20David Rosenthal?

  Maybe it's a little dangerous to speak for Rolex because Rolex doesn't speak and nobody speaks for them. But I suspect if they were to answer the question, they would say some version of continuity.

• 4:31:33Ben Gilbert?

  Hmm, yeah.

• 4:31:34David Rosenthal?

  Not that there haven't been major changes and different eras of the company, but they have stuck with a strategy and a positioning and a product lineup and a culture longer than just about anybody else.

• 4:31:50Ben Gilbert?

  Yeah. You know, I was reflecting on the question. The one time I think they really did take risk was the wristwatch order from Agler.

• 4:31:57David Rosenthal?

  Yeah, yeah, yeah.

• 4:31:58Ben Gilbert?

  That's not the answer to why they have 30% market share today, but that was huge.

• 4:32:04David Rosenthal?

  Yeah, that's kind of 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.

• 4:32:16Ben Gilbert?

  God.

• 4:32:17David Rosenthal?

  So either it was a multi-year order or they financed it and probably both.

• 4:32:21Ben Gilbert?

  Yep, and I'm sure Agler extended them some credit.

• 4:32:24David Rosenthal?

  Yep.

• 4:32:25Ben Gilbert?

  Huh.

• 4:32:26David Rosenthal?

  But yeah, since then, you know, they made really, really shrewd decisions, executed immensely well.

• 4:32:32Ben Gilbert?

  I think that's the answer.

• 4:32:34David Rosenthal?

  Feels very Swiss.

• 4:32:35Ben Gilbert?

  Yes, yes, it does. All right, 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.

• 4:32:49David Rosenthal?

  Yes, yeah, the emoji watch.

• 4:32:50Ben Gilbert?

  Or Domino's pizza deal?

• 4:32:56David Rosenthal?

  They've got just enough whimsy.

• 4:32:58Ben Gilbert?

  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 10 years, they make a befuddling decision that doesn't seem super impactful on their strategy. So I guess it was fine.

• 4:33:17David Rosenthal?

  Yep.

• 4:33:18Ben Gilbert?

  Tudor with Tiger Woods as the spokesperson. Why would you blow Tiger Woods on Tudor? There's just occasionally these very odd, like, how did this make it out the door and things about Rolex? And I don't really have an answer for how that happens.

• 4:33:32David Rosenthal?

  Yep. Sometimes I think it works really well. I don't know sales numbers, nobody does, but the relaunch of the Milgauss, awesome, great decision.

• 4:33:42Ben Gilbert?

  Yeah, totally. It's also funny that the way that they do product naming, man. The Milgauss 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 1,000 Gauss. Similar to the Explorer 2, completely new watch, different than the Explorer. The GMT Master 2, basically a GMT Master exactly. What does 2 mean when they release a sequel to a watch? How come the deep sea sea dweller is both a deep sea and a sea dweller? Their product naming is confusing.

• 4:34:21David Rosenthal?

  Yes.

• 4:34:22Ben Gilbert?

  All right. We touched on smartwatches a little bit. It's worth a minute of analysis here. The Apple Watch comes out in 2014. Fascinatingly, and I'm not sure if this is counterintuitive or not. I don't remember 2014 thinking about the watch industry because I didn't. But it was the best thing to ever happen to Rolex, Audemars Piguet, Patek, 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? Huh, I never even thought about that before. I've had 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?

• 4:35:04Ben Gilbert?

  Okay, yeah, I guess I'm potentially into going up one level even from a smartwatch. I mean, it was this very strange progression that definitely helped them. However, it destroyed low-end luxury. Longines, Tissot, Tag Heuer, anybody that was making a quote-unquote luxury mechanical watch between $500 and $1,000. Why?

• 4:35:28David Rosenthal?

  Toast.

• 4:35:29Ben Gilbert?

  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?

• 4:35:37David Rosenthal?

  It's funny. There's a great New York Times piece before the Apple Watch that quotes a source at Apple as saying that Johnny Ive was bragging around, around the company about how the forthcoming watch from Apple was going to destroy the Swiss watch industry.

• 4:35:56Ben Gilbert?

  Really? Well, I guess the addition, they really did think they were playing here.

• 4:36:00David Rosenthal?

  Right. Well, it's hilarious because he was both 100% spot-on and 100% wrong. He was spot-on that, like you were saying, this sort of lower fat end of the market in the Swiss industry, to the extent it even existed after the quartz crisis. This was the total final nail in the coffin. But for the tie end, like. Luxury, the Apple Watch Edition, you know, gold Apple Watch, get out of here.

• 4:36:25Ben Gilbert?

  Right. Yeah, it's crazy. The Apple Watch, 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. 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 $10,000 watch.

• 4:36:48David Rosenthal?

  Yep. And for a small subset of those people who bought Apple Watches, it then became the gateway 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.

• 4:37:04Ben Gilbert?

  Yep, that's exactly right. The other thing that it destroyed is the fashion watch industry. We didn't touch on it this episode just because it was one more story that we couldn't fit in, but the whole Swatch.

• 4:37:14David Rosenthal?

  Swatch Group is an amazing story. Yeah.

• 4:37:17Ben Gilbert?

  Fossil, who else? Guess? I mean, in the 90s, these quartz watches suddenly made $25 watches possible. And like, that market went entirely away with the Apple Watch. The fossil watch stock went down 99% since the Apple Watch came out. Yeah, that product category doesn't exist anymore.

• 4:37:38David Rosenthal?

  Yep. You know what would be amazing and will never happen? You know how car manufacturers, except for Tesla, have CarPlay and Android Auto?

• 4:37:47Ben Gilbert?

  Yeah.

• 4:37:47David Rosenthal?

  There needs to be Apple Watch Play for high-end Swiss mechanical watches. Never gonna happen, of course, but I'd love that.

• 4:37:56Ben Gilbert?

  I don't even understand what you mean by that.

• 4:37:59David Rosenthal?

  Where Rolex be get the fitness tracking?

• 4:38:01Ben Gilbert?

  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? There are research labs somewhere that's trying to figure out what a Rolex smartwatch looks like.

• 4:38:16David Rosenthal?

  I'm sure there is, and they're never gonna release it unless they absolutely have to.

• 4:38:20Ben Gilbert?

  No, those people must be pariahs around the building.

• 4:38:25Ben Gilbert?

  You know, it brings up this interesting, talking about smartwatches, kind of makes me remember this moment that we didn't talk about was when the smartphone came out and really when cellphones came. So think like the popularization of cellphones, 2002-ish, 2003-ish, and certainly by 2010, when smartphones were popular. That was the moment you didn't need a watch anymore.

• 4:38:47David Rosenthal?

  Yeah.

• 4:38:47Ben Gilbert?

  But in the very recent history, pre-2005, you needed a watch. Everybody needed a watch. 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 9/11, but you have the functioning alibi of, well, I needed a car and I wanted a car I liked driving, or like a handbag.

• 4:39:09David Rosenthal?

  Tell that to your spouse.

• 4:39:10Ben Gilbert?

  Look, I needed this because I need a purse. I gotta carry stuff with me.

• 4:39:14David Rosenthal?

  Yep.

• 4:39:15Ben Gilbert?

  Nobody, for any reason, needs a watch. It has no functioning alibi anymore. And so it is a pure display of, 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 like, oh, I love the gears and and I do, truly. Like, the engineering is so unbelievable to me, but it's a much weaker, thinner alibi than these other categories.

• 4:39:43David Rosenthal?

  Which probably also is no accident that it coincides with its real takeoff as a luxury item.

• 4:39:51Ben Gilbert?

  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? This 200-gear steel thing that I wear on my wrist? Like, why not something else? What was it about this object?

• 4:40:12David Rosenthal?

  Easy answer, obvious. It was, for basically the entirety of the 20th century, the only acceptable form of male jewelry.

• 4:40:20Ben Gilbert?

  Hmm.

• 4:40:22David Rosenthal?

  Not to say that the women's watch market wasn't also big and important. It was. But it kind of also bled into the jewelry market. In the man's world, like, this is men's jewelry.

• 4:40:35Ben Gilbert?

  Yeah, you could wear your wedding ring and your watch.

• 4:40:37David Rosenthal?

  It was the only broadly socially acceptable form of jewelry for men.

• 4:40:40Ben Gilbert?

  Hmm, that's interesting. And for a long time, it was, well, you need to have one.

• 4:40:45David Rosenthal?

  Yeah, there's an alibi. There's a functioning alibi.

• 4:40:47Ben Gilbert?

  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, can a status symbol stay a status symbol even after you get 100 years away from the last time it had utility? 30 to 40 years is one thing. I remember my parent. I remember my grandparent. But what about five generations after anyone really legitimately believes that the utility of a watch is justified?

• 4:41:18David Rosenthal?

  Right. Is there a risk that this becomes a version of the home telephone or something like that at some point? Or the fax machine?

• 4:41:27Ben Gilbert?

  Or of, I don't, I don't think pieces of technology.

• 4:41:32David Rosenthal?

  Yeah, maybe that's a bad analogy.

• 4:41:34Ben Gilbert?

  I'm trying to think of something else that 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. It just became too thin of an alibi.

• 4:41:52David Rosenthal?

  Well, maybe to my previous answer, maybe over time, these just become bracelets and jewelry.

• 4:41:58Ben Gilbert?

  Hmm. 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.

• 4:42:04David Rosenthal?

  I don't think it's happening anytime soon, though.

• 4:42:05Ben Gilbert?

  Right. All right. I've got just two more. 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 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 is pretty much the same thing. And because of that, it means I made a good decision 20 years ago when I bought this. And of course, I didn't buy this one and you didn't buy that one.

• 4:42:34David Rosenthal?

  You feel really dumb if you bought a turnograph.

• 4:42:36Ben Gilbert?

  Yes. And you feel really dumb if you bought the iPhone 3G and then two years later, the iPhone 5S is out and you're like, whoa, 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.

• 4:42:57David Rosenthal?

  Yep.

• 4:42:58Ben Gilbert?

  So then the last one, have you ever heard the phrase, former Rolex employee?

• 4:43:07David Rosenthal?

  No, I'm sure that's by design.

• 4:43:10Ben Gilbert?

  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. You're at the best company in the industry. This works really well for their secrecy.

• 4:43:24David Rosenthal?

  And they're actually doing cutting edge stuff. It's not like you're just sitting there, you know, cranking the machine every day.

• 4:43:30Ben Gilbert?

  That's right. It's absolutely right. Although, I mean, I'm sure a lot of people are sitting there doing the, you know, final finishing of their 10,000th Submariner they've done final finishing on.

• 4:43:42David Rosenthal?

  Oh, yeah. But it's constantly changing. The parts that are going into it, how it's done, you know, all of it.

• 4:43:47Ben Gilbert?

  Yeah, yeah, that's true. All right. Quintessence, time to land the plane.

• 4:43:54David Rosenthal?

  Land the plane. I had this blank, I often have this blank going in because I feel like we sort of arrived there throughout the episode. Mine is Rolex is positioned at the perfect point on the curve of price and quantity. They are the most optimally positioned supply-demand curve company I think we've ever covered.

• 4:44:19Ben Gilbert?

  Hmm, 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.

• 4:44:30David Rosenthal?

  Yeah, I think it's sort of the same thing.

• 4:44:32Ben Gilbert?

  Yeah, that is certainly how you get 30% market share by revenue. It's certainly how you produce $10 billion a year making watches. That makes total sense.

• 4:44:41David Rosenthal?

  And how you have a waitlist years and years long for most of your models while also making over a million units a year.

• 4:44:48Ben Gilbert?

  Yep. They make so many people think they are buying something very special.

• 4:44:53David Rosenthal?

  And they are.

• 4:44:54Ben Gilbert?

  And they are. 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 by which they've executed that is best in the world ever.

• 4:45:11David Rosenthal?

  I have one more addendum 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, 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, founders that we cover here on Acquired. Like, I mean, sometimes we cover actual Nazis. But, you know, I could be wrong. Maybe he was a big jerk 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

• 4:45:54David Rosenthal?

  the legacy, even though he never had children. And then putting 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 300 million Swiss francs a year, a huge portion of it just directly giving money to people in need in Geneva, in their hometown. Like, that's amazing.

• 4:46:13Ben Gilbert?

  Yeah.

• 4:46:13David Rosenthal?

  He also made a star out of this secretary in London, Mercedes-Clitz, in 1927. Like, he seems like a genuinely really good dude.

• 4:46:22Ben Gilbert?

  It's pretty cool.

• 4:46:23David Rosenthal?

  You know, people ask us every now and then, oh, do you have to be a certain type of person to found a company like this?

• 4:46:29Ben Gilbert?

  Still, yes.

• 4:46:30David Rosenthal?

  Well, I think you have to be crazy. But like, sometimes people ask, like, do you have to be 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.

• 4:46:45Ben Gilbert?

  Well, you just have to be extremely something. And that extremely something has to fit well with your product and your market and your timing.

• 4:46:51David Rosenthal?

  Yes.

• 4:46:52Ben Gilbert?

  But that something is variable.

• 4:46:55David Rosenthal?

  Yep.

• 4:46:56Ben Gilbert?

  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...

• 4:47:05David Rosenthal?

  Hey, I did it. You can do it.

• 4:47:06Ben Gilbert?

  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 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 is just goofy to compare to other quote-unquote "parts" of the watch industry, like the smart watch, the quartz watch, the fashion watch. They look the same, so we call them watches.

• 4:47:40David Rosenthal?

  Yeah, they both occupy risk real estate.

• 4:47:42Ben Gilbert?

  Right. But we should define markets by the actual job to be done for customers. And it is so, so, so incredible that coming out of the quartz 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 professional watches, the tool watches and the advertising.

• 4:48:03David Rosenthal?

  Yeah, could not agree more.

• 4:48:05Ben Gilbert?

  So here's the thing to leave you with. Rolex, interestingly, 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.

• 4:48:17David Rosenthal?

  Yes, yes.

• 4:48:18Ben Gilbert?

  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 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.

• 4:48:44David Rosenthal?

  Yep. 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.

• 4:48:52Ben Gilbert?

  Yes. I didn't want to record this episode because it meant I was going to stop researching. I mean, truly, like, I've loved just bathing myself in this industry and this company and their products.

• 4:49:03David Rosenthal?

  Well, boy, Ben, 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. The watch product blogs and Houdini and everything beyond it.

• 4:49:15Ben Gilbert?

  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. 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 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've found the spot on the curve that lets them

• 4:49:59Ben Gilbert?

  multiply two large numbers together, the large number of units and dollars per unit. You know, billionaires have iPhones, people buying their first smartphone have iPhones. And unlike handbag or car categories, the phone and smartwatch do have a single company that defines it: Apple.

• 4:50:17David Rosenthal?

  Yep.

• 4:50:17Ben Gilbert?

  Rolex and Apple are mirror image companies in a lot of ways.

• 4:50:21David Rosenthal?

  Totally. Well, I guess we gotta do Apple now.

• 4:50:24Ben Gilbert?

  I guess so.

• 4:50:27David Rosenthal?

  That is not gonna be one episode.

• 4:50:28Ben Gilbert?

  No. And in retrospect, this one shouldn't have been either.

• 4:50:33David Rosenthal?

  I don't know where we would have broken it up, though, is the thing.

• 4:50:35Ben Gilbert?

  Yeah. Eh, pre-course crisis post, but here we are. Thank you, listeners.

• 4:50:40David Rosenthal?

  Yeah, thanks, listeners. This was a blast.

• 4:50:42Ben Gilbert?

  It really was. David, I have one piece of trivia for you.

• 4:50:46David Rosenthal?

  Oh, before carve-outs?

• 4:50:48Ben Gilbert?

  Yes.

• 4:50:49David Rosenthal?

  Ooh. Can it top my Panerai trivia, though?

• 4:50:53Ben Gilbert?

  Uh, that was pretty good.

• 4:50:54David Rosenthal?

  I'm pretty proud of that one.

• 4:50:56Ben Gilbert?

  Rolex has gotten so sophisticated in its manufacturing that they actually use ultraviolet lithography in making their watches.

• 4:51:06David Rosenthal?

  Hell, yeah.

• 4:51:08Ben Gilbert?

  It's not in etching silicon, because God forbid, they should ever get anywhere near a semiconductor. It is etching a very specialized and precise type of gear that in the Rolex Daytona ensures 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.

• 4:51:31David Rosenthal?

  Oh, that's amazing.

• 4:51:33Ben Gilbert?

  I actually have one more piece of trivia for you, too.

• 4:51:34David Rosenthal?

  Oh, light on me.

• 4:51:36Ben Gilbert?

  David, what watch company holds the record today for the watch that's gone the deepest in the ocean?

• 4:51:43David Rosenthal?

  This has gotta be a trick question, right? Like, I mean, of course Rolex, it went down the... But I'm assuming no.

• 4:51:50Ben Gilbert?

  Omega.

• 4:51:53Ben Gilbert?

  But to Rolex's marketing ability, guess what watch everyone thinks it is?

• 4:51:58David Rosenthal?

  Right. Wait, how did Omega go deeper? I thought Rolex went down the trench.

• 4:52:02Ben Gilbert?

  So, as you know, the Rolex Deep Sea Challenge happened in 2012. And in 2019, the Omega Seamaster Planet Ocean Ultra Deep Professional went 20 meters deeper.

• 4:52:14David Rosenthal?

  What did they do, like drill a hole in the ground at the bottom of the trench?

• 4:52:17Ben Gilbert?

  I think they found a deeper part of the trench or something.

• 4:52:19David Rosenthal?

  Yeah, okay.

• 4:52:21Ben Gilbert?

  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 it's sense and purposes, they do.

• 4:52:32David Rosenthal?

  Amazing.

• 4:52:33Ben Gilbert?

  Yeah.

• 4:52:35Ben Gilbert?

  All right, carve outs.

• 4:52:36David Rosenthal?

  Carve outs. I just have one between the incredible amount of research for this episode and my entire family of ladies, all being very, very sick with the flu over the last week plus. I've literally had zero time for anything else in my life. So I have a carve out that I don't think I've ever made a carve out before, but 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 over the last week, which is Bluey. So, thank you so much, Joe Brum and the Australian Broadcasting Company for creating the most

• 4:53:17David Rosenthal?

  wonderful children's cartoon ever that my three year 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.

• 4:53:29Ben Gilbert?

  Great. My 15 month old will be into that soon enough and I am sure I'll take your recommendation.

• 4:53:34David Rosenthal?

  Oh dude, it's so good. It's so good.

• 4:53:37Ben Gilbert?

  Oh, great.

• 4:53:38David Rosenthal?

  There is not even a comparison. It is the greatest children's content ever created.

• 4:53:42Ben Gilbert?

  Hmm. All right. Soon.

• 4:53:45David Rosenthal?

  You're in for a real treat.

• 4:53:47Ben Gilbert?

  Great. I have two. One is on the podcast Armchair Expert. David and I went and joined Dax and Monica a couple of weeks ago to review the business of the NFL. It was very fun to do an update to our episode and to do it with Dax and Monica, who are just great. My second one is an app called 11 Reader by 11 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, you upload a PDF and in a very convincing AI voice that sounds remarkably human, it will read you something that was text.

• 4:54:30Ben Gilbert?

  I'm the person 15 years ago who was highlighting emails, right clicking and using Apple's built in speech thing on laptops to read it to me because I'm so much better at processing it information audibly 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 willed myself to read two physical books because this fricking Rolex is a whole pile of coffee table books is how people have published these. There's no. Kindles or anything available, 11 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.

• 4:55:14David Rosenthal?

  Nice. I would say I'll have to give it a try, but fortunately, I think this is a great strength I've acquired.

• 4:55:19Ben Gilbert?

  You have the opposite.

• 4:55:20David Rosenthal?

  We have the opposite research consumption styles. I need physical, hard copies in front of me with a pencil that I am writing on.

• 4:55:29Ben Gilbert?

  And I'm best on a 10-mile run, listening to something and stopping to take notes along the way.

• 4:55:33David Rosenthal?

  Love it. Love it.

• 4:55:35Ben Gilbert?

  All right. 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 AtPresent, a jewelry marketplace, and good friend of David and mine. Ben Kleimer, the founder and CEO of Hodenki, who let me talk his ear off and answer a zillion questions over text. Thank you so much, Ben. Hodenki rocks. Joe Thompson, executive editor of Hodenki, legendary watch journalist. I even have in my inbox right now, Joe's sending me more follow-up information that I managed to see just in time to get the right stats into the episode. So, Joe, you rock. Thank you so much.

• 4:56:17David Rosenthal?

  Oh, that's amazing. Thank you as well. Big thank you to James Dowling, co-author of The Best of Time, which is, 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.

• 4:56:35Ben Gilbert?

  I thought the Rolex story was good, too, heel by heel.

• 4:56:38David Rosenthal?

  Mm, yep, yep. 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 also, thank you to Sleep Well Capital on Twitter.

• 4:56:55Ben Gilbert?

  Oh, yeah.

• 4:56:55David Rosenthal?

  Who, like, a year ago-

• 4:56:57Ben Gilbert?

  All hail King.

• 4:56:58David Rosenthal?

  -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. It was very, very helpful.

• 4:57:05Ben Gilbert?

  And thank you to the over 100 people who have either in Slack or in email told us to do Rolex over the years. This is probably our most requested episode.

• 4:57:13David Rosenthal?

  Yeah, there are going to be at least 100 of you that listen to this.

• 4:57:16Ben Gilbert?

  Yes. To Morgan Stanley and Lux Consult for providing the industry research report, it was very helpful. And always to Arvind Navarathnam at Worley Partners for his fantastic write-up on the company that we will link to from the show notes. If you liked this episode, go check out LVMH, Hermes, or Porsche by searching in any podcast player. Listen to ACQ2 because we won't have another episode for another month. So enjoy our conversation with Guillermo Roush, the founder and CEO of Versell in the meantime. And come join the Slack, acquired.fm/slash-slash. Hang out 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

• 4:57:56Ben Gilbert?

  miss corrections or trivia in the future, acquired.fm/email. With that, listeners, we'll see you next time. We'll see you next time.