At the risk of yet another car analogy, it's simply classic car vs. Tesla. I love mechanical watches, but it's a little silly to think that more development goes into a mechanical watch than into a smart watch, and the Apple Watch is the first smart watch to come close in competing in case materials. We're just spoiled by low priced electronic tech, and the mechanical watch companies over charge in order to become Veblen goods. A gold Rolex still costs much more than a gold Apple Watch.
A steel Rolex probably only costs double to make (if that) than the Apple Watch with links bracelet, but the Rolex is 8x the cost. The only real argument is that Rolex watches hold value much better, but that could change over the next decade, if smart watches become ubiquitous. Rolex and Omega have been in a price bubble for a while, far outpacing inflation. Wide spread adoption of smart watches could eventually pop that bubble, especially considering how many millions of Rolex watches are on the market.