Apple profits from iPhones’ second life
A reputation for durability helps boost sales of refurbished phones
Last year, 206.7 million used phones were shipped globally.
It was December 2017 and Apple’s recently released iPhone X was delighting a small cohort of owners with its upgraded technology and blazing performance. At the same time, a different cohort of iPhone owners was dismayed by the slowing performance of their older models.
The culprit, it turned out, was Apple: it had sent a software update that slowed the performance of older iPhones as their batteries aged, and failed to notify their users. Late last week the company reached a classaction settlement that could pay as much as US$500 million ($790m) to iPhone owners to resolve what was nicknamed “Batterygate.” Apple admits no wrongdoing and has long held that the episode was a misunderstanding.
Whatever the truth, it’s unlikely Apple will ever again install a secret, performance-reducing feature. But not because of the multimillion-dollar lawsuit. Instead, Apple’s growing business selling used iPhones gives the company a powerful financial incentive to promote and defend the handset’s durability.
When US carriers subsidised the phones, owners could look forward to an upgrade every year or two and
Apple could focus its marketing on new features, not phone hardiness. But in the mid-2010s, carriers began ending phone subsidies, forcing owners to face the true cost of their devices for the first time. Meanwhile, smartphone innovation began to level off, further reducing reasons to upgrade. .
Apple hasn’t seen big year-on-year gains in iPhone unit sales since 2015. There are roughly 1 billion active iPhone users, but growing that number, especially in developed countries, becomes incrementally more difficult as iPhone prices rise and innovation fails to excite new customers.
So in 2016, Apple began selling used, refurbished iPhones on its US website.
Apple doesn’t reveal how many used iPhones it sells. But one very big clue to the importance of the business can be found on the company’s US website. The first question a prospective iPhone customer receives after hitting “BUY” is “Do you have an iPhone to trade in?”
Apple currently buys back iPhone X handsets for a trade-in value of up to US$320, and sells them for up to US$699. There are few other lines of business in which Apple can so easily double its money.
Unsurprisingly, chief executive
Tim Cook recently said “the secondary market is very key” and that the company is actively trying to increase it.
Apple isn’t alone: last year, 206.7 million used phones were shipped globally, up 17.6 per cent over 2018. By comparison, new phone shipments declined 2.3 per cent in 2019, the third straight year of falling sales.
Succeeding in that growing market requires a product that’s worth selling and reselling. To Apple’s credit, the quality of the iPhone’s build and Apple’s willingness to provide software updates to older phones ensure the iPhone retains its value in the secondhand market better than Android handsets of a similar generation.
The infamous “Batterygate” update was very much in this spirit of maintaining the iPhone’s reputation for reliability. Apple insists the software was designed to ensure that older iPhones didn’t suffer other performance problems as they aged. The problem is that Apple didn’t bother to divulge the update. Once iPhone owners found out, they were rightfully outraged that Apple was deliberately slowing down their expensive handsets, and naturally assumed the goal was to nudge them into buying new iPhones.
Only Apple knows how the scandal affected sales of new and used iPhones. But from the beginning, Apple’s first concern was maintaining the iPhone’s durable image, and it quickly offered low-cost battery replacements that sped up older iPhones and cut into new phone sales.
When asked about those lost sales, Cook referred to the growing market for used iPhones and professed not to be worried: “I view this as a positive as it increases the iPhone user base.”
Cook is no car salesman, but he’s quickly waking up to what his peers with car lots have long known: you can’t built a sustainable secondhand business on a reputation for lemons and breakdowns.
As new phones become more expensive, and the secondhand market grows in importance, Apple has no choice but to double down on durability as a quality that is nearly as important as the innovation that has long defined the company.