Apple’s Newest Product: Used iPhones

Apple this week started selling refurbished iPhones in the United States through Apple.com. Of course, wireless customers have long had the opportunity to buy used iPhones (and other brands) from their carriers and other retailers and online sellers. However, the fact Apple is now offering the devices direct (along with long-available refurbished products such as Macs, iPads, and iPods) is notable. It reflects both the maturing nature of the market and Apple’s desire to put the iPhone into the hands of more budget-constrained smartphone buyers while still making enviable margins.

The Collapse of Subsidy Models

Just a few years ago, the U.S. smartphone market was almost entirely subsidy driven, which meant few people actually knew how much a smartphone cost. What they knew was, roughly every two years, they could pay $200 to their carrier and get a new smartphone. When U.S. carriers began to move away from the subsidy model, many people were shocked to realize that they were paying upwards of $600 or $700 over the lifetime of that phone. As that realization took hold, the market began to bring forward a long list of new financing options.

Today, buying a smartphone is a lot like buying a car. If you’ve got the cash, you can pay for the whole thing upfront or you can pay through an installment plan (essentially a loan) or you can sign up for something very akin to a car lease in which you pay a monthly fee and get a new phone roughly every year. All of the plans effectively shift the cost of buying a new phone around but none really help lower the cost. That’s why the refurbished market is important. While there are fewer options when purchasing a refurbished phone (you typically pay all up front), the savings can be substantial.

Certified Pre-Owned Luxury Phones

Back in September 2015, Apple launched its own iPhone Upgrade Plan along with its iPhone 6S lineup, directly competing with its carrier partners. Apple customers could pay a monthly fee (starting at $32 per month) and then, one year later, swap that iPhone for the next one. The iPhones Apple is now selling online are likely among the first batch of phones it collected through that program.

Companies such as Gazelle have long bought people’s old smartphones but, in the early days, those phones were typically several years old, which meant companies often shipped them to emerging markets where they were either resold or scrapped for parts. One-year-old phones, on the other hand, still retain a great deal of their value, which is why Apple got into the game itself. In fact, based on IDC’s estimates, Apple is adding significant additional dollars of per-device profit for every phone it first ships out as part of the upgrade program and then reclaims and resells a year later. All the while, it’s also increasing the number of iOS users and bolstering services revenues as a result.

So, for example, right now you can buy a 16GB iPhone 6S for $449, $100 less than the same new model on BestBuy.com (Apple cleverly doesn’t offer a new version of the 6S on its site with the same memory configuration, but a 32GB version of the 6S runs $649 on Apple.com). Similarly, a refurbished 64GB 6S Plus sells for $589, which is $750 new on BestBuy.com.

The result: A buyer who is interested in buying an iPhone now has a wider range of options available to them. The entry-level price for what was Apple’s top-of-the-line phone a little more than a year ago now starts at $449 instead of at $549. Not exactly cheap, but certainly more attainable for somebody who is able to pay the entire cost up front. At some point, I would expect Apple to start selling refurbished versions of the iPhone SE, which has a starting price of $399 new. We could expect prices in the $299 range or lower.

Most companies that sell refurbished phones closely inspect those phones before reselling, offering what amounts to a certified pre-owned checklist at a used car dealer. One of the advantages of buying refurbished from Apple, however, is they not only certifies the phones but they also install a brand new battery and outer shell. The new battery piece is huge, as that’s clearly one of the areas of most concern when buying a used device. And by including the new battery (which costs Apple very little), the company ensures the buyer has a good experience for the life of the product.

Who Buys Used?

Techies might not find the idea of buying a used device appealing (they’re likely the ones signing up for the annual refresh and creating the supply of one-year-old phones) but a growing percentage of regular consumers clearly see the value. In a recent IDC survey of US smartphone users, 26% said they were “somewhat likely” to buy a well-maintained 1-year old phone if the price were lower; another 14% said they were “highly likely” to do so. Among current iPhone owners specifically, those two percentages were 25% and 9%.

While there’s clearly a market for refurbished iPhones here in the US, the larger play for Apple long-term is its ability to move refurbished iPhones into markets outside of the US. For years, pundits have wondered when Apple would ship an inexpensive iPhone geared toward emerging markets. It seems increasingly clear Apple’s answer is to sell refurbished iPhones instead.

It’s a smart plan that will likely work quite well for Apple once it figures out two key issues: Which countries’ consumers are amenable to used products (not all are) and which countries’ regulations will allow refurbs to flow in (not all will). Once Apple sorts these issues out, I expect we will start to see Apple itself promoting refurbished products in more countries at more prices.

At IDC we’re now closely monitoring the used smartphone market as we firmly believe growth here could have a significant impact on shipments of new phones in the future. Apple won’t be immune to the potential negative impact of this secondary market. But, by creating its own virtuous cycle through its upgrade plans and refurbished offerings, it makes more money now and better controls its market position down the road.

Published by

Tom Mainelli

Tom Mainelli has covered the technology industry since 1995. He manages IDC's Devices and Displays group, which covers a broad range of hardware categories including PCs, tablets, smartphones, thin clients, displays, and wearables. He works closely with tech companies, industry contacts, and other analysts to provide in-depth insight and analysis on the always-evolving market of endpoint devices and their related services. In addition to overseeing the collection of historical shipment data and the forecasting of shipment trends in cooperation with IDC's Tracker organization, he also heads up numerous primary research initiatives at IDC. Chief among them is the fielding and analysis of IDC's influential, multi-country Consumer and Commercial PC, Tablet, and Smartphone Buyer Surveys. Mainelli is also driving new research at IDC around the technologies of augmented and virtual reality.

12 thoughts on “Apple’s Newest Product: Used iPhones”

  1. “Apple is adding significant additional dollars of per-device profit for
    every phone it first ships out as part of the upgrade program and then
    reclaims and resells a year later.”

    They certainly are. When an iPhone 7 is sold through the payment program, Apple collects $389 in payments ($32.41×12). If returned and then resold refurbished for $449, Apple’s total revenue from the device is $838 — $189 (29%) more than selling it outright for $649. There are additional costs: accounting for AppleCare in the 1st year and the cost of refurbishing, but those are probably very, very low.

    1. Reminds me an old Jewish joke:
      – Itzhak, did you sell your old $10 hat to Abram for $5?
      – No, at the end of the day I bought a new hat for $5 and he bought an old hat for $5.

  2. It is good to hear that Apple sells refurbished models for $100 cheaper than brand new phones. The next step would be for Apple to introduce an incentive program going with Apple Pay. For example offer Apple Care for free for customers using Apple Pay. This would go along nicely with replacement cycles of the phones and encourage using Apple Pay.

  3. “you can pay for the whole thing upfront or you can pay through an installment plan (essentially a loan)”

    A very odd loan – if you do the math, there’s no interest charge at all. Which means it’s actually better to use the instalment plan than to buy the phone with a credit card or with cash. The only downside is that Apple’s instalment plan is limited to the most recent models and includes an extended warrantee. If you were going to get those things anyway, going with the instalment plan and then keeping the phone instead of trading it is an excellent bargain.

    Trading the phone in, OTOH, is for suckers – you can get a much better return on a used phone by selling it yourself.

    1. The sucker part is that Apple is effectively charging $65 for 1 year of AppleCare when the iPhone already comes with a 1 year warranty.

      1. Doubling the length of the warranty is the least interesting thing about Applecare. The real benefit is that it allows for inexpensive repairs of accidental damage. If you are clumsy/accident prone, have a small child, or if the phone in question is being used by a child or teenager, applecare is probably worthwhile just for the accidental damage coverage provision.

  4. I’m curious how that impacts the resale value often cited as as an iPhone advantage. It was already wrong, conveniently forgetting about 25% broken screens, but I’d hazard that private resellers now also will have to lower prices vs Apple’s refurbs ?

  5. Are there a significant number of people who would not qualify for an installment plan but would qualify for a subsidized plan? Don’t the carriers do the same credit checks for both? So is there really a difference between an installment plan and a subsidy other than that you could end up paying far more on a subsidized plan?

    Is it just innumeracy that makes people talk as if the elimination of subsidized plans is some great big change in the smartphone landscape when installment plans are available as an alternative?

    1. Depends on the country. In France for example, consumer credit is nowhere near as widespread as in the US: our “credit cards” are what you call debit cards, consumer credit is much more regulated (the total cost of the purchase incl interest, fees…must be prominently displayed, as well as the effective interest rate), also, credit checks are very stringent for loans but fairly weak for phone contracts since a) service is dependent on payment and b) ownership of the device remains with the operator. I think very few people get into debt (and all the attendant trouble) for a phone.

      Not so much innumeracy as different social mores and legal frameworks.

    2. “Is it just innumeracy that makes people talk as if the phasing out of
      subsidized plans is some great big change in the smartphone landscape”

      Look at how the carriers fought tooth and nail against the transition away from subsidies. They were dragged into it by rogue companies like T-Mobile. They’re losing a lot of power and a nontrivial chunk of revenue. Carrier lock-in is much reduced when you are on the hook only for the cost of the phone rather than for 24 months of phone bills. Plus installment plans are a huge boon to those who keep their phones for longer than 2 years. So yeah, it is a big change.

  6. It’s a real shame Apple wasn’t allowed to sell those refurbished iPhones in India. The Indian government thought it was belittling to their country or something. I don’t get that at all. They’d be getting a high-quality smartphone for a bit less money. I don’t understand the Indian government at all. They’re just hurting Indian consumers with that tight-ass attitude. I don’t see what the big deal was. I’d have no problem buying a used iPhone and I’m in the U.S.

  7. During the 7’s launch month all major US carriers (ATT, Tmobile, Verizon, and Sprint) offered FREE iPhone 7 upgrades for 6 and 6s swaps. All that was required was that I needed to stay with my carrier for a full two years. Done.

    I hope FREE upgrades are still available on launch for several years. With wild Tmobile leading the way, I wouldn’t be surprised.

    I plan to upgrade my new 7 to a new 8s for FREE 2 years from now.

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