The secondary market for devices (used and refurbished products) continues to grow, driven by a wide range of factors including increasing high-priced flagship products, changes in financing models, and hardware vendor’s increasing focus on adjacencies such as services and accessories. Another factor that will push growth of used markets outside of smartphones is the rise of Device-as-a-Service plans worldwide. Much of the industry is closely watching this space, as rapid growth here obviously has wide-ranging impacts across technology markets.
Used Phone Growth
Used and refurbished devices aren’t a new phenomenon, but the sheer volume of devices has increased dramatically in recent years. My IDC colleagues Anthony Scarsella and Will Stofega recently published a report that takes an in-depth look at the used smartphone market. In that report, Scarcella—an industry expert who has worked in and covered the secondary market for many years—estimates that the market for secondary phones grew to over 206 million units in 2019, up from about 176 million in 2018. And he expects the market to continue to grow, reaching close to 333 million phones by 2023. (Note: The secondary market consists of used and refurbished phones.)
That’s notable growth, especially when the market for new smartphones has seen growth slow or decline in recent years. But it shouldn’t be surprising to anyone who has been paying attention. One of the key reasons this market continues to grow is that most vendor’s top-of-the-line phones have increased in price over time. The result: These flagship phones are often out of reach for a big segment of the population, and they hold substantial value years after they launch into the market.
Another driving factor is the shift from subsidy models to financing, especially as top-tier vendors have sought to utilize trade-ins as a means of easing the burden of acquiring higher-priced phones. For example, right now Apple is offering up to $500 toward the purchase of an iPhone 11 Pro when you trade in an iPhone X Max. And the company will pay for phones all the way down the list to the iPhone 6 ($20).
Many of those trade-in phones go through a refurbishment process and end up in the secondary market. A promise of recouping value incentivizes people to take good care of their phones, as they hope to recoup value from them down the road. The result is better-quality phones flowing into the secondary market, very similar to the way the rise of new-car leasing has led to the greater availability of well-maintained vehicles on the used market.
People laser-focused on new phone shipments often express concern about the sale of used phones negatively impacting the market, and it’s a legitimate concern in a growth-challenged market. But it’s also missing the forest for the trees, as the secondary market drives a wealth of positive outcomes, too. Chief among them: Ecosystem growth. Used and refurbished phones make it possible for more customers to buy phones they couldn’t afford new. In the case of Apple, that means the growth of the iOS installed base, an increasingly important metric as the company focus on selling a wide range of services, from music and TV to games and news. Plus, a used phone is still a new phone to its next owner, and they will do what most people do when they get a new phone: buy new accessories for it. So, for example, that means a large percentage of secondary market phones will have driven the sale of two (or more) cases during its lifetime.
One other interesting fact about used phones: They’re not just for consumers anymore. Research shows an increasing number of companies who buy phones for their employees are utilizing the secondary market, too. Companies that might have opted for a lower-cost, less feature-rich new phone in the past to save money are now actively looking at higher-end used phones, which often include better security and privacy technologies.
The industry has largely focused its attention on used phones, but over time I expect interest to grow across device categories. High-end tablets, such as Apple’s iPad, have long been a part of the secondary market, as have both consumer- and commercial-focused notebooks. I expect both categories to also grow in importance over time, and one of the driving factors here will be the rise of Device as a Service (DaaS). I’ve talked at length in the past about this category, where companies move away from simply buying hardware outright and instead pay a monthly fee that includes hardware as well as a bundle of software and services. Implicit in the DaaS model is a faster refresh rate that typically sees companies deploying new hardware every 24 to 36 months. I expect an increasing percentage of companies to shift over to DaaS in the coming years, and the key to success with this model is the provider’s ability to capture the residual value of those reclaimed devices. As DaaS ramps up, we should see an increase in the availability of recent model, well maintained corporate PCs, tablets, and smartphones. As with phones, this will drive a wealth of mostly positive knock-on effects for the market.
In 2020, my colleagues and I will be taking a much closer look at the entire secondary market, inclusive of PCs, tablets, and smartphones. Huge technology and market changes are coming, and we plan to explore their impacts on both the new and used segments of the market. For example, what impact will the shift to 5G smartphones have on the used market? How is the industry dealing with increased incidents of fraud (including sales of used devices as new)? What is the long-term impact of the rising labor costs to refurbish devices? How will the restricted availability of rare earth elements (REEs) critical to device production manifest itself? Each of these could have profound impacts, so we’ll be watching closely. Stay tuned.