2016.03.25 00:00 | Kurt Tomlinson
Apple recently made headlines for its newly unveiled "Apple Renew" program. What is it? It's a buyback program for old Apple products. Why are they doing it? According to Apple, it's good for the environment, and it rewards their customers for recycling their phones with cash. Really, it's just another way to increase revenue.
Is it really a coincidence that Apple unveils plans to buy back old iPhones on the same day that it launches the lowest-priced iPhone ever, the iPhone SE? Nope.
Let's start with a little bit of history. The iPhone SE replaced the iPhone 5S as only new 4-inch iPhone being sold directly from Apple in March, 2016. Before the iPhone SE was revealed, a new, unlocked 16 GB iPhone 5S sold for $450. On eBay, a used 16 GB iPhone 5S went for around $180-300 depending on its condition. In March, 2016, the iPhone 5S was replaced with the $400 iPhone SE.
Before the iPhone SE was released, people looking to buy an entry-level iPhone (or just any 4-inch iPhone) were probably trying to choose between buying a used iPhone 5S for $250 or a new iPhone 5S for $450. That's a pretty big premium to pay for a new phone over a used phone, but the Apple ecosystem is able to support it because of its luxury branding.
However, things change dramatically when the iPhone SE enters the picture. Now, consumers have to choose between a used iPhone 5S with internals that are 2.5 years out of date or a phone with an identical exterior, a much better camera, and an up-to-date processor. On top of all that, the new model only costs $400, the lowest a new, off-contract iPhone has ever cost. Now imagine what that will do to the resale value of the iPhone 5S. The iPhone 5S resale value would absolutely plummet. The price premium between a used iPhone 5S and the equivalent new iPhone drops by $50, and the opportunity cost of going with the used phone has increased because the new iPhone is faster and has a better camera. Additionally, the supply of used iPhone 5S phones would increase as the Apple faithful upgrade to the newest 4-inch iPhone, and increased supply causes additional downward pressure on the resale value. The resale value of the iPhone 5S would instantly drop by $50 to $150.
This pushes the cost of a used iPhone 5S down to $130 to $250, conservatively, or $100 to $220 in a more realistic scenario.
Each iteration of the iPhone has been successively less revolutionary, and this makes consumers desire the latest and greatest iPhone less and less. It's more and more common for people to stick with their iPhones for longer because there are fewer compelling reasons to upgrade now than in the past.
Consumers, faced with choosing to buy a $100 iPhone 5S or a $400 iPhone SE would shun the new phone in droves. Who wouldn't want a relatively recent, off-contract, iPhone for $100? Apple's iPhone sales have been growing more slower as of lately, and the huge supply of cheap, used iPhones has been a huge drag on Apple's main source of revenue: new iPhone sales.
So, if you're Apple, how do you stop used iPhones from eating into your new iPhone sales numbers? Simple, you put a cap on the minimum value resale value of your used phones. Apple did this in a brilliant marketing maneuver where their true intentions are hidden, and the public applauds them for being an environmentally green company: the Apple Renew program pays $150 for a used iPhone 5S. This program does two things for Apple. It increases the lower limit for the price of a used iPhone to a hard $150, and it reduces the number of used iPhones in circulation in the used iPhone market.
The lower limit supports the price of used iPhones, and the reduced number of used iPhones in circulation reduces used iPhone supply. Both put upward pressure on the price of used iPhones.
Now, the consumer looking to get an entry-level iPhone or just a 4-inch iPhone has the much easier choice of buying a used iPhone with a 2.5 year old design in sometimes unknown condition (when buying online) for about $250, or a brand new iPhone SE. Given the much smaller gap in price between the used iPhone 5S and the new iPhone SE as well as the spec differences in the two models, many consumers will choose to buy a new iPhone SE.
The end result? Huge numbers of iPhones sold. Who knows if Apple's profit will increase because of this move or not? Maybe the cost of running the Apple Renew program will eat most of the revenue gained by selling more new iPhones. Maybe it won't.
What's certain is that Apple will sell record numbers of iPhones and achieve record levels of revenue for another year. And that's all that matters to shareholders. In the end, Apple is just a company that's trying to make as much money as possible for its shareholders. If it can earn a positive image as a green company while doing so, then that's just icing on the cake.
Note: I'm sure the good people working at Apple do care about the environment. The main point I'm trying to make is that Apple is just a company, and anthropomorphizing it and believing that it "cares" about the environment is naive. Companies are nothing more than legal entities that don't have the capacity to care about anything. In this situation, as in most situations in life, there is a level of nuance that isn't always readily apparent. My goal in writing this was solely to share my observations on a piece of marketing that I found to be particularly well executed.
Photo by Yagan Kiely