John Paczkowski

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Secondary iPhone Market a Boon for AT&T, Verizon — and Apple, Too

Where do old iPhones go to die?

Some are thrown away. Others are forgotten. Still others are passed on to children and become iPods. But many find a new life with a new owner. Turns out that the secondary market for the iPhone is nearly as robust as the primary market. And it’s growing steadily larger and more important for Apple’s carrier partners, and for Apple itself.

Consumer Intelligence Research Partners (CIRP) recently surveyed the secondary iPhone market in the U.S. and found it to be thriving. Since the Oct. 14, 2011, debut of the iPhone 4S, 53 percent of new iPhone buyers have introduced their old phone into the secondary market. Of those, 49 percent were iPhones, 21 percent were BlackBerrys and 15 percent were Android devices.

Why does the secondary market skew so heavily toward the iPhone?

“We think the secondary market for the iPhone is more established, since iPhone has the longest track record for a single device/platform, and for many it is the aspirational entry-point smartphone,” CIRP co-founder Mike Levin told AllThingsD. “IPhones also had the advantage of having a useful second life as iPod touch substitutes, which made their used value a little clearer from the start. As a GSM phone, AT&T iPhones also could be [unlocked] for use on other GSM networks, so there was an early secondary market for iPhones on other carriers — though this was, of course, limited to more savvy and aggressive technology consumers.”

Now here’s where things get interesting: Among consumers who gave their old iPhone to someone else, 87 percent expected the recipient to activate it on a wireless carrier. Extrapolating from that, CIRP estimates that 11 percent of iPhone activations since the launch of the iPhone 4S, on Oct. 14, 2011, have been used iPhones.

That’s a significant number for a few reasons: It explains the discrepancy we sometimes see between carrier activation numbers and iPhone sales. And it allows CIRP to put a value on secondary market iPhone activations — activations for which AT&T and Verizon, the two carriers with the most legacy iPhones on their networks — aren’t subsidizing hardware.

The research firm believes that, for every used iPhone that carriers activate, they save around $400. In the fourth quarter of 2011 alone, CIRP figures that secondary-market activations saved AT&T and Verizon between $400 million and $800 million in subsidy costs.

So a thriving secondary market for iPhones, or any smartphone for that matter, is good news for the carriers.

But what about Apple? Every iPhone purchased on the secondary market is one that’s not bought at full retail price from Apple or one of its partners. There’s got to be some harm there, even if it’s only minor.

“We think the secondary market is both detrimental and beneficial to Apple,” said Levin. “It hurts Apple because it creates competition for new iPhones, which we see in the relatively modest sales of reduced-price iPhone 4 and free iPhone 3G units. But it also benefits the company because used iPhone customers aspire to own the newest and best iPhone, so they are likely future new phone customers. In fact, they are likely new entrants to the Apple ecosystem, who otherwise would not have found a way in.”

And every new entrant to the Apple ecosystem is another potential customer for the company’s iTunes Store. That, too, is good news for Apple, and for app developers and content creators.

“Secondary-market iPhone owners are new content and app consumers,” said Levin. “We don’t know if these customers have the same budget for content compared to new iPhone customers, but reactivated iPhones will more likely consume content and download apps than forgotten old phones left in drawers.”

In other words, the secondary iPhone market is doing far more good than bad for the broader ecosystem.

“It makes me think of an analogy from the used-car market: It’s not perfect, but it’s not bad, either,” said Levin. “In the early days, used cars cannibalized new-car sales, but now they create brand loyalty in customers that can’t afford new cars, and they create a new revenue stream in repairs and accessories for the original manufacturer.”

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