As the head of a company that sells used consumer electronics, David Chen follows sales of the iPhone with the precision of a mathematician. At the outset, the price of the first version of Apple's (AAPL) music-playing wireless device behaved as expected: When the newer iPhone 3G hit store shelves, demand for the earlier iteration plummeted. Then the unexpected happened.
Within days of the iPhone 3G launch, demand for used, older iPhone models began rising, and prices began a steady climb. "We've been raising our prices over the past few weeks," says Chen, who runs NextWorth.com, a Web site that buys and resells used iPhones and iPods. "It's an anomaly, but there's still a lot of demand for the first-generation [device]." As of Aug. 26, NextWorth Solutions was paying $200 and $300 respectively for gently-used, 8-Gigabyte and 16-GB original iPhone models. That's up $50 from what his company paid a month earlier—and at the high end, on par with the price of a new 16-GB version of iPhone 3G—for the latest iteration of the iPhone, with more features and faster download speeds.
The used devices fetch an even higher price, of course, when they're sold to a consumer. On e-commerce site eBay (EBAY), where NextWorth peddles many of its wares, a 16-GB version of the first-generation iPhone goes for about $600, and an 8-GB model in good condition commands $500. When it was new, the 16-GB phone sold for $499; the 8-GB model went for $399. Today, AT&T's (T) most expensive iPhone 3G model sells for $300 with a two-year service contract. "The old iPhone [in mint condition] is very hard to find," says Shawn Zade, who sells mobile phones through New York-based WirelessImports.com. "There's a lot of demand."
Bustling Competition
Why pay a premium for an older, less advanced model? Some users simply don't want to be tied to a long-term contract with AT&T, the only authorized iPhone carrier in the U.S. The old phones can be unlocked fairly easily, making it possible for people to choose another carrier or to simply use the device with no charge at Wi-Fi hot spots. A method to reliably unlock the iPhone 3G still hasn't been found, Zade says.
Owning the old model also helps users avoid the connectivity glitches (BusinessWeek.com, 8/14/08) that recently forced Apple to push a software update for its phone. Some folks just don't do much comparison shopping, says Lidija Polutnik, a macroeconomics professor at Babson College, who also is an advisor to NextWorth. "When you go into the used gadget market, there's a lot of impulse buying," Polutnik says.
Whatever the reason, sales of the old iPhone are booming, and plenty of other companies besides NextWorth want in on the resale action. Many are striking trade-in agreements with retail stores like Circuit City (CC) to accept old iPhones on the spot. Some have powerful backers: One of NextWorth's board members is Stephen Spinelli, Philadelphia University's president and a co-founder of oil-service chain Jiffy Lube.
Even an Eco Pitch
Others are using complex problem-solving algorithms to make sure they can respond to swings in demand for the device and set prices accordingly. Flipswap uses a formula that adjusts prices in real time, based on sales data from the company's worldwide network of stores and buyers. NextWorth relies on an algorithm developed by MBA students and Polutnik at Babson College. The algorithm uses data such as an iPhone's storage capacity and extent of wear, as well as traffic to NextWorth's site and partner stores, to spit out the going price for your model right on the site's online calculator.
Some startups are relying on more than money to bring in sellers. Trade2save, due to launch in September, will not only pay for your old iPhone but also give you "carbon points" that can be used to buy other used products from the site, such as other phones. "When a customer trades in their iPhone, someone else will buy it instead of buying new," Trade2save CEO Chris Whittome writes in an e-mail. "Hence they will be saving money, and saving on the environment because they reduce the demand on manufacturing another unit."
The appeal of a used phone may be especially high outside the U.S. American consumers favor new gadgets, but overseas buyers are less averse to used phones. Flipswap, for instance, sends all of its iPhones to dealers in South America. "For a used phone, there's not as much stigma in South America as in the U.S.," says Flipswap CEO Sohrob Farudi. "They don't worry about its being used."
If enough consumers opt for used rather than new devices, Apple CEO "Steve Jobs [may have] a big problem," Whittome of Trade2save adds. Well, yes and no. Apple refreshes its product lineup on a regular basis, giving consumers a growing list of alternatives to dated devices that in any case won't remain gently used forever.
Farudi and his peers are enjoying the boom, however long it lasts. "When the iPhone 3G came out, we've continued to grow," he says. "It's been very good for our business."
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