Apple to kick off in-store iPhone trade-in deals to spur sales

Current buy-back vendors like Gazelle and NextWorth not worried, see the move as a 'float-all-boats' opportunity

Apple will launch its own iPhone trade-in program this month, exchanging older iPhones for in-store credit, according to Bloomberg and other sources.

Companies already active in "re-commerce" -- the buying of used consumer electronics like smartphones and tablets, primarily in developed countries, then refurbishing them for resale in less affluent markets -- took Apple's entry in stride, at least on the surface.

"The biggest challenge to re-commerce is consumer awareness," said Israel Ganot, chief executive of Gazelle, a Cambridge, Mass. firm that buys used smartphones and tablets. "Apple's entry would be a huge validation of re-commerce. They're going to change consumer behavior and make it much more mainstream to sell your old iPhone."

Glyde.com, a company founded by former eBay executives that is also in the buy-back business, echoed Ganot. "We think this is great in that more consumers will see that their used devices still hold significant value," a company spokesman said in an email.

On Thursday, Bloomberg, citing unnamed sources, said Apple would debut the trade-in program this month. Consumers will hand over used iPhones to Apple at the company's retail stores, said the news service, and the phones will be re-sold in developing markets by Miami-based Brightstar, a buy-back firm that has partnered with scores of retailers -- including Wal-Mart and Target -- and carriers, such as AT&T and Verizon.

Bloomberg did not say whether Apple will offer cash or in-house credit -- the company already has an online re-purchase program that exchanges iPhones for Apple gift cards -- but Ganot said he understood that Apple would continue to swap hardware for the spend-only-with-Apple gift cards.

Ganot had expected Apple's move. "We've thought they would do this for some time," he said. "It makes sense for them."

Apple's motivation, Ganot speculated, is to drive new iPhone sales by making trade-ins easier for current customers as the replacement market dominates developed countries. "By essentially providing a 'discount' for new iPhones, they can accelerate sales and drive up their share in places like the U.S., where the smartphone market is getting saturated," Ganot said.

According to a recent survey by the Pew Research Center, 56% of American adults now own a smartphone.

And there are more than enough older iPhones gathering dust -- and buyers in developing countries eager to get their hands on a less-expensive iPhone -- to keep third-party traders in business, even with Apple's entry, Ganot maintained.

Only about 20% of U.S. consumers buy a smartphone after trading in an earlier model, Ganot estimated. In the U.K., he said, where trade-ins are a more established practice, that number is closer to 30% among younger users. While not everyone will trade in, Ganot said it's not unreasonable to assume that the smartphone sell-back market could reach the same 40%-50% of new car purchases that involve a trade-in.

And on the demand side, there's no sign of flagging interest in the iPhone, or at least a cheaper one, in Asia, Africa and South America. "The shift from feature phones to smartphones is massive," Ganot said, "and it clearly is not going to be met by production. That said, as people migrate from feature phones to smartphones, Apple wants their first smartphone to be an iPhone, because once you own one, you're in the ecosystem and you're more likely to stay loyal to it."

Both Ganot and Glyde.com believe their business is secure from any Apple decision to enter the market. "We're an online player," noted Ganot. "A quarter of all consumers buy their iPhones online, and at product release time, the number goes up to over 30%. The likelihood of those people bringing their [older] phones to a store, waiting in line, is low. So we're in a good position."

However, Gazelle may have trouble competing with Apple on price. Apple's current online-only buy-back program, which may hint at how much the company would hand over in credit for an in-store exchange, will pay $221 for an AT&T 16GB iPhone 4S, while Gazelle shows a buy-back of between $205 and $215 for the same phone.

NextWorth, another iPhone buyer, will pay $219 for that phone, and Glyde.com, which takes a 10% commission, suggests that sellers list the AT&T 16GB iPhone 4S at $269 on its sellers-meet-buyers board.

Even so, Ganot is optimistic about Gazelle's chances as Apple steps into the business.

"There's an insatiable demand for the iPhone in [developing] markets, like Asia, Africa and Latin America, which still don't have a lower-priced iPhone," Ganot said. "[True] the competition is very dynamic, but an increase in size [of the buy-back market] will float all boats, including our boat."

Apple already runs a trade-in program, but it's online only. It pays top dollar: $221 for the same iPhone 4S that Gazelle, for instance, pays $205-$215.

This article, Apple to kick off in-store iPhone trade-in deals to spur sales, was originally published at Computerworld.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com.

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This story, "Apple to kick off in-store iPhone trade-in deals to spur sales" was originally published by Computerworld.

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