Do Second-Hand Apples Taste as Sweet?

Quite the contrary. Used iPhones, and iPods as well, are finding a ready market for refurbished Apple (Nasdaq: AAPL) products.

But it really is an Apple marketplace.

"I don't see any other brand being able to build that kind of market in refurbished products," In-Stat analyst Stephanie Ethier told MacNewsWorld. "Apple is the only brand I see being able to pull off something like that. I don't see any other brand being able to have that kind of following for refurbished products."

Apple, she said, has generated a kind of cult cool status that other brands just can't duplicate.

"Generally, here in the U.S., the iPod cool factor is something that continues to drive Apple's success, whether it's with a next-generation iPhone or iPod touch," Ethier said. "It's such a phenomenon that everyone seems to be wondering what's coming next."

Seizing the Market

Indeed, as Piper Jaffray analyst Gene Munster said recently to clients, if Apple sells nearly 4.5 million iPhones in its fourth fiscal quarter, then the market for previously used iPhones appears set to grow.

Some companies are preparing for an onslaught of such ready buyers.

Kalamazoo, Mich.-based Rapid Repair, which got its start four years ago as an iPod -- and later, iPhone -- fix-it shop, has seen the potential for big profits in the market for used Apple items.

"We certainly do handle those items," Aaron Vronkok, service manager with Rapid Repair, told MacNewsWorld. "We've been offering repair services for iPods since March. Since the beginning, we started buying broken ones. We'll service them in a large batch. We'll take and sell those refurbs on eBay (Nasdaq: EBAY) some other site."

When the iPhone 3G made its debut July 11, Rapid Repair decided to buy up all the used first-generation units it could, to recondition and resell.

Features and Freedom

What they may not have needed, however, was the AT&T (NYSE: T) service that comes bundled, by contract, with the iPhone 3G, Vronkok said.

"One of the biggest changes was AT&T was officially subsidizing the phone, and they wouldn't let you buy them without a contract," Vronkok said. "Anyone who wants an iPhone has to go through AT&T and all the hassle and contracts and all that."

Customers hungry for an iPhone who don't necessarily want any of the mandatory extras that come with the 3G could look to the secondary market, Vronkok said.

"Some would go to consumer-to-consumer sites like eBay," he said. "We decided to facilitate that secondary market and offer both buyers and sellers an option of where they can get their iPhones bought and sold."

The company's used iPhone business is still, more or less, in the gestation stage, the next-gen units having been on the market for less than two months, Vronkok said.

"Right now we're in the stage where we're just trying to buy a lot of them," Vronkok said. "We actually have an official iPhone buyback program for fully functional first-generation iPhones."

The company offers flat rates of US$100, $150 and $200 for 4-, 8- and 16-gigabyte used iPhones, Vronkok said.

"We've had a ton of response, a lot of people submitting information," he said.

Just Get Rid of It

Rapid Repair tries to make the process as easy as possible for sellers eager to unload their old units, Vronkok said.

"We're also providing free shipping," he said. "Basically, they just go to the Web site, hit the iPhone buyback link, fill in the information. And, when they submit it, we'll e-mail them a shipping label for them to send it to us. You just pack it up safely and ship it to us. We'll verify everything and write them a check."

He says it's the simplest way for sellers to dispose of their old iPhones.

"If you'e looking to upgrade to the new iPhone and you already have a contract with AT&T, that covers most of that," he said. "It's really easy, and you're working with a reliable vendor."

For non-AT&T customers, moving to a first-generation iPhone enables customers to keep their old services, Vronkok said.

"It's a simple process," he said.

And, he added, it's a cheaper alternative.

"It's less expensive, for sure," he said. "Although its only $200 for a new iPhone in the store, there's a hidden subsidy. You've got $40 a month for the basic phone service, and $30 for (Web connection) and $5 a month for 200 text messages.

"By the time you have taxes and fees, it's probably $85 a month for 450 minutes. Most people are probably spending $100 for more. So, even though the phone itself is technically cheap, there are a lot of hidden costs there."

With an used iPhone that's been unlocked, a customer could end up paying less than $50 per month if they chose not to use a data plan.

Computers? Not So Much

The market for used Apple computers, however, isn't nearly as hot, Vronkok said.

"There's always more problems in selling used computer equipment. It doesn't move as fast, it's not as portable, even with the laptops," he said. "Most people are going to want to keep a laptop for at least two years. After that, it's not a lot of use to somebody else. The main function of the iPod, on the other hand, is that it plays music. Laptops built in 2001 would no longer run the kinds of applications needed to run today.

"I think people are more likely to keep the device, with computers, through its useful life, until its core functionality is reduced."

But the market for used devices like iPhones and iPods is potentially lucrative, said Jack Gold, founder and principal analyst J. Gold Associates.

"There's always going to be a market for a hot product, used or otherwise," Gold told MacNewsWorld.

There are two reasons, Gold said.

"One is, I want to keep up with the latest gadgets," he said. "Two, there are folks that aren't going to spend $300 to $400 and will buy the cheaper product, if it's available and has basically the same functionality. A lot of the used ones are being shipped out of the country. There has always been a great market for popular products. Sometimes they're old. If you can buy a used iPod or iPhone for a cost that's reasonable and take it somewhere else and sell it for a $100 profit, why not? It's not like you're shipping a car or something like that, so I suspect a lot of that may be happening. The guys playing in that market would know how to unlock that market."