Apple in Emerging Markets: Are Used iPhones Paving the Way for Cheaper iPhones?

By Josh Wolonick  FEB 11, 2013 4:23 PM

Resellers like Gazelle are hooking consumers in China and other countries to the Apple ecosystem. Plus, a fresh rumor of a cheaper iPhone.

 


There's a thriving market for used, discounted iPhones in emerging markets, even in places where Apple (NASDAQ:AAPL) isn't available, according to a story from Business Insider. This may seem unfortunate for Apple -- it's missing out on possible sales -- but it actually appears to be a plus for the firm and the brand.

Today's story on the used Apple market focuses on a company called Gazelle, founded in Boston in 2006, which buys used smartphones online, a lot of them Apple iPhones, and then sells the devices to secondary markets. Some 75% of Gazelle's products go to wholesalers, and 25% to Amazon (NASDAQ:AMZN) or eBay (NASDAQ:EBAY).

According to the CEO of the company, Israel Ganot, 50% of the wholesale inventory is sold to overseas distributors, many of them in emerging markets like China and Vietnam. By engaging new customers with Apple products, companies like Gazelle, as well as competitors NextWorth and Diggy Mobile, are indoctrinating emerging market consumers with the Apple ecosystem, with those new users of used iPhones buying songs and movies on iTunes, apps in the App Store, and perhaps preparing for the next upgrade.

The Business of Used iPhones in Emerging Markets

When you buy a new iPhone 5 in the US, you can expect to pay $200 to $400. The actual cost of the device is $600 to $800, but providers cover the rest of the cost. Using previous iPhones and prices as models, your new iPhone should be worth $200 in two years, at which point you could sell it to a company like Gazelle for $200. Gazelle then sells that iPhone to a distributor, a wholesaler, eBay, or Amazon, for $250-$350. The distributor will then sell the refurbished iPhone of $200 value for $350. Many of these $350 iPhones are purchased in China and Vietnam, where consumer would otherwise have to pay as much as the equivalent of $1,000 to $1,200 for a new phone.

A smart business, right? While Apple isn't collecting revenue from sales, it is seeing more and more consumers in emerging markets become locked into the Apple ecosystem of content and products.

It seems that this trend is catching on. According to Ganot, Gazelle’s business is up 100-120% on a year-over-year basis. And still, the company did a study and found that 51% of iPhone users simply stow their old version away when they upgrade, and 31% give away or recycle them. Apparently this business model, beneficial to consumers in the US and in emerging markets, has room to grow.

Apple may be benefiting from the sale of cheap, used iPhones, but the tech giant may still have its sights set on achieving more market share in emerging markets because…

Rumors of a Cheaper iPhone Continue

Today, analyst Brian White of Topeka Capital became the latest analyst to release a report claiming the existence of a new, cheaper iPhone. He is confident the phone will be released in 2013 and that its price will run from $250 to $350.

Here is a quote from the report:

A $250-$300 price range would also be competitive with China-based Xiaomi that offers a high-end phone experience at a mid-range price of $320 in China. We believe a $250-to-$300 price point will allow Apple to significantly expand its reach in the smart phone market and better address developing markets such as China, while opening up more opportunities in Brazil, Russia, India, and elsewhere.

Whether this is true or not, Apple has definitely been getting a lot of hype lately about its presence in emerging markets, with the potential for growth and expansion tantalizing consumers and investors.
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