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Apple Inc.'s Pattern of Rip-Offs Forces Customers to Buy New or Pay Up

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It's a bad tactic for users and the environment, but great for shareholders.

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Before the September 10 event when Apple (NASDAQ:AAPL) unveiled the pricing for the new iPhone line, investors both hoped and worried about the new "cheap" iPhone analysts were expecting.

On one hand, everyone was aware that Apple trails its rivals in emerging markets where its devices cost exorbitant amounts of money. A low-cost device could really help it compete in countries like China, where subsidies for phones aren't the norm. On the other hand, a cheaper device would wreck the sky-high margins that make the company so successful.

With the 5C, Apple clearly avoided losing those margins. The "cheap" phone is only $100 cheaper than the premium product at $549. If the $207 iPhone 5 production price is any guide, Apple is still making a killing on each phone.

But another word for "high margins" is "rip-off." This has been on my mind since Wednesday when Mike Schuster wrote for Minyanville about the iOS 7 upgrade, and how third-party charger cables no longer work (see: Apple Whips iPhone Users With Their Own Third-Party Cables). If you bought a non-Apple charger, you are out of luck and you have no choice but to buy a new one, from Apple of course. The cable is $19, plus another $19 for a 5- or 12-watt wall charger. As Diane Bullock pointed out, it costs only $1.36 to produce the $19 cable (see: Why Apple's USB Takeback Program Is a Self-Serving Sales Stunt).

Almost all Android (NASDAQ:GOOG) phones use the micro USB standard cable that anyone can produce. It's a commodity. You can get one online for about a buck.

The same issue goes for laptop chargers. You can get a spare charger for some Windows (NASDAQ:MSFT) PCs for less than $10.

For a Mac, the proprietary connector costs $79. No negotiating there. You either buy it or your computer is a brick.

It isn't just chargers. This week, Bloomberg's Adam Minter wrote about another simple but insidious Apple rip-off. According to iFixit, the iPhone battery is secured with glue, making it very difficult for even an expert to replace the battery. Most users will just throw their hands up and pay for a new phone. (If they can stand going a week without Candy Crush and texting, customers can mail in their phones and pay $79 plus shipping for a new battery.) For most other smartphones, you can buy or order a battery and install it with your fingers for much less.

"How does Apple get away with manufacturing a phone effectively designed to last only as long as its battery and still maintain the aura of a progressive, environmentally minded company?" Minter asks.

Difficult to dissemble means difficult (or even impossible) to repair or recycle. And there is money to be made in repairing durable consumer items, but it seems like Apple would rather you just buy another phone.

Apple has also made it harder to fix or upgrade data storage. The price per gigabyte for all types of data storage is getting much cheaper. After the Thailand floods of 2011, prices spiked, but now they are much lower.

Flash storage, the type used by the iPhone and iPad is more expensive than regular hard-drive storage, but not that expensive. Going by year-old estimates from IHS Supply via ZDNet (which are definitely overshooting today's NAND Flash storage costs) the difference between the 32- and 16-gigabyte storage on the iPhone is $10.40. For that, Apple charges you an extra $100. An extra $100 doubles your storage again, but it only costs Apple an extra $20.80 for the memory.

If you are buying a $649 phone, you go big or go home. You can't opt to expand your memory later with a cheap micro SD card like you can with any other phone.

For the Retina display MacBook Pros, consumers are facing the same raw deal. iFixit found soldered-in RAM, a glued-in battery, and a display fused in. You would have an easier time replacing your liver. For most machines, such an upgrade is cheap and straightforward.

"Even though it packs lots of gee-whiz bells and whistles, we were thoroughly disappointed when we ventured inside," the folks at iFixit told Apple Insider. "This is, to date, the least repairable laptop we've taken apart. Apple has packed all of the things we hate into one beautiful little package."

This is great for Apple, because any problem with the display or trackpad probably means you need a brand new computer. And if you want more memory, you can't just get it for another $50 or so from a company like Crucial.

Imagine if you needed a new spark plug for your car, but had no choice but to buy a new vehicle or send it away for an overpriced proprietary part?

Margin-juicing schemes like this are amazing for the company and it keeps their legendary profits coming in -- but at the expense of users and the environment. You might think of it as a luxury strategy rather than a rip-off, but it's certainly puzzling that we still regard Apple as a corporation worthy of love.

Twitter: @vincent_trivett
No positions in stocks mentioned.
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