12 Sep 2015

How Expensive Are iPhones?

We think of iPhones, or other flagship phones, as being really expensive. I certainly thought so when I bought my iPhone 5s for ₹53K in Dec 2013. But I sold it an year and half later for 23K, which means that I spent only 30K for using it, which sounds like a much lower expense than 53K.

So, the first lesson is not to look with horror at the sticker price.

If I’d sold my phone earlier, I’d have gotten more, which offsets most of the money I pay for the new phone, so the end result is that upgrading every year is cheap [1].

I would also be willing to buy a second-hand phone if it came with the same warranty as a new phone. I can overlook some minor bumps and scratches which I’d anyway have to carefully examine to notice, in the first place. Why pay more if I can get the same device for less?

Some people upgrade their phones once every two years, buying the newest phone iPhone time. But I wonder if it would be as cheap, or cheaper, if you were to upgrade every year, but buy last year’s model each time? That way, you’ll never have more than an year-old phone. 

Taking this idea one step further, imagine leasing an iPhone from Apple, with the lease being valid only until the a newer model is released in your country. After all, I wouldn’t want to pay more to be stuck with an older phone.

The conclusion of this line of thinking is renting by the month, say the latest iPhone for ₹1500 per month [2]. This is roughly the same as what I ended up paying for the iPhone 5s in my above example [3], and is therefore a fair deal.

I can stop paying the rent [4] any time I choose, and return the phone. Conversely, I can keep the phone as long as I want as long as I keep paying the rent. And the rent never goes up, since phones depreciate, not appreciate, over time.

By renting, I have to return the phone when I choose to stop paying the rent. This is fine since I have no desire to accumulate older models anyway.

There are many interesting possibilities and models of payment in something that seems as simple as buying a phone.

In summary, the cost of owning a phone is much less than the purchase price, and upgrading is much cheaper than you may think. I would also happily buy second-hand phones offered with the same warranty as new ones. There’s also room for renting, in addition to purchasing outright.

[1] I was surprised to see a study for the US market that shows that upgrading every year costs the same as upgrading every two years.

[2] It could be more initially, decreasing over time. The first instalment may be ₹10K, to compensate for the huge loss in value when you open the seal, assuming you’re getting a new phone, followed by no payments for six months.

[3] More precisely, this amount compounds at 8% interest to the difference between the purchase and sale price of my iPhone 5s above. I’m sure you can model this more accurately than in this simple example here, given merely to illustrate the point.

[4] A different form of a rent is a guaranteed buy-back value, with no penalties for wear and tear in the normal course of use.

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