Investing Strategies for iPhone Customers

iPhone 3GHurray for the iPhone 3G! Really, I’m not mad. I’m kind of excited that 3G is finally coming to the iPhone, and I harbor sufficiently little ill will against Apple for so dramatically lowering the cost of entry to their iPhone platform that I may even go ahead and buy one for myself when it’s released next month.

Looking back at the original iPhone and how that’s worked out, I realize that if there’s anyone that I should be mad at, it’s me. It’s no secret that the value of digital hardware drops precipitously. I guess what’s so surprising — or galling, to many — is just how precipitously the value of an original iPhone, bought in June of last year, has dropped in just twelve months. Take a look at this chart I cooked up.

Fair Market Devalue

The Decline in Value of My iPhone

Almost exactly a year ago, my then new 8GB iPhone was worth US$599. Now, as soon as you walk any hardware purchase out of the store, it begins to decrease in value, but many of us were shocked when, in September (marked with a blue A) Apple lowered its price by a couple of Benjamins to US$399. Ouch. But as I said at the time, it was an inevitability.

Five months later, in February of this year (B), Apple released a 16GB version of the phone for just US$499. Technically, the price of my 8GB model didn’t change. But at least in my mind, that release caused the value of a used, eight month-old, 8GB model to drop at least a hundred dollars on any resale market.

Today came the kicker (C). A brand new, 16GB iPhone 3G — faster, sleeker, better — was announced at the paltry price of US$299. Ouch. And the 8GB model comes in at the near-giveaway price of US$199. Generously speaking, my iPhone is probably worth no more than US$100 now.

A Bad Investment Opportunity That Knocks Twice

Like I said, this comes with the territory. The “early adopter tax,” is how most people refer to it. I can accept that painful but predictable phenomenon to a certain extent, but here’s where it really hurts. Take a look at the price of Apple stock over the past year, and note that the value of my iPhone is now way less than just one share of AAPL.

iPhone v1 vs. AAPL

It’s certainly not as steep a trend as my iPhone’s devaluation, but it’s significant. In the year since I bought my first iPhone, AAPL has gained roughly 50% in value. If I’d spent that original US$599 on Apple stock instead, I’d be able to buy a new iPhone 3G and have about US$599 in assets to my name. Oh well.

  1. Good analysis.

    However, I hear Apple and AT&T are enforcing new rules for iPhone activation. Penalties after 30 days if not activated, stuff like that.

    But in theory, if there’s a big enough demand for iPhone not tied to a contract (if I, for instance, upgrade, my old iPhone would be free of a contract) then you could possibly sell it on the seedier places of the internet for more than a new 3G iPhone. Of course, then you’d have to pay 10 more dollars a month.

  2. great points all around, khoi. the big idea here is that most consumables depreciate in value over time, rather considerably often to zero, given the frequency of new product releases and our ‘gotta have the next cool thing’ culture. your AAPL example is terrific in that the price of the object in question fits in the same relative dollar scale as the AAPL stock price, so the graphical representation is pretty powerful. i wonder what it will take to convince billions of everyday consumers to compare the value of the consumable (depreciating asset) versus the value of the stock, assuming the producer is publicly traded. stock, of course can either appreciate OR depreciate in value, but the important thing is that one has a bit more control over the outcome in a stock trade. i hope this post of yours gets a lot of attention, khoi. nice job.

  3. Great post, Khoi. You’ve been less frequent over the past month or two (as you’ve alluded to in your writing), but you definitely make your posts worth it – it’s obvious you’re invested in doing a great/thorough job and you should be commended for all the effort you put in here at Subtraction.

    I’ve waited for an iPhone for the very reasons you state, but I think I may now make the leap. The prices are pretty great when it comes to bang-for-buck.

    Also a very happy AAPL owner here… it’s been a great ride over the past couple of years. I’m having trouble deciding when to sell. Everything they have planned (like the worldwide rollout of iPhone 2.0) points to a massive continued upside. Time will tell, I guess.

  4. There’s one thing to keep in mind, though AT&T is raising the price for data transfer by $10/month, so over the course of a 2-year contract, an iPhone 3G owner will pay an extra $240 in monthly bills. So, just remember that when you’re thinking of the $200 drop. 😉

  5. Khoi, if it’s of any consolation – in Europe, we waited much longer for the introduction of the iPhone. When I bought mine – first in store, on Nov 9, 2007 – I paid 499 Euro. The 16 GB version was introduced soon, and now this. The European curve is much steeper… Ouch.

  6. Someone may have mentioned it above, but had you bought AAPL instead, you would have been without a phone. Or, bought another, cheaper one instead – a year of phone unhappiness.

  7. I don’t think your assessment is quite accurate. From what I’ve read, if you want to buy an iphone now, you have to activate at the store during purchase. You CAN NOT activate over itunes like before.

  8. math

    Do the math. 8GB = $200 + $240 (2 years of $10/mo additional) additional data = $540.

    So you saved what, $60 if you held out for this?…not a big deal.

  9. I actually just sold my 8GB iPhone last night for 300$. I got it last summer. And when I heard the keynote yesterday (and the iPhone 3G price) I said ‘Hey, I can sell my iPhone right now, make 300$ for it, and then buy a brand new one next month for 200$. And turn a profit’

    And that’s what I did. You wouldn’t believe what iPhones are still going for on Craigslist (I’m in Canada, btw).

  10. Just a reminder for those people point out the $240 yearly raise in the contract fee for 3G: yes it’s an increase. It’s also a faster service. It would be outrageous to charge more for the same service, but in this case, you are getting something in return. Customers aren’t getting completely ripped off.

  11. Yeah 3G is faster, but if you live in the US unless you spend the majority of your time in large cities you won’t even be on a 3G network as fast as the one demonstrated in the Keynote. In many of the smaller cities that aren’t connected to a big metropolitan area AT&T’s 3G network is not that much faster than EDGE. Let’s not mention that the majority of the country doesn’t even have a 3G network. I don’t have one where I live, and I live in one of the major cities in Louisiana.

    Someone living here enticed by the lower sticker price who doesn’t travel to Baton Rouge (the closest city with a speedy 3G network), Dallas, or Houston won’t get any benefit out of the 3G features of the new iPhone and will have to pay the extra money per month for that, eventually perhaps paying more than I did for my iPhone last year.

  12. There was no price drop this last time, though. (In fact, if anything it’s a price increase.) They just reworked the matter to be more like the carriers’ S.O.P., so the costs aren’t as front-ended as they were before.

    It’s a public perception shift only, because for whatever reason the whole ‘being cheaper than a FREE smartphone from Verizon on a data plan over the first two years alone’ didn’t stop everyone from thinking the initial price was too damn expensive. (In fact, I rather think the initial price drop of the iPhone may have come as much from internal re-jiggering of their carrier contracts as it did from cost savings and ramping up production.)

  13. Do the math. 8GB = $200 + $240 (2 years of $10/mo additional) additional data = $540.

    So you saved what, $60 if you held out for this?…not a big deal.

    also, SMS is not included anymore, so that’s another +$5/mo or +$15/mo which means you’re saving a bit more.


  14. Do the math. 8GB = $200 + $240 (2 years of $10/mo additional) additional data = $540.

    So you saved what, $60 if you held out for this?…not a big deal.

    Doing the math, $200 + $240 = $440, a $160 savings.

    Still, it’s not too much considering in one case I had an iPhone for a year and in the other case, I spent a year fiddling with the terrible interface on my Verizon RAZR.

  15. This article is just wrong. 8GB iPhones were going for $600 on eBay last month, $500 last week, and $400 still right now, mostly to Europe– I know because I sold a few.

  16. Nice analysis, Khoi. FWIW, I bought on day 1 and am not at all upset with the investment made. What annoys me is that Apple didn’t make any upgrade to the size of the HD. I wish they would have realized that I would have paid a lot more than $300 to have 32GB or 64GB. I suspect they’re going to drop a 32GB in time for the holidays, since they already have the chip in the in the iPod Touch.

  17. Yes, but how much was using an iPhone for a year worth? Surely quite a bit. Seems like an interesting but fundamentally flawed thought experiment.

  18. The cost of your year’s experience with the iPhone interface, from your research, then, is $500. If you’d have bought a $2500 MacBookPro, you’d not be able to sell it for $2000 , and you’d not have gleaned nearly as much as you got from the iPhone. I traveled to two foreign countries with mine (Canada counts, right?), navigated from the rear seat of cabs and cars while others were using traditional GPS units, getting better data from the web, edited databases while standing at the gate in response to emails I would not have seen, and did a dozen other things that gave me a strategic edge. I could have sat still in the backwater with my Symbian phone, hoped for more from Palm, or bowed to Redmond. I think I made the right choice, and $500 was cheap for the experience.

  19. Truly good charts – nice one. Were these created in a charting application or drawing software? I’m inspired and would like to know more… S.

  20. I think there still might be opportunity to sell some of the second hand iPhones to countries that aren’t getting the iPhone. It might be hard to get the 3G with the new activation restrictions. I live in Shenzhen and have contacts in China selling iPhones. if you want to sell them follow the link to my site and get in contact with me.

  21. Has anyone seen Sex And The City – the iPhone gets a great bit of anti-product placement in that. Carrie gets handed an iPhone and says she has no idea how to use it and goes for a regular cellphone instead. Ouch.

  22. While yes, you would have been able to get the new iPhone (in another month) and have $599, you also would not have had an iPhone for the entire year. There has to be value (and cachet) attached to that. (And the value and cachet attached to having the original iPhone is/was far more than it will be with the new one. The Early Adopter Tax sometimes does come with benefits.)

  23. Prepaid iPhones 2.0 will be 499 Euros in Italy. That’s not that much cheaper than the prepaid iPhone 1.0, which costs 625 Euros in France.

    If you put in the higher rates for your contract in the US I think the result is similar.

    Btw the best way to ‘save’ you from this: Just buy a new iPhone 2.0, now that it’s so incredibly cheap. It’s a bit too much to expect a price drop for the new version AND expect the price for the old version to stay high …

  24. I’m sorry but you guys are not counting the total cost correctly.

    Original iPhone – $599 + ($60 x 24) = $2040.

    3G iPhone = $199 + ($70 x 24) = 1880.

    You are still saving and you get better service, better features, etc.

    Just my 2 cents.

  25. Don’t be surprised if your old iPhone has a sudden rise in value. There are vast areas of the US that don’t have any 3G service. There’s no 3G in my state, nor in any adjacent state. So for those of us without any access to 3G, an original iPhone is actually MORE valuable than the new one, since we don’t have to pay for the $30/month data plan, we can use the old $20/mo plan.

  26. Great post.

    I think for those of us so used to the Apple hardware cycle (which tends to have products that stay a little more current than their PC counterparts – ie a line is carried for quite a while in very similar incarnations), the mobile world is a daunting one. Typically devices will be superseded by others in the next quarter. The relentless constant release of updates and features and the ever-more-demanding consumer is couple with (until the iPhone and soon Android) devices that can’t easily have new features added to them.

    In case anyone missed it, the epitome of this curse (though I look forward to the iPhone 3G’s release here in Canada) is the Japanese cell phone market. Wired took a semi-humorous look at it a week ago. You can find the article here:

    Incomprehensible complexity is not a feature in my book. But in Japan it is so SUPER FANTASTIC FUN TIME.

  27. The cost of the new iphone G3- will actually be about $20 or $30 dollars more (over two years) when you add in the cost of the new contractual obligations with the higher data fees. The older contracts had lower fees. Apple is getting an upfront kickback from AT&T.

  28. Well, a cell phone is not a great investment these days, or ever. When I get one, I count on it being worthless, or breaking, by the time I get a new one, but one year is not long enough. Two years is more like it. Have you ever had a phone worth anything when you upgraded to the next one?

    So what is one to do?

    While I really want the 3G speed, I could do without the GPS. Is it worth 3G to be forced into another $300 phone purchase and adding a year and at least $10 per month onto my ATT contract (even though I do not get a signal in both of the locations where I’m currently working)?

  29. I have not purchased the IPhone just yet. I am currently reading the feedback everyone has so diligently posted on various websites. I must say this website gave the most in site. I do have questions in my mind. In the past I was a ATT customer, and I changed to Verizon. I had trouble with my services. I couldn’t get calls in or out. I could not make or receive calls inside stores. Is anyone having this trouble since having services with ATT’s IPhones? I am considering going to the store and purchasing the Iphone. After reading the feedback today I am discovering that I maybe in one of the areas that can’t receive the additional features everyone talked about.

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