iPhone Resale Market Takes Off, But is It a Safe Road to Take?

The iPhone 4 certainly drew its share of oohs and ahhs when Apple CEO Steve Jobs unveiled it last week, all but guaranteeing a sellout when it hits the stores on June 24. With millions of 3G customers about to finish up their two-year contract, they are ready to upgrade, as are 3GS users, whose phone pales in a feature comparison to the new iPhone 4.

In the past, such phones would wind up as hand-me-downs to a family member or colleague, be recycled, or tossed in a closet. But there has been an explosion in buybacks through sites like Gazelle, FlipSwap, Cell for Cash, NextWorth and YouRenew, which are paying some very good prices for a phone that's a few years old.

An iPhone 3G 8GB model sold for $199 with two-year contract in 2008. Yet FlipSwap offers $140 for it, Gazelle $126. A 16GB 3GS would fetch around $228 when it went for $299 new and has just been cut to $249. Some of these companies ask about the condition of the phone and whether you have extras like the headphone wires and power plug.

A spokesperson for Gazelle told InformationWeek that the company received more than 1,000 trade-in requests for the iPhone 3GS on the day Jobs announced the iPhone 4. By contrast, there were 141 trade-in requests when the 3GS was announced last year, making for a 700 percent increase this year.

The spokesperson added that the 3GS in general represents 65 percent of trades, "which is much higher than we thought it would be." That's because a 3GS is going to be at best a year-old, so the customer is still under a two-year contract and will likely have to pay a steep early termination fee with AT&T to switch to the iPhone 4.

Dave Stritzinger, CEO of FlipSwap, said he did not have any particular metrics from the iPhone 4 announcement, but that there's always a spike in trades when something new comes out. "For many people, their phone is a fashion statement that says 'I have the latest and greatest,'" he told InternetNews.com. FlipSwap has been offering trades since 2005.

But these firms can pay premium because these phones are headed out of the country, said mobile phone analysts. "People often forget that there are many parts of the world where people are willing to spend real money to get the devices we take for granted here. They don’t get the first run products we get," said Jack Gold, president of J.Gold Associates.


Will Stofega, program manager for mobile device technology and trends at IDC, noted that even for the price paid in the U.S., the phones can still be profitable overseas. "In India, the cost of the phone is not subsidized like here. There's no 3G service in India and China, but there is a hunger for these devices, for the bling value," he said.

Stritzinger points out there is a big price gap between what the phone sells for with a two-year contract ($199 and $299 for the iPhone 3GS 16GB and 32GB models, respectively) and what they sell for without a contract ($599 and $699, respectively).

"There's a retail value in that phone that is far higher than [the subsidized price], which is why we are able to offer a much higher price in your trade in offer. The average consumer has no idea what that device costs the operator. You are buying a device that's expecting you to use air time to recoup the cost of the subsidy," he said.

Safe to Make a Trade?

The question then becomes, can you trust these firms? The phone number listed on Gazelle's site is not active and the company did not respond to an e-mail request for comment. Cell for Cash has an 800 number which said on a recorded message that the line is not checked for messages, all business is done by e-mail. Its press release/media page hasn't been updated in three years. Analysts say you are taking a chance, but don't be foolish.

"There's no way to know if they are legit. It's a risk. I am sure there are legit sites and there are fake sites like everything else. This is a big buyer beware," said Gold.

"It certainly would behoove anyone sending a phone in to think that if they can't get in touch with anyone to do business, there isn't anyone to do business. I would assume anyone who wants to do this should make sure you get a live body before you ship your phone anyplace," said Rob Enderle, principal analyst with The Enderle Group.

FlipSwap is a member of the Better Business Bureau, and Gazelle carries the BBB logo as well. Stritzinger said that if consumers are not comfortable with the leap of faith by sending in their phone, FlipSwap also works with independent mobile storefronts. "We're in a number of dealerships throughout the country, where people can get an in-store gift card or coupon. That will mitigate your exposure," he said.


Andy Patrizio is a senior editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.




iPhone, Apple, AT&T, gray market, trade-in