Tim Lee

The Economics of iPod Repairs

My buddy Julian is miffed that the Apple store told him his iPod was a glorified paper weight when, in fact, it took him all of half an hour to fix it:

Well, I was futzing around this evening and pulled it out of that drawer. And I figured: “What the hell, it’s bricked and out of warranty, I’ve got nothing to lose by tinkering with it.” So I grabbed a tiny screwdriver, pried it open, and started sniffing at the innards. It took all of a minute to notice that there was a tiny piece of ribbon circuitry at the base of the thing that had come unmoored from its connector, so I grabbed a tweezer and wedged it back in, then snapped the casing closed again. Voila, good as new!

Once I got over my pleasure at having a working iPod back with so little effort, though, I got a bit annoyed. It had been obvious when the problem first appeared (after I tried resets and other such things) that it was basically sound, but that there was some sort of hardware issue with the clickwheel. I almost just popped it open to check for loose connections back then, but I figured it was better to go ask the experts, on the off chance I could make it worse by poking about. And I suppose, like an ass, I assumed that it couldn’t possibly be that simple, because the experts were talking about sending it back to the plant for costly repairs. But now I find myself thinking: If these guys were remotely competent or informed about their gadgets, surely they must have known that there was a high probability this was a simple loose connection that could be solved with the five-minute surgery I just performed, and would have done for myself a while ago if I hadn’t deferred to the local Genius. So I want to register a minor WTF here: Have they decided that once it’s out of warranty, there’s no reason suggesting incredibly simple and obvious procedures that might fix an expensive piece of gadgetry if you look as though you might be willing to buy another, newer expensive piece of gadgetry?

This is obviously a borderline case, where the Genius probably could have done what Julian did and fixed the problem. But as a matter of general policy (remember that Apple runs dozens of stores and has to try to treat everyone equally), it’s not obvious that what Julian is suggesting is feasible. Labor is relatively expensive, and in the grand scheme of things, an iPod really isn’t.


Let’s say, for the sake of argument, that a Mac Genius costs Apple about $25/hour. I suspect that’s more than they actually make, but less than the total cost when you factor in support staff, rent for the genius booth, equipment, etc. And glancing at eBay, the going price for a 3-year-old iPod appears to be around $100.

So that means that even if we assume an iPod has zero parts value, it only makes sense to devote an hour of a Genius’s time to fixing the iPod if the chances of successfully repairing the iPod in an hour exceeds one in four.

But even this ignores the transaction costs of contracting for the repair service. Apple can’t afford to just fix the iPod of anyone who walks in the door for free, or they’d be swamped by frivolous repair requests. So they’re going to have to charge a fee. But not very many customers are going to shell out $25 for “I’ll look at your iPod for obvious problems, but more likely than not I won’t be able to fix it.” Because without a commitment to actually fix the thing, the Genius has no real incentive to do a good job. He’ll be tempted to do a half-assed job and move on to the next customer. And because the customer doesn’t know anything about repairing iPods, he’ll have no way of monitoring the process to ensure the technician did his job properly.

So that suggests that the right strategy is for Apple to offer a money-back guarantee: if we don’t fix it, we don’t charge you. But then that means the price has to be a lot higher than $25–high enough to cover the labor cost of all the iPods they can’t fix. Moreover, it has an information problem in the opposite direction: consumers will have an incentive to bring every broken iPod they’ve got in, even if they know it’s likely to be non-repairable (because, say, they spilled coffee on it).

Now, there are probably more complicated contractual forms that could deal with some of these problems. Maybe the customer would pay a small fee up front and then a larger fee if the iPod were fixed. Maybe as with auto repairs, the technician would do a quick look first to check for obvious signs of problems, and then call with an estimate of the total repair costs. But these techniques are more labor intensive.

The bottom line is that wages for skilled workers are now high enough that a 3-year-old iPod is effectively a disposable item. For anything that’s worth less than about $200, it just doesn’t make economic sense to try to repair it. Rather, the most efficient course of action when a $100 device breaks is to toss it and buy a new one.

May 23, 2007 | Comments |

Viewing 5 Comments

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    Fine, look, I don't expect them to spend man hours repairing out-of-warranty items for free. But how about: "Well, try a reset, and if that doesn't work, you can pop it open at your own risk and look for loose connections." I guess what I'm annoyed about is the tendency to discourage simple DIY consumer repairs (it's kind of a pain in the ass to get an ipod open, as you may have noticed) in favor of moving new product. Maybe that's in Apple's short-term economic interest, but it seems like a poor way to build the kind of user loyalty for which the company's so renowned.
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    I think you're overestimating the tech savvyness of the average Apple customer. My guess is that somewhere between 95 and 99 percent of iPod customers would be terrified at the prospect of prying their iPod open, and wouldn't really have any clue what to do with it once they'd opened it. And a significant number wouldn't be able to get it back together again afterwards.

    Now, part of the problem is Apple's decision to design their products in a way that discourages people from taking their gadgets apart. But given their general design philosophy, I don't think it's crazy for them to assume that the overwhelming majority of their customers are going to be neither willing nor able to attempt do-it-yourself repairs.
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    Alternate business model: "Here's my current price list for used iPods. Give me your broken one. If I choose to fix it, I'll sell it back to you for half the going price, or if you don't want it I'll sell it to someone else and give you half the money. If I choose not to fix it, I'll take it apart and recycle it, and give you back part of the case to prove that I didn't lie about not being able to fix it."
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    There are quite a number of non-Apple options for out-of-warranty iPods. For instance, take a look at these places that can fix or buy your dead iPod:

    http://www.iresq.com/ipod/
    http://podswap.com/
    http://www.ipodrepairsquad.com/
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    I think Apple's iPod strategy has led to an interesting social tension, creating situations for a few people like the one listed above.

    What I think is especially interesting is the price point that Apple has picked. Most people I know consider their iPods to be fairly significant investments, but Apple has created a strategy that forces them to overcome that feeling of investment in a time which I think many people find to be a little too short.

    Granted, it's a smart decision since they sell more devices that way, but the pull that many consumers are feeling between paying what they consider a more luxury price for an increasingly commodified item creates a small, but interesting opening for repair services.
 

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