Deanna Duncan of Gardena shows off her new iPhone 5 last year. (Dan Krauss, For The Times )
SAN FRANCISCO — Apple Inc., looking to tap into the exploding market for used phones, has launched an iPhone trade-in program at its retail stores.
The move comes as the sale of higher-end smartphones is slowing, prompting gadget makers and wireless carriers to offer incentives to encourage customers to upgrade to the latest versions of their devices.
"It's important to remember that the smartphone resale market is still relatively small," said Walter Piecyk, an analyst at BTIG Research. "But it offers an interesting growth opportunity."
It's indeed still small, but it's growing rapidly. According to a recent paper by Bernstein Research, the used smartphone market is projected to grow from 53 million units to 257 million units by 2018. Bernstein estimates that about half the used smartphones sold in the last year were iPhones.
That's a compliment of sorts to Apple, because it means iPhones hold their value longer than competitors' phones, such as the Samsung Galaxy smartphones, analysts say. But it's also a challenge.
First-time smartphone buyers in the U.S., who are increasingly price conscious, don't see the need to spend more to get the latest iPhone when older versions are cheaper or even free. And when they do buy a smartphone, they're using it longer, as it becomes harder for Apple and Samsung to introduce new features that dazzle users into upgrading.
The new trade-in program is designed to give users a nudge, coming a few weeks before Apple is expected to start selling a new iPhone model.
Starting immediately, customers can trade in their used iPhones for credit toward a new one by bringing them to an Apple retail store.
The long-rumored trade-in program expands an Apple Recycling service already in place that lets customers mail in their old gadgets for credit or gift cards. Users will now be able to trade in their iPhones at Apple Stores, as they already have been able to do with iPods.
To be eligible for the Apple trade-in deal, the iPhone has to be undamaged by water and in good working order. At the store, an employee will evaluate the phone's make and age and offer $120 to $280 that can be used toward a new iPhone. Signing up for a two-year service contract is required as well.
Apple clearly has been keeping a close watch on the resale market. During an earnings call in July, Chief Executive Tim Cook was asked about rumors Apple would expand its trade-in program. Cook said he was not opposed to such programs and liked that they are environmentally friendly.
"The reason that it's so attractive around iPhone is that the residual value of an iPhone stays so high and there is so much demand for it, and so that makes the trade-in programs more lucrative," Cook said.
Still, Apple is coming late to this part of the in-store trade-in game. Its main advantage may be convenience — many analysts noted that competing programs offered better deals.
For instance, on Thursday, Best Buy Co. expanded its own electronics trade-in program by announcing consumers could get a gift card worth $100 to $150 on top of a 50% discount on an iPhone 5.
"Best Buy has been, and will continue to be, a leader in this space and we are thrilled that we can serve the environment and our communities in this capacity," Best Buy spokesman Jon Sandler said.
Target Corp. offers a trade-in program that promises up to $305 for an iPhone. And online retailers such as NextWorth also sometimes offer more than Apple, with the added incentive that the cash received does not have to be spent on an iPhone.
Apple's stock fell $4.48, or 0.9%, on Friday to close at $487.22.