Tech

Can Apple Profit From Its Battery Debacle?

Consumers are fed up with upgrades. The market is responding.

Good as new.

Photographer: Taylor Weidman/Bloomberg

Apple Inc.'s recent admission that it secretly slowed down older iPhones with aging batteries has led to widespread outrage, a proliferation of lawsuits and an unusually abject corporate apology. But it's possible that this episode could end up being a significant opportunity for Apple -- if it finally rethinks some long-held assumptions.

"Batterygate," as it's been dubbed, certainly looks like a disaster. Apple says it simply slowed down the phones to prevent them from crashing, and is offering users $29 battery replacements (instead of the usual $79) to make amends. But that will be costly: By one estimate, it will result in about 16 million fewer upgrades in 2018. Demand for replacements has grown so quickly that waiting lists now stretch for weeks.

Yet that's just where the opportunity comes in. Customers are clearly fed up with the relentless upgrade cycle that Apple has long profited from, and would happily pay to extend the lives of their phones rather than shell out for new ones. Learning to meet that demand will be crucial if Apple hopes to conquer emerging markets and lure a new generation of customers -- and batterygate may be just the wakeup call it needed.

Not long ago, consumers would've laughed at the idea of paying $29 for a battery replacement, whether for a transistor radio or a flip phone. But expectations started changing when Apple released the iPod in 2001. Owners of an iPod with a depleted battery had four choices: pay an independent repair shop to fix it (thereby breaking the warranty); hunt down a new battery and swap it in at home (not easy); pay Apple to replace the battery; or toss the depleted iPod in a drawer and buy an upgrade.

Apple has long done everything in its power to get consumers to choose options three and four. It refuses to publish its repair manuals and uses copyright protection to ensure that they don't leak out. It also refuses to make spare parts -- even batteries! -- available outside of its authorized service centers. As anyone who has tried to make an appointment at an Apple "Genius Bar" knows, there aren't nearly enough of those to meet demand: As of December, there were 499 Apple stores worldwide, and about 500 million phones eligible for the $29 battery replacements.

Such restrictions have clearly worked to Apple's advantage over the years. But customers are starting to wise up. A 2016 survey of smartphone users in six countries found that 80 percent believed a phone should be easily repairable if damaged. The numbers were highest in emerging markets, rising to a whopping 95 percent in China. In survey after survey, consumers say they prefer repairable products to disposable ones.

And the market is responding. Independent repair shops are now a booming business, worth an estimated $4 billion in the U.S. In emerging markets, where used smartphones are ubiquitous and battery replacement and other basic maintenance are rituals of ownership, they're a way of life. Without access to authorized Apple parts, these shops have cleverly built up alternative supply chains by seeking out used phones that have been sold to recyclers or returned to retailers and disassembled into parts.

For Apple, this adds up to a vast missed opportunity. By restricting repair outside of its service centers, it is both worsening consumers' experience and turning its back on a fast-growing market. By refusing to sell spare parts -- including batteries and screens -- it is ceding ground to competitors and misunderstanding something essential about its next generation of customers in developing countries.

Apple should take a lesson from the automotive industry. As of 2017, the average U.S. car remained on the road for 11.5 years, helping to sustain a global aftermarket industry -- including parts and services -- that is expected to be worth more than $700 billion by 2020. Yet global sales continue to grow for the car business, despite lengthening vehicle lifespans and a growing independent repair market. In fact, they're spurred by the wide availability of repair services.

A similar relationship with the smartphone aftermarket could be lucrative for Apple. But that would require relinquishing some control over its products. Until it does so, Apple will be out of step with how so many of its customers live with its devices.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Adam Minter at aminter@bloomberg.net

    To contact the editor responsible for this story:
    Timothy Lavin at tlavin1@bloomberg.net

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