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.

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