The Hidden Impact of AppleCare+

| Analysis

AppleCare+
The last week has been a roller coaster for the Apple community: the buildup, anticipation, initial letdown, technical problems, and then finally the strong finish of the “Let’s Talk iPhone” event and, of course, Steve Jobs’ passing. While we mourned Steve and analyzed the new iPhone 4S and all its great features, a more important indicator for the future of Apple may be the seemingly minor introduction of AppleCare+.

As we reported previously, AppleCare+ is the new warranty and “insurance” plan from Apple that covers new iPhone purchases. At first blush, it seems that AppleCare+ is a great new offering from Apple. Prior to last week’s announcement, “regular” AppleCare was offered for $69 on new iPhones. It covered the phone for two years from the purchase date and warrantied against all hardware defects. It did not cover accidental damage. 

However, Apple has long had an unwritten policy which gave Apple Genii the ability to replace a customer’s phone due to accidental damage one time at no charge. It was a great program that restored many customers’ faith in Apple and set the Apple Retail experience apart from its competitors.

Now, with AppleCare+, customers must pay an additional $30 up front to receive the same coverage period but with the addition of limited coverage for accidental damage. Those instances of accidental damage will require an additional $49 payment at the time of service and are limited to two replacements over the term of the coverage.

Sounds great, doesn’t it? $79 ($30+$49) for a replacement phone instead of $199 (the price Apple officially charges to replace a damaged phone at the Genius Bar). The problem is that this new policy has eliminated the Genii’s ability to offer customers a free replacement. So, for all of you out there who experienced a great Genius Bar appointment in which your phone was replaced for free, the party’s over.  Apple has just placed short-term profit over long-term customer experience, and it may lead to a less-than-magical experience at the Apple Store. 

On the other hand, this might signal a shift towards more openness and certainty. While the one time replacement policy was widespread, it was not always employed for all customers and the uncertainty and inconsistency that resulted may be cleared up by this new policy. Also, the new cost for AppleCare+ still falls well below that of most carriers’ insurance and phone replacement programs, which are usually tacked on as an additional monthly fee on users’ phone bills.

Why the change in Apple’s policy, especially one so unique and popular? Apple’s exponential growth, particularly in the accident-prone portable and phone markets, certainly has something to do with it. Even with the company pulling in billions in profits each quarter, replacing tens of millions of iPhones at no charge likely had a significant impact on the company’s bottom line. That impact would only grow as Apple continues to draw more of its business from phones and portables. 

What this means for consumers going forward is that everyone will receive a much more clear and consistent, albeit costly, support experience that lacks the “magic” that has come to be associated with many, if not most, experiences at the Genius Bar. This “magic” has long been a key ingredient of the successful recipe of the Apple Retail Stores. Will we soon discover that the new taste is a little bitter?

Comments

Dana Johnson

I have no objections to the point of the article, but wanted to point out that replacing a broken iPhone costs the full price of the phone, not the price you pay with the two year contract. ( $199 ).  The iPhone like many other phones is heavily subsidized by the service providers who make their money back on your phone bills.  With this in mind, aside from the freebie Apple was giving away earlier,  the new AppleCare plus plan isn’t as bad a deal as it might first seem.  When we bought out first iPhones, the replacement cost was clearly explained to us at the AT&T store and was in the vicinity of $500 or the same price you’ll have to pay if you want to upgrade before your contract is up.

beverson

Do you have a source for this claim, that Geniuses will no longer have any leeway in replacing customer’s iPhones? In the past they’ve had tremendous responsibility to make judgment calls on behalf of the company and bend policies. In 3 1/2 years working in Retail (not as a Genius), I saw it happen all the time.

I don’t think it’s out of the question that AppleCare+ is supposed to cut down, or even attempt to eliminate, these one-time-only replacements. And I don’t think it’s a bad idea, either, which is why I purchased AppleCare+ with my pre-ordered iPhone 4S. But this seems like a huge claim to make without attributing it to even “unnamed” sources. Is this just your speculation?

Jim Tanous

But this seems like a huge claim to make without attributing it to even ?unnamed? sources. Is this just your speculation?

The information has been confirmed by employees of several stores as well as internal Apple emails.  No specifics can be released to protect those who provided the information.

Jim Tanous

When we bought out first iPhones, the replacement cost was clearly explained to us at the AT&T store and was in the vicinity of $500 or the same price you?ll have to pay if you want to upgrade before your contract is up.

While AT&T may have their own pricing structure, an iPhone of any generation may be replaced at an Apple Store either for accidental damage or outside of the warranty period, for $199. This requires the customer to relinquish the old phone to Apple. If the customer chooses to retain both phones then yes, replacement cost is the full cost of the phone ($500-600 depending on model).

Michael Hines

I have no objections to the point of the article, but wanted to point out that replacing a broken iPhone costs the full price of the phone, not the price you pay with the two year contract. ( $199 ).?

The author was referencing the policy that any broken iPhone can be replaced for $199 at the Genius Bar regardless of warranty status as long as the store has the phone in-stock.

ilikeimac

It wasn’t perfectly clear from this article, or even Apple’s own AppleCare+ page, whether AppleCare+ was $30 or $99. The Apple Store page shows it really is $99. The store page further says that you have to buy it at the same time as the phone, unlike AppleCare for Macs, which can be purchased anytime before the standard 1-year warranty expires. Oddly, I don’t recall being offered AppleCare (or AppleCare+) when making my iPhone 4S purchase. Oh well.

The upshot is that it just isn’t worth it to me to pay $99 up front and $49 for a replacement if the worst case scenario will still only cost $199 to fix. Manufacturing flaws are likely to show up in the first year if they exist, and that’s covered by the standard warranty. From what I understand the most common iPhone 4 damage is breaking the glass on the back, and replacing that is only $29.

I’m investing $40 in a case that provides some extra protection and lets me prop up the phone in either portrait or landscape.

Jim Tanous

ilikeimac,

Yes, AppleCare+ for iPhones is a total of $99 (up from $69 for “regular” AppleCare.

Due to the confusion behind the launch of the phone and the service, Apple is extending the window in which you may purchase AppleCare+ until November 14.  Apple asks that you call AppleCare (1-800-275-2273) once you receive your new iPhone in order to purchase the service.

folkhearts

Thank you for this information, especially for the extended $69 price.  I upgraded through AT&T and the insurance cost for the 4GS is $6.99 per month.  Now I will need to compare the coverage.

Last year I was the recipient of one of the “gift” 3GS phones that was working, but not well after a trip into the washing machine.  I was blown away that my phone was replaced for free.  I am however a very good customer….

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