It can be tough in the repair industry, and no one knows that better than struggling corporation Apple.
Cupertino has long been criticized for trying to control what its customers can do with their products, and especially so for charging what critics have said is an unjustifiable mark-up on repairing everything from iPhones to MacBooks.
But it’s just not true, the iGiant revealed this week to US Congress: in fact, despite charging between double and triple what other repair shops charge for fixing problems, Apple (2018 profit: $60bn) actually loses money on its repair business.
Asked by the House Judiciary subcommittee to “identify the total revenue that Apple derived from repair services,” the Cupertino idiot-tax operation revealed [PDF] that: “For each year since 2009, the costs of providing repair services has exceeded the revenue generated by repairs.”
That’s right, it may charge you $329 for a screen replacement that costs $100 everywhere else. Or $80 for a battery than costs $30 across the street. Or even $475 to replace a single key at an Apple store. But poor old Apple is making a loss every time.
Which is, of course, nonsense, though it’s interesting to explore how Apple can make the claim with a straight face. And the answer is creative accounting.
For one, there is the notorious warranty extension the company offers, which, of course, has to be referred to by its own special prefix huggy-love name: AppleCare. You typically get one year of AppleCare warranty with new Apple equipment, at which point have to pay for AppleCare+ if you don’t want to face eye-watering repair costs from that point on.
Money, money, money
The extended warranty does not come cheap: anywhere from $29 to $199 to cover anywhere from one year to three years’ extra coverage. But that is just to have a warranty, if you actually want to get something repaired it will likely cost you an additional repair fee of anywhere between $99 and $249.
Why would anyone in their right mind pay such high warranty costs? Because if you don’t have a warranty and you need a repair to a screen or hard drive or battery, you’ll wish you did pay for AppleCare+ because a single trip will cost you more than the entire extended warranty. You may get charged per hour – at an eye-watering rate of anywhere between $45 and $140 an hour, or get a flat rate of, say, $450 for a new MacBook hard drive. That’s right, by charging crazy sums of money to do repairs, Apple justifies its crazy extended warranty prices.
OK, you say, why not just go to a non-Apple repair shop? And here is how we ended up with a House Judiciary subcommittee demanding answers of Apple’s repairs program as well as the “authorized” Apple repair shop program.
In short, Apple has, for years, carefully restricted the number of repair shops that can service its products in order to maintain artificially high prices – prices that it often sets for its authorized outlets. And it has gone to some lengths to discourage any repairs to its products outside of those authorized outlets or its own stores.
But people have grown fed up with the situation – hence the congressional review. That has resulted in a slow and carefully controlled expansion of independent repair shops approved by Apple. But even now someone at such an outlet has to go through an official Apple repair course before they’re allowed to touch its products. And Apple has put plenty of controls on both the course and any subsequent evaluation and approval of people that want to repair its products independently.
Apple defends this blatant market control in a dozen different ways in its responses, painting a picture of super-complex machinery that requires specialist and highly trained technicians. It’s nonsense but for some reason it’s effective, especially when people spend small fortunes on beloved electronics.
Safe and reliable... stream of income
“Our goal is to achieve a safe and reliable repair for our customers, whether that repair is done by Apple or a service provider designated by Apple,” the company waxed lyrical. “Apple has spent time and money to make Apple devices incredibly user friendly—but they are still complex, very technical machines.”
It goes on: “Repairs performed by untrained technicians might not follow proper safety and repair procedures and could result in improper function, product quality issues or safety events. Additionally, repairs that do not properly replace screws or cowlings might leave behind loose parts that could damage a component such as the battery, causing overheating or resulting in injury.”
Even accounting for Apple’s BS however, how does it justify the claim that it is actually losing money on its repair business, despite charging multiples of what every other repair business does?
Easy: it counts its own ridiculous repair costs as what customers would have paid had they not taken out its over-price warranty. So if a customer pay $199 for AppleCare+ for their iPhone XS Max and brings it in to replace the screen, paying just $29 instead of the $329 out-of-warranty costs, Apple reckons it has just lost $101 – because that’s what the customer would have paid if they didn’t have a warranty.
Of course that completely ignores the fact that it costs Apple nowhere near $329 to replace the screen of a iPhone XS Max. We have no idea how much it does cost and Apple isn’t going to tell us either but that is how you get away with ripping people off while claiming poverty at the same time.
Don’t believe us that Apple would play so loose and fast with words and reality? Then check out this remarkable response to another question posed by Congress.
Q: In its testimony, Apple stated that 84 per cent of apps on the App Store “share none of the revenue they make from our store with Apple.” Please explain how Apple selects the 16 per cent of apps that are required to share their revenue with Apple.
A: Developers, not Apple, decide whether to charge for their app and services, and this determines whether or not they pay a commission to Apple. If it’s a free app for which the user pays nothing to use or play, and the developer is otherwise monetizing the download of that app (e.g., via ad revenue) the developer gets 100 per cent and Apple gets nothing. Apple only charges a commission when a developer charges a user for a digital good or service delivered onto the device.
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Or, in other words, Apple makes none of nothing from the 84 per cent of apps that don’t charge. But it does make a cut from every single app that does charge.
Somehow the sentence: “We make no money from 84 per cent of the apps on our store” sounds better than “we force everyone to pay us 20 per cent of anything they earn” in order to get into the Apple Store.
The sad truth is you don’t get to be the world’s biggest corporation without wringing every last cent out of people while telling them you’re doing them a favor. ®