The Economics of iPad Upgrades

In his review of the iPad 2, John Gruber says the following about whether or not you should upgrade:

But how much better? The big question, particularly for the Daring Fireball demographic: If you already own an iPad, should you get an iPad 2? My best answer: If you buy a new iPhone or iPod Touch every year, then, yes, you should replace your old iPad with the iPad 2. It’s thinner, a comparative joy to hold in hand, noticeably faster, gets the exact same battery life, and has more RAM (spoiler: 512 MB). If you don’t buy a new iPhone every year — if you have the good sense to hold onto them for more than a year before upgrading to a new model — then you’ll likely want to wait for a new iPad, too.

I think the question of “do I upgrade my iPad?” is a little different from the question of “do I upgrade my iPhone?” because of the carrier subsidies and contract extensions that go along with iPhone purchases. So, let’s just consider iPads on their own. For simplicity, I’ll look at the 16GB Wifi model.

If you’ve kept your iPad 1 in “perfect” condition, Gazelle will give you $300 for it. No monkeying with auctions and all of that. I need to scrutinize it, but I think my iPad is in “perfect” condition because it’s been in the Apple case since day 1. (I’m not sure if Gazelle will give me anything for the case, but I’ll ignore case issues for the moment…)

The upgrade cost is then $200. Let’s assume that an iPad 3 comes out in a year, ignoring the rumors of some new iPad model for the fall, and that the pricing works out the same. Another $200 upgrade then.

iPad 1 to 2 to 3 = $400 in upgrade cost

Now, imagine that you skip the iPad 2 and just hold on until the iPad 3 next spring. For the sake of argument, let me guess that an iPad 1 post-iPad 3 announcement will fetch $150. Apple gear holds its value remarkably well, so it’s hard to say exactly. My guess is not more than $200, though, and not less than $100.  New iPad 3 $500 – iPad 1 $150 = $350.

iPad 1 to 3 = $350 in upgrade cost

I assert, then, that it’s a question of whether you want to pay $50 in order to use an iPad 2 during this coming year rather than sticking with the iPad 1. $50 sounds a whole lot less than $200. Granted, people are very good at rationalizing things (“it’s definitely worth it to spend $400 upgrading [twice] this $500 device that replaces neither my phone nor my computer!”). Don’t get me wrong: I love my iPad and find new uses for it all the time, but it’s more a thing of enjoyment than necessity.

Of course, if everyone decided to upgrade, then basic supply/demand would likely dictate a steeper drop in the price of used iPads.

One final note: I do wonder how cases fit into the equation. They’re just under 10% of the cost of the iPad itself.