Apple Inc. Mimics Microsoft Corporation To Convert Android Users to iPhones

Apple (AAPL 0.04%) is reportedly preparing to introduce a new program that lets consumers exchange non-Apple smartphones for gift cards toward the purchase of new iPhones. The trade-in service will be available to customers in the U.S., Canada, Europe, and Australia.

An Apple Store. Source: Apple.

It's not an entirely new concept, since Apple previously offered trade-in gift cards for used iPhones and iPads, but it's the first time the company extended that offer to other companies' devices. Apple's obvious goal is to boost iPhone sales, but is the initiative -- which seemingly mimics Microsoft's (MSFT +1.69%) trade-in strategies -- even necessary?

Following in Microsoft's footsteps
In 2013, Microsoft launched trade-in plans targeting iPads, iPhones, and Android devices. Customers who traded in their devices received a prepaid card that could only be used to purchase Windows smartphones or tablets. Last year, Microsoft applied that same strategy to gaming consoles, offering $100 toward an Xbox One in exchange for a used Xbox 360 or Sony PlayStation 3.

Although those strategies appeared desperate, they boosted store traffic at Microsoft's brick-and-mortar stores. Speaking to Computerworld, NPD Group analyst Stephen Baker noted Microsoft's strategy was "clearly a marketing ploy," but that trade-in programs were still good "for getting people into stores."

A Microsoft Store. Source: Wikimedia Commons, Raysonho.

Therefore, Apple's expansion of its trade-in plan could also benefit the company by driving more traffic to its brick-and-mortar stores. Apple recently said it had 453 stores worldwide, compared to 111 Microsoft Stores.

Does Apple need to do this?
Last quarter, iPhone unit sales surged 46% year over year, and Apple CEO Tim Cook claimed the iPhone 6 converted the highest number of Android users in the past three years, although he didn't disclose exact figures. According to Kantar Worldpanel ComTech, iOS momentarily topped Android in the U.S., Japan, and Australia at the end of 2014. In that context, Apple seems to be converting Android users well enough without offering any trade-ins.

But between December and January, the iPhone lost market share in every country Kantar covered except for China and Italy. During that period, Apple's share of the U.S. smartphone market slipped from 47.7% to 42.8%. That year-over-year decline is comparable to previous December to January figures, but cross-platform trade-ins could help Apple recover faster from that post-holiday hangover.

Offering cross-platform trade-ins could also discourage current owners of HTC and Samsung (NASDAQOTH: SSNLF) phones from upgrading to the One M9 and Galaxy S6, since trading in an older One M8 or Galaxy S5 should dramatically reduce the price of an iPhone 6.

Samsung's Galaxy S6/S6 Edge (L) and HTC's One M9 (R). Source: Company websites.

How does Apple's trade-in plan compare to others?
Apple's program relies on algorithms from its partner, BrightStar, to calculate trade-in prices. However, Apple has trouble matching Amazon.com and Gazelle's offers for most of its own devices.

Source: Company websites as of March 18. Prices are for unlocked units in "good" condition.

Taking Apple credit certainly seems like the worst choice. Amazon and Gazelle also provide free shipping for trade-ins, and their customers are free to buy non-Apple products with the proceeds.

The only benefit of trading in a device at the Apple Store would be the instant gratification of trading in an old phone for a new iPhone. Therefore, if Apple is serious about converting more non-Apple users with this new trade-in plan, it should offer more competitive prices.

The bottom line
Apple's cross-platform trade-in plans might be imperfect, but they highlight the importance of converting customers from other operating systems.

The Android market is highly fragmented, and high-end market leaders like Samsung are being taken down by lower-end rivals such as Xiaomi. As the market for premium Android devices shrinks, those customers might eye the iPhone instead. That's why Apple is making it a little bit easier to make the switch.