iPod dPreciation

In an incredibly bold and almost certainly unprecedented move, Apple has decided to release a newer version of one of its popular products.1 That's right: as of Friday, the iPhone 6 is available for pre-order. Since you're currently connected to the Internet, that's probably not news to you. But what you might not know, what wasn't part of any cryptic e-whispering or subsequent media hullabaloo, is that — just a few days earlier — Apple wordlessly murdered the iPod classic. No press release, no farewell tribute. One day it was in the web store, and the next it just...wasn't.  (RiP)

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Of course the sad truth is that the iPod classic had been steadily declining in value basically since it hit the market.  That's because, like almost any consumer product, it depreciated.  On one hand, depreciation seems like a basic fact of life — as time goes on, things fall apart — so it makes sense that a product like the iPod should lose its value over the years.  But it's not at all clear just how it ought to do so.  Should the value decline steadily?  Should it decline faster in the beginning and more slowly later on? We can at least look at a couple of reasonable possibilities.

You can see the results of each of these depreciation models on the interactive graph below.  There is a point indicating the MSRP for the very first iPod device back in 2001, and then a point for that same device on eBay ten years later.  One of the models shows the value decreasing by a fixed amount each year, and the other shows the value decreasing by a constant percent each year. Which type of depreciation do you think makes more sense here?  Why?

Once you think about the nature of depreciation a bit, the fact that Apple felt it was time to discontinue the classic line is both obvious and surprising.  Clearly the iPod has undergone major improvements since the classic's debut back in 2007.2 There have also been a lot of structural changes in the marketplace that make the classic feel like a bit of a clunker: the rise and ultimate ubiquity of smart phones, the introduction of tablets, the creation of streaming services. It's just a very different world. What's surprising isn't that Apple decided to kill the classic; it's that they waited so long to do it.

Don't get me wrong, the classic was/is a solid product. It's thoughtfully designed, still has plenty of giddyup, and what kind of heartless monster doesn't love the click-wheel? Those things are all great, but for the last seven years the classic's had one big thing going for it. Actually, a small thing: the price. When it was released in 2007, the 160-GB model retailed for $350. By 2009, the same exact device would only set you back about $250. Then it got cheaper still. And of course you could also spend a lot less if you shopped used. In other words, the classic has been an incredible bargain for customers who weren't necessarily concerned with having the latest and greatest in toys.

This story of the iPod classic gets right at the heart of what it means for a thing to have value, and how squishy the concept of value actually is. For instance, why did the price of a new model drop by $100 in just two years? Certainly material costs didn't decrease that much that fast; processes didn't get that much more efficient. Nope. What happened was that a bunch of new iPod models came out. So some component of a thing's value must be based on the relevant alternatives, and in the world of technology — and in the world of Apple particularly — alternatives come out all the freaking time.

Another factor that seems to give a thing value is our psychological preoccupation with newness.  For instance, although the exact figure will vary from speaker to speaker, it's common knowledge that a new car loses a significant chunk of its value the moment you drive it off the lot. That's clearly insane. The only difference between a brand new car and one with 50 miles on it is the societal delusion that it's 15% worse.3

Of course at some point wear and tear really do take their toll, which really does affect things like appearance and performance, so a product shouldn't retain all its original value forever. But at what point?  When does depreciation stop being insane and start being reasonable?  Like I said before, value is a squishy thing.  Squishy but somehow very real...real enough to lead to the killing of innocent MP3 players.

Maybe this story seems a little depressing. A groundbreaking product is continually replaced by newer and shinier models, its value slipping away year after year, minute after minute, only to be silently destroyed by its own creator without even the courtesy of a media footnote. Rough.4 But it's not all bad news. Some quick Googling tells me I can — right now, today — get my hands on a spanking new iPod classic for around twice its original retail price.  Sometimes it pays to be a classic.

Teachers, want to have this conversation in class and talk about linear and exponential decay? Check out our lesson, iPod dPreciation!


1.  At least we're pretty sure it's unprecedented.  Also, there's a watch or something?

2.  In Apple Time, seven years is equivalent to roughly 1,000 generations.

3.  Assuming, of course, that you have yourself a relatively uneventful 50 miles.

4.  Well, not really.  There's a limit to how sad you should feel about a music player, and it is very, very low.


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