Unexpected Profit Centers

Somewhere in Cupertino a bean counter has a little shrine to Visa and MasterCard.

Whilst the iPhone has helped redefine the ‘mobile phone’ in many positive ways durability isn’t one of them. This report by SquareTrade (to be taken with a healthy dose of skepticism – they’re in the business of selling warrantees) suggests that ~13% of iPhone owners smash the display (21% of iPhone owners reporting accidents, 66% of those were smashed displays).

Given the number of mobile phones bought on credit card, and that many purchases are covered by the credit card insurance to what extent are the major credit card companies unexpectedly subsidising the cost of fixing displays? What is the sum of (13.7 million iPhones sold / ~13% displays smashed / % of credit card purchasers who have insurance and claim x ~$300 repair costs)?

To be fair every phone manufacturer’s products break – the field failure rate is part of their profit/loss equation. Having a o% accidental breakage for a mobile phone would likely mean that the device is over-designed – that most users are paying for physical protection they don’t need. And of course credit card companies offer insurance safe in the knowledge that the psychological security increases the likelihood that a credit card will be used in any given situation, which in turn increases their profits. But then every so often comes a product where the norms shift – where the claimable accident rate is that much higher than the industry norm – enter iPhone stage left.

But don’t feel sad for the credit card companies – they’ll be sure to pass the costs along to all their customers. For every business model, externalities – the only question is who pays.

Written a while back whilst the iPhone screens were breaking left, right and center.