Why are people waiting and paying more for iPad 2?

I'm not ashamed to admit I'm one of the people who's waited in a long line for several hours for an Apple product.

This was a short time before I was on the front lines of one of these launches as part of our coast-to-coast coverage at CNET. And what I can tell you is that there was a reason for it. It was an iPhone, and there weren't a lot of them, and it was something I was going to use every day. Not to mention the most important factor: the sooner I got it, the sooner my two-year contract with AT&T would expire.

All these things, I told myself, added up to the need to get the device then and there, even if I had to spend what was a lovely, sunny afternoon baking for two hours in a line. But when it comes to the perpetual long lines for the iPad 2, there are a growing number of people queuing up for a very different reason: it's a business opportunity, and a good one at that.

As I saw firsthand, near the very front of the line at the iPad 2 launch at the San Francisco Apple Store, there was a large group of non-English-speaking buyers who looked a bit out of place compared with other Apple device launch lines I had seen time and time again around the Bay Area. Instead of 20-somethings in hoodies, or moms and dads looking to outfit the family with new gear, they were in their 50s and 60s, playing cards, reading newspapers, and taking turns pacing along the foot-and-a-half width of sidewalk that was left between the road and the curb, presumably to avoid blood clots.

This could just be a good sign that the iPad is resonating with an older demographic in a way the iPod and iPhone could not, but let's get real here for a second: It turned out they were being paid for their patience (13 hours of waiting outside to be exact) to overcome Apple's two-iPads-per-person limit and aid a buyer in acquiring a large stockpile of iPad 2s to sell overseas at a markup.

A story in the New York Post yesterday noted similar efforts taking place at Apple's retail location on Fifth Avenue in New York, though at a much larger scale. An estimated 200 people, who reportedly had handlers passing out the cash needed to buy units, stood in line as a group. The plan there was to sell the iPad 2 for $1,700 to $2,000 in places like China, where the device could not yet be purchased, the Post said.

Another report, from The Wall Street Journal, said some stores in Hong Kong were receiving up to 50 of these gray market iPad 2s a day, selling them at more than double their price tag, with the middlemen (like the ones who were organizing some of the efforts seen in SF and NYC) getting a piece of the action.

This in itself is not unusual. It happened with the first iPad, which didn't arrive in China until the latter half of September last year. That's a full six months after the release in the U.S. Six months may not seem like that long, but when the company is Apple, which typically refreshes such products on an annual basis, that leaves users with just another six months before it's replaced by something newer, and right around the time rumors of that next generation device begin cropping up.

Even so, this time around Apple has pledged to get the iPad 2 in an additional 26 countries next week, something that's likely to be postponed just like it was last year, with ship times on new units now stretching to 4 to 5 weeks. (Note: Apple yesterday had also announced plans to delay iPad 2 sales in Japan given the situation there post-tsunami.)

There's also the price difference. As I've been told by friends who go home to visit relatives in China, a common request is to pick up an iPhone or an iPad. In this case, it's not necessarily to get the product before it's out, but to get a better deal because Apple may charge more for those goods based on currency conversion rates and local taxes. Having spent a year living in London when the pound was at the strongest it had been against the U.S. dollar in 15 years, I fully understand that. People who would come out and visit from the States would bring me items like DVDs as sympathy gifts, since they knew they wouldn't yet be available, or would end up costing me twice as much given the currency conversion.

The action on eBay
On the other side of the market equation are the people choosing to sell iPad 2s on Craigslist and eBay. Between the two, you're likely to get a bigger cut of the deal, and move your goods faster on Craigslist, and other local classifieds services like it. The one obvious drawback is that you're going to need to keep it local, which is why many go to eBay where buyers can be international, and might pay more since they can't buy it over there just yet. Proof of that can be seen with first day online sales rising all the way up to $4,000 for the top of the line, Wi-Fi only model of the iPad, a $3,300 price premium. More recent premiums on some of the higher-end models came down a bit to the lesser, though still-impressive, $300 to $400 range.

After having sold my original, Wi-Fi-only iPad to upgrade to the 3G version, long after the option to make an exchange where I bought it had passed, I can attest to the fact that eBay does take a chunk of the sale, especially if you set a reserve price, which keeps buyers from picking up your offering at a price below what you specify. At anywhere from one cent to $199.99, the reserve price is just $2.00--but go over that $200 mark and it becomes 1 percent of the reserve price, up to $50. Factor in listing fees (including any extras like a bigger photo gallery, or a more high profile placement in listings), shipping costs to your buyer, whatever taxes you originally payed, and something like a $300 markup hovers a little closer to $200, if not less given international shipping premiums. Is that worth several hours in line? For some it sure is, especially if you multiply it by two units.

The thing a lot of people still can't wrap their heads around are those that can't wait; this urge to get an iPad immediately versus waiting for things to calm down, and spending multiple days and hours, possibly even taking off work to go get one. I too am a gadget enthusiast, and fully understand the sheer enjoyment of getting something when it's first out, but given that there are more avenues for people to make the purchase both in stores and online, as well as having it delivered to their doorstep, waiting in line for instant gratification just seems like poor planning at this point.

Even so, if there's blame to be placed, I think it's fair to set it on Apple. The company appears to have overpromised with its initial launch plans, setting an international launch just two weeks after the U.S. availability. There was also a much larger partner retail strategy, with not just Best Buy and Apple retail stores getting iPad 2 units on launch, but also places like Target, Sam's Club, Wal-Mart, and AT&T and Verizon retail stores, along with authorized third-party resellers. Though as we've seen, those partner retailers have gotten the short end of the supply stick just the same, leaving people like my dad--who had ordered an iPad 2 from Verizon on day one after being told it would arrive in the first half of this week--getting called up and told it would be another 2 to 3 weeks before it shipped, due to "supply constraints." This was after he had paid for the device in full from a Verizon retail store.

The other part of that equation that doesn't quite compute for some, is that this is the iPad 2. It's not a new Xbox or a Wii, something that if you don't line up for in November, you may not be able to get in time to put underneath the Christmas tree. Likewise, it's not concert or game tickets, where there are only a certain number of seats and the longer you wait, the pricier it can be to get a view of the action. And it's certainly not the aforementioned iPhone, which has some very legitimate reasons to be used every day for both fun and business, and which also happens to be attached to a timed, contractual agreement with a termination fee that gets cheaper to escape the longer you're on it.

This is, and continues to be, a device that falls somewhere in the middle of those ends of the spectrum. Yes it's becoming a work machine for a growing number of companies and individuals, and yes it's thinner, lighter, and packs beefier internals than the original. But for most, there's no getting around the fact that it remains a $500 luxury device people want to buy as their first tablet. Is that worth spending hours in line for? For the folks that are making hundreds and thousands of dollars selling them online and overseas, well yes, it really is worth something. It's the folks on the other end of the sale, paying $2,000 or more, that make me wonder, and the people who might actually need one for work and education that I feel for.

Did you camp out for an iPad 2 this past week? Why'd you do it?