You may already be holding someone's next hot smartphone

The business for used smartphones is exploding as more consumers consider the second-best option behind the latest and greatest.

Roger Cheng Former Executive Editor / Head of News
Roger Cheng (he/him/his) was the executive editor in charge of CNET News, managing everything from daily breaking news to in-depth investigative packages. Prior to this, he was on the telecommunications beat and wrote for Dow Jones Newswires and The Wall Street Journal for nearly a decade and got his start writing and laying out pages at a local paper in Southern California. He's a devoted Trojan alum and thinks sleep is the perfect -- if unattainable -- hobby for a parent.
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  • SABEW Best in Business 2011 Award for Breaking News Coverage, Eddie Award in 2020 for 5G coverage, runner-up National Arts & Entertainment Journalism Award for culture analysis.
Roger Cheng
3 min read

Gazelle's certification process for used smartphones. Gazelle

For smartphones, used is increasingly becoming the new.

While gadget enthusiasts still clamor for the latest and greatest gear, a growing number of consumers are considering buying secondhand smartphones. On Wednesday, research firm Gartner released a report projecting the used-smartphone market to roughly double to 120 million units, or a wholesale value of $14 billion, by 2017.

Consumers have long dumped their old gadgets onto the secondary market, but the numbers underscore the growing maturity of the business. Previously, used cellphones primarily ended up in the hands of consumers in developing markets looking for a cheap way to communicate. But that's changing.

With consumers increasingly looking to tighten their belts, a year-old smartphone at a steep discount doesn't seem like a bad deal. That thinking is bolstered by the wireless carriers' push to get its subscribers to pay the full price of a device. And for those who need the latest and greatest, selling off the old -- but still relatively high-end -- phone is an attractive way to recoup some funds

"With consumers in mature markets upgrading their smartphones every 18 to 20 months, the inevitable question is what happens to the old device?" said Gartner analyst Meike Escherich.

Many companies are capitalizing on this trend. One such player is Gazelle, an e-commerce company that specializes in enabling people to sell used electronics. In October, Gazelle began offering the option to also buy used smartphones. By December, the store made up a fifth of its revenue, according to CEO Chris Sullivan. He expects it to make up half its revenue in the next 12 to 15 months.

"It's a huge market that's growing fast," Sullivan said in an interview.

He believes Gartner's estimate undervalues the market size, saying that the final price of the smartphones could lift the total value to $20 billion or more by 2017.

Gazelle's own studies found that within the same household, one member of a family could be constantly upgrading to the newest smartphone, with other members either taking the secondhand phone or buying a cheaper used model. Consumers who end up losing their phone but aren't yet eligible for a discounted upgrade will also consider the used option.

A big driver of this trend has been the increased awareness of the true value of the smartphones. A subscriber who signs up for a two-year service contract only has to pay $199 for the basic iPhone 6. But that's a discount the person receives for agreeing to stay locked into the carrier at a higher rate. Without the contract, that same iPhone 6 would cost $650.

The carriers are quickly shedding the subsidy model. T-Mobile has scrapped it completely, while a growing number of customers on AT&T and Verizon are opting to pay for their smartphones in exchange for lower service fees. Sprint offers a leasing program where customers turn their smartphones back in to Sprint after two years.

The growing used market could have an impact on the smartphone manufacturers themselves, since fewer consumers may consider its newest model, Escherich said. On the flip side, this model allows tech enthusiasts to keep upgrading -- with most of them preferring to stick to a single brand.

Indeed, consumers have grown savvy about selling their existing smartphone to defray the cost of their new purchase -- particularly ahead of the launch of a new iPhone or other flagship product. In 2009, only 9 percent of consumers sold their smartphones, according to a survey taken by Gazelle. By 2013, that number jumped to 31 percent.

Gazelle calls its products "certified pre-owned" smartphones, taking a page from car dealerships. The company takes the product and certifies that it is in working order, repairing major damage like the display or battery, and posts it on its own website.

It's not alone in this business, with retailer GameStop, online stores and the carriers themselves offering used smartphones.

But Boston-based Gazelle has been so successful on the sales end that it needs to look for new sources of inventory, Sullivan said, adding that he was considering buying excess inventory from the carriers and affiliate partners.

"What we're offering is a channel that provides better pricing than traditional wholesale markets," he said. "It's a commercial opportunity for players in this space."