Thirteen years ago, Marcelo Claure, founder of wireless services company Brightstar, discussed with a reluctant Steve Jobs the idea of launching a trade-in and recycling program for iPhones. It was a business move that expanded the market and created a new profit center for the tech giant.

“It is easy to find circular economy models that are interesting, but few have achieved the scale and financial sustainability Apple has,” says George Serafeim, the Charles M. Williams Professor of Business Administration, who heard Claure tell the tale during the 2023 Catalyst Circular Economy Conference that Serafeim organized as part of the Digital Data Design Institute at Harvard.

Serafeim’s interest in Apple’s approach on circular economic models led to the case study “Apple’s iPhone Revolution: Pioneering the Circular Economy,” which he says has ignited intense classroom discussion and caused students to think differently about the ways traditional business models can be upended not only to boost profits, but also to be more environmentally responsible.

The discussion in Serafeim’s MBA elective Risks, Opportunities, and Investments in the Era of Climate Change starts in the same place Jobs’s discussion with Claure did—fear of risk. In Apple’s case, customers can trade in their used devices for credit toward a new one, the way you can trade in a car. Those devices are then cleaned, refurbished, and resold, or are recycled for the valuable materials they contain.

“The first thing that naturally comes to mind is cannibalization of sales—that people may not buy the primary products,” says Serafeim. “The way you overcome that is by realizing the likely customer is not the same. The person who will buy the new product is not the same person who will buy the used product.”

For Apple, the rewards have outweighed the risks. Global shipments of used smartphones reached 282.6 million in 2022, an 11.5 percent increase over 2021, with iPhones representing 80 percent of the secondhand market by value and 40 percent by units.

Selling refurbished iPhones has expanded the market for Apple—opening the door for consumers who may not be able to afford a brand-new iPhone at $1,200 but may be willing to part with $600 for a used model. “You create that funnel of customers into your system,” Serafeim says, stressing that for Apple, selling the iPhone is just one trickle in the profit stream. “You evangelize them into the Apple ecosystem, and they join Apple subscription services like music, games, and news.”

Three things were essential to Apple’s success, Serafeim explains. The first is having a product with a high residual value. iPhones are very durable and the company offers software updates and support for their older model phones. “That is why iPhones tend to be resold multiple times,” Serafeim says.

The second is branding. “It is cool to have an iPhone,” Serafeim observes. While we live in a society where we do not have as many shared experiences as we once did, brand loyalty remains strong. The third is having an efficient system to collect the used products, which works for Apple because they have their own stores and partners like AT&T and Verizon.

While the Apple model may not be ideal for every industry, businesses can adapt pieces of it to meet their reality. For instance, both Nike and IKEA are working on designing products that can be easily disassembled and recycled.

“When you start seeing this approach not as a threat to the organization, but as an opportunity that unleashes an incredible amount of innovation, you start thinking about the customer differently, about the business model differently, about your capabilities differently,” says Serafeim, who also teaches the case in the HBS Executive Education Program. “It opens up a great discussion about adopting a mindset where one views the climate transition as a means for the organization to develop new products, reach new customers, and create whole new markets.”

George Serafeim (DBA 2010) is the Charles M. Williams Professor of Business Administration at HBS, where he co-leads the Climate and Sustainability Impact Lab in the Digital Data Design Institute at Harvard. In addition to teaching, Serafeim conducts research focusing on the intersection between the sustainability transformation and the digital and AI transformation, concentrating on the use of generative AI to study climate solutions products and services. Since joining the HBS faculty as an assistant professor in 2010, Serafeim has received numerous awards for his work. His book Purpose and Profit: How Business Can Lift Up the World explores the challenges and opportunities in building and sustaining profitable purpose-driven organizations that have a measurable positive impact on society.

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