Ted Landau's User Friendly View - Should You Care About AppleCare?

by Ted Landau
July 20th, 2006

The logic is simple. Extended warranties are almost always a bad deal for the consumer. AppleCare Protection Plans are essentially extended warranties for your Mac purchases. Ergo: AppleCare is almost always a bad choice. Well, maybe it's not quite that simple. But it's close.

Why should you "just say no" to extended warranties? Because the probabilities are such that, over the long haul, you will spend more money on warranties than on repairs. But don't just take my word for it; check out these quotes:

• Consumers Reports states in their August 2006 issue: "Retailers want you to buy extended warranties because they're cash cows. [They make more profit on the warranty] than they make selling actual products....For the consumer, extended warranties are notoriously bad deals because products seldom break within the extended warranty window, and when they do, the repair often isn't much more than the cost of the warranty."
  
  
• PC World, in articles from May 2006 and October 2005, concludes: "These plans are rarely a good deal...By buying one, you're betting that your product will break, that the extended warranty will cover the damage, and that repairing the product would cost more than you paid for the extended warranty--an unlikely scenario."

I was reminded of this advice recently when I chose to ignore it for the first time. I purchased a Dymo LabelWriter from Staples. At the register, I was offered a Staples warranty of course. I automatically replied "no thanks" before I had a chance to fully process what the salesperson had said: The cost of the warranty was only $5.00. That's on a product that was costing me over $100. The fee seemed so small that I reconsidered my decision and asked for more details. He told me that, with the warranty, if the product ever failed, I could take it to any Staples and get a free replacement. There would be no need to deal with the manufacturer. For five dollars, I figured this was a convenience worth having; I purchased the warranty.

And guess what? My LabelWriter turned up dead about 50 days later. The power light would not even come on. It was time to cash in on my $5.00 investment. Or so I thought. I went and got my copy of the warranty. The first thing I noticed was that, according to a table of fees in the pamphlet, the warranty should have cost $20. Apparently, the salesperson made an error and undercharged me. No wonder it seemed to good to be true: It wasn't true!

I would never have paid $20 for the warranty, but that was a moot point now. More to the immediate point, the fine print revealed that the Staples warranty did not kick in until after the manufacturer's one-year warranty expired. So I would not be able to take it to my local Staples after all. I know, this is my own fault for not checking the terms in advance! And it makes sense; it's pretty much the way all extended warranties work. Still, in the end, it only reinforced my belief that, even at $5.00, I should have heeded my own advice and skipped getting the warranty.

Paraphrasing from Hamlet: "The vendor doth promote too much, methinks." Vendors are not altruists at heart. They don't push extended warranties to save you money; they push them to make money. When you find that every manufacturer and retail store in the known world is at least mildly pushing their extended warranties, it's time to be suspicious.

Despite all this, many people claim to be quite satisfied with their extended warranty purchase. In fact, according to a table in the PC World article mentioned above, over 70% of the people who purchased an extended warranty report being "glad" they did. How can this make sense? Here's how:

• First, this is a skewed sample. All the responses are from people who were favorably enough disposed to getting a warranty that they purchased one (and who apparently also needed a repair at some point). It's probably just as true that well over 70% of people who did not purchase a warranty were glad that they did not do so!
  
  
• People can report that they are glad that they purchased a warranty even if it was a poor financial decision to do so. These are not mutually exclusive conditions. It also does not mean that they will be equally pleased with the warranty service. In fact, according to PC World, only 31% of respondents were "extremely satisfied" with the service they received.
  
  
• Finally, some favorable attitudes are surely due to placing too much import on anecdotal evidence. For example, you may buy a lottery ticket tomorrow and win ten millions dollars. But that's not a sound reason to recommend buying lottery tickets every day. Your results were far from typical. Similarly, people will happily tell you: "My computer stopped working after 18 months. Fixing it would have cost me $1200, but with my extended warranty, it was fixed for 'free.'" True enough. But the critical question is: Is that a typical result?
  
  For what it's worth, my anecdotal experience runs the other direction. I can count on one hand the number of out-of-warranty repairs I have needed for all my computer-related purchases combined. Actually, I could cut off two fingers and still count them on one hand. And I have been purchasing computers since 1984. If I had gotten an extended warranty for all of these purchases, I would be way way in the hole.

In either case, what ultimately matters are not anecdotes but reasonable estimates of the most likely outcome. To illustrate, let's return to the AppleCare Protection Plan. AppleCare extends the complimentary 90 days of technical support and one-year warranty to three years. Now, I am not singling out AppleCare because it is an especially bad plan. To the contrary, as plans go, it is probably one of the better ones. I focus on it because, after all, Macs are what we are here to talk about!

So...suppose you plan to get a new MacBook. The cost of AppleCare on an $1100 MacBook is $250 (that's 28% of the cost of the computer!). To try to predict the likely financial consequences of getting, or not getting, AppleCare, we need to put together a couple of assumptions.

Here's one way to look at it: Let's assume that you replace your laptop every three years and that you purchase AppleCare with each new Mac that you buy. This means that, after nine years, you will have paid $1000 to get the extended coverage. For about the same amount of money, you could buy another MacBook instead.

Here's another look: In a recent Consumer Reports survey, only 17% of Mac laptop owners needed a repair of any type between 2001 and 2005. The percentage was even smaller (11%) for desktop Macs. However, these percentages include the first year (when most problems typically crop up and are covered by the standard warranty). They also appeared to include repairs that went beyond the extended warranty period or would not be covered by AppleCare under any circumstances. Regarding the latter point, Apple's warranty (as is true for almost all extended warranties) does not cover "damage caused by accident, abuse, misuse...or other external causes." So if your MacBook falls to the floor, AppleCare won't pay for any damage. Taking all of this into consideration, a reasonable estimate for the covered repair rate of a MacBook during the AppleCare period might be 10% (I suspect it is even lower, but I am trying to give AppleCare the benefit of the doubt here).

Finally, let's say that the average cost of such a repair would be $600 (that seems reasonable as it is more than half the cost of the MacBook).

This means that, if you bought 10 MacBooks tomorrow, you could expect—on average -- that one and only one of them would need a repair during the extended warranty period (from 12 months to 36 months after the purchase date). Without AppleCare, this will set you back $600. With AppleCare, this will cost you $2500 ($250 x 10). In other words, getting AppleCare would result in a net loss of $1900!

If you think the assumptions behind these estimates are off, substitute your own. As long as you stay within plausible limits, I am confident that AppleCare will wind up putting you in the red. Does that mean you should never under any circumstances get AppleCare? Pretty much, but perhaps not quite. Here are a few caveats:

• AppleCare extends the free technical telephone support from 90 days to 3 years. I believe that most people can get by just fine on the free support offered via the Web. And on that rare occasion when you absolutely need telephone support, paying for it will still be cheaper than having paid for AppleCare. But if you are the type who requires and expects to make frequent use of telephone support, AppleCare will fill the bill.
  
  
• If you know a particular product is significantly more likely to need a repair (especially an expensive repair) than the expected average, a warranty on that product might qualify as an exception to the rule. For example, AppleCare for Apple's $2500 30-inch Cinema Display is only $100. Given that any repair to an LCD display is likely to be expensive, and given how delicate these displays are, this might just be worth it. Still, bear in mind that Apple is well aware of these considerations. If they thought they would lose money by charging $100, they would charge more. The truth is that even these displays are not likely to need a repair in the second or third year of ownership.
  
  
• There is something to be said for the simplicity of knowing that, if something goes wrong, you don't have to worry about where to take your ailing Mac or how much the repair will cost. You may sleep better with the "insurance" of knowing you will never be hit with a big repair bill. This is not worth very much to me, given the downsides, but some users may find that AppleCare is worth it just to prevent insomnia, even if they lose money in the end.

If you are still on the fence here, consider this experiment: Every time you purchase any product (Apple or not) that comes with an extended warranty, don't buy it. Instead, put the money into an interest-bearing savings account (or just track this in a "virtual" account if you don't really want to allocate hard dollars this way). Only withdraw money to pay for repairs that would have otherwise been covered by an extended warranty. Unless you get some real bad luck right off the bat, this account should keep growing over time. After several years, feel free to use at least some of the money you've saved to celebrate your financial success.