(Chinese Version)

Editor's Note:

Do you recall how many old cell phone you have stashed somewhere at your home? China is a country known for producing a large amount of electronic garbage every year and if we add up the number of abandoned old phones of every Chinese user, then we will get a shocking number that’s beyond most people’s imagination. In this country, old cell phones recycling has been a constant topic and it has created a few relevant industries. In today’s China, another recycling wave has occurred, bringing structural changes to the phone industry and further boosting the electronic products recycling sector. A lot of Internet platforms that dedicate to recycling cell phones emerge during this process, new business model O2O has also been apply to this very industry. So, how much do these old cell phones worth? And how can we keep scalpers away from the industry chain? Who can make profits out of this? And who will safeguard the privacy of former owners of these cell phones?

In this article, TMTpost’s journalist Ma Jing will show you more details about this industry and try to answer these questions:

Three thousand.

Three thousand is the exact number we get from Meizu concerning the old phones the company has recovered from consumers, which doesn't really fit the real situation for the fact that there are just too many phone users in China. Seven, this is the number of phones a 3C-product lover we have interviewed on a phone forum have at home. “I pretty much change my cell phone every year. Well, less than a year. But the truth is I have never thought of how to deal with the old ones,” he said.

The recycling of electronic products is a much-discussed topic in this digital age. In recent time, this topic once again become the center of attention as phone makers and channel vendors starts to eye on this field.

Meizu has teamed up with ihuigo to roll out mCycle Plan, which allows users to learn the value of their own phones quickly by completing a few questions regarding the condition of the phones on the assessment page. And if the users decide to sell their phones to Meizu, Meizu would give out different subsidies based on the recycling price, which would be given as coupons to the users’ accounts. Users can use these coupons to buy Meizu phones and accessories on Meizu’s official website within 90 days. Coincidently, Huawei and 360 have also recently announced that they would enter the recycling sector. 360 even takes one step further by launching a policy that allows consumers to exchange one Qihu phone with three old XiaoMi phones. 3C e-commerce platform JD is also collaborating with aihuishou.com to recycle cell phones.

This new round of recycling hot wave isn’t just caused by users’ demand or needs for environmental protection, but is rather attributed to the major changes within the Chinese phone market: the latest report from market research organization IDC shows that in 2015 the shipment number of cell phones in the global market will grow at 10.4% and reach 1.44 billion. Although this report predicts that the market will continue to grow, the growth rate is actually lower than that in 2014, which was 27.5%.

Under these circumstances, reasonable subsidies are of importance when it comes to boosting the sales of new phones, which happens to be a focus point of brands and distributors. In fact, the sales of new phones could also help boost the recycling sector. On September 10th, Apple’s new phone product iPhone 6s was launched into the market. And in the following 15 days, aihuishou.com received orders twice as much as in usual time per day. This more of less confirms the fact that the sales of new phones can really improve the business of recycling old phones, which are two industries that do not seem to be related.

Make recycling services more standard

In 2014, the Chinese phone market had a shipment volume of 452 phones and most of them were not the first cell phones that consumers bought. It’s estimated that the number of recycled phones this year will at least reach 300 million. The electronics recycling sector is an enormous market that’s full of business opportunities. But still, the nature of this very industry is at core chaotic. Its earliest form was street vendors, and it later evolved to Internet form such as 58 and Ganji’s second hand product trading section. However, Internet platforms only solved the problem of information asymmetry. And they can’t really control the recycling services. Unfortunately, they were later dominated by scalpers.

JD’s partner is aihuishou.com while Meizu has ihuigou.com. This phenomenon indicates that the main force that will lead this new wave will be a new power other than phone makers and channel providers. iHuigou.com and aihuishou.com provide electronic product recycling service. But due to the fact that they have signed a confidentiality agreement, no more details on their respective collaboration could be revealed.

The lack of regular recycling channels eventually leads to the situation where the industry chain is weak in terms of professional aspects though the industry chain is long. Additionally, it also makes users find it hard to get services they are looking for. Apart from that, users are also afraid that if they sell their old phones, the data on it will compromise their privacy. Therefore, a lot of people give up the thought of recycling their phones and would rather just stash them at home.

What these companies are doing is actually try to make recycling standardized. The vice president of aihuishou.com Xie Yisheng introduced to us that users could make orders in accordance with the phone model, its condition and predicted price and then send it to aihuishou.com or simply just choose to let aihuishou’s own team to come and pick up the phone.

Take the to-your-door service mentioned above, after users make the orders, then professional staff who has received strict training will come to consumers’ doors and collect the items. The staff has received three weeks of theoretical trainings from which they learned different phone models and how to verify their authenticity. After that they would be able to go on the field with experienced staff for at least one month before working solo.

During the collecting process, the collector will verify the item in accordance with the information the consumer uploaded to the website. And if the item meets all the conditions then the collector will pay the user in case. But if the item fails to meet the conditions, the actual value of the item will be reevaluated. “Sometimes it’s not like users upload false information on purpose because a lot of professional questions about the item could be misleading and confusing for the users,” he explained. “For instance, a lot of them don’t know that scratches on the home button are also counted as scratches on the phone screen.”

Recycling platforms are rolling out such to-your-door services not just to follow the O2O tendency but to adjust users’ distrust in their services, since users generally prefer face-to-face trade. Meanwhile, aihuishou.com has set up over 40 motor-and-brick service outlets in Beijing, Shanghai, Guangzhou, and Shenzhen’s CBDs, which provide phone recycling services. It’s said that these outlets’ to-your-door services are available to users nearing 3 to 5 kilometers. When users finish inquiring the valuated price of their product, they can go to the outlets to complete the trading process.

Phones that are collected by these websites generally have two endings. Some will be dismantled by environmental protection organizations and phones that are still usable would be handed to collectors on the platforms. A small portion of up-to-date models will be on sale on the platform.

The collectors are a mysterious group on the industry chain. In fact, some collectors are recognized by the government and what they do is, as a matter of fact, distribute used phones collected from recycling platforms at the downstream of the industry chain.

One thing is for sure here though, that is to make electronic recycling business big is never easy. A very important factor that should be taken into consideration here is how to sell these recycled phones out. The collectors will put out free auctions based on the market. Bidders with the highest bid will get the phones. These collectors will need to pay 100,000 RMB deposit which will be used to pay the users. And when the deposit is lower than 20,000 RMB, the platform will notify the collectors to fill the deposit gap in time.

The CEO of youdemai.com told TMTpost that a quoted price would be uploaded in every two days and they would sell the phones directly to the recyclers based on that. “We know the recyclers. We know what kind of orders they want. And they can directly come to us and get the commodities,” he concluded.

Recycling platforms’ job is to help recyclers categorize different electronic products, assess the products, and make it standardized.

In this case, these recycling platforms are also responsible for keeping users’ privacy safe and filtering refurnished phones. Our journalist at TMTpost has visited a few phone repair shops and found that, according to a shop owner, they were able to restore deleted messages, contacts, pictures, accounts, and even passwords, and that they charged 800 RMB for each section.

Zhou Xu, CEO of ihuigou.com, stated that they had an erase system of their own that could entirely delete all the data on every recycled product. Theoretically speaking the erase is permanent and there’s no way to restore them again. But just to further avoid risks and protect consumers, ihuigou.com cooperated with PICC to launch recycling insurance that includes insurances in logistics and privacy.

Youdemai and recyclers actually have clear agreements on refurnished phones. “We are very strict about this. We don’t allow our partnered recyclers to make refurnished phones,” Wang stated. “We give them merchandise to do second hand product business, not refurnished phones. So if they use products from us to make refurnished phones, then they have to take the legal responsibility.” When users sell their old phones out, the serial number and code will be record, and therefore if they are later refurnished and launched into the market, everything can be traced.

The backbone of the business model of the recycling industry

The recycling industry is actually a very long chain. Recyclers on the street can be seen as little fishes of the industry. And on this food chain, there are more fishes and bigger fishes. The bigger fishes rely on exploiting the little ones to make profits. The newly-emerged recycling platforms only keep a small amount of commodities on sales.

In Xie Yisheng’s opinion, the amount of recycled phones is the most important factor in the business. The amount decides the bargaining power. “If a company’s market share jumps from 2% to 20%, then it’s pretty much on top of the food chain. That being said, the company will be able to take the small fishes’ merchandise. The price gap is indeed the gap of price,” Xie explained.

What recycling websites need to do at present is improve the amount of recycled phones. Teaming up with e-commerce platforms and phone makers are also great approach to make things better. If a user wants to buy and M2 Note and he sells a Xiaomi 2S at the price of 290 RMB, then he only needs to pay another 496 RMB after using a 40 RMB coupon from Meizu to get the phone. It’s more appealing when compared to just sell the used XiaoMi 2S at 200 RMB.

Another method to boost the business is entering all fields of electronic recycling. Youdemai for example had opened appliance recycling service in March this year while most websites don’t engage in such business since the logistics cost is higher and it doesn’t make much money. However, Wang Weitao has a different view: “Appliance recycling service is a rigid demand compared to electronic gadgets. For instance, if my air conditioner breaks down suddenly, then I would have to get rid of it in order to have a replacement. After all we can’t just keep it at home like a few small electronic gadgets.”

There are two profit models for these websites currently:

Firstly, they can charge recyclers a certain amount of service fee based on their quoted price. Secondly, if users go to designated websites to buy new electronics after selling their old ones with a coupon, then these recycling websites can get a part of the share from every purchase.

Not long ago, aihuishou.com received an investment of 60 million dollars in its Series C round of financing, which was led by Tiantu Capital and contributed by JD and Greenwood Invest. This round of funding will be mainly used in offline outlets and the to-your-door staff.

However, the problem of this industry is that the current business model is based on users’ demand to purchase new phones, which is stimulated by phone makers and channel vendors. This industry hasn’t formed a close-looped ecosystem yet. It’s certain that whoever builds a recycling ecosystem in the future will be the biggest and last standing winner in the field.

[The article is published and edited with authorization from the author @Ma Jing please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.