Alexander Micek’s post “When Information Overwhelms Facts” (via Daring Fireball) has some interesting commentary on a laptop reliability study that has been making the rounds recently.
In the comments Tonio Loewald stated that
Laptop failure rates of 20-30% over three years certainly seem pretty accurate based on my experience (and that’s how Ars Technica looked at it), so the “value for money” equation for extended warranties pretty much comes down to 0.15 x purchase cost (since your laptop has about a 15% chance of failing due to reliability issues after its standard warranty expires).
This would mean that AppleCare on a $1699 MacBook Pro is worth about $255. Apple charges $349 for this coverage, but it also includes 3 years (well, 33 extra months) of phone support. You can decide if that’s worth it for you, but it’s certainly not unreasonable.
Looking a bit closer, the report claims a 31% total failure rate over 3 years, with 10.6% from accidental damage and 20.4% from hardware malfunctions. You might be able to get accidental damage covered under warranty, especially if the company uses 3rd-party vendors (I’ve been told by Dell techs “I don’t care if you poured a can of Coke in the machine”), but such failures are generally specifically excluded from coverage, so lets go with the 20.4%. The paper shows that the 1-year hardware malfunction rate is 4.7%, so that leaves a 15.7% failure rate over the 2 out-of-warranty years. This agrees quite well with Tonio’s claim.
The other term in the equation is more suspect. The Square Trade report doesn’t give any details on the failures making up that 20.4%, but it seems likely that almost all are single-component failures, which would not require replacing the whole system. The actual value equation is more like:
value = 0.16 * average repair cost.
Of the 7 laptops I’ve owned over the past 15 years I’ve had one screen, one hard drive, one trackpad, one motherboard, and one power supply fail. None of the repairs were significantly over $300, and none of the machines were under $1000 new (most were quite a bit more!). A bit of lazy Googling seems to back this sub-$300 average repair bill, if someone has current, reliable numbers on this I’d love to see them.
Even if we’re generous (pessimistic?) and double the repair bill, that extended warranty has an expected value of about $95. And since we’re on a 3-year cycle here, what happens if the failure happens in the 35th month? Are you going to pay for the repair or just buy that replacement system a month early?
The bottom line is that, like most kinds of insurance, the vendor on an extended warranty is assuming a risk in exchange for profit. The average consumer isn’t going to get back anywhere near the cost of the coverage. Even those needing one typical repair are going to break even at best. You might be able to get additional value out of extras like battery replacement, but in general extended warranties don’t make a lot of sense.