updated 05:10 pm EDT, Mon April 9, 2007
iPod, iPhone interest
A new survey of 500 teenagers' buying patterns and brand preferences suggests that Apple's iPod market share grew to 82 percent from 79 percent last fall, and that 84 percent of students surveyed had heard of the iPhone. The 13th bi-annual study conducted by research firm Piper Jaffray also revealed that 25 percent of participants said they would pay $500 for an iPhone, and that 89 percent of those students who legally purchase music online use iTunes -- down slightly from 91 percent last fall. "Apple's dominance in the portable media and online music markets is going largely unchecked," said Piper Jaffray senior analyst Gene Munster. "Also, iPhone awareness among students is high, and 25 percent show interest at the $500 price-point. We believe that the teen demographic is a critical component of long-term growth in both markets, and Apple is clearly leading the category." Piper Jaffray maintains its 'outperform' rating on Apple shares with a $124 price target.
Students' awareness of Apple's iPhone -- which was revealed in January at the Macworld Expo in San Francisco -- is considered high, according to Munster, as is their willingness to purchase the device at its current price. Of students surveyed, 84 percent had heard of the iPhone and 25 percent would purchase the device for $500.
"Among high school students, it is clear that Apple is successfully carrying its brand from the media player market into the mobile phone space," the analyst said.
The percentage of students downloading music is still rising, but 64 percent of those surveyed are using free P2P music sharing networks, rather than paying for music legally. That number is down 8 percent from 72 percent last fall, and iTunes share remains very high in the online music store category at 89 percent.
Asking students whether they own an MP3 player, 82 percent replied that they owned some variation of Apple's iPod. Conversely, 4 percent said they own a Sony player, while Dell, iRiver, and SanDisk players each accounted for 2 percent of players owned. Some 3 percent of students said they own a Creative player.
When asked whether they planned to purchase an MP3 player within the next year, 73 percent said they would purchase some form of iPod. Just 11 percent of students surveyed said they would purchase a Sony player.
Interestingly, the majority of students said they would pay between $200-$300 for an MP3 player, more than the 22 percent who would pay less than $100. 33 percent would pay between $100-$200, and just 10 percent were willing to pay higher than $300 for a portable player.
"Overall, Apple's dominance in the portable music player market remains largely unchecked, and Apple has captured the 'cool factor' among high school students," the analyst said. "We believe that Apple is poised to carry over its portable music player dominance into the mobile space with the iPhone."
Inspecting Spring 2007 teen survey results
"We expected to see high awareness of the iPhone among teens, given the incredible amount of buzz surrounding its launch. OUr survey indicated that 84 percent of the students surveyed had heard of the iPhone," said Munster. "But we have also expected the iPhone's high price point ($499 for 4GB and $599 for 8GB) to result in less price-sensitive early adopters setting a 'gotta-have-it' trend for the iPhone."
Munster is modeling for Apple to sell 660,000 iPhones in fiscal year 2007 and 4 million iPhones in fiscal year 2008, assuming that Apple launches the device on schedule in June. The analyst also expects increasingly widespread adoption of the iPhone in more price-sensitive markets after the price gradually drops.
"Our survey indicated that 25 percent of high school students said they would buy an iPhone for $500. Even if 20 percent of those students (or 5 percent overall) actually enter the market at $500, our estimate may prove to be conservative," Munster said. "Regardless, this data point is positive for Apple, as an indication of both iPhone awareness and the product's addressable market."
Online music distribution, iTunes downloads
Teens said they acquire 83 percent of their music via online download, but the percentage of music downloaded legally from online music stores -- 36 percent -- is at its highest point since the research firm began studying those numbers in the spring of 2005. Munster concludes that legally purchased music has its largest share of the online downloads category since that time, and of those online music stores Apple's iTunes share remains at 89 percent while Napster holds a distant second at 3 percent.
The analyst believes Apple has maintained its strong lead due to the iPod+iTunes user experience, as well as the fact that the iTunes Store continues to add new forms of media -- such as full-length movies.
"While Apple is dominating the online music space the category as a whole remains under penetrated, as 37 percent of music purchased by teens is still purchased in a physical format," the analyst noted.
Piper Jaffray conducted its survey over the last several weeks, asking around 500 high school students about interest and buying patterns in portable digital audio and online music. The firm visited 11 high school across the country, with the average age of those surveyed amounting to 16.6 years old. Some 58 percent of students surveyed were female, while 42 percent were male, according to the research firm. [corrected]