Apple Rules Teen Segment, but Will It Last?

Teenagers just love their Apple gear as the iPhone and iPod widen their lead among this fickle set.

According to a Piper Jaffray report Apple is dominating teenagers’ buying patterns.

The high level details of a survey of 769 teens:

• 22 percent of students surveyed expect to buy an iPhone in the next six months;
• 8 percent own an iPhone, up from 6 percent in the spring;
• Of students planning to buy a mobile phone 33 percent specified an iPhone;
• The iPod has an 84 percent market share among teens with iTunes checking in a 93 percent.

Piper Jaffray analyst Gene Munster uses this teen data point as a reason to maintain his $250 price target:

We believe that the teen demographic is a critical component of long-term growth in the digital music and mobile markets, and Apple is clearly strong in both categories.

No argument here. But I do have one question that may upend this survey. Teens depend on parents to foot the bill. When mom’s portfolio is collapsing, the 401(k) is a 101(k) and the return on your house is nil at best are you really going to go gaga for the iPhone and its relatively pricey AT&T data plan?

Perhaps parents will cave. Or perhaps data plans get chopped for those pay-as-you-go phones.

This thesis isn’t all that much of a stretch given that teen retailers are taking it on the chin. Are the iPhone and the latest iPod lineup fashion accessories or necessities like food and water? The teen will likely fall in the necessity camp. Parents will beg to differ.

Comments

[2snazzy:]

Actually, I don't believe it is Apple that is going to suffer as much as it is the wireless cell phone carriers. The iPhone is the razor - cellular service is the blade. Apple has gotten ATT (and other carriers worldwide) to subsidize the iPhone so that Apple gets it's money (and profit) up front. Cell phone carriers are depending on iPhone users to run up large monthly bills. Even though a 2 year plan on ATT has a fixed cost, ATT expects that a certain percentage of users will exceed their monthly plan allowances and generate additional. Certainly some parents who are planning to purchase an iPhone for their kids will pull back. However, more pressure will be exerted by parents to get the kids to "dial down" their monthly usage of cell phones (including the iPhone).

As to the issue of declining iPod sales, remember that ultimately, an iPod is cheap enterainment. Songs cost 99 cents on iTunes. iPods are a social event and teens are not going to give them up. Each time a new hip artist releases a hit, you can count on millions of downloads by "hip" teens. Podcasts are a way of cheap information for literally millions of people including adults. As other forms of entertainment go up in cost (movies, etc), teens (and younger) will continue to "hang out", and when they do, they will have an iPod plugged into their ear and continue to purchase more songs. iPod sales may not grow at rates seen in earlier years, but until a "hipper" technology comes along to replace MP3 players, Apple will continue to sell iPods and make money.

2008 Oct 08 08:24 AM

[cotten999:]

You really didn't quite tell how bad it is out there. Let me help you.

Bread lines are forming everywhere. Milk is $10 a gallon. People are jumping out of windows (assuming they can be opened) every minute, impossible find a vacant park bench to sleep after you lost your home to foreclosure, retail malls are deserted, no one is driving due to expensive gas , unemployment has reached 25%, advertisers are not advertising, Apple Stores are empty.

Did I miss anything else?

2008 Oct 08 08:26 AM

[BMWTwisty:]

You think parents don't have any cash and won't buy their kids an iPhone? Have you seen how many nine-year-olds have cell phones? You really don't know much about peer pressure. Apple gear is definitely aspirational - but it's also a generational thing. We have an entire generation of kids who started on iPods and are now moving through the Apple product line. They'll continue to use APple products for years to come. This is just the tip of the iceberg. It started six years ago and will continue for the foreseeable future. Apple probably won't be the next mister softy but Apple is chipping away at the market share. I'm long Apple, of course.

2008 Oct 08 09:47 AM

[brewer:]

Larry, your columns get worse and worse. iPod is cheap entertainment. How is your Zune doing?

Why don't you write about what you know and love--Windows?

2008 Oct 08 11:02 AM

[KenC:]

"relatively pricey AT&T data plan"? Pray tell, what data plans are cheaper? Before the first iPhone an unlimited data plan for $20 was unheard of.

2008 Oct 08 01:32 PM