Wednesday, April 08, 2009

Consumer Interest in the iPhone and iPod

Piper Jaffrey has released interesting new survey results examining U.S. teenagers' interest in both the iPhone and iPod. Teens showed strong interest in purchasing an iPhone in the future. It clearly represented an aspiration for many young people, though they perhaps could not afford to buy one just yet. Here's some data that will astound you:

"[Piper Jaffrey's] Andrew Murphy attributes much of the iPhone’s popularity to the penetration of the iPod and iTunes Store among this cohort. The iPod’s market share has held steady at 86% over the past 12 months, and although only 19% of teens planned to buy a new MP3 player this coming year (down from 34% six months ago), 100%of those who did planned to buy iPods. Meanwhile, iTunes now enjoys a 97% market share among teens—up from 81% a year ago—with No. 2 RealNetworks hanging on at 2%."

We've written in the past on this blog about the power of network effects. Clearly, the iPod and iTunes are riding the benefits of a strong network effect. In other words, the more people that own an iPod or use iTunes, the more that potential new customers will value the iPod and iTunes. To give another example, consider eBay. I will value eBay more if there are lots of other buyers and sellers on eBay, because it enhances the likelihood that I will be able to find a buyer or seller for the item for which I have interest.

Apple, of course, has worked to enhance this network effect. For instance, consider the launch of Genius, which is new software that comes with iTunes. Click on any song in your library, and then Genius will create a playlist for you. That list will include songs in your library, as well as other songs that you can purchase via iTunes. How does Genius create the playlist? Well, it drives off of algorithms built based on data analysis of your preferences as well as those of millions of other iTunes users. The more people that use iTunes, the better Genius becomes at predicting what you will enjoy. Thus, Genius enhanced the network effect.


Nerraux said...

I think there's a caveat about network strength to be added as well. There is a certain level of expectation involved there. As in, eBay has gathered strength over the years because it grew in the ways people liked it to, but once it started becoming so saturated with businesses instead of people, users started moving to CraigsList because that's where the people they want to buy from are. Not in every case, mind you, but many retailers are treating eBay as just another online store now, and if we wanted to pay full price, we wouldn't have gone to eBay in the first place.

Michael Roberto said...

Great point about eBay. At some point, certain core users - key members of the eBay community - became disenchanted with the firm for various reasons. Interestingly, by the way, eBay owns a piece of CraigsList.

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