iPhone Trends June 2008

Consumer Behavior Report iPhone Trends Overview Report Highlights After Apple announced the release date of its iPhone in June 2007, consumer traffic to the iPhone 8GB product page dramatically increased by 1,900 percent by the end of December 2007, while traffic for the iPhone 4GB initially increased only slightly before Apple discontinued the lower capacity device in early September 2007. Of the 54 percent of respondents who indicated that they do not plan to purchase an iPhone, 41 percent indicated their primary reason was that the iPhone is too expensive and 22 percent indicated that they didn’t want to switch to AT&T as their carrier. Of the 46 percent of consumers who either own or are considering purchasing an iPhone, 35 percent indicated that the fingertip navigation (zooming, scrolling, etc.) is the best feature of the iPhone. Bluetooth and hands-free headsets are becoming a required accessory with cell phones such as the iPhone. With the new driving laws impending, 62 percent of online consumers indicated that they currently use or plan to purchase a hands-free headset. Of the top 20 most popular cell phones on PriceGrabber.com, 19 have MP3 playback capabilities. Forty-two percent either are not aware of or do not have the MP3 player capability on their cell phone. Only 11 percent of respondents use their cell phone as their primary MP3 player and 18 percent of respondents use it on occasion. Prior to the iPhone 3G announcement made by Steve Jobs, president of Apple, a total of 38 percent of online respondents indicated that they plan to purchase the iPhone 3G, while 62 percent indicated they don’t plan to. 6/13 What is the Consumer Behavior Report? The Consumer Behavior Report is designed to give merchants, media and industry analysts’ insight into shopping trends, pricing and market share. Each month, a different topic will be the focus of the report. What is the iPhone Trends Report? iPhone Trends is the topic of PriceGrabber.com’s June 2008 Consumer Behavior Report. iPhone trends and data were collected from the iPhone Survey conducted in late May 2008 with a total of 3,066 online respondents. Additional data is sourced from Omniture and Market Reporter, statistical databases that tracks consumer shopping behavior on PriceGrabber.com. PriceGrabber.com is a major shopping comparison engine, with more than 26 million unique users per month and up-to-date daily pricing of products supplied by more than 12,500 sellers. CONSUMER BEHAVIOR REPORT 2008 iPhone Trends The iPhone has changed the way consumers think about cell phones and smartphones. The iPhone integrates cell phone, iPod music player, camera, text messaging, e-mail and Web browsing, while introducing innovative features such as multi-touch screen, visual voicemail, virtual keyboard and an accelerometer that senses screen orientation. Apple has consumers waiting in anticipation for the July 11 release of the second generation 3G iPhone and iPhone 2.0 software, nearly one year after the iPhone was introduced on June 29, 2007. The iPhone is undoubtedly the most talked about mobile device in the market. Apple keeps consumers interested in the iPhone. After Apple announced the release date of its iPhone in June 2007, consumer traffic to the iPhone 8GB product page dramatically increased by 1,900 percent by the end of December 2007, while traffic for the iPhone 4GB initially increased only slightly before Apple dropped its price to $299 and discontinued the lower capacity device in early September 2007. In February 2008, Apple released the iPhone 16GB, spiking the traffic for both the iPhone 8GB and the 16GB. The iPhone 16GB has experienced a 62 percent increase in traffic since the end of February 2008. iPhone Popularity Product Page Views 7 n07 n08 08 7 8 7 p07 -0 7 -0 7 07 g07 l-0 ct -0 -0 08 rAp M -0 r- b- ov Ju ec ar ay Ju Ja Au Se Fe Ap O N M April 2007-May 2008 iPhone 16GB Smartphone iPhone 4GB Smartphone D iPhone 8GB Sma rtphone Source: Omniture Database 2008 *Popularity based on product page views between May 2007 and 2008 In a survey of 3,066 online respondents conducted between May 20 and June 5, only 20 percent of consumers own an iPhone or smartphone, while the majority of respondents own a standard cell phone. However, 42 percent of respondents indicated that they are considering purchasing an iPhone and four percent indicated that they own an iPhone. Apple, which recently announced the 3G iPhone, has the opportunity and the challenge to win over the 54 percent of consumers who indicated that they do not intend to purchase the iPhone. M ay -0 8 CONSUMER BEHAVIOR REPORT 2008 Do you ow n or are you considering purchasing an iPhone? 4% I ow n an iPhone I am considering purchasing an iPhone I do not intend to purchase an iPhone 54% 42% Source: PriceGrabber.com iPhone Survey (5/20/08 - 6/3/08) *Sample size 2,462 respondents Of the 54 percent of respondents who indicated that they do not plan to purchase an iPhone, 41 percent indicated their primary reason was that the iPhone is too expensive and 22 percent indicated that they didn’t want to switch to AT&T as their carrier. These two concerns have been addressed at the iPhone 3G announcement on June 9, 2008. A dramatic decrease in the price of the iPhone hardware to $199 and an upgrade to the 3G network may alleviate some consumer reservations. Although the new iPhone is built to be compatible with the 3G network through AT&T to boost data transfer speed in certain coverage areas, it will not increase call coverage area – a common consumer concern. It may also give Apple the opportunity to capture more of the cell phone and smartphone markets. The top seven manufacturers – Apple, Nokia, Motorola, Sony Ericsson, LG Electronics, RIM RIM Blackberry and Samsung – have made up 90 percent of the U.S. cell phone market based on PriceGrabber.com’s percentage of referrals since June 2007. Motorola’s market share dropped from 38 percent in May 2007 to 12 percent in September 2007 when the Apple iPhone and the Nokia N95 8GB smartphone captured more than half of the cell phone market. Over the past year Nokia has averaged a market share of 33 percent with Apple quickly gaining ground in August of 2007. In fact, Apple pulled ahead of Nokia briefly in November 2007, only to slip after the holiday season. However, Apple has regained market dominance in May 2008 with 32 percent of the cell phone market. Market Share for Top Manufacturers 50 Market Share (%) 40 30 20 10 0 May 2007-May 2008 Apple Sony Ericsson Samsung Nokia LG Electronics Motorola RIM Blackberry Source: Market Reporter PriceGrabber.com 2008 *Market share % is based on percentage of referrals of all cell phone products from May 2007-2008 CONSUMER BEHAVIOR REPORT 2008 As stated previously, online respondents indicate that the primary reason they have decided not to purchase an iPhone is affordability – the current retail price for the iPhone 8GB is $399 and the iPhone 16GB is $499. The average price of all cell phones, locked and unlocked, between May 2007 and May 2008 was $387 (unlocked cell phone refers to a phone sold without a service plan that can technically be used by any cell network). Apple and Nokia fall in the high-end average price range of $400 to $500. The average prices of Sony and LG locked and unlocked cell phones are between $300 and $400. Motorola, Samsung and RIM Blackberry locked and unlocked cell phones fall in the lower-end average price range between $200 and $300. In July 2008, Apple will cater to consumer price demands and offer their new iPhone hardware, the iPhone 3G, at an industry-low $199; half the price of their original iPhone offering. In the graph below, the dash red circle shows lowest projected average price points for Apple in June and July 2008. PriceGrabber.com will be tracking actual merchant referral data for the new iPhones in the coming months. Average Price by Manufacturer $700 $600 Average Pric e $500 $400 $300 $200 $100 $0 7 g07 n08 7 n07 p07 c07 8 n08 Ju 08 07 -0 7 8 l- 0 8 ct - Ju ov ar r-0 b- Ja Ju Fe Au De Se M N Ap O M May 2007-May 2008 Apple Apple LG Ele ctronics LG Ele ctronics Nokia ia Nok RIM Black be rry Black be rry M otorola M otorola Sam s sung Sam ung Sony Ericss on Sony Erics s on Source: Market Reporter PriceGrabber.com 2008 *Pricing based on average daily price of all cell phone products in from May 2007-2008 **Dash red circle based off of lowest projected average price for Apple iPhone at $199 Is the iPhone’s best feature enough to increase sales? Of the 46 percent of consumers who either own or are considering purchasing an iPhone, 35 percent indicated that the fingertip navigation (zooming, scrolling, etc.) is the best feature of the iPhone. This feature may be the most appealing, but does it really give consumers a reason to purchase? According to all survey respondents, only five percent indicate that the interface functionality (e.g. QWERTY, touch screen, numeric T9) has the most influence on their cell phone or smartphone purchasing decisions. M Ju ay ay l- 0 -0 -0 -0 8 CONSUMER BEHAVIOR REPORT 2008 W hat is the best feature of the iPhone? Fingertip navigation, zooming, scrolling f eatures Web brow sing connection Integrated applications (e.g. Google Maps) iTunes (music/video) capabilities Sleek design Reliability of iPhone V isual voicemail Operating system reliability (A pple OS X) iTune/MP3 capabilities Integrated applications 0% 0% 0% 3% 10% 10% 9% 35% 17% 16% Source: PriceGrabber.com iPhone Survey (5/20/08 - 6/3/08) *Sample size 1,107 respondents Twenty-seven percent of respondents indicate that the cell network carrier has the most influence on their cell phone or smartphone purchase decisions. According to the iPhone survey, consumers choose Verizon Wireless (36%) and AT&T/Cingular (35%) as their preferred cell phone carriers. Compared to a survey taken in October 2007, both carriers have increased in market share; However, AT&T/Cingular (26%) has closed in on Verizon Wireless (31%) over the last eight months. iPhones were initially strictly sold on the AT&T network with a SIM lock in place. Recently, according to Apple, more than a quarter of iPhones sold in the United States, were not registered with AT&T. Hackers have found methods to “unlock” the iPhone to ship them overseas and some foreign carriers have started selling unlocked iPhones (unlocked cell phone refers to a phone sold without a service plan that can technically be used by any cell network). W hich of the follow ing cell phone carriers do you most prefer? 31% 26% 35% 3% 11% 15% 12% 11% 20% V erizon Wireless A T&T/Cingular Other 36% T-Mobile Sprint/Nextel Jun-08 Oct-07 Source: PriceGrabber.com iPhone Survey (5/20/08 - 6/3/08) *Sample size 2,347 respondents Bluetooth and hands-free headsets are becoming a required accessory with cell phones. The iPhone provides standard Bluetooth wireless compatibility. Forty-six percent of consumers indicated that the second most important feature behind a large color display screen is Bluetooth compatibility. With the new driving laws impending, 62 percent of online consumers CONSUMER BEHAVIOR REPORT 2008 indicated that they currently use or plan to purchase a hands-free headset. Of these consumers, 33 percent said they would because of driving laws and 28 percent indicated personal safety as the reason to use their hands-free headset. A number of cell phones have MP3 playback capability, but do consumers actually use them? Of the top 20 most popular cell phones on PriceGrabber.com, 19 have MP3 playback capabilities. However, a significant number of consumers, 29 percent, are aware of their phone’s MP3 playback capability, but choose not to use that function and another 42 percent either are not aware of or do not have the MP3 playback capability on their cell phone. Only 11 percent of respondents use their cell phone as their primary MP3 player and 18 percent of respondents use it on occasion. When consumers were asked: “What is the best feature of the iPhone?” not one indicated iTunes/MP3 playback capabilities. Top 20 Most Popular Cell Phones Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Most Popular Cell Phones* Apple iPhone 8GB Smartphone Apple iPhone 16GB Smartphone Nokia N95 8GB Smartphone Nokia N95 Smart Phone - Black Nokia N82 Cell Phone Nokia N73 Smartphone - Black Sony Ericsson J110a Cell Phone RIM Blackberry Pearl 8100 PDA Nokia E90 Smartphone Nokia N81 8GB Cell Phone LG KE850 Prada Cell Phone Nokia E51 Smartphone LG enV VX9900 Cell Phone Sony Ericsson K850i Cell Phone HTC P3450 Touch Smartphone Palm Treo 750 Smartphone Motorola RAZR V3xx Cell Phone Nokia E61i Smartphone Apple iPhone 4GB Smartphone HP iPAQ 510 Smartphone Average Price $406 $499 $636 $503 $506 $276 $40 $327 $750 $387 $374 $284 $256 $414 $433 $434 $40 $375 $500 $219 Launch Date* Jun-08 Feb-08 Oct-08 Jan-08 Feb-08 Feb-08 Apr-08 Oct-08 Nov-08 Jan-08 Jun-08 Jan-08 Dec-08 Mar-08 Jul-08 Jan-08 Apr-08 Oct-08 Jun-08 Jul-07 Unlocked Phone * * MP3 Player Touch Screen * Source: PriceGrabber.com Market Reporter 2008 *Top 20 cell phones ranking based on clickthrus to merchant, from product launch to 6/5/08 **Launch date based on first appearance on PriceGrabber.com *Although the iPhone is unlockable, it is discouraged. AT&T is the exclusive service provider for the iPhone. As shown below in the Popularity of iPhone vs. Competitors graph, Apple’s iPhone 8GB is clearly ahead of the top 20 most popular cell phones in sales (referrals to merchant) and traffic (product page views) measures. The iPhone 3G will add a new level of popularity to Apple cell phone products in July as will RIM Blackberry, HTC and Samsung with their upcoming new models Blackberry Bold, HTC Touch Diamond and Samsung 3G Instinct, respectively. 3G capabilities represent a new requisite feature within the smartphone market. CONSUMER BEHAVIOR REPORT 2008 Popularity of iPhone vs Competitors Product Page Views n07 7 n08 08 7 7 8 p07 -0 7 -0 7 07 g07 l-0 ct -0 -0 -0 08 r- b- Ju ay ov ec ar r- Ja Ju Fe Ap Au Se M N D Ap O M Black be rry Pe arl 8100 PDA iPhone 16GB Sm artphone iPhone 8GB Sm artphone LG Ele ctronics KE850 Prada Ce ll Phone Nok ia E51 Sm artphone Nok ia N73 Ce ll Phone - Silve r Nok ia N95 8GB Sm artphone Tre o 750 Sm artphone HTC P3450 Touch Sm artphone iPhone 4GB Sm artphone LG Ele ctronics e nV V X9900 Ce ll Phone M otorola A1200 Ce ll Phone Nok ia E90 Sm artphone Nok ia N82 Ce ll Phone Nok ie N73 Ce ll Phone - Black Source: Omniture Database 2008 *Popularity based on product page views between May 2007 and 2008 Future Trends – iPhone 3G Will online consumers purchase the third-generation enabled iPhone 3G? On June 9, 2008, Steve Jobs announced that the iPhone 3G will be released July 11 in 22 countries and addressed the enterprise, software development kit and new end-user features. Prior to the iPhone 3G announcement made by Steve Jobs, president of Apple, a total of 38 percent of online respondents indicated that they plan to purchase the iPhone 3G, while 62 percent indicated they don’t plan to. Will consumers’ decisions change after the iPhone 3G’s features and enticing new price is announced? PriceGrabber.com will be tracking sales, consumer behavior and traffic to the iPhone 3G once it becomes available. Do you plan to purchase the second generation iPhone 3G? 38% 62% Y es No Source: PriceGrabber.com iPhone Survey (5/20/08 - 6/3/08) *Sample size 2,253 respondents M ay -0 8 CONSUMER BEHAVIOR REPORT 2008 Prior to the iPhone 3G announcement, skepticism and affordability have consumers planning for the worst. A quarter of consumers immediately indicated that they are not interested in the iPhone 3G, while only four percent indicated they will purchase the iPhone 3G as soon as it’s available. Another 36 percent of respondents indicated being currently bound to a cell phone contract will keep them from purchasing the iPhone 3G, which poses a significant hurdle for both the consumer and the merchant. Of those consumers that own an iPhone, 35 percent indicated that they do not plan to upgrade. At the time of the survey, there was no indication of the dramatic price drop Apple would end up announcing with the iPhone th 3G on June 9 ; which may end up having an effect of these purchasing decisions. Do you plan to purchase the iPhone 3G? Y es, I w ill purchase it as soon as it's available Y es, but I plan to w ait to see how it pans out f irst No, I'm not interested in the 3G iPhone No, I already have an iPhone and I don't plan to upgrade No, I am bound to a current contract, but may consider an iPhone in the f uture 1% 4% 34% 25% 36% Source: PriceGrabber.com iPhone Survey (5/20/08 - 6/3/08) *Sample size 2,253 respondents Apple has fulfilled its consumer’s desire to sync. Of the online respondents surveyed who own an iPhone, 40 percent currently own another phone in addition to their iPhone for work and personal uses. When asked if they would get rid of their second phone now that the iPhone 3G and iPhone 2.0 Software release is adding Microsoft Exchange ActiveSync capabilitie, 23 percent indicated they would exclusively use their iPhone for work and personal use. Twelve percent of iPhone users indicated they would prefer to use their other phone for work and keep their iPhone for personal use. Four percent indicated they do not have a choice as their work does not allow synching their work e-mail to the iPhone. There were still a number of features iPhone users were looking to have included in nextgeneration iPhones: user-replacement battery, stereo Bluetooth, video recording, cut and paste commands, voice command dialing and multi-media messaging (MMS) to name a few. Apple is well-known for delivering to a standard of quality in terms of usability and performance, even to the expense of forgoing arguably essential cell phone features. Disclaimer The data, market trends and analysis in this report were prepared by PriceGrabber.com. The primary data included in this report are results from the iPhone Survey and Market Reporter. The survey was conducted from May 20, 2008 to June 3, 2008, with a total of 3,066 respondents. The confidence interval for all results is 95 percent with a margin error of approximately +/-3 percentage points for the entire sample. CONSUMER BEHAVIOR REPORT 2008 This report may not be reproduced, distributed or published by any person for any purpose without PriceGrabber.com’s prior written consent. Please cite source when quoting. Source: PriceGrabber.com For media inquiries, to schedule phone interviews, or for journalists who would like to request additional data and/or a custom survey for their needs, please contact Carolyn Chiang by phone at (415) 365-0397 or by email at Carolyn.Chiang@bitepr.com.