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Poor(er) people buy iPhones, drive 3G growth

May be using them as substitute for home PC, broadband connection, say analysts

October 30, 2008 12:00 PM ET

Computerworld - Counterintuitive as it sounds, lower-income buyers are driving sales of Apple's iPhone 3G, a Web metrics company said today.

Those poorer users may be choosing the iPhone as a substitute for a home PC and a broadband connection, and in effect saving money, said an industry analyst who covers Apple.

According to comScore Inc., which pulled data from its monthly online survey of more than 33,000 mobile phone users, the strongest part of the iPhone's growth since the July launch of the lower-priced iPhone 3G has come from people who earn less than the U.S. median household income.

While overall iPhone ownership increased 21% since June, adoption grew 48% among people earning between $25,000 and $50,000 annually, and increased 46% among those earning between $25,000 and $75,000 each year. The median U.S. household income was $50,233 in 2007, the most recent year that data was available from the U.S. Census Bureau.

ComScore also said that iPhone ownership among those in the highest-income range -- $100,000 or more -- grew just 16% in the same period, even though people in that group accounted for more owners (43%) of all who have an iPhone than any other device.

"It's counterintuitive," said Ezra Gottheil, an analyst at Technology Business Research Inc., talking about the comScore numbers and Apple's reputation as a maker of premium-priced products. "But perhaps what these people are doing is saying 'I have to have a phone no matter what,' so they're buying an iPhone and deferring a home computer."

To Gottheil, the growth of iPhone owners in the lower economic brackets proves a point he's made before: That the smart phone essentially acts as Apple's "netbook," the category of small, lightweight and, most importantly, less-expensive laptops.

"For some people, they have a real computer at home, so they're thinking that [the iPhone] will be their home and play computer," said Gottheil, talking about how the iPhone can be an adequate PC substitute for some. "I need texting, because everyone texts, I need an iPod and I want to consume media, but I can do this with the iPhone. Not having a PC at home means I don't need to pay for Internet access there. My data service [on the iPhone] is my home ISP."

In May, Gottheil released a research note to clients that argued the iPhone could serve as a lower-cost substitute for a PC, and that Apple would capitalize on the strategy. "The iPhone will help Apple resolve a dilemma," Gottheil wrote then. "There is a large potential worldwide market of people who cannot or will not pay the relatively high price for a Mac, but if Apple were to offer a lower-priced PC, it would lose some sales of existing Macs.

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