Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Apple Inc. (AAPL): The Two Device Markets

The folks at the Pew Foundation have a new survey out which holds important lessons for the device market, and investors.

There are, in fact, two markets here, and they are different.

Kids like the phones

What’s happening in the phone market looks very good for investors in Apple Inc. (NASDAQ:AAPL).

Apple Inc. (AAPL)

Basically, it’s a young person’s market. Smartphones skew young. While over half of American cell phone users now have smart phones, the highest penetration rates, and highest profits, are found among younger consumers.

Young Americans are not only very likely to own a smartphone, but they’re also likely to be heavy users of it, and heavy buyers of services based on the smartphone.

This means Apple Inc. (NASDAQ:AAPL), which leads in this category and has been extending its lead lately, is going to keep prospering. Its tight control of the after-market in its products means it will sell more apps, more songs, and more services than any other player in this market.

This is bullish for Apple Inc. (NASDAQ:AAPL) shareholders, right?

Yes, but…

Parents buy the tablets

Pew’s report on tablets holds bad news for Apple Inc. (NASDAQ:AAPL) and better news for rivals, especially for Amazon.com, Inc. (NASDAQ:AMZN).

Over one third of adults over 18 are now tablet owners. Penetration is higher in high income households. But it’s not the kids who are buying the tablets.

It’s parents.

I have seen the same scene play out many times in the last few months. A parent with a young child arrives at a family event. The kid gets handed the tablet, and while the adult may supervise the play, the kid is basically left on their own.

While high-income consumers are the buyers, they remain price sensitive. Half of households with minor children at home now own tablets, according to Pew. People in their 30s and 40s – prime parenting territory – are now more likely to own tablets than any other group.

This has been of enormous benefit to Google Inc (NASDAQ:GOOG) Android, and especially the Amazon.com, Inc. (NASDAQ:AMZN) Kindle version of it. Kids are being given books and simple games offered through the Amazon store. They may be allowed to check out the free kid selection at Amazon Prime. The software store, and payment, is in the hands of the parent.

This is why Apple Inc. (NASDAQ:AAPL)’s share of the market has gone down here. The iPad is a nice tablet, but it costs more than parents are willing to pay for what is essentially a toy. The Amazon.com, Inc. (NASDAQ:AMZN) Kindle Fire may not have a browser to speak of, it may be a walled garden, but it’s child safe and, at $200, a bargain.

The Foolish take

Apple Inc. (NASDAQ:AAPL) has a problem in the tablet market it needs to address. The company is capable of addressing this problem, with lower-priced and child-friendly versions of the iPad. But time is running out. Once these kids “grow up” to their own phone, they’re now far more likely than previously to want an Android.

The article The Two Device Markets originally appeared on Fool.com and is written by Dana Blankenhorn.

Dana Blankenhorn owns shares of Apple and Google. The Motley Fool recommends Amazon.com, Apple, and Google. The Motley Fool owns shares of Amazon.com, Apple, and Google. Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Loading...