Consumers Are Broke but Still Buying Amazon and Apple Gizmos

Strapped shoppers are gobbling up high-priced gizmos from Apple, Amazon, and others, writes Dan Lyons.

Daniel Barry / Getty Images

The post-PC era is upon us, and the biggest names in tech are battling to see who will rule this new market for smartphones and tablet computers, cranking out myriad new plastic-and-glass rectangles that let you carry the Internet in your pocket or purse and stay connected 24/7. Amazon just announced four new Kindle devices, including a top-end model that will compete against Apple’s phenomenally popular iPad. Apple is promoting a new version of its pricey iPhone. A slew of others, including most notably Motorola, Research in Motion (RIM), and Samsung, are cranking out their own versions.

Have these guys not read the newspaper lately? Have they seen the headlines about the dreary economy? Sales of high-end TVs and other consumer-electronics products have been in a swoon, according to NPD Group, a market-research firm.

But somehow mobile Internet products are bucking the trend. The best example is Apple, which is notorious for its higher-than-the-competition prices but nevertheless is doing better than ever. Last quarter, Apple’s total revenue nearly doubled as the company sold 20 million iPhones, up 142 percent from the previous year, and 9.25 million iPads, a gain of 182 percent. They’re not cheap—the iPad starts at $499 and goes as high as $829, and the top-end iPhone costs $299, with a contract.

Nobody needs an iPad, after all. This is pure discretionary spending. For that matter, most people don’t really need a smartphone, either, yet worldwide sales will be up 55 percent this year, according to IDC, a market researcher. Smartphones that run Google’s Android operating system tend to cost a little less than an iPhone, but they’re still not cheap. The best Android phone, the Samsung Galaxy S II, will run you $199. And, like the iPhone, it has been a smash hit, selling 10 million units in its first five months on the market, with most of those sales coming from outside the United States. Samsung’s overall smartphone sales have been up nearly 400 percent this year.

One cause for the boom? Keeping up appearances. The pursuit of status may also explain in part why the German consumer-audio company Sennheiser is enjoying robust sales of its expensive headphones. That’s true even for its flagship HD 800 model, which was introduced in 2009 at an eye-watering price of $1,799 and has gone on to sell far more than Sennheiser expected. But there’s something else at work too, says Stefanie Reichert, vice president of strategic marketing at Sennheiser. “We call it cocooning. In tough economic times, when things aren’t good outside, people bring all the entertainment into their homes,” Reichert says.

Or maybe we’re all just holing up, staring into our tiny screens, walling ourselves off with headphones, and distracting ourselves with toys in order not to think about the increasingly terrifying world around us. Technology not only connects us to the world but also serves as a barrier keeping the world away, as MIT professor Sherry Turkle writes in her most recent book, Alone Together. “We’re frightened,” says Turkle, whose training is in sociology and psychology. “We are using technology to create a culture of distraction.”

Academics may wring their hands over this stuff, but whatever the reason, for makers of smartphones and tablets this gadget madness means money in the bank. Within hours after Amazon announced its four new Kindles, one model, the Kindle Fire, had already become the top-selling electronics product in Amazon’s online store. The product isn’t even available yet. Amazon was simply taking preorders. And, of all the new models, the $199 Fire is—you guessed it—the most expensive.