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Is the iPod Touch a Bigger Game Changer Than the iPhone?

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08touch_gamesThe iPod Touch might be hiding in the shadow of its big brother, the iPhone — both in volume, and revenue — but is it possible that the Touch is more disruptive than its cellular sibling? The iPod Touch has seen huge growth within Apple’s (s aapl) iPod category, with Touch sales growing more than 130 percent year over year, while total iPod shipments dropped 4 percent. Apple noted in its quarterly earnings call last month that while it expects total iPod purchases to continue to decline, it is cannibalizing its own sales with the Touch and iPhone. I suspect the Touch’s growth will accelerate as customers transition from simple music players to more multifunction pocket devices — and that switchover has the potential to seriously shake up the world of mobile gadgets.

The iPod Touch is a lightweight, highly portable music and video player, communications and gaming platform and, if rumors are to be believed, its next generation will include a digital camera for stills and video — and maybe even VoIP, all over its Wi-Fi connection. That’s a lot of power from a $229 device. It’s that easy access to the Internet through a Wi-Fi connection that makes the device so interesting. Almost two years ago, long before the iPhone 3G and the App Store made its debut, Apple executives were touting the iPod Touch as the first “mainstream, mobile Wi-Fi platform.” Now, with the 65,000-plus third-party applications on the App Store, the Touch platform has grown significantly since Apple first lauded it in 2008.

The iPhone, of course, is also part of this platform, which is why Apple frequently combines the sales numbers of the two products. At last count, there were 45 million devices capable of running this “Wi-Fi platform” worldwide — also known as the sum of iPod Touch and iPhone sales. By comparison, Sony (s sne) has sold 58 million PSPs, and Nintendo has sold 108 million of its DS handheld gaming device since 2004 — both gadgets have Wi-Fi, but not nearly the interactivity and multi-functionality that the Touch has. It’s curious that the iPhone gets so much of the coverage, while the iPod Touch gets second shrift. The iPhone can make calls, but with free Wi-Fi networks popping up everywhere thanks to deals with ISPs — plus campus-wide Wi-Fi networks at most colleges across the U.S. — the iPod Touch is fast becoming the WiFi-enabled mobile device to beat. Even Rockstar is releasing an iPod Touch edition of its venerable Grand Theft Auto franchise.

Apple is perpetuating a “virtuous cycle,” as Gene Munster put it in a recent research note, to keep users on the iPod Touch — an improved version of the lock-in provided by the old iTunes/iPod music ecosystem. Users buy the iPod Touch; download apps; developers promote their apps (and the iPod Touch platform), which leads to more consumers buying the iPod Touch. Even better (for Apple), customers can only purchase apps through the company, leading to even more device lock-in.

iPod sales might be dropping, but Apple says half of new purchases of the device are to customers who have never owned one before. I’m willing to bet that many of those customers are interested in Apple’s new Wi-Fi platform. And then, in an even more impressive version of the iPod halo, iPod Touch owners could look to Apple when it’s time to buy their next computer. A virtuous cycle indeed.

21 Responses to “Is the iPod Touch a Bigger Game Changer Than the iPhone?”

  1. I find my iPod touch amazing but I will say I want an I phone why??I seem to find that the iPhone has four times the better coverage for wifi my iPhone friends find wifi where I cant

  2. I think that the killer hardware updates for the iPod Touch should be a camera and a GPS.

    If Apple could do a test deal with Verizon to market the Touch with MIFI like capabilities for even $60 a month, I think that millions would flock from the iPhone to the Touch. This would allow Apple to move away from AT&T (which would make the FCC happy) while still honoring their existing contract. This would provide a rich testing ground for the rumored tablet. It would also be a win for those Apps in the store that are more “IPhone only” to be used on the touch (such as the newly released TOM TOM GPS app).

    Let’s face it, we deal more with emails and twitter now then phone calls. We need an internet communicator, not a phone. I’m perfectly happy to carry my slim phone in my pocket while I use my Touch for everything else.

  3. geniuschef

    it got the worst sound of all the ipods, unfortunately. the iphone got beautiful sound…for a tiny little thing. seriously. ipod touch makes music sound like it’s rattlin’ around in a tin pail.

  4. The problem with the iTouch is the speed (web browsing is painfully slow) and the lack of camera and integrated mic.

    If they fix these issues on sept 9, you pretty much get rid of the need for an iphone (skype works really well on itouch).

    Still… if the zune has much better web browsing speed, I dunno… this is what kills the fun of ipod touch for me.

  5. As an 1st-gen iTouch owner, I’m thrilled with mine in every respect but battery life. I definitely need a battery replacement and I’ve only had it 1 1/2 years.

    That said, I live in Seattle where free WiFi is on almost every corner. And I don’t really like using the phone, so it made way more sense for me to pick up an iTouch, still get all the iPhone app power, and dodge the whole horrible contract situation.

  6. One other data point on this one is that I recently got back from a trip to Paris/London, with ONLY an iPod Touch as my connectivity/communications device (no Mac/PC. no mobile phone), and it was a revelation. In tandem with Google Maps, it completely de-mystified foreign travel and improved upon it.

    Here is a post I wrote on the topic, including the pitfalls of being wi-fi dependent when roaming around a foreign country:

    Touch Traveler: London, Paris and only an iPod Touch

    Check it out if interested.


  7. One must also view the new MSFT Zune to be a threat as well. It touts abilities that many home theater media centers do not have. While the hard drive size is the bottle neck currently, the hand held market has a lot of room to grow.

    I am excited to see what APPL has in store on the 9th.

  8. The iPod touch is in many ways a significant rival to the iPhone, and is in fact the iPhone’s only significant rival, as a handheld application platform.

    Studies have revealed that 1/4 of iPhones are unlocked after purchase, because people don’t want to switch carriers or refuse to lock-in to 3 year contracts. This is an enormous problem for Apple given that unlocked iPhones can’t access the App Store and are essentially “off the grid”. The iPod Touch does not need to be unlocked in any circumstance.

    As Apple would concur, I don’t think it’s terribly easy to separate the two. But this article should put to bed any claims that the iPod Touch is dead or dying.

    • Actually, real word (on the street) numbers from our community seem to indicate that it’s far higher than 25% of iPhones that are being unlocked. Often it isn’t simply a matter of being unhappy with AT&T – sometimes AT&T simply doesn’t provide coverage in the area where a potential iPhone user lives. Verizon does!

      The iPod touch is far from dying, in fact it’s essentially an iPhone without the telco contract (and unlocking) headaches.

      UI Guru

  9. Yuvamani

    I (And even Om) bought my iPod touch because the iPhone was on AT&T and not my carrier. Its also reasonably priced (A similar iPhone at no commitment costs 270 dollars more)

    The iPod is a study of where the iPhone might have been if not for the exclusivity. Apple made huge profits off the iPhone at the expense of volumes. If the iPhone is available universally (ie on every carrier in every market at a reasonable price), It can achieve so much more !