Is Apple Cannibalizing Its Own iPods?

David Murphy - PC Magazine

Is the end of the iPod nigh? We have a bit of time before we'll be writing the official obituary for Apple's nearly 10-year-old line of portable music players. But the proof in the numbers can't be ignored: According to an analysis by Fortune magazine, iPod sales hit their peak during the 2008 holiday season. Since then, sales have been pushing south on a steady pace.

According to Philip Elmer-Dewitt, Apple dropped from around 22.7 million iPods sold at the end of 2008 to an expected 8.39 million iPods sold within the third quarter of 2011. Now, those numbers do include the typical holiday sales bump that's been a staple element of iPod sales for about the last five years. Comparing quarter-to-quarter, however, analysts are expecting that third quarter figures for iPod sales will come in around 7.2 percent lower than the number of devices sold in the third quarter of 2010.

Has Apple decided to prioritize the sales of its tablets and smartphones? Of course: Elmer-Dewitt notes that this is the first summer on record since the iPod touch's debut that Apple is not offering a free iPod touch alongside Mac purchases as part of the company's annual back-to-school promotions. Users are instead treated to a $100 App Store gift card—not exactly a sign of confidence in the company's music-playing-only products.

But when you think about the raw features that are built-in to Apple's various handheld product lines, the decrease in iPod sales makes sense. The more Apple turns its user base on to the company's smartphones and tablets, the more its antiquated iPod line starts to look like less of a compelling purchase. The only overwhelming differences between an iPhone and an iPod Classic, for example, are price and capacity: While music-loving fans can score a less expensive iPod that can store more of their jams than even the highest-capacity iPhone, they lose a smorgasbord of features in the process.

It also costs far less to jump from the lowest-capacity iPhone 4 to the highest than it does to purchase both a 16GB iPhone 4 and an iPod Classic at the same time. And we're not even factoring in iPhone or iPad 2 users who have already opted to purchase the other matching handheld or tablet. Why would a user want the trifecta of an iPhone, iPod Classic, and iPad 2?

We highly doubt you'll see many iPhone or iPad 2 users opting to add an iPod touch to their collections—even though the iPod touch, noted Elmer-Dewitt, has served up more than 50 percent of non-holiday iPod sales since 2010.

Apple's expected to hit around 7.9 million in third quarter sales for the iPad 2, and around 18.3 million in iPhone sales.

For more from David, follow him on Twitter @TheDavidMurphy.