Apple Inc.'s Next Product Is ... A New iPod?

You might have forgotten that iPods still exist, but Apple just updated its entire iPod Touch line with the same hardware as the iPhone 6.

The new iPod Touch. Source: Apple

This means that its A5 chip has been upgraded to an A8, and its 5-megapixel camera has been replaced with an 8-megapixel one. Its front-facing FaceTime HD camera retains the same resolution, but gains new features like slow motion, burst mode, and improved face detection.

Apple claims the new iPod Touch offers 10-times faster graphics performance, three-times faster Wi-Fi connectivity, and better fitness tracking capabilities than its predecessor. The entire lineup will also come in a wider variety of colors, including blue, pink, gold, silver, and space gray. The low-end 16GB version will cost $199, while a top-tier 128GB version will cost $400.

Let's take a look at the history of the iPod, why it still matters to Apple, and the important legacy that it's leaving behind.

The rise and fall of Apple's iPodWhen Apple launched the original iPod in 2001, it crushed the competition for three reasons: it stored thousands of songs, had a large screen, and it had an intuitive click-wheel interface. At the time, MP3 players were mostly clunky flash-storage devices that had limited storage and awkward interfaces. Apple also streamlined the process of downloading and organizing music collections with iTunes.

In 2004, Apple diversified the iPod family with the smaller iPod Mini. The following year, it added the iPod Shuffle and the iPod Nano, which were even smaller. Shortly after unveiling the first iPhone, Apple launched the iPod Touch,which Steve Jobs dubbed "training wheels for the iPhone."

The Shuffle and Nano will also be updated with new colors. Source: Apple

Thanks to the wide variety of iPods on the market, iPod sales kept climbing until they peaked in the first quarter of Apple's 2009 fiscal year, when Apple sold 22.7 million iPods, compared to 4.4 million iPhones.

Sales gradually declined over the following years, due to the soaring popularity of smartphones. Apple stopped reporting iPod sales after the fourth quarter of 2014, when it shipped just 2.6 million iPods, compared to 39.3 million iPhones and 12.3 million iPads. Today, the iPod is lumped together in the "other products" category with everything that isn't an iPhone, iPad, or Mac.

Why bother updating the iPod?Today, iPods serve specific niche markets that aren't fully covered by smartphones. The iPod Shuffle still serves fitness enthusiasts who don't want to carry a smartphone while working out. The Nano, which is only slightly larger, offers those same users a screen for better control. The iPod Touch is for customers who want an iPhone-like experience without buying a full-price iPhone.

These products are all basically "gateway" devices that tether more users to Apple's closed ecosystem. Jason Cipriani at Fortune speculates that Apple updated the iPod Touch for children, calling it "a gateway drug for the next generation" that pushes first-time users to "graduate to the next device" -- the iPhone. The new iPod Touch also comes with iOS 8.4 installed, which will let users access the new Apple Music service.

That's one of Apple's core strategies -- to lock users into its ecosystem with digital purchases that can only be accessed on other Apple devices. That's a core advantage that Android handset manufacturers lack, since Google Play purchases can be retained across devices from different manufacturers.

How the iPod's legacy defines AppleWhen Steve Jobs introduced the iPod, he set a high standard for future Apple products. Apple didn't invent the MP3 player, but it addressed the flaws with competing devices and made it appealing to mainstream consumers.

Jobs didn't invent the smartphone either. But he transformed it from an intimidating enterprise product with a keyboard into a touchscreen device that could be used by everyone. The same can be said about iPads, which transformed tablets from niche devices for digital artists into casual replacements for laptops.

Under Tim Cook, Apple arguably hasn't demonstrated that same talent for innovation. The Apple Watch, Apple's first new device without Jobs, isn't a revolutionary device like the iPod, iPhone, or iPad -- it's merely comparable to other high-end smartwatches on the market.

The road aheadLooking ahead, Apple is now relying heavily on snob appeal to offset its lack of big innovations. That's why it's now selling luxury versions of the Apple Watch that cost over $10,000. This tactic might work for a while, but at some point in the future, Apple needs to start leapfrogging over the competition again with products like the iPod.

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Leo Sun owns shares of Apple. The Motley Fool both recommends and owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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