Tech on Deck: Keeping the iPod's Touch in an iPhone World

June 13, 2008 — -- The first iPod played only music files. As Apple introduced new models, though, the iPod could display calendar information and photos, play podcasts and games and finally, after much Apple naysaying, video.

The iPod touch took things even further, adding a Web browser, mapping, e-mail and small programs for looking up information like weather and stock quotes when the device was in a Wi-Fi hotspot. What's next is up to the collective imaginations of software companies around the world.

The reason has a lot to do with the iPod's richer relative, the iPhone. Apple originally didn't want other companies developing programs for its luxe handset. But the company had a change of heart, and now wants to encourage developers to write software for its cell phone, the same way that companies have been writing software for the Blackberry and Palm Treo for years.

Because the iPod touch shares a lot of technology with the iPhone, it can take advantage of many programs written for that device. While a wide range of software, however, is a given in the world of smartphones, it's unusual in the world of MP3 players.

In contrast to the iPod touch's large screen, high storage capacity and premium price, more companies have been creating competitors for Apple's iPod shuffle with devices that have small or no screens and cost less than $100.

These include the Creative Zen Stone, SanDisk Sansa Clip and Samsung's just-introduced S2 Pebble. Indeed, as the market leader, it's in Apple's interest to revitalize the portable audio and video player category, where growth has slowed from 19 percent last year to a decline of 3.5 percent this year during the January through April time period, according to The NPD Group's retail tracking service.

That said, at least one niche competitor has been steadily stacking on features for its devices. Staking out the portable video space early by using big hard drives and later big screens, Archos's line of portable media players includes the ability to play games and download music and videos directly over Wi-Fi from a variety of companies such as CinemaNow. It can also use a Web browser (sold as an add-on) to view YouTube and other sites.

And the company recently rolled out a host of other capabilities, including the ability to stream untold hours of Internet radio and video, turn-by-turn navigation with an add-on GPS kit, and even a feature that allows the remote viewing of video a la the Slingbox with a companion video recording product called Archos TV. Yet, despite all of these features that stretch far beyond what most MP3 players can do today, company representatives insist that they're all extras and that the company continues to focus on media playback.

Still, it remains to be seen whether all these features will enable portable media players to remain viable as smartphones step up their media game. Adding Wi-Fi and Web browsers to PDAs such as Palm's large-screen TX could not slow the shift away from those kinds of products. And barring a price cut, the iPod touch will be priced higher than the now subsidized 3G iPhone while lacking GPS and the widespread connectivity of its cellular sibling.

But, for U.S. consumers who want to explore new mobile applications and would rather not cast their lot with AT&T, the iPod touch will soon be transformed into a new kind of handheld computer with a very familiar name.

Ross Rubin is director of industry analysis for consumer technology at The NPD Group.