Fantastic Q2 2011 was a great one. But in Q? 2007, aka date of the first iPhone release, success was not imminent. All I am suggesting is that you compare appl

Fantastic Q2 2011 was a great one. But in Q? 2007, aka date of the first iPhone release, success was not imminent. All I am suggesting is that you compare apples to apples instead of apples to oranges. You have to look at the market at the time they released the iPhone. Chart of Avg selling price of Apple products: http://www.asymco.com/wp-content/uploads/2012/01/Screen-Shot-2012-01-25-at-1-25-6.03.27-PM.png http://www.asymco.com/wp-content/uploads/2012/01/Screen-Shot... Graph of iPhone activations by carrier: http://www.asymco.com/wp-content/uploads/2012/02/Screen-Shot-2012-02-08-at-2-8-9.57.32-PM.png http://www.asymco.com/wp-content/uploads/2012/02/Screen-Shot... From this information it is clear that the iPhone was not imminent threat to the iPod, at the time of its release. It took a full year for activations to pick up. None of this takes into account, as I said earlier, the iPod was valuable to Apple because of the iTunes Music Store. The iPhone was too expensive in its early stages to replace the iPod as a music player. Apple took an enormous risk with the iPhone.