Should Apple kill the iPod Touch and replace it with an iPad mini?

Is it now time for Apple to do to the iPod Touch what it did to the iPod mini?

In 2005 Apple killed it's best selling iPod, the iPod mini, and replaced it with the iPod nano. I think it's now time for Apple to do the same with the iPod Touch. Like the iPod mini was in 2005 the iPod Touch is currently Apple's best selling iPod, and just like in 2005 Apple needs to step up it's game when it comes to it's $199 mobile entertainment offering.

Why? Because of the the competition.

What competition? I hear you ask. The answer is simple, $199 7 inch tablets.

Since the iPod Touch was launched back in 2007, Apple has had no competition in this space. Many have tried, including Microsoft with the Zune and Samsung with it's Galaxy Player. But no one has been able to dent the iPod Touch's market and mind share.

iPod Touch
Display : 3.5 inches LCD 960px x 640px
Processor : Single core A4 800 MHz
Connectivity : Wi-Fi 802.11b/g/n 2.4 GHz, Bluetooth 2.1
Camera : 0.3 MP Front, 0.7 MP Rear
Sensors : Ambient light, Gyroscope, Accelerometer
Operating System : iOS
Storage : 8GB, 32GB, 64GB
Price : $199, $299, $399

Google's Nexus 7 and possibly Amazon's the next gen Kindle Fire will change everything. These 7 inch devices enable users to do pretty much everything they can on an iPod Touch, but with a bigger screen that is more appropriate for tasks such as reading books, browsing the web, watching videos and even playing games.

From the initial review's the Nexus 7 is the first real none Apple made tablet that's also not a piece of junk. Couple that with the latest and greatest version of Android (4.1 Jellybean), and add to that the expansion of the Google play store with magazines and TV shows and you have the first really appealing mobile media consumption device that isn't "Designed by Apple in California Assembled in China". And the real kicker for the iPod Touch is that the Nexus 7 retails for $199 and $249 for 8GB and 16GB models respectively.

Nexus 7
Display : 7 inches IPS LCD 1280px x 800px
Processor : Quad core Tegra 3 1.3 GHz
Connectivity : Wi-Fi 802.11a/b/g/n 2.4 GHz, Bluetooth 2.1, GPS, NFC
Camera : 1.2 MP Front
Sensors : Gyroscope, Compass / Magnetometer, Acceleromete
Operating System : Android
Storage : 8GB, 16GB
Price : $199, $249

Apple's iPod Touch line retails at $199 for 8GB, $299 for 32GB, and $399 for 64GB. At these price points it's glaringly obvious to me the the 8GB model is a sitting dock, the Nexus 7 with the same capacity seems a far more compelling device. And although the two bigger capacity iPod models offer a welcomed bump in storage, they seem far too pricey when compared to the 16GB Nexus 7.

Granted Google has admitted it is making no profit on the Nexus 7 hardware sales and analysts suspect Amazon makes nothing from Kindle Fire hardware sales either, but I think Apple needs to do something in this space otherwise they'll be making no profit with zero iPod Touch sales soon.

John Gruber has openly said that he is aware of a 7 inch-ish tablet in the works at Apple, and I feel it's now time to release it to market, killing the iPod Touch and possibly the entire iPod product line in the process.

Apple is the World Champion when it cames to the 10 inch tablet market, no one can come close to them here. But the 7 inch market is a whole new ball game, it's just started and if Apple decides to enter the field this could be the most tastiest championships not screened on ESPN.

UPDATE: An interesting question has come up regarding profit, As I mentioned above both Google and Amazon are making no money on their 7 inch tablet sales, instead they are relying on content sales from their respective content stores.

I think Apple can make very good margins on this kind of product but using following:

The A5 chip has been produced for over 2 years now, so the yield should be ready good now and cost of these surely has to be in Apple’s favor now.

Apple also has a stock pile of flash memory supply, and I would imagine the 16GB variant is now becoming the lowest cost chips for them.

As for the screen, if Guber is correct and Apple is making a 7.85 inch with a 4:3 aspect ratio then they can go one of 2 ways.

1. Resolution of 1024 × 768 with a 163 PPI, this effectively the same as the screen in the iPhone 3GS but cut sightly bigger. If they go this route then the screen will cost next to nothing.

2. Resolution of 2047 × 1536 with a 326 PPI, i.e. the same screen as on the current gen iPod Touch, iPhone 4 and 4S, but again cut sightly larger. Again these screen prices should now be much lower than when they were introduced back in June 2010.

So the way I see it, Apple can make huge margins on a 7 inch tablet and be laughing its way to the bank.