Apple Matters | How much cheaper is the iPod going to get?

An article graphically showing the decline in iPod price per gigabyte. Based on these graphs the author extrapolates that Apple will not be the market leader in 3-5 years as MP# players become commodities. He notes that while iPod prices have remained the same, their size and features have increased. He reasons that eventually this will have to come to a stop and that someone like Amazon will become the leader.

Two factors that aren't taken into account in this article is the increase in MP3 bitrates over time. When MP3 players first came out they had 32MB and 64MB sizes. Bit rates were 64k to be able to fit ~20 songs onto the player. Now most people rip their songs at 192k or 256k bitrates. As long as MP3 bit rates increase at the same rate as HD size increases, then the sweet spot will still be larger HD's as opposed to commodity drives. i.e. no one would buy a 32MB MP3 player today even though it would be dirt cheap.

The second factor not taken into account is Apple's DRM. Everyone who purchases songs from iTunes becomes locked into buy Apple MP3 players. The only way you can listen to the hundreds of dollars spent at Apple's iTunes store is to continue to buy Apple products. Eventually if no one is able to challenge Apple's dominance in the MP3 player market, Apple will reach critical mass and they will have effectively won.