When the first iPod turned up, it held 5 GB of music and costed $400. Today using $400 you can buy an iPod with 60G storage capacity. That means in five years the capacity has increased by a factor of 12 while the price has remained the same. To help put that into perspective for you I have compiled some statistics on the history of the iPod as it relates to price, size and value.

Another way to examine the iPod’s value is to compare the price per GB of each model. The first iPod, at only 5GB, cost $80 per GB.But when the next model was introduced (the 10GB model) the price per GB decreased to only $50 per GB and it has plummeted ever since. Comparing the price per GB of the largest capacity iPod to the corresponding iPod of the previous generation shows with each new iteration the price per GB drops by 33% each time!

This means you are paying 33% less per GB every generation. That is why the first iPod was so expensive at $80 per GB while the newest one is a great deal at barely $7 per GB.

As harddrive technology improves, prices will absolutely fall to the benefit of the consumer. However what the numbers and graph don’t show is that as the price of storage fell, the devices themselves were improved in other ways. They became thinner, got larger displays, longer battery lives, brighter screens and better interfaces. And though the traditional iPod always used harddrives as its storage medium, the iPod Shuffle and iPod Nano both use flash drives. And even though the new iPod haven’t been around long enough to merit that many new additions, in time they will become a much better deal than they are now. Much like the originaliPod did.

There must eventually be an end to this cycle, though. Prices can only drop so far, likewise harddrives can only store so much data. Eventually the technology will progress to the point where digital music players are no longer special devices but rather cheap commodities. Much like the walkman and diskman eventually became.

In that case, regardless of how good Apple’s products are, they will lose marketshare. Some time in the future portable media playing devices will become cheap to the point where not having such a device isn’t even an option. And while Apple will certainly do well in this market, they cannot rely on it as an indefinite source of income.

I predict Apple has at least 3 years (but up to 5 at the most) in which they can enjoy a de-facto monopoly in this space. After 5 years the price for components will have dropped to the point where almost anyone can, and will, compete with the iPod. If someone emerges as a viable competitor to online media distribution (my money is on Amazon) then Apple’s dominance in this area will be over. By the time that happens though Jobs will have hopefully found a new star to hitch his wagon to.