Since its launch, the iPod has become one of Apple’s major products and sources of income. It has, arguably, been one of Steve Jobs’s biggest successes after his return to Apple.

At the Macworld Expo keynote speech on January 10, 2006, Steve Jobs reported sales of over 42 million iPods in all, and 14 million in the first quarter of 2006. The iPod’s market share accounts for about 75% of the mp3 player market. Calling it a runaway success wouldn’t be too far from the truth.

All this may soon change, as the iPod is bound to take a hit in sales, unless it evolves with the changing needs of consumers.

The day consumers saw the entry of mobile phones with inbuilt mp3 players, all standalone mp3 players were issued a warning of things to come in the future. However, they still faced no real threat as these mobile-phone-cum-mp3 players just couldn’t match the capability of a standard mp3 player. Sound quality wasn’t as good, storage space was limited, and they were too expensive to realistically affect the mp3 player market.

But now, with hard-disk based phone-cum-mp3-players invading world markets, they may ring a death knell for iPods and the like. Soon, within the next year, if not today.

These so-called convergence devices not only have mp3 players, they also come equipped with digital cameras of fairly decent merit, some PDA functionality, 3G/EDGE, WiFi, etc. making these packages increasingly attractive to consumers.

Although these devices are right now rather expensive, costing about $600-$800 a piece for a (unlocked) 4GB hard-disk based version, they also have a slew of features missing in standalone mp3 players like the iPod. Most come equipped with integrated digital cameras (>2.0 megapixels in most cases), PIM facilities and 3G/EDGE (service provider dependent), and of course mp3 players running off of a hard disk. With dipping technology prices, these devices will become increasingly more affordable to consumers throughout the world, hence eating into the iPods pie, particularly damaging the Nano’s marketshare.

Another advantage that these devices have over standalone devices is their single-package form factor, which enables users to carry a combination of 3 devices while populating just 1 pocket. And you only need to charge one devices instead of hooking up 3 devices to the power supply. Neat. All this makes it much more convenient for users to effectively utilize the vast range of functions present in these devices.

How often have you thought that you’d like to click a pic, but couldn’t merely because you weren’t carrying a camera? Haven’t you found yourself wanting to listen to a particular song, but, once again, couldn’t because you weren’t carrying your mp3 player? All these problems will be things of the past with these convergence phones: this problem will vaporize as these phones are bound to be in your pocket at nearly all times (after all, how many of us would leave our homes without a mobile phone?). What this means is that you have all your coolest devices built into one, with you, at nearly all times, allowing you to use all these features whenever you want, wherever you want. Neat, once again.

Phones like the upcoming Sony-Ericsson W950 and the Nokia N91 are examples of such devices.

The Nokia N91 comes equipped with a 4GB HDD, 2MP camera, Symbian OS 9.1 and a slew of PIM features. It can be purchased for about $650 (unlocked). It’s (and other similar devices’) main advantage over the iPod is its vast range of functions, as well as the previously mentioned single-package form factor.

The moment devices like the N91 are available between $400-$450, they’re bound to eat in to the market of standalone mp3 players, in particular the iPod Nano. At present, the 4GB iPod nano costs a cool $250. A lot of people wouldn’t mind paying an additional 150 dollars to get these convergence devices, with a whole range of other features.

I’m not saying that the iPod will die – I’m saying it’s going to be hit hard by such devices, some time next year – but it will eventually die unless it evolves (the concept of survival of the fittest). These new convergence phones just make much more sense than standalone mp3 players.

But, as seen in the past, Apple is a particularly robust and sound company, with strong fundamentals. It might quite easily be able to steer the iPod clear of any danger by releasing such a device of its own - that would be a coup of its own.

However, partnerships like the Motorola-Apple partnership yielded nothing, and had a minimal impact on the music player industry. Apple has to take this up more seriously, and, hopefully, independently. Maybe the Apple-Softbank collaboration will yield better results in making a proper mp3-player-phone.

And I’m also not saying that the iPod alone will be hit. All standalone mp3 players await the same fate. That of a shrinking market.

In any case, the iPod either needs to evolve, incorporating other features like a camera/phone, or face a shrinking market for stand-alone mp3 players and eventually die. Only the fittest will survive in this world of cut-throat competition. It remains to be seen whether the iPod is fit enough.