You're also missing something called economies of scope. Consider the following: 1. Apple can make a lot of money of an iPod Touch since they have many content

You're also missing something called economies of scope. Consider the following: 1. Apple can make a lot of money of an iPod Touch since they have many content partnerships in place and the cost of production of these devices is nominal (Apple has dedicated factories, has been producing the same models for years and, thru the Apple Store, enjoys low marketing and distribution costs). 2. Google's and Microsoft's breath of content partnerships is not as broad as Apple, therefore they wouldn't make as much money per device sold. 3. Apple's iPhone and iPod Touch share many components, production and distribution facilities; lowering the total cost of unit production and distribution for Apple. 4. Apple's customers are very accustomed to a single particular line of design. This makes it easy for Apple to push a model and it also makes it easy for developers to produce apps for the platform. In this case Android's fragmentation would get rapidly compounded and make developers lives harder. 5. Microsoft and Google have partnerships with phone manufacturers whose designs differ significantly. Therefore the traction of a particular design can't be directly translated into a media player (because only a thin slice of the market is familiar with the product). 6. Microsoft already failed with the Zune, so there are some cultural issues there as well. 7. Google makes money on search which is not a fundamental (albeit important) use case of a media player. So the monetization numbers for Google are going to look really bad if they were to sell media players. 6. This is a very tough market to penetrate since the iPod has so many partnerships in place already (covers, speakers, adapters, even iPod ready cars). All and all, Google and Microsoft have a chance to boost their app stores by competing on different platforms: the TV and game consoles. Then, as they accrue content partnerships and seduce more and more developers the numbers could change in the media player scenario.