"Am I missing something fundamental?" Price and scale covered already. Also important: Demand: Yes parents give their kids ipod touches not iphones. But th

"Am I missing something fundamental?" Price and scale covered already. Also important: Demand: Yes parents give their kids ipod touches not iphones. But that's still a fraction of the phone market. Moreover younger and younger kids get actual phones every year so that is going away to some extent. Ecosystem: As a game based machine, your AAA gaming app library is even more of an issue. Basically every gaming website is going to tell every kid that an iPod Touch has 10 times as many games. The kids that wake up xmas morning with an W8 Gamester are going to feel like the kids who got Go-Bots instead of Transformers. Younger people feel free to substitute Digimon and Pokemon. Distribution: The carriers solve this problem for phones (even 70% of iphones are sold by carriers) but they aren't interested in selling devices that don't come with a cell radio. This is the same problem Android tablets have unless they have their own major distribution channel (which is why only Amazon and to a lesser extent B&N have been the most successful in this space).