One day, Apple will retire the iPod. However, I'm willing to wager that it will not be for a long long while.
And what will the market look like?
I was the gym this morning. I saw a lot of iPhones and iPod Touches and a few iPods. Definitely more iOS devices than just regular iPods. There were a couple of Blackberries but the people were listening on their iPods and only used the RIM devices to make calls. Only one did while the other didn't did anything with her Blackberry at all.
That got me going about what the next few years will hold for MP3 players, specifically, iPods in general. It'll take years before smart devices overtake traditional cell phones and anyone who wants to carry around their music library is going to have to have an mp3 player or iPod. The market should continue to do well.
For Apple, the iPod remains a lucrative business year in and year out. It won't be a while until Apple thinks it's no longer in its interest to carry the iPod line and decide to do away with it.
But I think the iPod will take another form and evolve with the needs of its users. Take the iPod Touch. It's is an iOS device rather than an outright iPod. A few things are like to happen.
First, expect more iOS devices bearing down on the iPod line. iPod Touch may be joined by another iPod with a suffix. Whatever it may be will depend on what features are likely to be added. We might see a Touch with a smaller size. iPod 2 for a 2-inch or so screen. Or a larger iPod Touch with 5" and call it the iPod 5. The original Touch may be just called iPod 3.
Second, it's entirely possible that Apple will killed the iPod line completely. And it'll do so in name only. Since Apple migrates the whole mobile line pretty much over to be based on iOS, look for a name change. The original feel of the iPod will continue to live in this device. the iPod will merely be an app within whatever clever name that Apple devices fits the new revolutionary change.
Third, the iPod may become a portable media center. I read somewhere the term "iPod TV". Clever. When you aren't indulging your workout at the gym with the iPod TV, you can hook it up to your Apple monitor or HDTV at home and use it as a media center device. It can store media just like an iPod does today or stream them from Apple's cloud service. Perhaps iPod Stream might be a clever name to use.
As a matter of fact, I look for the cloud and MobileMe to figure strongly into whatever the future iPods will evolve into. Oh, and don't worry. Those services and changes will also migrate over to the iPhones and iPads if these two mobile options fancies you more.