I Want To Believe ™
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What exactly is an iPod Touch and what to do with it? Who uses it and how/where?
Teenagers whose parents can't afford/don't want their child to own an iPhone/smartphone, maybe particularly playing games and taking pictures/videos.
Some other/older people use it as a kind of PDA.
WiFi only is limitative and a 3G/LTE version would be definitely too close to an iPhone and probably not in Apple's interest.
But who uses it only as a music player? Aren't other and smaller iPod better designed for this specific task? Then does a relative small size really matters?
The kind of e-books created with iBooks Author will sure benefit of a large screen, and the iPad 9.7" is fine for interactive books it is supposed to help create, a kind of book read sitting at a desk.
A less square format could fit perfectly newspaper/novels/text type content, the kind potentially more often read on the go, where portability is welcome.
Untouched since 2010, the iPod Touch could be completely re-invented. A small form factor is great for a phone or a music player, but for a portable gaming device or a productive device, a bigger screen would be welcome.
At 326 ppi, a screen at the new resolution of 1440 x 960 would measure 5.3" in diagonal, at the limit of the pocketability, and 1.5x old (actual) apps would still look fine transitionally before they get upgraded to the new resolution.
Apple could even now add 3G/LTE support without competing directly with the iPhone (still not a phone, simply data connection to keep segmentation, as with the iPad).
This new iPod Touch would be quite a portable/mobile device, far more useful than the previous one, but nothing as heavy and big as an iPad, even a 7.85" one:
watch videos/play games on the go with a better experience than with an iPhone,
capture photos/videos in a less awkward fashion than with an iPad, and with a better experience to modify them on the go than on the screen of an iPhone,
read text content (e-book, web page, e-mail) while standing in crowded public transports far better than with both a larger device/a too small device,
more screen surface to use apps, with no much/real trade-off in usablity.
Most apps could support the expansion mostly flawlessly (clearly more surely than the shrink from 9.7" to the supposed 7.85", on the iPad front), creating no real fragmentation while coupled with a resolution changes on the iPhone.
And ultimately, once 480x320 support dropped (say 2 years from now, considering the 3GS will probably not be sold anymore after next iPhone refresh this autumn), the resolution would have to be seen as 2x 720x480 (and to support the then old 4/4S/Touch resolution, could be rendered at 2/3 until their turn to be unsupported)
