Many people do not need more than 16..if it allows Apple to offer a lessor priced iPhone and people want it, whats the problem? I buy the 128 gig and I hear all the time how no one needs that much storage!
Why do we care what business model apple uses?
Apologistic rhetoric, and how disappointing that you don't have the stones to hold a (self-claiming) prolific and quality-obsessed company to higher standards. C'mon man, it's 2016 -- you shouldn't be getting 16GB storage in a $600 phone. And what an answer, 'just buy a better model'; money is tight for some people, and it's not like these phones are cheap.
Since 2009, when the iPhone 3GS was announced, we've got: significantly better quality photos that use lots of storage, much higher definition videos, larger apps, larger application caches, larger operating system footprint, larger OS update size, higher bitrate/quality local audio files from iTunes, more functionality with media in messages/Mail, and loads of third-party apps, which as a result eats up more space ... a lot more space.
The software built into these phones, in practically every single aspect, soaks up tenfold more space than the equivalent apps back in 2009.
Furthermore, the price difference between 16GB and 32GB for Apple is literally $1 or less. I'm not joking, it's that little. Just look at the price of Flash storage available for consumers. It's absolutely nothing. Heck, Apple could likely get it for less, $1 is a surprisingly conservative and hyperbole-free estimate. The tiniest, gentlest, humblest, affordable increase in the base storage at the cost of naff-all per phone would do wonders for consumers. But then a lot more people wouldn't feel the need to jump to the next band.
TL;DR: Absolutely bleeding nobody wants a 16GB iPhone.