It’s looking increasingly likely that the whole iPod range will have some kind of camera inside. Apple just upgraded the camera in the top-of-the-line iPod, the iPhone, which shows a commitment to picture-taking with its handhelds (either that or Apple was just embarrassed that the original iPhone camera was so bad). The iPod Touch is an obvious candidate for a cam, and reports now say that the company has ordered so many cheap ($10) camera units that even the mass-market Nano could be able to snap pictures.

If Apple puts a camera in every iPod (the dying Classic and the tiny Shuffle excepted), will it kill the compact camera industry? The answer might actually be yes.

First, think about how Apple does business with the iPod. It is never the first, and often the products are feature-poor compared to the competition, but it is always dominant. IPod means MP3 player. Soon, phone will mean iPhone (at $99 a pop, who in their right mind will buy a different phone and an iPod together?).

With this kind of market saturation, Apple has the power to change whole product sectors. We already said that the iPhone’s new autofocus still and video camera is good enough for most people. By simply dropping a cheap new part into every iPod sold, Apple could wipe out the small digicam almost entirely. There will, between cellphones and iPods, almost no reason to buy a standalone camera unless you are an enthusiastic amateur, or a pro. If you think this is sensationalism, take a look at compact camera sales figures. They are dropping. The only growth sector is DSLRs which are seeing strong sales despite These Troubled Times®.

This is partly because DSLRs are now so cheap, but also because, for many, the camera they have already, the camera came free with their cellphone, is good enough. And remember, cellphones are often tortuously bad to use even for making phonecalls, let alone taking pictures. And getting those pictures off the camera an onto a computer or the web? How does bamboo under the fingernails sound?

The point is that Apple can put an easy to use — no, fun to use — camera in the pocket of everyone under 40, a camera that is effectively free and will automatically sync all pictures back to the mothership via iTunes every time it is charged. Now. Imagine you are in the compact digicam market. Should you be worried?

Prepare Yourself For iPod Video [Tech Crunch via The Apple Blog]

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Photoshop fake: Charlie Sorrel