Apple's latest iPhone launch is all about putting the product into as many hands as already hold iPods.

And to achieve this Tim Cook, officially handed the reins in August after Steve Jobs retired, has clearly decided he needs to let the iPhone become a little less premium.

The focus at Tuesday's iPhone 4S launch was on price. The oldest iPhone not to be discontinued, the 3GS, will now be free with a two-year contract. The iPhone 4 range will be reduced to just one model, with a mere 8GB of storage – the biggest 4S has 64GB – but will cost just $99 on a two year tie-in.

The changes to Apple's European smartphone market share for the first half of the year show why Cook needs a wider economic catchment. Samsung is gaining ground and fast. As Nokia committed hara-kiri by abandoning its Symbian operating system and letting its market share fall from over 40% in the first quarter of 2010 to 11% in the second quarter of 2011, research by analyst IDC shows that Apple did not benefit.

Its share of sales fell from 25% to 21%. Samsung's rose from 2.5% to overtake Apple, with 22%. HTC gained too, rising from 8% to 14%.

The east Asia contenders have allied their manufacturing expertise with Google's programming power, using the Californian company's Android operating system in an alliance that has dominated sales of mid range smart phones.

It's hard to believe that Apple could be losing market share when so far this year it has sold 55m iPhones, more than twice as many as it did in the first nine months of 2010.

The speed at which smartphones are being adopted can, as BlackBerry maker Research in Motion's sudden fall from grace has shown, make or break even the biggest of players in a handful of quarters.

Including new numbers from Tuesday, there have been about 325m individual iPods sold around the world since 2002. According to Apple's third-quarter results, 129m iPhones have been put into consumers' hands since 2007.

So Apple will need to sell 200m more phones if they are to reach as wide a public as the music players.

No rival ever really matched Apple on the iPod, and the market for MP3 players remained its own. That has never quite been the case with smartphones, thanks mostly to Google's intervention.

Differences in the quality of the products are beginning to melt away. Microsoft has yet to launch its updated phone operating system, dubbed Mango, in a big way. It is awaiting new handsets from Nokia on which to show it off.

But as an early user, on an HTC handset, I believe it will raise the bar. Jobs used to rightly deride Microsoft products for poor aesthetics and clunky usability. Mango's graphic design, the deep integration of popular tools such as Facebook and Twitter, and its ease of navigation make the iPhone 4 look out of date.

Sales of the iPod have already begun a double-digit decline. It is nearing the beginning of the end of its life cycle. Apple sold 20% fewer in its third quarter than in the same period last year.

Cannibalising iPod Touch sales with a cheaper smartphone is a risk that must now be taken. While hardcore Apple addicts may be disappointed at the lack of a handset called iPhone 5, Cook has picked the right time to address a wider audience.