Yesterday, Rio announced an upgrade to the Rio Nitrus, a small MP3 player with a tiny four-gigabyte hard drive that will sell for $249. Hardly anyone paid attention.

Also yesterday, Apple announced the iPod Mini, a small MP3 player with a tiny four-gigabyte hard drive that will sell for $249. And everybody complained that it was too expensive.

It’s indicative of how thoroughly Apple dominates the MP3 player market that everyone compared the Mini to Apple’s current iPod line, instead of the players in the market segment in which the Mini will compete. It’s also indicative of just how clueless commentators can be.

As John Gruber points out, the Mini isn’t a cheap MP3 player, it’s a small MP3 player. Small electronics cost more. Bear in mind that the hard drive in the iPod Mini (and in the Rio Nitrus, incidentally), is a Hitachi one-inch drive. You may not know that Hitachi bought IBM’s Microdrive business some time ago. This is a Microdrive — ask anyone who’s used them what they would think about a four-gig Microdrive that costs only US$249, never mind the MP3 player and battery wrapped around it.

Unfortunately, what passes for analysis in this industry is to divide the gigabytes by the price, and evaluate the player on that basis — not on ergonomics, design, software, size, weight or battery life.

Again, Gruber: “If hard disk capacity were the only factor that mattered, we’d all be using brick-sized players from Creative Labs.”

In a nutshell, techies, writers and pundits don’t know what to make of the thing. Most, I think, have downloaded too many MP3s, and are hot for cheap storage capacity to the exclusion of all else. They’re missing the point.

Apple already owns the large-storage hard-drive player market. If Jobs’s numbers (from yesterday’s keynote) are accurate, the iPod has a 31 per cent market share, and all other hard-drive players have only a seven per cent share.

There’s nowhere else for Apple to grow in this segment, so they’re starting to go after the lower end of the market, which is comprised of flash-memory-based players that are extremely tiny, but extremely expensive on the cost-per-gigabyte front — funny how the commentators don’t notice that. The emergence of relatively affordable four-gigabyte drives allows Apple, Rio and whoever else can get some from Hitachi to start working away at that market from the top down.

It’s not Apple’s fault that the rumour sites had mini iPods at $99 and $199 price points. It’s component costs that are dictating the $249 price point. As far as I can tell, the components to make a $99, one-gigabyte iPod simply do not exist. Moltz makes a salient point on Crazy Apple Rumours (never assume that he’s merely being silly): rumour sites frequently have products priced at less than the combined costs of their components.

Two years ago, everyone was complaining that the iPod was too expensive (see previous entries: 1, 2). And look what’s happened since. Apple could do worse if events repeat themselves with the iPod Mini.