Did they release it because they were losing money to competitors, or because they were leaving money on the table with their existing price points? I suspect the latter.

They were losing out on customers so they released an el-cheapo piece of crap. This is my point.

Losing out on customers to who? Or just missing out on selling to customers who wanted a cheaper option? Those are two very different things.

I don't think they release the shuffle because their higher-priced products were suffering in comparison to budget competitors. They released the shuffle because there was demand at the $100 price point that they could profitably address without undercutting their more expensive products.

Famous Steve story I saw last month when he retired about how people at Apple wanted to attack all the mp3 markets from the start but he forced them to focus focus focus on the one big model to get it perfect. Two years later they opened it up, something I take it we'll see with the low end phone and eventually with ipads too.