Is The Rising Popularity Of The iPod Touch Cutting Into iPhone Sales?

According to early reports, the iPod Touch was a hot seller over the holidays. At the same time, sales of the mighty iPhone have been slowing in some places. Is there a connection between the two?

BusinessWeek says the Touch’s good fortune is partly a matter of economics and partly its functionality. While the iPod Touch is priced from $229 to $399, it is more affordable than the iPhone, as consumers aren’t saddled with a pricey monthly phone plan.

Plus, with the growing number of games on Apple (nasdaq: AAPL - news - people )’s App Store, the iPod Touch is presenting buyers with an alternative to a Nintendo (other-otc: NTDOY.PK - news - people ) DS or Sony (nyse: SNE - news - people ) PSP.

Kleiner Perkins Caufield & Byers partner Matt Murphy, who manages its $100 million iFund for App Store developers, told BusinessWeek that aside from the Touch becoming a “legitimate gaming platform,” young people are using it for social networking and other applications. He added that for some people, “it’s becoming a computer replacement.”

BusinessWeek also references a note from BMO Capital Markets analyst Keith Bachman that found Canadian telco Rogers Communications (nyse: RCI - news - people ) sold 130,000 iPhones in the December quarter, significantly lower than 235,000 in the previous quarter. We won’t know the latest iPhone sales numbers in the U.S. until AT&T (nyse: T - news - people )’s latest earnings are released in at the end of the month.

Another interesting datapoint on the rising popularity of the Touch comes from mobile ad network AdMob. Its has released December figures Thursday, and while our usual caveat that these figures are from only one vendor still stands, they show a jump in the number of ads it served up to iPod Touch users—from 86 million in November to 292 million in December. The requests doubled overnight on Christmas, and remained strong throughout the close of the month.