"A second generation of Microdrive was announced by IBM in June 2000 with increased capacities at 512MB and 1GB, with the 512 MB model costing $399 and the 1 GB model costing $499."
Yes, storage technology existed at the time, but it was an order of magnitude more expensive than what Apple needed to put in a consumer product.
It's unquestionable that iPod unleashed the explosive miniaturization of technology, and paved the road for everything that we saw in the following decade with smartphones.