>2. The iPhone was launched when it was clear that mobile phone would integrate MP3 functions, and the iPod market would die. But it was more profitable than the iPod, so no dilemma here. The real test for the innovator's dilemma is:you develop and sell a new product that might HURT your profits ,but is the future of the industry because it's better or cheaper, and you understand that having some some slice of the(smaller) future is better than nothing.

I disagree with your point that the iPhone was clearly going to be more profitable than the iPod. Data plans were expensive and the speed of AT&Ts network at the time of original release was horrendous. These obstacles alone were enough to kill the iPhone. Dropping the price from $699 to $299 and now lower really drove the explosion in demand. The margins they made on the iPhone at this point, I imagine, would call your claim into question.

Additionally, the iPod was not a one dimensional device. Apple made its real money off of iTunes exclusivity. The first gen iPhone was an insanely expensive iPod at the time with the added cost of a data plan. Apple absolutely crushed it when they created the App Store. The App Store is what ultimately catapulted the iPhone's profit margins way past the iPod. The world would look very different if the iPhone had remained an internet enabled iPod and cell phone.