Apparently during the holiday shopping season this year the big hit for Apple was the iPod touch. Huge numbers of the touchscreen iPod were sold and the device’s momentum doesn’t look to be slowing down any time soon. That is not a huge surprise in light of the fact that once you buy the iPod touch there aren’t any recurring charges the way there are with the iPhone. No question it is an easier and cheaper device to own over an extended period. That makes it ideal for kids and they seemed taking to the touch in the droves.

It’s a good deal for Apple. Not only do they sell hardware now, but they also increase the number of people buying apps, movies, music and tv shows using iTunes. In addition, they set the stage for the next generation of iPhone users as well. It stands to reason that when kids who have been using iPod touch go to buy a cell phone they may be drawn to the device that is already familiar and for which they already own a host of different applications and games. As Flurry media puts it…

According to Apple, 58 million iPhone OS devices have been sold worldwide through September 2009. Of those, Flurry estimates that just over 40%, around 24 million are iPod Touch devices.While it is clear that the iPhone has significant short-term revenue value for Apple, Flurry believes that the iPod Touch holds more long-term strategic value for Steve Jobs and team. As all industry eyes look to the iPhone, the iPod Touch is quietly building a loyal base among the next generation of iPhone users, positioning Apple to corner the smartphone market not only today, but also tomorrow.

It is a smart move on Apple’s part for many reasons. And just think — it wasn’t that long ago that the iPod touch first came out and was greeted with mixed reviews due to its limited functionality.

I own and use both the iPhone and iPod touch and I see the draw of the iPod touch over and above the iPhone. It is thinner and lighter than the iPhone. As a result it’s a pleasure to hold and use. Because it lacks the cell phone radio of the iPhone I experienced far better battery life from the touch. Moreover, it has a nice, strong metal case not dissimilar to the first-generation iPhone. Compared to the easily cracked, somewhat cheap feeling, plastic back of the iPhone 3GS, the iPod touch feels stronger and more refined. Add in the fact that the current generation touch is just as fast as the iPhone 3GS and… when I’m at home I am more likely to use the iPod touch than I am the iPhone. This is especially true if I’m using one of the devices to read RSS feeds or e-books. For those uses the iPod touch wins each and every time.

That noted, however, the iPod touch isn’t a replacement for the iPhone. Yes, the iPod touch allows you to run most of the same applications but there are a number of key functions that the iPhone has that keeps the iPod touch a distant second. The differences are worth keeping that in mind when considering a device that runs OS iPhone. Here are a few…

First, and most obviously, the 3G radio.

The iPhone’s 3G radio sucks battery life like nobody’s business but it adds a dimension to the iPhone that the touch can’t… touch. It not only allows the iPhone to be a cell phone (Duh!) but also gives the iPhone ubiquitous connectivity. Despite all my bitching and moaning about AT&T there are few places I go where I don’t have some degree of connectivity and that is a huge deal. It means that the iPhone still can function as an iPhone and a pocket computer pretty much anywhere. The iPod touch, on the other hand, is incredibly useful when I have a WiFi connection available but becomes a rather “dumb device” as soon as the connection is missing. That is a huge limitation which results in, for the most part, my iPod touch to staying at home where the connection is always present.

Second, the camera.

The iPhone’s camera may not be the best camera on the market. It may not be the most flexible camera on the market. But it’s the camera have with me all the time. With it I am able to quickly grab a picture or a video clip. I can’t do that with the iPod touch. Moreover thanks to the power of the iPhone and some creative applications, as soon as I take that picture or video I can edit it, give it a more finished look and feel and then upload to any sharing service I want, post on the website, or send to a friend. For example, we are set to be able to shoot, label and upload pictures from CES within seconds. In addition, we’ll be able to shoot video at CES, do some basic editing and have the clip up and available just a few minutes after it was taken. That is pretty amazing when you think about where the technology was just a few short years ago. None of this is possible with the iPod touch which doesn’t have a camera and doesn’t have the data connection to allow such sharing in real time.

Third, the microphone.

Unlike the initial release, the current iPod touch has a limited but sufficient speaker. It allows you to get audible prompts from applications or hear sounds when playing a game. For some reason, however, Apple has chosen not to put a microphone on the device. Unless you’re using a headset with a microphone you can’t use the iPod touch to make voice recordings or a VoIP call. It may not sound like a big deal but as someone who uses the iPhone’s microphone constantly and for far more than just phone calls, it is a tremendous limitation.

Fourth, GPS.

The iPod touch lacks the iPhone’s GPS and that is a big deal. Sure you can get an external mount that includes a GPS receiver now but that’s not the point. No matter where I am I can pull out my iPhone, fire up one of the GPS applications, and get routing information within seconds. All of this is possible without needing any additional accessories. Sure, it isn’t the best GPS receiver I’ve seen but it gets the job done. And it’s always there.

But there’s more to this issue than meets the eye. The iPhone’s GPS chip isn’t just about GPS navigation. There are a tremendous number of applications that use the GPS capabilities of the iPhone in a variety, sometimes almost unnoticeable, a manner and none of this is available if you’re on the iPod touch. Again, this isn’t one of those things that you would miss unless you have already been using an iPhone but once you do start using an iPhone you realize how important the GPS capabilities of the device can be.

Fifth, applications.

There are a host of applications which simply aren’t available on the iPod touch. The best example of this is Dragon Dictation. I’m not sure why an application like Dragon wouldn’t be available on the iPod touch since it certainly would work once a microphone was plugged in but it isn’t there and there are other applications in the same camp. It’s one thing if an application such as Evernote comes in a version for the iPod touch but it has some limitations such as leaving off the voice memo application but can not be able to get the application on the device whatsoever is a huge limitation. In fact, the more I rely on dragon dictation for writing on my iPhone the more of this limitation results in my using the iPod touch less than the iPhone more.

Now none of this is to say that the iPod touch isn’t a terrific device. It is. It is a fantastic pocket computer whose usefulness seems to increase on a monthly if not a weekly basis. I’m not surprised that it was a tremendous hit during the holiday shopping season this year. But let’s be clear, while it is far less expensive to own it isn’t an iPhone. And as the “gateway OS iPhone device” I suspect Apple wants to keep it that way.