We're now surprisingly deep in Apple's (NASDAQ:AAPL) iPhone product life cycle.

The iPhone 5 is the sixth generation of the tech giant's trendsetting smartphone. The device shows no signs of peaking. Every annual installment eclipses the model that came out a year earlier. Apple's going to have a blowout holiday quarter, and even the bears know it.

How big will the iPhone get, though?

Raymond James analyst Tavis McCourt tends to think that the iPhone will likely wind up being closer to the company's flagship Mac -- a high-end product cornering a small yet loyal segment of the market -- than the ubiquitous iPod which was the market leader until portable media players began fading in popularity.

He's right, but that isn't necessarily a bad thing.

Emerging opportunities
There will naturally be price limitations that will forever keep Apple's smartphone market penetration in check.

It may not seem that way in this country, where new iPhones are available for $199 -- and older models can be had for as little as free -- with two-year contracts. Carriers can afford to subsidize the handsets, knowing that paying Apple more than $350 will be more than made up after billing customers four figures during the two-year contract.

Carriers in many overseas markets, particularly emerging countries where $100-a-month wireless plans just won't fly, have no choice but to sell full-priced iPhones alongside the cheaper smartphones that most customers will ultimately choose.

Apple would love to compete, but it would much rather make its chunky profits. It makes more money with 14% of the market than Samsung does with 33% of the market. Why mess with the formula?

There may never be another iPod
The iPod -- in its prime -- was hard to beat. No one was subsidizing iPods, so Apple had to keep its prices competitive. Microsoft (NASDAQ:MSFT) was willing to sacrifice margins to gets its Zune established. It offered a sharing feature that wasn't available on iPods. SanDisk (NASDAQ: SNDK) had a manufacturing advantage as the global market leader in flash memory. It had no intention of backing down. It didn't matter. Apple was the dominant player in the market, and Microsoft and SanDisk remained distant rivals.

Apple has been the market leader in the tablet market with its iPad, but how long will that last? Android is picking up steam, and let's not write off Microsoft until we see if Windows 8 takes off on tablets.

The iPod was a unique situation, but what did that do for Apple? The company is more profitable now with the iPhone than it was years ago when the iPod was hot.

There's no shame in having just 15% of the market now -- and probably even more this quarter with the iPhone 5 -- when it all translates into a big fat number on the bottom line.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.