Is there even still a market for such devices? While $200 dollars may be a lot less than an unlocked iPhone, its certainly not cheap. Plus you can get an iPhone 6 at that price if you are willing to get into a contract.
Kids can't get into contracts. People with bad credit can't get into phone contracts. Sure lots of parents buy their kids smartphones now but a lot can't afford to do that. I still think there's a big market for this. Plus developers - much cheaper to buy a lot of these for a team than iPhone's.
I'm tempted to sneer at iPods too, but it's actually a pretty good choice for the gym. If you're worried about your $800 iPhone getting crushed, an iPod touch will record your lifts just as well; or an iPod Shuffle will clip on to your shirt for a long run through a bad neighborhood.
Also for kids where parents don't want to buy expensive contracts. Or even frugal adults who can just make all their calls through Hangouts/Skype and don't need a cell plan.
Outside the US the costs of wireless contracts are much more obvious and $200 sound very different than $700. I could see parents giving one of these to their kids as a Christmas gift.
The amount of engineering to create such a device is probably minimal, even if the existing market is small. I know people with Android phones who still use an iPod--partly because they have eclectic music tastes. They do to use streaming audio services, but its not the only way they consume music.
Kids can't get into contracts. People with bad credit can't get into phone contracts. Sure lots of parents buy their kids smartphones now but a lot can't afford to do that. I still think there's a big market for this. Plus developers - much cheaper to buy a lot of these for a team than iPhone's.