In 2012 Apple increased the screen size of the iPhone from 3.5- to 4-inches, and just a month later introduced the iPad mini with a 7.9- rather than 9.7-inch screen. Between those devices, the old-but-still-on-the-market iPhone 4 and iPhone 4S and iPhone 5, and the iPad mini and iPad, there's a noticeable gap. No 4.5- to 5-inch phone. At least for now.
For many customers that's no gap at all. For many, Apple has kept the screen size exactly where they want it -- tall but still narrow enough to (mostly) use one handed. Thin enough to use with smaller hands, and to fit in smaller pockets and purses. Same enough to continue to argue that people who want much bigger screens are still as wrong as they ever were.
For other customers, 4-inches still isn't big enough.
For some of those, size sells. Imagine you walked into a Big Box retailer and all the television sets, from 32- to 70+-inches all cost pretty much the same thing. Imagine the 70+-inch television, or even the 102-inch television, cost less than the 32-inch one. Thanks to carrier subsidies and agendas, that's the current situation for the iPhone. Customers walk into carriers or retailers and see the $199 iPhone on the shelf alongside 4.5- to 5-inch or bigger Android phones and Windows Phones. Bigger equals better, so they buy bigger.
For the rest, size matters. Either their eyes require bigger interface elements to easily use, their motor skills appreciate more room to move around, or they simply want a bigger screen to do bigger things with. Bigger web. Bigger videos. Bigger games. They might even want something approaching mini-tablet size, and would rather have a big phone than a small phone and a tablet. Bigger is better, so they buy bigger.
For both, even if they'd prefer an iPhone in many ways, the screen size is what they see, or what's more important to them than anything else. And because of that, neither of those customers is choosing the iPhone.
Apple may not care, of course. They didn't care about customers for whom "cheap" is the most important feature, when they chose netbooks, or choose sold-at-cost tablets over Apple's MacBooks or iPads. They currently don't care about customers for whom size options are the most important feature, when people choose larger than 15-inch laptops over MacBooks. In general, Apple has shown resilience to market trends and stuck to a small core of high quality, highly specific products.
But Apple did go to 4-inches with the iPhone this year. And they did go to 7.9-inches with the iPad mini this year, following the introduction of several 7-inch tablets. So Apple's not completely immune to market trends either.
Right now, Apple is content to try and counter-program the bigger screen Samsung and HTC and Nokia devices.
If Apple goes to multiple iOS device releases next year, and their cycle includes two refreshes a year instead of one, however, it'll be interesting to see how the hardware will keep up with that pace. When they're fast enough, with good enough cameras, and long enough battery life, what else will differentiate them? Could multiple screen sizes be an answer to that question?
At close to 5-inches, a 1136x640 iPhone would have the same pixel density as the Retina iPad, 264 ppi. That would be a large iPhone -- a Droid DNA-large iPhone -- and probably larger than most of the market wants. At close to 4.5 inches, a 1136x640 iPhone would have a pixel density of 290, between the Retina iPad and the current iPhone's 326 ppi. Having the same pixel resolution means apps "just work" and developers don't have to update to support it.
If Apple would rather prioritize pixel density and stay truer to the original Retina brand messaging, they could also go from the current @2x (1136x640) to @3x (1704x960) for 435 ppi at 4.5-inches or 391 at 5-inches, or even @4x (2272x1280) or 580 ppi at 4.5-inches or 522 at 5-inches. That would create the same workload for developers as the switch from @1x to @2x that occurred between the iPhone 3GS and iPhone 4, and iPad 2 and iPad 3. (By way of comparison, the Droid DNA is 1920x1080 at 5-inches and 440 ppi.)
Apple already has multiple Mac sizes, multiple iPod sizes, and multiple iPad sizes, so it's not unimaginable they could one day have multiple iPhone sizes greater than the 3.5 and 4-inch iPhones we have today.
With Apple you can never say never. They're smart, they're changeable, and if one day they do choose to go big, to make something with the build quality, lightness, and thinness of the iPhone 5 at a larger scale, it'll be something many people choose to take home.