Apple's iPhone 3.0 A Win For ConsumersApple's iPhone 3.0 A Win For Consumers

The iPhone 3.0 software, which the company released in beta on Tuesday, is a win for users and Apple, cementing Apple's market lead with advanced new features while also adding a couple of capabilities that competitive devices have had for years.

"The new capabilities make it better as a game machine, as a social networking tool, better as a business tool, and better as a browser," said Technology Business Research analyst Ezra Gottheil. "This can only help Apple."

The software is available to developers now in beta and in a developer kit, and it will be available to consumers this summer, a year after Apple shipped the iPhone 2.0 software and iPhone 3G hardware. Apple didn't talk about any new hardware at Tuesday's event, but might well do so at the company's Worldwide Developers Conference in June, which is where it introduced the iPhone 3G last year. The software will be a free upgrade to existing iPhone users, and $9.95 to existing iPod Touch owners.

Major new features on the iPhone 3.0 software include copy, cut, and paste support; peer-to-peer connections between devices for gaming and sharing business information. The software has an interface for the iPhone to control external hardware; Apple demonstrated its use controlling medical equipment on Tuesday. The device has an API for developers to build Google Maps into their applications, so we can finally get turn-by-turn out-loud directions on the iPhone. And it supports push notifications, to achieve most of the benefits of running applications in the background; multimedia messaging; and a Spotlight search application that runs across multiple applications.

Also, users will be able to type in landscape mode in Mail, Text, and Notes applications -- another feature much in demand by iPhone users.

"It's a huge release for Apple," said Gartner analyst Van Baker. The ability to sell content from within applications will be a significant win for developers, who will be able to generate applications that depend on a subscription model, including city guides and e-book readers, Baker said. For example, the Amazon Kindle application for iPhone has a much clumsier shopping experience than on the dedicated Kindle hardware -- so much so that Amazon itself recommends users shop either on the Kindle hardware, or through a Web browser on their PCs.

Using iPhone 3.0, Amazon and other e-book developers will be able to build a rich shopping experience into the Kindle iPhone software.

Likewise, publishers of city guides will be able to sell, or give away, the guide software, and then sell guides for individual cities. And magazine and newspaper publishers will be able to more easily sell content -- assuming they're able to find customers willing to buy.

"We'll see more capable applications coming to market, more complex applications coming to market, and, hopefully for developers, more expensive applications coming to market," Baker said.

IPhone developers complain that the sweet spot for Apple app pricing is too low for them to earn a living; the public might be willing to pay more for more complex applications. Moreover, the ability to sell content from within applications might make it possible for developers to give out free trials or crippled versions of their applications, which is now impossible in the iPhone, and which is a further barrier to higher-priced apps.

"From a consumer perspective, a lot of the new features are addressing things that people have asked for a while," Baker said. These include cut-and-paste, MMS support, a voice memo app, enhancements for the contacts application, and support for subscribing to calendars using CalDAV technology, to share calendars with iCal, Yahoo, and Google. Enterprise users will also benefit from syncing calendars with Oracle.

Cut-and-paste, in particular, is a big hole in the iPhone's feature set. Competing devices have offered cut-and-paste between applications for years, going back to the original Palm Pilot in 1996. "Cut and paste was glaringly missing from the iPhone, it's one of the things that needed to be addressed," Baker said.

The device's new peer-to-peer support will permit development of multiplayer games.

And push notification will allow applications in the cloud to send notifications to their client counterparts on the iPhone, which provides most of the benefits of running applications in the background, something you can't do with the iPhone and iPod Touch. For example, an instant messaging application in the cloud could send a notification to the iPhone when a user receives a new message, and the iPhone would alert the user with sounds, text, or a badge.

Tethering is another big plus for the iPhone 3.0 software, allowing the device to operate as a wireless modem for notebook computers and other devices. But tethering isn't a done deal -- while the iPhone 3.0 software will support tethering, and Apple must convince AT&T and other wireless carriers to implement the capability.

The new software will serve as a good building block for new hardware devices, which Gottheil is convinced are inevitable. He says Apple will come out with jumbo iPod Touches, with displays the size of a paperback book and sheet of paper.

The new technology will help Apple against other smartphones, particularly Apple's major competitors: Research In Motion's BlackBerry, devices running Microsoft Windows, and Google Android.

"Apple set a pretty high bar, and it's going to put the onus on the RIM, and Microsoft, and Google folks to catch up," Baker said. The App Store alone gives Apple a huge advantage, with competitors working hard to catch up. The App Store has more than 25,000 applications available to 30 million iPhone and iPod Touch users in 77 countries.

Baker sees a slightly different line-up of major competitors: The Palm Pre and BlackBerry. Windows doesn't have a huge market share, and the Android is still building momentum, he said.

Apple has powerful sales momentum, Gottheil said. iPhone and iPod Touch sales through last year alone will bring in $1 billion revenue and $600 million profits in each of the next five quarters, due to Apple's accounting procedures which spread revenue from iPhone sale over the entire two-year life of the device's data contract. And that's without selling a single iPhone or Touch this year.

"The net result is that right now the iPhone is propelling Apple's growth, and it's also giving them a real presence in parts of the world where they haven't had much presence," Gottheil said. Apple sells iPods outside of mature markets in America, Western Europe, and Japan, but the Mac is largely confined to mature markets. "They are going to keep going at it as hard and as fast as they can," Gottheil said.

"The iPhone is their utility communications device," Gottheil said. "It's not just a phone, it's a Web browser and application platform that gives them a presence with a device that's not a full-fledged PC, but it's not just a phone either." The iPod Touch is attractive as a budget device that plays media, runs applications, browses the Web, and plays games for $229. Users in developing markets see a cell phone as the bare minimum, and the iPhone gives them that, along with other Internet and computing capabilities.

The iPhone and iPod Touch's strong momentum contrasts with flagging sales of Macs. Mac sales declined 17% year-over-year in February, on top of a 5% decline in January.

Apple delivered the announcement without CEO Steve Jobs, who's been on medical leave of absence since January. The absence of Jobs, a master showman, didn't make much difference to this announcement, Baker said, adding that Jobs generally takes a backseat for developer announcements.

"Steve doesn't typically do developer stuff. If he shows up at all, he takes a low-key role and lets the guys who work with the developer community take the front and center," Baker said.

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