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The Sturm und Drang of iPhone Evolution

The Sturm und Drang of iPhone Evolution

Update just about any gadget, and the general consensus will be: "OK, that's nice." Update the iPhone, and reaction will range from utter idolatry to heartbreak, rage and torment. This time, Apple's smartphone upgrades enchanted some and inspired others to rage against the machine's prices and AT&T's dragging feet. So was this a success or a failure? Only Apple's stock price knows for sure.

By Richard Adhikari MacNewsWorld ECT News Network
06/10/09 4:00 AM PT

The climb in Apple's share prices seems to have leveled as the company's Worldwide Developers Conference, being held in San Francisco this week, continues.

At the event's keynote presentation, Apple was on a tear, possibly in a bid to terrify and crush the competition.

It introduced new iPhone hardware; set a June 17 release date for upcoming iPhone OS 3.0 software; slashed prices on the current-generation iPhone 3G and two MacBook models; and unveiled more information about Snow Leopard, the next version of its OS X operating system. The emphasis was on the iPhone and its mobile apps.

Will this focus on price keep Apple customers loyal and draw more in? Or will enticing offerings from rivals amount to serious competition?

Moneymakers' Love

Share prices on Tuesday slipped by $1.13, closing at $143.05 compared to the previous day's close of $143.85.

That dip, though, is relatively minor compared to the growth the stock has seen over the past two weeks. At $143.05, Apple shares are $18.29 up from their opening price May 26. That's a climb of more than 14 percent.

In a report published Tuesday, analysts Charlie Wolf and Conor Irvine of Needham & Co. pegged the 12-month target price for Apple shares at $200 and rated the company a strong buy.

A strong buy, in Needham's lexicon, is a company that will give investors returns of at least 25 percent over the next 12 months.

Introducing the New iPhone

At its Worldwide Developers' Conference (WWDC) on Monday, Apple introduced the new iPhone -- the 3G S. This has longer battery life, a higher-quality camera with autofocus, voice control features, and video recording.

It will hit the market June 19. Buyers of the new phone -- as well as older versions of the iPhone -- will get the iPhone OS 3.0 update free. This has more than 100 new features, including MMS (multimedia messaging service), Internet tethering (which lets users employ the iPhone as a modem), and cut-and-paste functions, a tool for which users have been clamoring since the first iPhone was released two years ago.

However, while the software update will make MMS and tethering possible as far as the iPhone itself is concerned, neither of these functions will be immediately useable in the U.S.; MMS will be coming in the late summer, and there's no indication as to when tethering will be available. More on that later.

Hardware-wise, the iPhone 3G S offers faster Internet and application downloads because it has a faster processor.

Sticker Shock

The iPhone 3G S starts at $199, Apple said.

However, this price is for customers who are both eligible for an upgrade and who agree to a two-year AT&T wireless service contract -- read, customers who either haven't purchased a new phone in at least a year and a half, or those who have defected from rival carriers. Unqualified customers -- which includes everyone who has an iPhone 3G, since that phone hit the market just one year ago -- will have to cough up between $499 and $699, depending on the model.

As cellphone subsidy strategies go, this is nothing unusual. Customers of major providers almost always have to wait 18 to 24 months before they're offered a new phone at a discount rate, and re-upping one's contract is always part of the deal. If a buyer wants a new phone sooner than that, they usually have to pay full price, or close to it. The true price of an advanced smartphone is usually several hundred dollars more than the discount rate.

The proposition has rubbed some iPhone 3G owners the wrong way, though. They feel that buyers who faithfully waited in line to scoop up a brand-new iPhone 3G 12 months ago should be rewarded for their continued loyalty. Whether or not this development sends anyone off to other smartphone vendors' offerings remains to be seen, but it does make one wary.

Apple has also slashed the price of its existing iPhones 3Gs to $99 for qualified customers.

Banking on the Apps?

At WWDC, Apple introduced a number of iPhone apps.

These included a remote heartbeat monitoring app from AirStrip Technologies, the AirStrip OB, which has received FDA clearance; and a new app from Scrollmotion, the Iceberg app, which turns the iPhone into an e-reader that may challenge Amazon's Kindle.

In the weeks leading up to the WWDC, a flurry of vendors announced their new iPhone apps. The growing interest in providing iPhone apps shows that the handset's role is expanding, Yankee Group analyst Carl Howe said.

"The iPhone's not just a device anymore; it's a platform for software development, and Apple may make it the most attractive platform out there for software developers," Howe told MacNewsWorld.

Competition in the App Market

Other players, however, want a cut of the mobile app pie. Nokia launched its Ovi store last month; Android has its Marketplace; Research In Motion has its App World; Palm has its own app store; and Sony Ericsson wants to launch its app store by August.

Even the carriers are getting into the act. Last week, Verizon announced its own mobile app store; and in April, AT&T unveiled its App Beta program. Really, though, these are just continuations of the mobile storefronts carriers have always had, said Julien Blin of analyst firm JBB Research.

However, the competition in the apps arena won't trouble Apple, Blin told MacNewsWorld. "Yes, competition is growing in the mobile app store, especially from carriers like Verizon and Vodafone, but today Apple has the brand, the momentum and fairly loyal customers, so it's well-positioned to remain the leading player in the mobile app store," he said.

That will keep buyers coming for the iPhone -- unless the perception of arrogance turns customers turns them away.

AT&T, MMS and Internet Tethering

Many users of the iPhone have long desired to use their devices as laptop modems for wireless connection to the Internet, otherwise known as "tethering." Some have used jailbroken -- in other words, hacked -- iPhones for this. However, tethering is banned under AT&T's terms of service.

The iPhone's and AT&T's lack of support for tethering and MMS have annoyed many customers, but things are going to change -- eventually.

For its part, Apple has promised that MMS and tethering software will be included in its iPhone OS 3.0 update. Neither function will work, though, unless it's supported by the wireless network, and in the U.S., that means AT&T. When iPhone OS 3.0 lands on June 17, AT&T won't let those two functions work.

Instead, the carrier will have MMS for the iPhone ready by the end of summer, according to AT&T spokesperson Mark Siegel.

"We're finalizing some internal system upgrades that have nothing to do with the AT&T wireless 3G network," he said.

"As soon as we complete those, which will be by the end of summer, we'll let customers know," he told MacNewsWorld.

AT&T will introduce Internet tethering, he added, but declined to comment further. "We'll offer a plan and, when we're ready, we'll announce it," Siegel said.


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