Will the iPhone Turn the Mobile Phone World on Its Ear?

The first Mac computers, he noted, changed the PC industry forever. Even though Apple never became a dominant computer maker in terms of market share, its interface and usability innovations are in every PC today, Jobs said.

Tough Act to Follow

The iPod, meanwhile, the device from which the iPhone evolves, forever changed not just portable music, but music in general, igniting a paid-download revolution just when the music industry was facing extinction due to illegal song-swapping.

Now Apple has the mobile phone industry squarely in its sights. By all early accounts, the iPhone is a major leap forward in product design -- at once slimmer and more powerful than just about all others in the market.

From the innovative touch-screen approach to dialing and Web surfing to the large color screen, the iPhone may actually live up to the months of hype and speculation that preceded its formal debut on Tuesday.

The iPhone wasn't the only product announcement Apple made Tuesday -- it also debuted its Apple TV set-top box device -- nor was the Macworld Conference & Expo the only trade show on the docket, with the International CES (Consumer Electronics Show) featuring its own product rollouts.

Still, nothing else drew a fraction of the attention the iPhone garnered, with even normally staid analysts and reporters gushing about the device after Jobs gave it its debut star turn.

In fact, Jobs may not have been overstating things when he claimed the iPhone was "five years ahead of any other mobile phone" now on the market, with features such as a screen that automatically lightens or darkens based on conditions and a "visual voice mail" feature that lets users go directly to a certain message without having to listen to others.

The iPhone is "a revolutionary device and can thrive as a convergence platform for years to come," UBS analyst Ben Reitzes said.

It remains to be seen whether the unique design will translate into sales success for the iPhone and continued growth for Apple. In some ways, Apple is entering a market where price-cutting has become the order of the day and where carriers give away multi-function devices along with calling programs.

Waiting for the Shuffle?

The ripple effect of the iPhone splash may be felt across the mobile device industry, with the biggest impact felt by those device makers who have tried to translate the personal computer into a handheld device -- from Palm (Nasdaq: PALM) and Research In Motion (Nasdaq: RIMM) to Nokia (NYSE: NOK) and Motorola (NYSE: MOT) , to name just a few. Nokia and RIM shares were both lower in the wake of the iPhone debut.

Carriers may feel the pinch as well. Verizon Wireless could suffer the most because it has been the most aggressive in selling music and video-ready phones through its V-Cast service.

By building the iPhone on top of the Mac OS X operating system and enabling the same widgets and applications that work on MacBooks and Mac desktops to be used in the phone, Apple may have raced ahead of many device makers.

"After today, I don't think anyone is going to look at these phones the same," Jobs said as he compared the iPhone to the existing offerings of competitors.

One possible issue for Apple is whether the iPhone will lead to fewer iPod sales. Sales of the growing family of iPod devices have been the engine of Apple's recent success, and have been seen boosting sales of its personal computers along the way.

iPod sales will drop when iPhone sales pick up, Reitzes predicted, but he also expects a continuation of the so-called "halo effect," with positive reaction to the devices driving sales of Mac computers. He foresees "long-term PC market share gains for Apple" as a result.

Another hurdle could be durability. While Apple has churned out some 70 million iPods over the past five years, cell phones are exposed to much harsher conditions. There are questions whether the screen will hold up to the wear-and-tear of users over the long-run, for instance.

Too Much?

With a price tag of US$499 for a 4 GB model and $599 for an 8 GB phone, the iPhone may be out of reach for many consumers, though Jobs argued that a consumer who bought a comparable stand-alone iPod and a smartphone would pay around the same price for the two devices.

"Most hot new phones launch at high prices -- such as the Razr -- but quickly come down in price," noted JupiterResearch analyst Julie Ask. If Apple truly is satisfied with selling 12 million phones and capturing 1 percent of the market share, that price range may be effective. The original iPhone may well be "round one" with "subsequent phones at prices designed for higher adoption," a similar approach that Apple used with the iPod, according to Ask.

Apple aficionados and early adopters will likely take the plunge with the iPhone and enable strong early sales. Cingular may well sweeten the deal as well with special calling plans, she added.

More iPhones will almost certainly follow, American Technology Research analyst Shaw Wu declared.

"I would not be surprised to see simpler cell phones in the future at much more aggressive price points," Wu said. "Apple will likely follow its iPod strategy, which is to start out at the high end and then trickle down to mid-range and low-end."

Mission Accomplished?

By making a splash with the iPhone, and to a lesser extent Apple TV, Apple answered the nagging questions of when would it offer the market a follow-up to the iPod and prove it has more product-innovation tricks up its sleeve.

Investors seemed satisfied as well, driving Apple stock to an all-time high early Wednesday at $95.16

Apple's best move may have been what it did not do -- attempt to become a mobile virtual network operation, or MVNO. Under that approach, Apple would have leased network space from carriers and sold both phone and service directly to consumers.

The MVNO approach has been the venue for several high-profile failures, most notably the attempt by ESPN to create a market for a sports phone, telecom analyst Jeff Kagan noted. "That approach would have been especially risky," Kagan said.