PRODUCT REVIEW
Apple's Superlative Sequel: The Latest iPod Touch

The touch, while an iPod, is close to the iPhone in lineage. It has the same touchscreen, plays music and videos the same way, and includes a wireless Internet connection that lets you access the Web from your home network and wireless hotspots, such as those set up by AT&T (NYSE: T) in Starbucks (Nasdaq: SBUX) .

Apple tweaked the look of the touch, too. It's a lot thinner than the previous touch, measuring 4.1 inches by 2.4 inches by 0.33 inches, and weighs a scant 4.05 ounces. The back sports a contoured stainless steel casing, whereas the updated iPhone switches to glossy black or white plastic.

New Speakers

A year ago, when I reviewed the original touch, many readers took me to task for complaining that there was no dedicated volume button for music and no built-in speaker for listening to music without headphones. In the new generation, Apple's engineers addressed both complaints by adding a rocker volume button on the left side and speakers on the bottom. They also added software to let you fetch e-mail and use other applications previously limited to the iPhone.

Perhaps the biggest shocker is Apple's decision to sell $29 headphones with a built-in microphone. The upshot? Users can download third-party applications from iTunes that will turn a Web-connected touch into a Skype phone. In effect, the combination of features turns your touch into a poor man's iPhone, letting you make cheap calls anywhere around the world without signing up for AT&T's expensive two-year service contract.

I've always felt the touch ($229 to start) has stood in the shadow of the iPhone. But Apple's decision to let developers deliver software to both the touch and the iPhone actually makes the touch a more important product for Apple in my mind.

Blackjack, Too

The devices' versatility is a key consideration. Not only is it a great high-end iPod, but it's also fast becoming a neat handheld game machine for casual users. In the few weeks I've been using it, I've found myself launching a quick game of blackjack or slots while standing in a line or waiting in an airport.

And because of its great processing power, accelerometer, wireless access, and surprisingly decent battery life, the touch is limited only by the imaginations of a growing stable of developers. One example: Wireless-music company Sonos in late October offered users a free application that turns the touch into an additional wireless controller for accessing music from a PC, Mac , or online music-subscription service.

Another great new piece of software on the touch is called "Genius." With it, you select a song and press an icon that looks like an atom on the top of the screen. The software creates a playlist of tracks in your music library, based in part on Gracenote's digital music-database technology, that are similar.

Fatter Margins

The iPhone can do all this, too. Because the touch does not include a 3G radio, though, the company likely gets slightly better margins with each touch sold.

The touch now sits in a class by itself. No longer simply a high-end iPod, it has become the foundation of what's sure to be an increasingly important handheld computing platform for Apple word or phrase. Rivals should take note: This is one Apple product that could seriously take a bite out of the competition.