For all the frenzy it generated, the new iPhone 3G was actually the second most important product launched by Apple (AAPL) on July 11.
The real action was the opening of the iPhone App Store, featuring more than 500 third-party applications for the device. As I wrote in a recent column (BusinessWeek, 6/18/08), software, not hardware, is what separates the iPhone from the pack. The App Store will turn that gap into a gulf.
The phone itself reflects a fairly minor overhaul of the original. The big improvements are fast 3G data networks, a GPS receiver for location services, and a new pricing structure that cuts the tab in half, to $200 ($300 for the 16-gigabyte version) in exchange for an extra $10 a month for the required two-year AT&T (T) service contract.
Apps in DemandApple isn't the first to figure out that you need great applications to realize the full potential of a smartphone. Palm (PALM) built up a corps of outside programmers years ago, and Windows Mobile (MSFT), Symbian, and BlackBerry (RIMM) products all flourished with the help of extensive third-party software offerings. The iPhone, however, provides a unique combination of an extremely capable device, millions of customers hungry for ways to expand its usefulness, and an enthusiastic (crazed, one could say) community of developers. And the iPhone App Store offers both one-stop shopping and a measure of quality control, though many programs in the initial batch are buggy.
About a quarter of the apps are free, and most others cost less than $10. They cover a wide range, from the odd (the text of Ren Descartes' Discourse on Method for 99) and the serious (a program that can access "business analytics" in Oracle (ORCL) databases) to some very entertaining games.
The built-in programs have also been upgraded. For example, the new iPhone supports Microsoft's corporate Exchange mail and scheduling service. And if your company offers a Microsoft feature called ActiveSync Direct Push, messages, calendar changes, and other data are delivered nearly instantly to the iPhone even when you're not on your corporate Wi-Fi network.
Missing: Real-Time NavigationGames show off the iPhone's capabilities. Sega's (6460.T) addictive Super Monkey Ball ($10) and Fullpower Technologies' MotionX-Poker ($5) are two that highlight its 3D graphics. Users control both of them primarily by tilting or shaking the phone to activate motion sensors. Unfortunately, games also suck power and leave you longing for a replaceable battery.
The addition of GPS enables all sorts of novel services, such as Loopt (a freebie), which keeps your friends posted on your location unless you tell it not to. But one application is prominently missing from the iPhone: turn-by-turn navigation, which is available on most GPS-equipped handsets. Apple's third-party developer agreement prohibits real-time navigation programs, so for now, the most you can get is GPS-enabled Google Maps (GOOG), which accurately display your current location. Apple has not responded to my questions about its restrictions on navigation, which seems like an ideal feature for the iPhone.
One quibble is that all these applications create a need for some way to organize them. You can move the icons representing the apps around on the iPhone's screen, but you can't put them into folders or any sort of hierarchy. Apple reported 10 million application downloads in the first weekend, so there are some awfully messy home screens out there. Clutter aside, there have been few reports of download or software-compatibility problems.
The volume just proves the App Store is offering lots of programs people want. The original iPhone was a platform that cried out for creative ways to use it. The App Store is a huge step toward realizing that potential.
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