Now that Apple has announced the latest version of the iPhone, it's important to take a look back at how the iPhone and the smartphone market in general have changed. It's only been a year since the iPhone 3GS was announced, and yet the smartphone landscape has changed dramatically in that time.
To be honest, the iPhone 3GS wasn't actually a huge improvement to the iPhone line. There were very few new features compared to the iPhone 3G from a year earlier.
"It was really just a speedy upgrade from the 3G. I don't view the 3GS as the most technologically advanced cell phone out there," said Michael Morgan, mobile devices analyst for ABI Research, in an interview with TechNewsDaily. "That being said, it did bring new things to the smartphone market. It showed the old guard that software is very important to a handset and there is more revenue to have besides what they get from selling the hardware."
Morgan is referring, of course, to the biggest change in the smartphone market over the last year: the emphasis on apps. The iPhone has had apps since the beginning, but it has only been recently that other manufacturers have tried to catch up with their own app stores.
"It's the paradigm shift from 'cell phone' to 'computer in your pocket.' It's all about the software and apps," said Gene Munster, senior research analyst with Piper Jaffray, in an interview with TechNewsDaily.
That paradigm has been quite visible over the last year as iPhone apps have brought in significant revenue and other smartphone makers rush to create their own app stores. So far, Android is the closest in competition behind the iPhone, with over 50,000 apps (the iPhone has nearly 200,000 apps). As Morgan points out, those apps make the iPhone more than a gadget – it's an "ecosystem."
"The biggest change in smartphones has been that smartphones are no longer just about the product. It's about the ecosystem. The iPhone is an ecosystem, so you need an ecosystem to take it on," Morgan said.
One of the other big impacts the iPhone had on the smartphone market was making the touchscreen a must-have feature. Munster ranks the touchscreen right up there with apps as one of the two biggest influences on the smartphone market recently. When the iPhone first came out, a touchscreen was a rare and prized feature; now it's de riguer for any smartphone.
Well, almost. RIM, maker of BlackBerry smartphones, is still technically the king of smartphones, as far as market share, but it continues to skirt the touchscreen movement. BlackBerry phones are also a perfect illustration of another major and recent shift in smartphones. BlackBerry was known as a business powerhouse, which is partly why RIM dominated the smartphone market. But as Morgan points out, a huge innovation in smartphones has been changing the intended audience.
"Apple introduced consumers to the smartphone, whereas before it was a more business-oriented market. The consumer side is much larger than the business side, which means more revenue. Apple's main innovation was more around business models than technologies. It has been understanding the new way to do business with the smartphone market," Morgan said.
Without a doubt, the past year in smartphones has been the year of Android, Google's smartphone operating system. It was similarly aimed at consumers and has flourished because of that. Though released in 2008, Android has only gained traction in the smartphone market within the last year.
"The gap is closing between Android and iPhone as the number of Android handsets explodes. Android is affecting the iPhone market, and Apple can't deny that [Android] is competitive. Android handsets are everywhere, on every carrier and at every price point. You can't help but consider Android if you're looking for a smartphone," Munster said.
It's that recent explosion of handsets that has made Android a serious contender to the iPhone and one of the driving forces in smartphones over the last year. By some estimates, it has overtaken the iPhone in sales, perhaps because it offers an alternative to the Apple iPhone's "walled garden."
"Android is the opposite approach [from the iPhone]. It's built around a sense of community and a consumer-side focus, and it has greater distribution potential than the iPhone right now. Android is the first legitimate alternative to the iPhone," Morgan said.
Of course, with the new iPhone 4G announced by Steve Jobs today, it's important to remember that the smartphone market will continue to evolve.
Many experts agree that video will become even more important, especially high definition video. The higher resolution of the iPhone 4G screen and the extra camera are evidence of this. Munster thinks that the biggest impact of the iPhone 4G on the smartphone market will be video conferencing.
"Video conferencing will become a standard feature, and there will be a debate over whether people really want it or not. But I think more people can use it than we think," Munster said.
Morgan points out that this emphasis on video has a significant vulnerability, though.
"Streaming HD [video] on 3G cannot be that great of an experience. Once [4G] hits it will be a much better experience, but that also comes with massive growth in data usage, which could hamstring the movement. Plus, I don't know if I'd want to stream HD with a 2GB plan," Morgan said.
The very data caps that Morgan refers to will also become a major point of contention between smartphone users and providers. AT&T just nixed their unlimited data plan, instead offering a plan with a 2GB cap. Rumors indicate other carriers are considering a similar move. With a device such as a smartphone that is being used for more and more data-intensive purposes, this issue will eventually reach a boiling point.
"99 percent of American consumers are not familiar with handling data limits. Now they want to put a cap on that and people are going to have to learn how to tighten their belts on data usage. They will have to learn how to switch to Wi-Fi more often. That could take a little sheen off of how good the iPhone is for users," Morgan said.
Even if you don't have a smartphone yet, don't think you can ignore the problem.
"Eventually they will all be smartphones. There won't be any other kind of phones," Munster said.
And finally, don't expect the battle between iPhone and Android to be solved with the latest iPhone. Android continues to gain market share and notoriety as a useful alternative to the iPhone.
"It will be the age-old battle of open versus closed. History has shown that open systems (Android) traditionally beat out closed systems (iPhone). But we only have a few years of smartphone history, so we don't know if it follows the same rules as other technologies," Morgan said.
"We don't know how this will turn out."