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New iPhone 3GS heats up smartphone wars

  • Story Highlights
  • Consumer demand is growing for phones that act like mini-computers
  • Apple's latest entry goes on sale Friday, faces competition from other companies
  • iPhone is the undisputed leader when it comes to mobile applications
  • Rivals launch competing app stores to lure customers to their devices
By A. Pawlowski
CNN
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(CNN) -- When Apple starts selling what it bills as the fastest, most powerful iPhone yet on Friday, the company's latest entry will only heat up the already sizzling smartphone landscape.

Got smartphone fever? A new version of the Apple iPhone goes on sale Friday.

Got smartphone fever? A new version of the Apple iPhone goes on sale Friday.

Fans, techies and ordinary consumers eager to purchase the new iPhone 3GS may be preparing to stand in line at Apple stores around the United States and seven other countries. But they have more choices than ever when it comes to phones that act like mini-computers.

"We expect that [smartphones are] going to be the fastest growing consumer segment for quite some time," said Ryan Reith, a senior research analyst for technology research firm IDC.

"It's all about connecting to the outside world."

The U.S. smartphone market grew by 68 percent last year and is projected to grow by 20 percent in 2009 and almost 25 percent next year, according to IDC. Compare four smartphones Video

No wonder companies are rushing to meet the demand for sleek mobile devices that combine e-mail, data, music, photos -- all in the palm of one's hand.

Interested in something other than the iPhone? The options include the new Palm Pre, Research in Motion's BlackBerry Storm or phones powered by Google's Android or Microsoft's Windows Mobile operating systems.

The key is having access to the Internet anytime, anywhere.

"Mobile Web browsing is a huge thing," said MG Siegler, a writer for the technology news site TechCrunch. "People especially want to get on the Internet and do the things they're doing when they are at their [home] computers, which is social networking and sharing photos."

When it comes to mobile Web surfing, the iPhone seems to be the king. A recent report by AdMob found Apple's device generated 65 percent of mobile HTML browsing, a statistic that didn't surprise Siegler.

"The Web browser on the iPhone has been up to this point far superior to what it is on some of the other phones out there," he said. "The great thing about the iPhone is that you don't have to have a mobile specific page. You can look at the regular page and just see it perfectly fine." Read about the new iPhone's features

All about apps

While Apple has lots of buzz and appeal, it's not the dominant smartphone player. The company had only about a 20 percent share of the U.S. smartphone market in the first quarter of this year, a distant second to Research in Motion's 55 percent slice of the pie during the same period, according to IDC.

Apple is the undisputed leader, however, when it comes to mobile applications -- the software programs that let users do everything from play games to track their calorie consumption and everything in between. Sign up to receive information about CNN's iPhone app

Apple's App Store has a whopping 50,000 applications available, and a number of its competitors recently launched their own stores in the hopes of catching up. It won't be easy: BlackBerry's App World, Palm's App Catalog, Microsoft's Windows Mobile Catalog and Google's Android Market have only a fraction of Apple's offerings.

"It's pretty clear that Apple has the lion's share of people who want to develop mobile apps. It's a great distribution platform," said Erica Ogg, a writer for CNET News.

Some competitors are trying to lure developers to their platforms by letting them keep more of the money generated by their apps. While Apple offers a 70/30 split -- with developers getting to keep 70 percent of the revenue and the company taking 30 percent -- Research in Motion is offering a more favorable 80/20 split, Reith said.

Ironically, industry observers believe Apple's success itself may eventually drive some developers to competing stores where their apps would be less likely to get lost in the crowd and have a greater chance of standing out.

"I would think that developers would want to look at a lot of these other platforms, like the Palm Pre, because they would still be so early on in the development cycle that they could get their app out there," Siegler said.

"If the Palm Pre ends up taking off and sells millions of units then they're much more likely to be successful."

Speed matters

In fact, Siegler believes the Pre could be the biggest wildcard right now because it's the first smartphone since the iPhone to use multi-touch. The feature lets users maneuver around the interface by using their fingers -- double-tapping the screen to zoom in or out, for example, or "pinching" with their thumbs and forefingers to do the same thing.

Beyond the technology inside smartphones, the focus now is also on improving the infrastructure that services them.

"You're going to start to see in the next year Verizon and Sprint, followed by probably AT&T and T-Mobile, start to increase their networks so you'll have Internet speeds on your device that will be almost equivalent to broadband within your house," Reith said.

All of this technology comes at a price. The iPhone 3GS, for example, starts at $199, with a required two-year contract that will have consumers shelling out at least $70 a month with AT&T. Both Reith and Siegler don't see the monthly fees changing any time soon, which may cool some consumers' smartphone fever.

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"Definitely more people are interested in smartphones, but I think the costs of the data plans are for a lot of people prohibitive," Ogg said.

"Especially with the way people's budgets and finances are today, there's still plenty of room for the free phone that comes with your plan that does basic things."

All About Apple Inc.Research In Motion Ltd.Palm Inc.Google Inc.Microsoft Corporation

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