Steven Levy on the New Apple 3G iPhone

Steve Jobs always tries to save the best for last. Today, at the end of his keynote speech at the Apple Worldwide Developer's Conference, he unleashed a kicker that he knew would make some headlines. Everybody knew that the big product announcement was going to be a souped-up version of the iPhone that exchanged the molasses of AT&T's EDGE data network (barely better than dial-up) for the greasy lighting of 3G broadband (more like Wi-Fi). No one was surprised that Apple would catch up with competitors by building GPS location technology into the phone. And it was a foregone conclusion that Jobs would demonstrate a number of new applications that took advantage of a software development kit (SDK) released to apps creators earlier this year.

What was hidden up the sleeve of Jobs's black cotton turtleneck was the price: the 3G iPhone, which goes on sale July 11, will sell for $199. (If you want 16 gigs of memory instead of the standard 8, you'll pay $100 more.) An iPhone vastly improved over the $600 (then cut to $400) original—for 200 bucks. Did you see that coming?

The monthly fees for unlimited data will be increased—from EDGE's $20 to a $30 charge for 3G—but that seems a reasonable bump considering that the speed will be doubled. An AT&T spokesperson explained to me that the deal with Apple is not a revenue-sharing plan but something more akin to a standard arrangement with a headset manufacturer where a carrier subsidizes part of the price in exchange for revenue for data and voice services in the months to come. In any case, those who have been griping about the high cost or low speed of an iPhone will now have to find something else to gripe about. And those moaning about the $400 or $600 they spent for an original iPhone will have to console themselves that the upgrade won't cost too much (though the aftermarket for original iPhones is now deader than that for Hillary Clinton campaign buttons).

But though the low price will dominate iPhone chatter between now and July 11, there is actually a much bigger iPhone story to tell. Today marked the official transformation of Jobs's original vision of the iPhone—from a world-beating product to a contender for the first big operating system of the 21st century. Much of Jobs's keynote consisted of demos of some of the hundreds of applications that either will ship with the new iPhone or will be available in the new iPhone App Store (which sells apps in the same manner that the iTunes store sells songs and videos).

Jobs took pains to trumpet, before this audience of software developers, how easy it was to create applications for the iPhone that take advantage of its built-in features like motion sensors, multitouch control, maps, and voice technology (since this is a phone, too). He even unveiled a scheme whereby people could distribute miniapplications to small groups (like a teacher creating an app for his or her classes).

All of this represents a drastic shift from Jobs's original contention that the iPhone would be a fairly closed system, even though it used the same operating system as the Macintosh. In an interview after the January 2007 announcement of the iPhone, Jobs said that we shouldn't think of the device as a general-purpose computer, but more like an iPod, which runs very few applications mostly written by Apple.

That's changed, big time. After a tense period of struggle in which Apple tried to get that message across to iPhone users, Jobs and his team have now embraced what seems to be a much more exciting prospect: iPhone as the leading launch pad for cool and productive mobile applications. It's clear now that the computer that we use as a phone is the digital device that will dominate our lives in the future, and Jobs—who has the best gadget on the market—sees an opportunity to take on competitors like Nokia, Microsoft RIM and Google in a war of the smart phones.

Is it possible for Apple or anyone else to rule in the mobile realm the way Microsoft did on the desktop? The way to do this is to go mass-market with a device that can do anything the others can do. That's why Apple is creating business-oriented apps like exchange-style mail, starting its own new mobile-oriented cloud-computing service (MobileMe), and encouraging everyone to write new applications.

A quarter-million developers have downloaded the iPhone SDK since Apple made it available barely three months ago. Apple has also made massive efforts to make the iPhone a worldwide phenomenon. As I'm typing this my inbox is filling up, spam-style, with press releases announcing arrangements with carriers in different nations. Orange in France, SingTel in Singapore, O2 in the U.K., Hutchison in Hong Kong and Macau, Vodaphone in Australia, Italy, South Africa, Turkey, Greece, India, New Zealand and the Czech Republic … and so on. All while making sure that no one in the world has to pay more than $200 to get an iPhone.

The Macintosh, the computer Jobs introduced in 1984, was a technological breakthrough that never became the worldwide standard he believed it should have been. Today begins his effort to make the iPhone a mobile device not for the rest of us, but for most of us.