The Mac OS X-based iPhone is most akin to an iPod in design, but allows users to listen to music, make phone calls, send text messages and e-mail, surf the Web, and take and upload photos, all using a wide touch screen and a single button. Apple plans to make the device available in the United States in June, with a 4GB model going for $499 with a two-year service contract, and an 8GB model with the same contract for $599.
The iPhone was announced during a two-hour keynote in which Jobs also announced the expected Apple TV, previously known by its code name "iTV," as well as a name change for the company.
He surprised many by continuing to refer to the new mobile device as the iPhone, a . Apple has apparently been in discussions with Cisco over use of the iPhone trademark for some time, but it is unclear what Apple's use of the name will mean for either company.
In a written response to an inquiry from CNET News.com made while Jobs' speech was still going on, a Cisco representative said, "It is our belief that with their announcement today, Apple intends to agree to the final document and public statements that were distributed to them last night." Cisco expects to receive a signed agreement Tuesday, according to the statement.
The device is 11.6 millimeters thick--thinner than the Motorola Q and Samsung's BlackJack--and has controls on its side. It incorporates a wide, 160-pixel-per-inch touch screen, a single "home" button, 2-megapixel camera, Wi-Fi capability and cellular service. The phone automatically switches from a cellular network to Wi-Fi if it detects a signal.
The iPhone also comes loaded with Apple's Safari Web browser and fully incorporates Google's search and mapping services. Users can make phone calls directly from Google Maps. Phone service in the U.S. will be provided exclusively by Cingular Wireless.
True to form, the company did not fail to consider consumers' habits with the product's design. A proximity sensor senses when the phone is brought to a user's face and automatically turns off what music might be playing and turns on the phone. An "accelerometer" switches the screen from a portrait to landscape format, allowing for easy toggling between the device's various functions.
The iPhone even reconsiders how consumers listen to voice mail.
"Wouldn't it be great if you had six voice mails, and you didn't have to listen to five first before listening to the sixth?" Jobs said in his keynote.
Now users can skip right to the message they want. The iPhone allows people to see all unheard voice mails and select which one to listen to using a technology Jobs called visual voice mail, which Apple developed with Cingular.
But Apple's iPhone isn't cheap, and some people who aren't on Cingular's network might be unable to switch without hefty penalties, said Samir Bhavnani, an analyst with Current Analysis. However, "it's a great first step" toward getting Apple established as a mobile-phone company, he said.
While the price tag might be out of range for many teenagers and their parents, Apple loyalists will probably be interested in the new iPhone, even though Apple has no phone expertise, said Chris Crotty, a consumer electronics analyst at iSuppli.
"Apple has strong brands, and there is a perception that they are an innovator and that they make products that are easy to use," he said.
With companies expected to sell more than 1 billion cell phones and more than 200 million portable media players this year, Apple was wise to enter the market, according to Crotty.
"Apple had to make a move like this because their iPod business is under threat more and more from music-capable phones," he said. "So, Apple could lose sales to competitors or lose sales to themselves."
It was unclear what effect the iPhone would have on the market share of existing mobile and handheld providers. Asked to comment on the Apple announcement, Motorola spokesman Alan Buddendeck said: "There's really nothing to say because the (Apple) phone is not out yet."
At Macworld in San Francisco, Apple CEO Steve Jobs demos Apple TV, a new home networking device.
A Palm spokeswoman said the iPhone appeared to be targeting the consumer market rather than the business market at which similar products from Palm, like the $199 Treo 680, are aimed.
"We are focused on the 'pro-sumer' and business customer, where e-mail, Microsoft Outlook and easy text entry for messaging and Web navigation is required," said Palm spokeswoman Marlene Somsak. "A full QWERTY keyboard is essential, so you can compose and edit documents fast and round-trip them back to the office" rather than "trying to navigate a cursor up and down and sideways," she said.
Apple faces a different playing field with the mobile market than it did when its iPod took the MP3 market by storm, said Scott Horn, general manager for Microsoft's mobile division. Mobile providers need to establish partnerships, to deal with multiple operators and to have a broad product line, he said.
"We've found there is no one device that works for everybody," Horn said. "It will be interesting to see how the market responds."
Wall Street apparently likes the iPhone. The price of Apple shares increased 8.31 percent Tuesday and ended the trading day at $92.57.
Earlier in the day before the iPhone announcement, Robbie Bach, president of Microsoft's entertainment and devices division, spoke with analysts about the challenges of integrating mobile phones with media players. Microsoft is considering making such a move with its Zune digital music player, but it is not a priority, he said.
The last time Apple introduced a product with this kind of hype--that little box known as the iPod--it was also pretty expensive, said Tim Bajarin, an analyst with Creative Strategies. But the device became cheaper over time as storage costs decreased and Apple became more efficient, and Bajarin expects to see something similar with the iPhone.
The most visible difference between the iPhone and its competitors in the smart-phone market is the lack of an integrated keyboard. Apple chose to use its "multitouch" touch-screen technology in lieu of a keyboard, in part because once a keyboard is put on a mobile phone, it's there forever and hard to change the buttons to work with different applications, he said.
But with fingers all over the iPhone, that wide-screen display could get smudged pretty quickly. Apple did not make executives or designers available to answer questions about the particular type of screen used on the iPhone, but Bajarin says he believes the company thought about this problem in advance and is using a surface that is smudge and scratch resistant and easy to clean, he said.
Macworld attendees interviewed after watching a demonstration of the iPhone on the show floor didn't seem too worried about fingerprints or bank accounts. "When the function is so great, it doesn't matter. I'd rather just wipe fingerprints off (the iPhone)," rather than settle for a more conventional design, said Claire Fontana, ogling the iPhone in Apple's booth on the show floor.
Compared to other smart phones on the market, the iPhone isn't much more expensive, said Sam Ely, another Macworld attendee. "It's kind of steep, but it will come down."
Meanwhile, back in the living room...
Jobs also used his keynote to announce the Apple TV, a home networking device that he first mentioned at a product showcase in September 2006. The device lets users stream content from up to five computers, and "autosync" from one computer.
Jobs said that through using iTunes and the iPod, people are already familiar with syncing data, and the Apple TV will be updated in much the same way.
The $299 Intel-based device will have 720p high-definition video and a 40GB hard drive to store up to 50 hours of video. It will use 802.11n, the new draft Wi-Fi standard. Apple will begin taking orders Tuesday and start shipping the product in February.
Finally, Jobs announced that the company is changing its name.
"Today," Jobs said, "we've added to the Mac and the iPod; we've added Apple TV, and now iPhone. And the Mac is the only one you think of as a computer." To combat that, Jobs said, "we are announcing today that we are dropping the 'Computer' from our name, and we will be known as Apple Inc."
Over the years, the company's name has stirred up legal trouble. Apple Corps, the record label launched by the Beatles, filed suit against the company in 2003 claiming it infringed on a years-long agreement that Apple Computer could keep its name so long as it didn't enter the music business.
The computer maker's iTunes music store infringed on that agreement, according to the record label. But in May of 2006, a U.K. judge ruled in favor of Apple Computer.CNET News.com's Elinor Mills contributed to this report.