By now you've probably heard about the new iPhone Apple announced last week- the "iPhone 3Gs". You might also have heard about the mixed reactions it received.

While it isn't a marketing triumph in the way the first two iPhone launches were, I think that in another 12 months it will be looked back on as the moment Apple locked down their mobile phone product and changed it from being a high-end, premium smartphone to the de-facto device for anyone looking for a mobile device that does something more than calls and text messages. By changing the hardware line up from one iPhone with different storage sizes to two iPhones with different storage, speeds and camera qualities, this marks a split in the iPhone product line from being a "premium" smartphone to a "regular" smartphone with a "premium" alternative.

How the iPhone changed from Luxury to Premium

Seth Godin recently posted a nice explanation of the difference between "luxury" and "premium";

Luxury goods are needlessly expensive. By needlessly, I mean that the price is not related to performance. The price is related to scarcity, brand and storytelling. Luxury goods are organized waste. They say, "I can afford to spend money without regard for intrinsic value." That doesn't mean they are senseless expenditures. Sending a signal is valuable if that signal is important to you. Premium goods, on the other hand, are expensive variants of commodity goods. Pay more, get more.

The original iPhone was an object of desire- very expensive when compared to it's competitors, most noteworthy because of it's sleek design. By this classification, it clearly fitted into a "luxury" categorisation.

When the iPhone 3G was released this time last year, there were three big stories about the new features it included; firstly, the fact that it would work over the faster 3G networks, meaning a much faster internet connection that brought it in line with other smartphones. Secondly, it included GPS, meaning mapping and directional functions were made much easier to use. Thirdly, the price was dropped significantly from the original iPhone thanks to subsidies from the networks. This meant that it was much more affordable and in the UK, an iPhone could be picked up for free on an 18 month contract at £45 or more a month. (There are rumours that it will be given away for free by AT&T- I think it's safe to say that this is something that will happen, just like it already is happening in the UK, so the real question for the US isn't if, but when.)

Those were all features that consumers wanted, and each one was a pretty big selling point- not just for those who were thinking of buying one, but also to those who had bought the original iPhone. So this changed it from being a luxury device (with an expensive price that didn't seem related to it's functionality or performance) and into a premium handset, more in line with other smartphones which already offered 3G, GPS and with a more affordable price tag.

But another feature was introduced by the software upgrade to the "iPhone 2.0" operating system; the ability for users to install third party applications from the iTunes Apps Store.

Mobile web browsers were nothing new- but a good mobile web browser was a huge leap forwards. Mobile applications were similarly nothing new- but a centralised point of distribution that made it easy to find them and install them was another big leap.

As has been rightly pointed out, the iPhone really is all about the apps right now. The major feature of the original iPhone (for me, at least) was the fact that it had a "proper" web browser, capable of displaying full HTML web pages- including Javascript functionality- with almost all the capabilities of the desktop version of Safari. For people like me who were used to the limited capabilities of other smartphone web browsers, used to pages not working properly, accessibility issues with the small screen, reliance on Flash and javascript and badly coded forms that were a waste of time trying to fill in, this was a quantum leap forwards for mobile internet use and access to the full, open web.

However, it was only a matter of time before other handsets caught up and offered the same kind of functionality. What Apple developed was something more that went beyond the mobile web- with iPhone applications, the iPhone offered a way to use web services through a user interface designed specifically for the iPhone's touch screen, but importantly not at the expense of being able to use the "normal" websites. So at the same time as being a massive boost for the mobile web, the iPhone also introduced another closed mobile platform to compete with it.

iPhone 3Gs: Premium version of a premium device.

Rather than a total upgrade/refresh of the iPhone in the way that the 3G was a refresh, or new iPods and Macs are regularly refreshed with new specs, the new iPhone 3Gs is an extension of the iPhone range. (In fact, it turns it from a single device into a range of devices.) Instead of a straightforward 8 or 16 Gb of storage being the only distinction between the two available iPhones, the iPhone 3Gs seems to be marketed as more of a high-end version of the iPhone 3G. The consistent platform of the iPhone 3.0 operating system on the iPhone 3G, 3Gs and iPod Touch unites them in the way that Mac OSX or Windows unites desktop/laptop computers- performance differs, but the essential functionality remains the same.

The big story about the iPhone 3.0 software upgrade is the ability to copy and paste- something that will widen the range of what you can do with an iPhone, and something that people like me who use it as a writing/blogging device on the go will be looking forward to. (The inability to paste URLS into blog posts and twitter comments is probably the only major frustration that I have with the iPhone as it currently stands.) But this is an across-the-board improvement for the iPhone platform- not a reason to buy the 3Gs.

So while the price of the original 8Gb 3G will presumably come down over time (something already announced in the US, but not quite yet in the UK), the 3Gs will occupy more of a luxury position, offering an improved camera, more storage and more speed, but little in the way of new features. Right now, it might still be a "premium" device, but it's only a matter of time before the price drops and it becomes a "regular" phone (in other words, occupying the space in the market that the rumoured "iPhone Nano" would have occupied.)

For me personally, the only thing the 3Gs offers that really appeals to me is the built in compass- something that I'm pretty sure I can pick up for less than the extra £100. I'm not too bothered about the additional storage- a "nice to have" rather than a "need to own", and as I only occasionally use the built in camera, I don't personally have a need to upgrade. (I have an SLR camera for when I want to take good photos that I can blow up to poster size- the iPhone's camera is perfectly fine if I just want a snap of something that happens to catch my eye.) A faster device certainly isn't without appeal, but at the same time I'm well aware that within the next 12 months something faster still will be on the market. (Given that in the US- the iPhone's largest market- those who rushed out to buy the iPhone 3G when it was released are still only half way through a 24 month contract, Apple's marketers must have this in mind in their longer term strategy. So, as it's been pointed out by TechCrunch, now probably isn't a good time for iPhone fans to be buying out their contract just to get locked into a fresh one for another 2 years.)

Locking down and locking in: Apps and Accessories

So now, while other handset manufacturers are still catching up with the iPhone's browser (with the notable exceptions of Google's Android and Palm's Pre) and Apps Store, Apple have made another step forwards in cementing and expanding their share of the market with a feature that has largely passed without comment; accessories.

Applications lock people into platforms- as is probably clearest from looking at the experience of trying to move away from Windows on the desktop (whether to Mac or Linux.) But in the world of software, there are workarounds; alternative applications you can buy that do a similar job, provided you don't mind buying something new and/or re-learning how to do the same job all over again.

But when those applications are tied into accessories, the "lock in" becomes stronger. "Mobile" isn't just about what you can do when you don't have a "proper" computer or telephone available anymore- it is still with you in the home while watching TV. It's not just taking the role of a phone and a computer- it's also your music player, your watch, your alarm clock and your calendar. So if your iPhone can conveniently connect to devices like the stereo in your car, your living room or your bedside radio, that then becomes a strong selling point when the time comes to upgrade and you might be considering a competitor's handset. If your iPhone (through Apple-licenced applications and accessories) is also tied in as a controller for your guitar (as shown by the Line 6 demo at WWDC), or your car's navigation system (again shown by the TomTom demo at WWDC), or any of the other accessories which will no doubt be hitting the market over the next few months, then the cost of switching away becomes less and less more and more.

So the cost of switching to an iPhone is dropping (or has already dropped, depending on where you live and how much you use your mobile phone) to zero, and the cost of switching away is growing- both in terms of financial cost, and in terms of the lost convenience or functionality.

The limit to what Apple can do right now seems to be more about how many iPhones they can make than anything else- and the more they make, the cheaper they become to manufacture.

Changing the market- but not just yet

The iPhone market- and the wider smartphone market- is still growing. With Blackberry, Android, Windows Mobile and now Palm offering competing operating systems, we're still in the "land grab" phase and probably still a couple of years away from the point where many people are going to be seriously looking to move from one smartphone platform to another, so the wider implications of this kind of lock-in are still some way away.

For now, the battleground is going to be all about the marketing hype. We've already seen from the success of the iPhone that there is a massive opportunity in the mobile space for new entrants- which is good news for Palm who are in the process of reinventing themselves. We've seen that a new entry into the market can transform the mobile landscape within the short space of a consumer's network contract. We've seen the networks shift their strategies from offering exclusive access to walled gardens within the mobile web, to exclusive access to devices that access the full mobile web. We've seen that, in the same way that the Wii dominated the most recent generation of console wars, the mobile wars aren't being fought on the familiar ground of technology, of megahertz, megabytes and megapixels. And we've seen that what the experts in the field are saying is frequently (and often quite amusingly) wrong. What people want is something that makes the mobile world beyond texts and telephones look useful, interesting and fun.

There should be a couple of very interesting years ahead of us.