FAQ: What iPhone 2.0 means to you

The gadget meets Exchange, and developers get a green light

The iPhone has always been an unusual product in the Apple Inc. lineup. Apple announced the iPhone months before the device went on sale, something the Cupertino, Calif. company never does.

Then Apple cut the iPhone's price by a third just two months after it launched. Apple isn't exactly famous for cutting prices.

And last week, the company spilled the beans on new iPhone enterprise functionality and rolled out the tools independent software developers need to write third-party applications for Apple's hardware. And it's running well-publicized beta tests for both. Apple doesn't do big public betas.

That makes iPhone 2.0 -- the term CEO Steve Jobs used to describe the update coming this summer that will expand the iPhone's skill set -- an interesting story all by itself. Add to the mix the iPhone's first serious foray into corporate territory and the beginning of what will probably become another Apple development platform, and that story has far-reaching implications.

The story will play out for months, but we wanted answers to a few questions right off.

What exactly is iPhone 2.0? Jobs and his executives unveiled a pair of projects that together make up the update they dubbed iPhone 2.0. The first is support for Exchange, the Microsoft Corp. mail server that rules the corporate messaging roost. The second is the previously-announced software developer's kit, or SDK -- the tools and documentation that developers will need to craft applications that will run on the iPhone.

The first, Exchange support, is a big deal, but it appeals to a subset of iPhone owners. With Apple's emphasis on the consumer market -- and its less-than-stellar reputation among old-school enterprise IT -- not every iPhone customer will care whether the device can grab e-mail from a server at headquarters.

The second, however, will affect everyone who has or plans to buy an iPhone, because everyone buys software or downloads free software.

As it stands, the iPhone is like a computer that runs only the software built into the operating system or bundled with the machine. The SDK will make it possible for third-party developers and software companies to create new applications, making the iPhone even more computer-like in its functional flexibility.

The developer tools that make up the SDK won't actually be part of the Phone 2.0 update, but they may lead to programs that will go on sale or be offered gratis when that update reaches users.

When do I get the new iPhone software? "Late June," said Jobs. Knowing Apple's taste for the dramatic, we've circled June 27 as the most likely release date. That's the final Friday of the month and the one closest to the one-year anniversary of the iPhone's 2007 debut, which also took place on a Friday.

Apple is accepting applications for a limited number of slots -- it hasn't said how many -- for a beta-test program for the Exchange support part of iPhone 2.0. Interested enterprise types can apply here.

Developers can download the free SDK, from Apple's site and apply to either the Standard ($99) or Enterprise Program ($299) from the same page.

Will I be able to download iPhone apps from the Web? Not like you're probably thinking. Software will be distributed straight to the iPhone through App Store, the online mart that will open in June. In addition, users will be able to reach App Store from iTunes on a Mac or PC; the computer will later push the downloaded applications to docked iPhones.

In other words, Apple controls the distribution channel and won't allow users to simply grab anything from anywhere.

Of course, that doesn't mean it won't happen. Expect to see hacks that circumvent App Store, just as there are now "jail breaks" that let users install unsanctioned software onto current iPhones.

Will companies that create in-house iPhone software have to use App Store, too? No, or at least not the public version of the online store. In a short Q&A that followed the iPhone 2.0 rollout, Phil Schiller, who heads Apple's marketing, said the company is working on a way for businesses to get internal iPhone apps to their employees.

Some have speculated that the same mechanism, whatever it is, might be used by software developers to seed an invite-only group of beta testers with preliminary versions before the final versions hit App Store.

What kind of programs will developers write for the iPhone? If the few that Apple trotted out last week during brief demos were any clue, everything from games -- for instance, Electronic Arts Inc. showed a scaled-back version of Spore -- to hardcore business applications, such as the glimpse Salesforce.com Inc. gave of how it could push data from its software-as-a-service CRM application to the device.

The SDK gives developers access to the iPhone's gesture-based multi-touch screen, animation technology, storage space, the accelerometer (the small sensor that automatically switches between landscape and portrait display), the built-in camera and more. So with some exceptions, it appears that the sky's the limit as far as what developers work up.

What exceptions? At one point during last week's presentation, a slide reading "Illegal, malicious, unforeseen, porn, privacy, bandwidth hog" popped up behind Jobs. "There will be some apps that we're gonna say 'no' to," he said.

Jobs didn't get specific about the criteria Apple's gatekeepers will use to deny some software spots on App Store, but because each application with be digitally signed, it's probable that Apple will have the ability to shut down an already-installed iPhone app if, say, the software later crosses whatever line in the sand Apple has drawn.

In the Q&A afterward, Jobs also said that unlocking software -- programs that hack the iPhone so it can be used with more than just that device's exclusive mobile carrier -- would be banned from App Store. But Skype-style voice-over-IP programs will be permitted as long as they access Wi-Fi only, not the cellular network.

How much will iPhone apps cost? That's up to the creators of those programs. Apple set no minimum or maximum, but instead talked about two general categories: free and paid.

Software designers are free, so to speak, to slap "Free" on their work, in which case Apple bears the cost of marketing and distributing the programs. "There is no charge for free apps," said Jobs. "There is no charge to the user, no charge to the developer."

Developers who charge a fee, on the other hand, must share revenues with Apple, which takes a 30% cut. "We keep 30% to run the App Store," Jobs said.

That combination of free and paid means that the business model used by many developers -- offer a free version, then try to upsell customers to a second, paid edition with more features -- would be possible on the iPhone.

But whether Apple will allow a developer to give away software that includes ads -- another popular business model, especially for Web apps -- is unclear. Knowing Apple's penchant for taking a slice of the pie, that seems doubtful. Revenue sharing is a possible model, but since that would be based on the developer's numbers, the plan might not get a green light from Apple.

I want to know more about the Exchange part of iPhone 2.0. Apple has licensed Exchange ActiveSync, a communication protocol that synchronizes messages, contacts, calendar items, notes and tasks between a mobile device and an Exchange 2003 or Exchange 2007 server. Unlike tethered sync, which the iPhone now supports, the synchronization happens over a wireless cellular or Wi-Fi connection.

According to Microsoft, the two companies started talking about ActiveSync even before the iPhone launched last June.

Once armed with the protocol, Apple was free to write support into the iPhone, either in new applications or by revamping the ones already on the smart phone. Apple chose the second approach.

So what will I be able to pull from my company's Exchange server come June? Apple senior vice president of worldwide product marketing Phil Schiller ticked off the new functions: push e-mail, push calendar, push contacts and access to the company's global address list.

That information, said Schiller, will sync with the e-mail client already included on the iPhone, with the phone's calendar and with the address book that's part of the phone function of the device. Those Apple-built apps will undoubtedly be tweaked to make them ActiveSync-aware, but from what Schiller said, the user experience won't change.

What in iPhone 2.0 is aimed at my company's IT department? Apple will also deliver a mass-configuration utility in June that will let administrators set everything from password policies to VPN options. It will also enable them to deliver certificates and individual e-mail server settings. According to Apple, enterprise IT staffers will be able to send the configuration information via e-mail to users or direct them to a Web site where they'll grab them with the iPhone.

Other elements come courtesy of ActiveSync, which provides for remote wiping -- erasing the memory of a missing or stolen iPhone to keep sensitive information from reaching the wrong hands -- as well as establishing policies on password length and complexity.

Finally, separate enhancements in iPhone 2.0 will add support for Cisco IPsec VPN, which in turn offers encryption and certificate-based authentication as well as WPA2 (Wi-Fi Protected Access 2) wireless security.

Whether the new enterprise bits in iPhone 2.0 are enough to tip the scales in Apple's favor, some of the early reaction wasn't exactly enthusiastic. Some analysts, for example, questioned whether the device's security improvements were enough , while several senior IT executives were, at best, skeptical.

"I will believe it when I see it," said George McQuillister, client computing architect at Pacific Gas and Electric Co. (PG&E) in San Francisco, in an interview last week.

The BlackBerry is the corporate smart phone of choice. Is Apple gunning for RIM? Apple executives have bandied about various stats. Jobs put up a slide that said the iPhone accounted for 28% of the smart phone market, second only to Research In Motion Ltd.'s BlackBerry, which leads all others with 41%.

But Apple never directly confronted the BlackBerry in the presentation. Instead, it gave it a couple of sideswipes.

When Schiller was talking up the iPhone's ability to draw information from Exchange servers using ActiveSync, he noted that RIM's technology and approach was different. Without naming names, he pointed to an illustration of how BlackBerrys received e-mail from a corporation's mail server.

"[These devices] do get push e-mail and push calendaring and contacts, and you think that they come from the servers in the [enterprise] environment, but they don't. They first come from a network operations center that's outside your firewall. It's even outside the country for most people.

"That adds risk to reliability, as we've seen from time to time," said Schiller, clearly referring to the RIM outage last month that cut off e-mail to most users for several hours.

Later, in the Q&A portion of the event, Jobs took a shot at RIM himself. "Every e-mail goes through a NOC [network operations center] up in Canada," the CEO said, according to a story posted Thursday by Forbes.com. "That provides a single point of failure, but it also provides a very interesting security situation, where someone working up at that NOC could be potentially having a little look at your e-mail. Nobody seems to be focused on that. We certainly are. We think that a direct connection could be a little more secure."

Enough about iPhone 2.0. I'm on board, but I don't have $399. What are my options? Short answer: iPod touch.

(It's appropriate that this question wraps up the FAQ, since Apple mentioned the iPod touch almost an afterthought last week.)

The iPod touch is the same size and shape as the iPhone, and it's the same inside too -- except it lacks the cell phone features, and thus access to AT&T Inc.'s cellular data network. Apple said that the iPod touch -- which currently sells in three models at $299, $399 and $499 -- will also get a 2.0 update in June.

Said update will, like the one aimed at the iPhone, add Exchange support and App Store. Two caveats, of course: The iPod touch will sync with the office's Exchange server only when the device is in Wi-Fi range of a hot spot, and iPod touch owners must fork over a not-yet-set fee for the upgrade.

That fee, Jobs explained, is required -- so Apple says, anyway -- because of the difference in how it accounts for iPod and iPhone revenues. The former's full amount gets dropped onto the balance sheet when one is sold, while iPhone income is spread out over the multimonth span of the carrier contract. In the U.S., it's 24 months -- the minimum service contract with AT&T.

Apple did something similar in mid-January when it released a major update for the iPhone and iPod touch; the former was free, but the touch's update came with a $19.99 price tag.

Copyright © 2008 IDG Communications, Inc.

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