Phones

iPhone 4 Ups the Ante in the Smartphone Wars

Overrun by more than 600,000 pre-sale orders on the first day of its launch this month, Apple's iPhone 4 looks to be the biggest selling smartphone ever. The sheer volume of pre-sales clogged Apple and AT&T's order-taking systems.

So will this "Apple Tuesday" be known as the day that launched millions of new iPhone owners and signaled the end of the smartphone wars?

Perhaps not. Observes industry analyst Rob Enderle: "The battle is hardly over."

AT&T vs. Verizon

One of the drivers of the big iPhone 4 run-up was AT&T's decision to give current iPhone owners who had up to six months to go on their existing two-year contract the same price deal as new subscribers, says Gartner analyst Van Baker.

"AT&T is likely trying to lock in consumers to another two years given the rumors of iPhone on Verizon," he says. "This likely led to much higher demand as it added another six months worth of subscribers to the pool that could order."

Baker is quick to point out that the iPhone 4's new features, such as video chat, an improved camera, better graphics, among other additions, also played a role in presales. "It is not just the video calling but the full feature set that is appealing to consumers," he says. "RIM and Nokia will face continued challenges while Android or more accurately HTC should fare better."

Thus, the first round goes to Team Apple-AT&T for the mind-boggling demand for the iPhone 4. Apple said the number of preorders was 10 times more than the heralded iPhone 3GS. In turn, industry analysts quickly upped their predictions of iPhone 4 sales. "Although dependent upon supply, we see the potential for Apple to sell one million units on first day of launch," wrote UBS analyst Maynard Um.

But it wasn't a decisive win. Twitter and Facebook lit up with complaints about the breakdown of Apple and AT&T's order-taking systems. Many would-be buyers couldn't get into the system to place orders. Others were sent to Apple Stores only to be told they'd have to stand in long lines on opening day. (The turmoil is somewhat surprising, given Apple's claim as the world's No. 1 supply chain.)

"Many customers were turned away or abandoned the process in frustration," Apple said in a statement. "We apologize to everyone who encountered difficulties."

Even worse, Apple said it will have to push back the iPhone 4's shipping schedule. For those that weren't able to pre-order an iPhone 4 and pick it up on June 24, they'll have to wait until Apple ships more iPhone 4s by July 14. Apple Stores will have some iPhone 4s in stock on June 24. Of course, opening day for Apple iPhones is notorious for its long lines.

"I'm sure the published troubles associated with pre-ordering the iPhone 4 will have a lot more people looking at the Verizon alternative," Enderle says.

iPhone vs. the Droid

In a blocking move against the iPhone 4, Verizon plans to offer the new Droid on June 23, the day before the iPhone 4 hits the streets. Verizon hopes to lock in its share of Droid owners to two-year contracts. (Both Verizon and AT&T have high early termination fees to discourage subscribers from breaking their contracts.)

Enderle expects the Droid to do well, much like the iPhone 4--although not on its scale. He says iPhone 4 presales were due mostly to existing iPhone owners re-upping their two-year contracts. "The Evo and Droid are doing well, too, although they don't yet have large installed bases that are two years old to cycle," Enderle says. "This hit Apple first, but I expect similar issues with Android phones in the 'out years' as that installed base ages."

As smartphone vendors and wireless carriers jockey for position in the fast-evolving mobile arena, yet another rumor about a Verizon iPhone has come to light.

Pegatron Technology is supposedly making a CDMA version of the iPhone 4 and will be shipping it to Apple late this year, according to DigiTimes. A CDMA iPhone will be able to work on Verizon's CDMA network, as well other CDMA networks like Sprint's and China Telecom's.

A Verizon iPhone will no doubt significantly enhance Apple's offerings, "but it won't be the knockout blow it might have been had it come much earlier," Enderle says. "AT&T has been Apple's Achilles' heel long enough for RIM to respond and Google to develop a strong alternative."

The race is definitely on.

Tom Kaneshige covers Apple and Networking for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline. Email Tom at tkaneshige@cio.com.