By Daniel Eran Dilger

Published: 09:00 AM EST

While the iPhone is primarily marketed as a mobile phone, it's also the latest generation of iPod, a handheld computer with a web browser, an organizer, a note taker and a camera. Are all of its features worth its $500-600 price, particularly in view of criticisms lodged against AT&T's service and the missing features in the device itself?

The iPhone Price Illusion

While Microsoft CEO Steve Ballmer laughed off the iPhone as "the most expensive phone in the world" shortly after it was announced at January's Macworld Expo, there were actually a number of popular smartphones already in the $750-900 range, including several Windows Mobile phones.

Critics like to compare the iPhone against these premium priced phones in terms of features, but against simplistic phones when talking about price. While that may seem unfair, the iPhone stacks up well against the highest end phones in its features, while also being so aggressively priced that it is actually less expensive than many of the cheapest smartphones when the cost of the required service plan is included.

Take Ballmer's own example: the Windows Mobile-based Motorola Q offered by Verizon Wireless. Pitted against the iPhone's $500 (4 GB version) or $600 (8 GB version) price tag, the Motorola Q's $99 price seems far more affordable. However, the Motorola Q isn't really $99; it was only ever offered at that price after mail-in rebates and with a two year contract for Verizon's voice and data plan.

Those plans start at a minimum of $80/month, making Verizon's two-year commitment at least $1920. When I went shopping on Verizon's website, the cheapest version of the Motorola Q I found was $180 after all discounts. Even if I actually collected the $50 mail-in rebate, I'd still be paying $2100, not including the sales tax I'd pay against the true $330 price of the phone and other related fees.

The $500 iPhone, paired with a similar service plan from AT&T and its activation fee, comes to $1956, significantly cheaper overall. That not only makes it a no brainer to upgrade to the 8 GB version of the iPhone, but also dangles the question: how can it be that the multi-featured iPhone is being compared in cost against cheaper and far simpler smartphones if the iPhone is in reality not any more expensive at all? 

In order to hit such a competitive price, was Apple forced to leave a lot of features out? After camping out overnight on iDay in front of the Apple Store at Union Square in San Francisco, I spent the weekend testing out the new iPhone to find out. Here's an overview of what the iPhone does by feature set: iPod music, iPod video, web, email and messaging, PDA and phone features, followed by some overall impressions and a listing of features it is missing when compared to the high end of smartphones priced closer to $1000.

It Must Be Seen

The iPhone is simply the most incredible piece of consumer hardware I've ever touched. In working with it, it repeatedly occured to me that I simply could not have imagined this could exist today. I work with a lot of consumer devices for clients, so I'm familiar with the hardware and software powering the highest end gadgets. The iPhone simply embarrasses my own expertise, which I am usually loath to admit. 

Last year, I described a fantasy version of what Apple's sixth generation of the iPod could deliver in the wish list article "Generation 6 iPods," giving it a large display, mobile messaging abilities, a camera, an organizer and journaling features. What Apple delivered in the iPhone was simply beyond what I had imagined to be possible.

What is it that makes the iPhone so revolutionary? More than any one thing by itself, it's the interplay of hardware and software features that all integrate together to make the iPhone a seemingly impossible reality.



The iPod 6.0: Audio & Bluetooth

The first and most obvious aspect of Apple's iPhone, outside of being a phone, is that it is a major leap forward for the iPod. The only problem for iPod users hoping to use the iPhone solely as an iPod is that the phone requires activation to use it. Prior to setting it up in iTunes, no features are available outside of an emergency call option. There is absolutely no way to buy the iPhone and use it without a data plan.

The iPod's round click-wheel was praised for being simple and easy to use, but it can also be frustratingly inaccurate. It's now gone entirely. Replacing it is a touchscreen featuring CoverFlow, standard QuickTime movie playback controls, and the audio and video track lists that work identically to the iPhone's contacts, email, and Visual Voicemail. CoverFlow is far more useful on the iPhone than it is in iTunes. It's like having a box of LPs to flip through buried inside the tiny device.

Unless the headphones are plugged in, audio is delivered from the speaking end of the iPhone, making it highly directional. Even in a noisy environment, I could listen to audio from arm's length, cupping the bottom of the unit to direct sound at me and away from others. The built-in speaker is small, but reproduces a good range of audio frequencies when playing back songs or video clips. At full volume the audio begins to clip and distort, but set at about 75%, it is plenty loud enough to sit on a desk and use like a boom box, with reasonably good sound quality.

The iPhone has a physical mute switch above its rocker volume control. Turning on mute does not silence audio playback; it only sets the phone ringer and other audio signals to vibrate. The volume control can be used to rapidly mute all audio in case of an inadvertent playback panic.

The top mounted sleep button locks the screen and turns it off, an overall improvement over the iPod's hold control because it does not deactivate the iPhone's volume control. It is difficult to accidently turn up the volume during display sleep, because the volume rocker switch requires a deliberately firm touch to change. Either the home button on the front or the sleep button can be used to wake the iPhone. The sleep button can also be used to fully reset it when held down together with the home button.

The earbud headphones Apple provides with the iPhone supply an integrated mic with a button; users pinch the button to take an incoming call. While listening to music, the button pauses the music with one pinch, or skips to the next song after a double pinch. The unit has a deeply recessed headphone jack that some have reported to be a too tight of a fit for alternative headphones, particularly headsets equipped with a right angle plug rather than a straight one.

Apple also offers a $20 TTY adapter that can also be used to extend the headphone port for use with incompatible headphones, but it looks rather clumsy to use it for that purpose. It is designed for use with a TTY device, also known as a TDD or telecommunications device for the deaf, which operates like a teletype to allow users with a hearing disability to place calls.

Plugging in a pair of headphones mutes the built-in speaker, but unplugging them pauses playback; it will not automatically start playing out of the main speaker again unless playback is manually restarted. If the iPhone is locked and the headphones are removed, the user has to unlock the phone and enter the iPod app to resume playback (unless the iPod was left as the top app before locking). Of course, with the included Apple headphones playback can be restarted using the convenient mic button, a handy trick earlier iPods couldn't perform unless the clumsy remote cord was attached.

It appears that the iPhone does not directly support Bluetooth headphones, although hopefully that ability will be made available in a software update. Just like existing iPods, the iPhone will need an external Bluetooth transmitter for use with wireless headphones. The iPhone currently only supports Bluetooth connections with a mobile phone headset, and will not pair with a Mac or other device for direct file sharing, data syncing, or other Bluetooth profile use.

As described in "From iDay in SF: A Finer EDGE and New Bluetooth Info," Apple's clandestine, last minute Bluetooth certification for the iPhone revealed the use of the Bluecore 4 Bluetooth chip from CSR, paired with BLUEmagic 3.0 software from Open Interface North America. That means Apple didn't use its own Bluetooth software, for reasons that will be apparent in future wireless products Apple has planned.

There is no mechanism provided for an iPhone "disk mode," allowing users to copy files directly to the device. The iPhone offers no concept of direct access to a file system or a command line at all.

On page 2: "Thankfully, it Uses the Same iPod Dock Connector," "The iPhone Display and Video iPod Features," and "The Web, In Your Pocket."