iPhone 2.5, App Store 2.0

Monday brought the announcement (sans Steve Jobs) of the curiously named “iPhone 3G S.” I guess the name is intended to suggest this is merely an incremental improvement on the iPhone 3G (which remains in the product family); if not, it’s an example of the foolishness of Apple’s rabidly minimalist naming strategy as when “iPod” could mean “iPod 5th Generation late 2006” or “iPod (dock connector)” or “iPod (scroll wheel)”.

The phone adds a number of features available in some (if not all) competing phones: video recording, a compass, and (eventually) MMS support. The camera goes from 2.0mp to 3.0mp, Faster performance and supposedly better battery life. Even with voice command and supposedly 2x better performance, it still seems like a slightly enhanced iPhone 3G, not the radical leap ahead of rivals that the 1.0 iPhone brought back in 2007.

Of course, one of the problems that Apple has that it has two models — this year’s and last year’s, both mid-market smartphones — rather than a range of products like RIM or Nokia. Take, for example, the camera. The iPhone camera goes from 2.0mp to 3.0mp — roughly equivalent to a Blackberry Curve (but without the zoom). but camera on the high-end Nokia N97 is 5.0mp, as is the more affordable Nokia 6220. (Samsung is pushing the envelope even further).

The big news is the enhancement to the business model. The FT captured what is likely to be Apple’s main push this year, with the next iteration of the App Store:

A big innovation is that the store will start allowing developers to collect money not just when a user buys and downloads an application, but through follow-on transactions or subscriptions. Apple is likely to show off some of the most compelling repeat-purchase offerings at the conference.

The change dramatically increases the potential pay day for developers, provides Apple with an additional revenue stream from the percentage it takes on app sales, and gives users more choice – and more reasons to stick with the iPhone instead of switching to the me-too hardware reaching the marketplace.

Some of the biggest beneficiaries among developers, at least at first, will be game publishers. Six-year-old Gameloft already has dozens of titles for the iPhone and iPod touch, including Asphalt 4, a racing game that allows players to use the device as a steering wheel.

In Asphalt 5, players would be able to pay more for extra cars and different tracks, and suggest their friends do the same, said Michel Guillemot, Gameloft chief executive.

In other words, Apple has average hardware, superior ease of use on software, and a distribution and monetization system unmatched in North America or Europe. (Of course, NTT DoCoMo had a comparable monetization system with i-mode almost a decade ago). The question is whether these advantages will be enough to hold off the proliferation of models by Android and other competitors.