Apple: Is the iPhone OS Upgrade Too Good?

Jun.18.09 | About: Apple Inc. (AAPL)

Here’s an alarming thought for Apple (NASDAQ:AAPL) investors, courtesy of long-time admirer Walt Mossberg, the Wall Street Journal’s closely read gadget columnist: For many iPhone users, upgrading to the new version of the iPhone OS might be such a nice improvement that they won’t bother to buy a new phone.

Mossberg has reviewed the iPhone 3G S as well as iPhone OS 3.0. He has positive things to say about both, and from his description of the 3G S, it really does offer improvement over the old phone in key areas like battery life, processor speed, image quality and the ability to shoot video.

But he also notes that the phone experience is considerably improved simply with the free upgrade to the new version of the OS, which adds cut-and-paste, improved search, landscape mode for e-mail, push notification and other features.

A key excerpt from the review:

In my tests, both the new phone and the new operating system performed well, with a few small exceptions. I believe the two strengthen the iPhone platform, make it likely the iPhone will continue to attract scads of apps, and are good for consumers.

But I also regard these changes as more evolutionary than revolutionary, and I don’t think this latest iPhone is as compelling an upgrade for the average user as the 3G model was last year for owners of the original 2007 iPhone.

Current iPhone owners can get an improved product by merely sticking with their existing phones and upgrading to the feature-laden new operating system, which is free (it costs $10 for iPod Touch owners), rather than shelling out at least $199 for the new iPhone 3G S. And many new iPhone buyers can opt for the $99 3G model, which is not only cheaper, but also greatly improved by the new OS 3.0.

And finally, Walt writes:

Bottom Line: Both the new iPhone and iPhone OS are packed with features that make a great product even better. But, for many users, the software may be enough of a boost to keep them from buying the new model.

If large numbers of people go that route, Apple has a big problem.

AAPL Thursday is down 59 cents, or 0.4%, to $135.76.

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