Like a lot of folks, when I first saw the iPhone, I was blown away with its potential. But my job is not to look at what everyone sees, but to see what is being missed both in terms of opportunities and threats and this thing has a great deal on both sides.

Apple's iPhone in detail (16 pictures) ...

One thing is clear, however, it will probably transform the cellphone market and the MP3 market. What many may not yet have realized is that it may transform the PC market as well. However, because we are treating this as a real product and not like the prototype it is, we are also forgetting that actually getting this thing to work right is not a given in this case. And Apple is more exposed with this attempt than they were before their transition to OS X.

Finally, Apple rarely announces things in advanced and they were supposed to be working on two phones. There may be a surprise still up in the air.

The UMPC done right?

How many of you have fully grasped that this is not really a phone?

This is a PC based (it runs a version of OSX) appliance that focuses on communications and multi-media. This is a new class of product and one that already has been named "UMPC" by Microsoft and Intel. This may, in fact, be the UMPC done right. Recalling the problems with the UMPCs, these devices have generally been too big, too expensive, and not appliance like enough. On spec, the iPhone is small enough, it falls within the $400-$600 range we believe is ideal for a UMPC device and it is very appliance like.

Apple's iPhone (click here for the slide show)

In effect, this device, on spec, bridges three product categories: Cellphones, MP3 players, and laptop computers. Because of its size, however, the full potential of this product is reached through accessories and while this is similar to the iPod (that is often connected to car audio systems, docking stations and other accessories) the full breadth of potential accessories is massively increased because this device does far more than just entertain you. This device could evolve into your digital partner integrating with virtually everything you currently use to communicate, create, entertain, and secure your life activities. With a little imagination, this thing could be bigger, by far, on spec, than the iPod could ever have hoped to become.

The birth of modular computing

The underlying concept, when you take into account the accessories, is something that IBM actually predicted nearly a decade ago, but targeted at corporations. It was the concept of a small modular computer that could be accessorized to take the place of a variety of devices. A decade ago, corporations were buying the technology and consumers were substantially lagging in their own purchases.

But as CES is showcasing the action is now in the consumer market and that is the market Apple targeted. So, while IBM came up with the idea, it is Apple who has made it real and you have to think there are a lot of companies suddenly wondering how to come up with a competitive product. It must be somewhat embarrassing for IBM, Intel, and Microsoft that Apple, on spec, appears to have the Modular Computer, UMPC, and Origami right. As an interesting side note, there is a company called Integral Computing that has been shopping around a concept that is based on the old IBM modular computing approach that probably will be getting a lot of interest very suddenly based on the iPhone.

Read on the next page: Apple's gamble with lead time, price, name - and the iPod