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At What Price?: iPhone, the Mercedes of Handhelds

Dr. Buorn Lomborg, director of the Copenhagen Consensus Center testifies on global warming evidence along with former Vice President Al Gore. The two shake hands prior to the beginning of the testimony as Tipper Gore looks on..
Christy Bowe
Dr. Buorn Lomborg, director of the Copenhagen Consensus Center testifies on global warming evidence along with former Vice President Al Gore. The two shake hands prior to the beginning of the testimony as Tipper Gore looks on..

Think of this week as a kind of Digital Duel in technology. The massive Consumer Electronics Show in Las Vegas; and the not-so-massive IDG Macworld Expo in San Francisco that ended up making massive headlines of its own. And for good reason.

"This clearly is a whole different business, a different type of device, and I think this will radically change the mobile device market so they gotta re-think their business," says Gene Munster, an analyst at Piper Jaffray, talking about Apple Computer's long-awaited new iPhone announcement.

Euphoria over the iPhone and its slick, sleek, slim design quickly gave way to sticker shock when Apple CEO Steve Jobs announced the pricetag: $499 for 4 gig model; $599 for the 8-gig. Let the pundit-parade begin: Too expensive, they clamored. Elitist, said others.

But lets' look back: Remember that Apple was an expensive Johnny-come-lately to the world of digital music, and that was nearly 100 million iPods ago!

Five hundred bucks for a piece of hardware in an industry known for giving the device away and making its money on the service might seem like a tough sell, and a snapshot of street reaction might suggest that: "It's definitely more interesting and high-tech than the phone I have now that I spent around 500 for," says one potential customer in the Washington, DC area. "I think it's a good idea, I want one," says her friend. But would they spend $600 for one? "Eeeewwwww," they all laughed. Though one of them was emphatic: "I WOULD!"

More than a billion handsets will be sold globally this year, but only a fraction are so-called "smart phones," with internet access that can download and playback video and music. But momentum in that part of the sector is growing extremely quickly.

"More and more of those people that are buying standard handsets are going to see the capabilities of these and see that there is no compromise anymore in terms of the form factor and usability from a phone perspective," says Ed Colligan, Palm CEO.

And Apple's own CEO Steve Jobs agrees: "Boy is it frustrating. Really frustrating," he told me in an interview when talking about competitors in the sector including Palm, Research in Motion , Nokia and Motorola . "It's a category that needs reinventing, needs to be made more powerful and much easier to use."

But the rest of the industry is asking, "At what price?"

iPhone
Apple
iPhone

Even though iPhone will seize on the biggest trends in mobile computing and communications, it'll also carry the sector's biggest price tag, though shoppers in San Francisco seemed undeterred: "It's really $499?" After grimacing, he continued, "Go Apple!" Says another: "It's just ahead of its time. It's excellent." And one other: "It's pricey, but it's not over the top, but all Apple stuff is because it's good."

I had the chance to play with the new iPhone, if only briefly since the device was closely guarded and watched over by Apple officials. The phone is super-thin, light, and the display is nothing short of spectacular - crystal clear and an incredibly fluid motion to the graphics.

What isn't known is what it will be like to use on a day-to-day basis; whether typing on the virtual screen will feel better than the push-buttons I use on the actual keyboard on my Blackberry 7800c. The iPhone also seems to be a little longer than a Blackberry which makes me wonder what it will be like to wear on my hip? Comfortable or not?

And then of course, the flood of unanswered questions over service and audio quality and durability. Still, the phone was an impressive demo. But consumers and investors won't know for sure until iPhone finally reaches the market, which Apple says won't be before early summer.

Questions? Comments? TechCheck@cnbc.com