Apple's unstoppable, yet unexplainable, momentum

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The latest version of the Apple (NASDAQ:AAPL) iPhone OS was released this week, making available to millions of iPhone 3GS users many of the features that will come standard in the new iPhone 4. But that hasn’t stopped millions of consumers from lusting for the new device. AT&T (NYSE:T) had to stop pre-orders of the iPhone 4 after 600,000 purchases in a single day strained Apple and AT&T’s ordering systems.

The new iPhone has some attractive and fancy new features such as its Retina hi-res screen and HD video and video communication features. Those enhancements will appeal to the video-savvy and early technology adopters, but that hardly seems to justify the run on AT&T and Apple’s Web sites. Aside from the video and processing upgrades, there doesn’t seem to be any single major enhancement that would justify the huge level of interest in the latest iPhone iteration. There’s no 4G. There’s no HSPA+ even — the device runs on the same 7.2 Mb/s chip as its 3GS predecessor — so no new network incentive, such as what drove sales for the first 3G iPhone. There is no CDMA variant or change in exclusivity agreement, so there’s no new operator opening up the platform for millions of new subscribers. Aside from the new video applications, the iOS4 will allow the same iPhone 4 apps over millions of legacy devices.

AT&T did offer a hefty promotion for current iPhone customers, knocking off as much as $400 from the price of the iPhone 4 for customers with six months or less left on their current iPhone contracts who are willing to sign a new two-year agreement — the same deal it is offering to new customers. That explains a lot of the heightened interest, and it’s a smart move by AT&T, though one that will cost it heavily in subsidies. All signs point to AT&T’s exclusivity deal with Apple running out. Whether that means we'll see a CDMA iPhone on the Verizon Wireless (NYSE:VZ, NYSE:VOD) and Sprint (NYSE:S) networks, a "true" 4G version running on U.S. long-term evolution networks or a device with expanded frequencies that will work on the T-Mobile (NYSE:DT) HSPA network, I have no idea. But any of those possibilities would put a lot of pressure on AT&T, which seems to be taking the brunt of any criticism directed the iPhone’s way.

By locking millions of current iPhone customers into new two-year contracts, AT&T could be prepping for that future offensive onslaught no matter which direction it comes from. As long as AT&T keeps slashing prices and Apple keeps launching sleeker versions of the device each summer, the last remaining holdouts may just throw in the towel and buy that iPhone that’s been tempting them. And the current iPhone users — who’ve sworn to switch to VZW once a CDMA iPhone is available — will give into the allure of the latest and shiniest version of their favorite smartphone.

This should also be cause for alarm for other platform developers. Despite numerous predictions and reports of cracks appearing in Apple’s platform and business model, the iPhone juggernaut keeps on rolling. It seems Apple can tweak its device and slap a new label on it each year and still generate millions of iPhone sales. Mind share like that is hard to compete with.