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LOS ANGELES--Apple's upgraded iPhone didn't inspire fear in at least two of the biggest subscription music sites--even before they learned that the device wouldn't let people download music via the new 3G network.

"I'm not trembling," Anu Kirk, Rhapsody's director of product management, said Monday at the iHollywood conference. "I'm sure they are going to sell a lot of second-generation iPhones. It's a fantastic product but they can't take over the United States with just one carrier."

Kirk was speaking on a panel discussing the mobile music category and specifically about cell phones as music players. The discussion took place as Apple CEO Steve Jobs was introducing the new iPhone 3G at the Worldwide Developers Conference in San Francisco.

Kirk doesn't think the iPhone 3G can duplicate iPod's success, at least not with just AT&T as the phone's only carrier. Any debate about the iPhone's dominance over music apparently has to wait.

The mobile version of the iTunes music store will remain accessible only over the phone's Wi-Fi connection, according to CNET's Donald Bell, who wrote cited Apple's iPhone 3G product page. Bell wrote that "it does seem like Apple has missed an obvious opportunity to allow users more ways to purchase music."

Rhapsody and Napster already enable many iPhone competitors to download music over 3G. This had to come as welcome news to those companies as rumors swirl in the music industry that Apple is considering whether to launch a subscription service.

In March, the Financial Times reported that Apple is considering an all-you-can-eat plan in which users would receive free access to iTunes "in exchange for paying a premium for its iPod and iPhone devices. Sources told CNET News.com that the music labels would agree if Apple shared revenue on device sales. So far, nothing has come of it.

And nothing will--or at least that's what Kirk thinks anyway. His suspicion is that Apple won't enter the subscription business because it conflicts with the company's prime goal of selling hardware.

"Apple's model is to get you to buy a bigger device every 18 months or two years," Kirk said. "You fill up your iPod, you go, 'Oh, I'm going to buy the new iPod with twice as much memory.' In a subscription world, the size of your device matters a lot less cause you can swap out the content. In a world like that the consumer has a lot less incentive to buy a bigger device."

Subscriptions aside, is Apple choosing to ignore cell phones as music players at this point? It wouldn't be missing out on much.

The U.S. consumer has largely ignored their phones as music machines. Kirk noted that the sector is hobbled by the lack of memory in most phones to store music and the high costs. These often include paying for cell phone and data-service plans on top of the music.

Not what you would call a good deal.

Apple wowed the cell phone industry a year ago with the first version of the iPhone. And now its new software development kit and soon-to-be-launched application store featuring third-party applications could change the game yet again. (To get a closer look at the third-party software unveiled Monday, click here: "Video roundup: New apps coming to the iPhone.")

The big news Monday at Apple's Worldwide Developers Conference in San Francisco was of course CEO Steve Jobs' announcement of a 3G version of the iPhone. But the company also made several software announcements that could set a new standard for getting new and innovative applications to market quickly.

There's no question that Apple's launch of the iPhone last year changed the handset market. The touchscreen device loaded with a full Web browser that allows people to shrink and enlarge Web pages set a new standard for what people can expect when surfing the Net on their phones.

But with the SDK and the soon-to-be-launched application store, Apple has shown the true power and vision of the iPhone, which goes well beyond simple Web browsing on the go. The company has created a powerful platform for developing new applications, plus a set of simple tools that can be used to quickly and easily bring new mobile applications to market. And it's created an App Store, linked with its popular iTunes music and video store, where these applications can be easily searched for and downloaded.

"A device is nothing without applications," said Ken Dulaney, an analyst with Gartner. "The one lesson you can take away from Microsoft is that once you attract the developers the rest is an easy coast downhill. And I'm incredibly impressed at the speed in which Apple's application development platform has matured."

For many application developers, creating applications for the mobile environment can be a time-consuming process. There are hundreds of different handset models with different processing capabilities and screen sizes. And there are dozens of operating systems. Mobile developers often find themselves developing various versions of their product so they can fit on a wide range of devices. As a result, it can take several months just to launch a single application.

Loopt in the loop
Apple has tried to alleviate this problem with a simple-to-use tool that allows developers to create applications by simply dragging and dropping icons, slashing the time for development into a matter of weeks. During the keynote Monday, Scott Forstall, senior vice president of iPhone software at Apple, took the audience through the actual developer experience, demonstrating how quickly and easily a complex service can be created.

Specifically he showed how he could merge contacts databases and location-aware services. He also showed how easily the completed application could be tested right on the Mac for bugs or to make different aesthetic choices, such as whether to put things in the toolbar or within the regular fields.

"The tool is amazing," said Sam Altman, CEO of Loopt, one of several companies that has used the iPhone SDK to develop an iPhone application. "In two months, we were able to make the best version of Loopt we've ever created. It's taken us nearly a year to create other versions of our software."

Loopt already has its application on phones that use the Sprint Nextel and Verizon Wireless networks. These service providers offer Loopt's friend-tracking application for a monthly fee. iPhone Loopt users will be able to get it for free.

But it's not just the ability to create applications more quickly and more easily that excites application developers; Apple has also created a rich environment in which to develop the applications. The APIs used in the SDK are the same ones Apple uses to develop applications internally. And there are many similarities between the iPhone's operating system and the Mac OS X, making it easier for Mac developers to create rich applications.

"The underlying software platform for the iPhone is much more powerful than any other mobile device we've seen," said Jeffrey Litvack, global product development director for the Associated Press. "It just makes it much easier for us to show off all our multimedia content, like videos and pictures. It's more challenging on other platforms."

Loopt's Altman agreed.

"The quality of mobile applications for the iPhone is just so much better," he said.

Apple invited several developers to show off their applications. In addition to the friend finder Loopt application, Sega demonstrated a new version of Super Monkey Ball. eBay showed off a new application for keeping track of auctions. And others such as Modality showed an application that gives medical students up-close views of human body parts to help them study anatomy. Major League Baseball demonstrated an application that gives near real-time updates on games. And the Associated Press showed off an application that sends out local news based on a user's location.

The distribution challenge
There are other problems that application developers face that Apple promises to help solve, namely distribution. In a traditional model, application developers can either distribute their applications independently or they can work directly with mobile operators.

Companies such as Handango have created application stores for devices like Research In Motion's BlackBerry that developers can use to distribute their applications. There are also stores for Windows Mobile devices and ones created for the Symbian operating system, which is used by Nokia. But consumers are often unfamiliar with these stores making it difficult for developers to count on a reliable distribution chain.

The other option for application developers is to work directly with mobile operators so that their applications are either embedded in specific handsets or can be found on the carrier's "deck."

Getting "on deck" or embedded in a specific phone is often a long, arduous process. And once an application has made it this far, it's no guarantee that it will be easily discovered by users. Embedded applications usually have an icon that may be prominently displayed. And applications in carrier decks can be buried beneath several layers of menu. Application developers are constantly fighting for a top spot in these menus.

"Discoverability is a challenge for all application developers," said Tom Frencel, president of Cabybara Games, a mobile games company. "Some of these menus are pretty deep and they're difficult to navigate. "

During his keynote Monday, Jobs officially announced the upcoming iPhone App Store, which was first talked about in March when he announced the release of the iPhone software development kit.

The App Store isn't yet available so it's difficult to say for sure how it will work, but it's likely that the interface will look very similar to the popular iTunes music and video store. iPhone users will be able to browse the store directly on their phones and download applications either over the cellular network or over a Wi-Fi connection. And for iPhone users who want to look for applications on their PC, they can use the PC-based iTunes to search, download, and purchase applications just like if they were looking for songs, videos, or podcasts.

"Millions of people are already using iTunes," Frencel added. "I think the PC is the most powerful interface to browse content anyway, so it makes sense to use it."

Today, Apple's iPhone makes up only a small percentage of the overall cell phone market. But it's quickly gaining ground on smartphone competitors such as Research In Motion, Nokia, and Palm. The basic design and functionality of the iPhone has set the bar for a phone of this class. And if Apple can broaden the device's appeal with thousands of cool third-party applications that are easy to find and just as easy to access, then it just might set the bar yet again in the mobile market.

As expected, Apple CEO Steve Jobs used his time on stage at the Worldwide Developers Conference to announce a new version of the iPhone.

We've pulled together our video clips of his introduction, along with demos of some of its new features, including GPS, the faster 3G wireless technology, and MobileMe, a service that syncs users' e-mail and calendar info on every device they register. Follow the jump for all those videos. And go here to see a roundup of all the third-party apps shown off Monday.

SAN FRANCISCO--The blogosphere is likely exploding with feedback to Apple CEO Steve Jobs' Worldwide Developers Conference keynote address Monday, including his introduction of the new iPhone 3G with GPS and a low-end price of $199.

But we thought we'd go old-school and get some real-life response from real-life developers outside Moscone West, where the conference is taking place this week.

No one was surprised by Jobs' announcements, but they were plenty excited, especially about the lower iPhone pricing, which they say will help get the device into more consumers' hands. They were also excited about Apple's new iteration of its .Mac service, MobileMe--although the name certainly didn't roll off their tongues.

Click the link below to hear interviews with Scott Klauminzer of Seattle, Ralf Mandt-Rauch of Germany, Guy Horrocks and Layton Duncan of New Zealand, Stefan Seiz of Germany, and Claudine Beaumont, who works for The Daily Telegraph in London.

AUDIO

Geek on the Street: Steve Jobs keynote
What WWDC attendees thought of the Apple CEO's iPhone announcements.
Download mp3 (2.37MB)

I'll jump on the iPhone bandwagon, now that the price has dropped, and there's faster data transfer.

I can't wait to get rid of my Verizon Wireless service, which has deteriorated horribly in the last two months (nice timing, guys!), and my contract expires a convenient four days before the iPhone 3G goes on sale.

The 12-Bar Blues feature of the Band app for the iPhone will keep you on the I-IV-V.

(Credit: Moo-Cow Music)

But exciting as it might have been for iPhone holdouts like me, today's keynotes at Apple's Worldwide Developers Conference didn't have much music-related news. Steve Jobs did promise that the audio on the new iPhones would sound better than the current version, and Apple is finally getting rid of the weird recessed earphone jack that caused a lot of angst because it was hard to use with older peripherals. But that was about it--no big iTunes updates, for example.

One demonstration did catch my ear: Moo-Cow Music's Band, which was originally developed by a single programmer, Mark Terry, as a sort of fun hack. It is now being rewritten for the iPhone development platform and offered with Apple's blessing through the iTunes App Store. It allows you to tap out and program simple drum beats, add bass, piano, guitar, and vinyl-scratching noises, then mix them all together in a simple song.

I immediately thought of all those band rehearsals in which nondrummers attempt to describe a beat they have in mind to the drummer, and end up spitting and clicking like the sound effects guy in the Police Academy movies. Now they can whip out their iPhones and play exactly what they have in mind. Drummers love that!

Steve Jobs unveils the new 3G iPhone at Apple's WWDC.

(Credit: James Martin/CNET News.com)

In what may have been the worst-kept secret in Apple announcements of late, CEO Steve Jobs announced a 3G version of the iPhone on Monday, along with a slew of new third-party applications designed for the device.

The new iPhone will use third-generation wireless technology and run updated iPhone 2.0 software. It's expected to launch July 11, Jobs said in his keynote speech at the Worldwide Developers Conference in San Francisco. The iPhone will also be cheaper than its predecessor, with a 16GB version priced at $299 and an 8GB version that costs $199.

That upgrade in wireless technology is key. While on stage, Jobs compared how quickly the old and new versions loaded the National Geographic home page. The 3G version loaded the page in 5 seconds, while the older version took 18 seconds. The lack of next-generation wireless has kept a lot of potential international buyers who are accustomed to 3G service overseas from opting for the iPhone.

The new iPhone 3G from Apple

(Credit: Apple)

Hardware features include longer battery life, a flush headphone jack, silver button controls on the side of the phone, and a plastic back case that comes in black or white (for the 16GB version only).

But a large part of Monday's news was focused on software, too. As expected, Jobs announced the upcoming iPhone App Store, the foundation for which was laid out in March when he announced the release of the iPhone software development kit. Since the SDK was released, third-party developers have been busy writing applications specifically designed to run on the iPhone.

During his keynote speech Monday, Jobs brought a string of developers on stage to demo the fruits of all that labor. Featured applications included a mobile-blogging app from Six Apart; a new version of Super Monkey Ball from Sega; an application from eBay that allows users to monitor their bids; an application from Modality that gives medical students up-close views of human body parts to help them study anatomy; an application that gives near real-time updates on Major League Baseball games; an Associated Press app that sends out local news based on where a user is; and a service from Loopt that lets people see where their friends are at any given time. (You can see a roundup of demos of each of these apps here.)

For its part, Apple is bringing GPS to the iPhone, along with a new service called MobileMe, which is essentially an update of the current .Mac service. Subscribers to the MobileMe get push e-mail, contacts, and calendars on the iPhone, and can also access their photo galleries remotely. That service costs $99 per year.

The iPhone 3G will launch in 22 countries on July 11 and will roll out to a total of 70 by the end of the year, Jobs said. It should arrive in Russia and China later this year, Jobs said in an interview Monday on CNBC. "I think you'll see those later this year," he said. In China, the company is awaiting regulatory approval, he added.

CNET News.com's Tom Krazit and Stephen Shankland contributed to this report.

A newly negotiated deal with Apple could hurt exclusive U.S. iPhone carrier AT&T in the short term, but the cell phone carrier sees a big upside for the future.

Following the much-anticipated launch of the iPhone 3G at an Apple event in San Francisco on Monday, AT&T announced that it had struck a new deal with Apple. The new arrangement between AT&T and Apple is similar to other contracts AT&T has negotiated with other smartphone manufacturers such as Research In Motion and Samsung.

(Credit: Apple)

Since the first iPhone was launched last summer, AT&T and Apple have shared ongoing revenue from iPhone users. But now AT&T will pay the upfront cost for the iPhone 3G and subsidize the total cost of the phone by making customers agree to a two-year service contract.

The arrangement will benefit consumers by allowing the new iPhone to be sold at a much lower price point. The 8GB version will cost only $199 and the 16GB version will sell for $299 with AT&T's subsidy. This puts the iPhone on par with other smartphones such as RIM's BlackBerry and Samsung's BlackJack.

But the new deal comes at a price. AT&T executives said on a conference call with analysts and investors on Monday that the arrangement will put pressure on the company's profit margins and dilute earnings for the next year and a half. That said, the company believes that the new price point and improved Web surfing experience of the iPhone on AT&T's 3G wireless network will drive sales of the iPhone and get more customers using its data services.

"Less than 20 percent of our customers have integrated devices," Ralph de la Vega, the head of AT&T's mobile business, said during the conference call. "And at the $199 price point we could have mass adoption and put the iPhone in the hands of people who have never surfed the Web on a phone."

What's more, AT&T sees iPhone users as highly valuable customers. Executives said that they are willing to make upfront sacrifices to get these customers on their network.

Specifically, iPhone users typically generate more revenue than basic AT&T cellular customers because they use more data services, de la Vega said. And with the new 3G capability and more applications coming to the phone, executives expect that to increase. iPhone users are also more willing to recommend the device to friends and family. And the churn or rate at which they drop the iPhone and the AT&T service is very low compared with customers using other devices.

"The 2G iPhone experience helped us understand what the customer characteristics are likely to be," Rick Lindner, CFO of AT&T, said during the conference call. "These are high value customers."

As a result of the new arrangement, iPhone users will subscribe to the same kind of voice data plans already offered to other AT&T smartphone customers. This means that as part of the two-year contract commitment, customers will be required to have at least a $39.99 voice plan. And they will choose from one of two data packages. Consumers will get the full smartphone data package for an additional $30 extra a month. Business users who want corporate e-mail can select a data plan for an additional $45 a month.

Update 3:59 p.m. PDT: The new AT&T iPhone 3G data pricing means that consumers will now pay $10 more a month for data service. The original iPhone data plan, launched a year ago, costs $20 a month. An iPhone 3G must be activated in either an AT&T or Apple store, and customers must agree to the two-year service contract with AT&T, de la Vega said.

In March, Apple CEO Steve Jobs announced an upcoming system for downloading third-party applications for the iPhone. At the Worldwide Developers Conference on Tuesday, he brought a parade of developers onstage to show off exactly what those new apps can do.

The apps range from monkey slinging to medical imaging and should be available sometime in early July (along with the iPhone 2.0 software required to run it), according to Apple representatives. Follow the jump to check out demos of each of the applications announced during the keynote speech. We'll update this post with more video demos as they come.

As we await news from Apple's Worldwide Developers Conference, CNET editors are keeping busy gathering anything and everything about the iPhone, with a special site launching Monday designed for the device.

Point your iPhone or iPod Touch browser to iphone.cnet.com to read, watch, and listen to CNET on those devices.

And check out iPhone Atlas, which reports daily on iPhone news, applications, and troubleshooting, and now offers forums for user discussions about the iPhone, iPod Touch, and Apple's Mobile OS X. For a catalog of Mac apps (and Windows downloads, too), CNET's VersionTracker is also available in an iPhone-optimized package at iphone.versiontracker.com.

To keep up on the latest iPhone news, applications, and announcements from your computer, visit www.cnet.com/apple-iphone.html often. We'll keep it updated with the latest and most important iPhone content.