Big Rumors About Little iPhone, MobileMe Revamp

Echoing rumors from late last week, the Wall Street Journal (s nws) is weighing-in with a report that Apple (s aapl) is gearing-up to produce a smaller, cheaper iPhone and introduce a revamped MobileMe this summer.

The WSJ’s Yukari Iwatani Kane and Ethan Smith write:

Apple Inc. is working on the first of a new line of less-expensive iPhones and an overhaul of software services for the devices, people familiar with the matter said, moving to accelerate sales of its smartphones amid growing competition.

One of the people, who saw a prototype of the phone late last year, said it is intended for sale alongside Apple’s existing line. The new device would be about half the size of the iPhone 4, which is the current model.

The authors don’t elaborate on what “half the size” means (half the screen real-estate? half the thickness?) though it’s hard to imagine an iPhone with such a small screen being particularly practical. Sure, the new iPod nano leads the way in tiny touch-screen form factors, but, by necessity, has only a tiny subset of the functionality and flexibility of an iPhone.

The new phone […] would be available to carriers at about half the price of the main iPhones. That would allow carriers to subsidize most or all of the retail price, putting the iPhone in the same mass-market price range as rival smartphones, the person said.

Apple doesn’t usually try to beat rivals on price, so I’m not sure, even in today’s increasingly competitive smartphone market, that they would start now. Apple has long maintained that it isn’t interested in selling the most devices, but rather, selling the best devices. Despite the Wall Street Journal‘s reputation, I’ll remain skeptical about a new miniature iPhone appearing this year.

Still, it sounds like a mighty interesting device, even if it is only a prototype:

The person who saw [the prototype] said the device was significantly lighter than the iPhone 4 and had an edge-to-edge screen that could be manipulated by touch, as well as a virtual keyboard and voice-based navigation.

Revamped MobileMe

Last year, Steve Jobs reportedly said in an email to a customer that MobileMe was going to get a lot better, and the WSJ touches on this, too:

Apple is considering making MobileMe a free service that would serve as a “locker” for personal memorabilia such as photos, music and videos, eliminating the need for devices to carry a lot of memory…

MobileMe […] could become a focal point for a new online music service that Apple has been developing for more than a year, the people said. Social networking would be another key component, one of the people said.

This sounds far more plausible, and makes much more sense. Remember that Apple bought Lala in early 2010 only to close it down a few months later; it seems likely the acquisition was more about getting Lala’s engineering talent into Cupertino to work on some kind so streaming music ability.

What’s more, Apple’s heavy dependence on flash-based storage in iPhones, iPads and now MacBook Airs (and, presumably, in upcoming MacBooks) greatly enhances the need for cloud-based, pervasive data storage and over-the-air access and synchronization. Flash storage is still too expensive to allow for 500 GB or terabyte storage capacities in MacBooks and iMacs without contributing significantly to their purchase prices.

It makes sense to use flash memory — it’s a much faster and more energy-efficient technology than the traditional hard disk drive — but to keep prices down, storage capacities will likely remain modest.

So with MobileMe’s (now) rock-solid Mail, Contacts and Calendar functionality in-place, and a hugely successful ecosystem of flash-storage-toting iOS devices selling faster than they can be manufactured, the stage is set for a much more sophisticated, cloud-based data and media-streaming service from Apple.

There is just one annoying fly in the ointment:

The new MobileMe file-storage and music service could be available as early as June, depending on the progress of licensing talks that are in their preliminary stages.

Streaming a user’s iTunes content requires a new — and complicated — set of distribution licenses between Apple and content creators, and that’s likely to take a lot of time to work out. Indeed, Kane and Smith write that Apple intended to launch this service a year ago — if I were a betting man, I’d wager the delay has been entirely due to the legal wrangles between Apple and content creators.

Even if this summer’s iPad refresh is only a modest upgrade, and the iPhone nano doesn’t materialize at all, this new MobileMe could still be huge news. After all, who else could possibly compete with such a service?

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