Will Apple's wonder gadget get more memory? Will it come in different colors? Who cares. A new processor is what it really needs.

Will the iPhone get more flash memory? Will it get new features, like a compass?

Who cares. What the iPhone really needs is a new processor. And there is no sign, yet, that it will get one.

Apple ( AAPL - news - people ) alluded to the problem in March, when it introduced new software for its smart phones. The reason it doesn't run more than one third-party application at a time, Scott Forstall, Apple's vice president for iPhone software development explained, is because such work will drain the battery too quickly.

It's more than just a power-management problem, however. "One of the drawbacks of the iPhone right now is it can only [run] one application at a time," says Will Strauss, president of wireless market research firm Forward Concepts. With a more powerful processor, he adds, the iPhone could run several applications concurrently.

Apple's rivals are already heading down that path. Palm is pushing out a new phone based around Texas Instrument's ( TXN - news - people ) OMAP3430 processor. One of the Pre's key features: the ability to show the user information from more than one application at a time. The software makes it slick, but TI's hardware makes that possible.

Apple, meanwhile, relies on an application processor from Samsung. There are two problems there. For starters, Samsung also sells smart phones, allowing it to give its phones the same capabilities, on paper, as Apple's iPhone. The bigger problem, however, is just about muscle. The relatively dinky processor can't match the TI model's power.

There are several possible solutions. Samsung could build a new processor around the same ARM Cortex-A8 architecture TI uses, or Apple could switch to TI, Strauss suggests. Alternatively, Apple could build a processor of its own, presumably one based on the ARM-architecture, with the chip designers it picked up last year with its acquisition of PA Semi (see "Apple Buys Chip Designer").

There are no signs that Apple is doing that--yet. Then again, if Apple were, it would likely keep such a move a very tightly guarded secret, because it would be the only information about its new phone that would really matter.

There’s a consensus that Nintendo forever changed the video-game industry when it launched the Wii in 2006, since, even with its simple graphics and thin library of “hardcore” games, it quickly eclipsed sales of the PS3 and Xbox 360.

One gaming exec says that the iPhone is an even bigger game-changer. Ngmoco founder and chief executive Neil Young kicked off the Game Developers Conference by saying that the launch of the iPhone was as big a gaming milestone as the launch of the first Nintendo (other-otc: NTDOY.PK - news - people ) console, the Game Boy, Xbox Live and even the first massively multiplayer online game (via Wired).

Ngmoco is an iPhone games publisher, and the San Francisco-based company just picked up $10 million in a second round of funding—so Young has a vested interest in generating buzz about iPhone games. But Kotaku notes that he backed up his bold claim with some evidence:

—The iPhone is expanding the mobile-gaming market: Apple (nasdaq: AAPL - news - people ) has sold more than 17 million iPhones worldwide, so there’s no need for people to buy another device like a PSP or Nintendo DS. The user base runs the gamut from tech-savvy teens to business executives, which means a greater interest in a wider variety of games. And they’re also ravenous for apps: people have downloaded more than 800 million apps in the eight months the App Store has been open.

—The open platform is a game developer’s dream: Apple’s basic developer kit costs $99, meaning individual publishers can quickly create a game, get it into the App store and scale it out on their own. There’s no need to jump through the hoops that have historically made creating games for companies like Sony (nyse: SNE - news - people ) and Nintendo more difficult.

That’s partly what has enabled startups like Tokyo-based Genkii to turn a simple feature, like enabling Second Life users to send IMs to each other through the iPhone, into the potential for a standalone iPhone-based virtual world—complete with avatars, virtual currency and streaming audio (via TechCrunch).

The iPhone has limitations as a gaming device, just like the Wii (or the Xbox 360 or PS3, for that matter): The low barrier to entry means that lazy developers can quickly put out poorly functioning games—and if iPhone owners pay for one too many disappointing game apps, they’ll stop buying. There’s also too much clutter: with more than 25,000 apps, even very good games may find it hard to get noticed (without the bump of being featured in an iPhone commercial).

So, whether the iPhone will evolve into a gaming platform that ultimately overtakes the Wii is still up in the air, but it’s clear that Nintendo (and even Sony) have taken notice: both companies are pushing game downloads as the next hot thing for their portable gaming devices now, with new announcements expected to roll out over the next few days at GDC.

A company called Genkii is hoping to rope a chunk of the 40-million worldwide web-connected phones and iTouches into a new 3D avatar-based virtual world, Sparkle. Too bad virtual worlds died around 4 years ago.

Genkii appear to have had Sparkle in the works for quite some time, but they must have spat out whatever drink they were drinking at the time when Apple announced their inter-app micro-commerce structure for iPhone 3.0, which is perfectly tailored to Second Life's "pay 65 cents, increase penis length by 200%" mini economy.

Currently, Genkii has a $5 IM app in the App Store that ties into your Second Life IM account. They hope to expand their actual standalone virtual world later this year, preserving the ability to tie into pre-existing worlds like Second Life and Playstation Home.

If there is anyone out there who can't wait to get a mini avatar on their iPhone, buy it clothes and an apartment, and seek out other mini avatars to IM with, forgive my skepticism. But I think Sparkle has missed the boat by about a half decade. We'll see what happens. [TechCrunch]

O'Reilly talks about the lessons learned by its foray into e-book publishing.

Many people, both inside and outside of the publishing and media industry, are skeptical about the potential of paid content on mobile phones, especially given the troubled history of e-books. I beg to differ. In December 2008, O'Reilly's "iPhone: The Missing Manual" was published as an iPhone app. Since its release, the app has outsold the printed book, which is a best seller in its own right. We're learning a lot from the experience. Here our some of the questions that we're starting to answer.

Was the iPhone app for the "Missing Manual" an anomaly? After all, iPhone owners are the most likely audience for the "Manual."

O'Reilly: Conventional wisdom suggests that when choosing pilot projects, you pick ones with a high likelihood of success. This was a best-selling author on a red-hot topic. We're gearing up to release about 20 more books as iPhone apps, but realistically we don't expect any of those to sell as well as this first one.

Is the iPhone the most convenient place to get content about problems you're trying to solve on a computer?

For many of our readers, a first or second pass through one of our programming books is mainly about orienting to the landscape and getting a sense of the platform and what's possible, not about solving a particular problem at hand. The iPhone is a perfectly suitable environment for that kind of reading.

Won't you make less money selling iPhone apps than books? The computer book market is the computer book market, period. It has a certain size, and that's it. If you convert that market into iPhone app buyers instead of book buyers, say good-bye to your publishing business.

It would be economically bad news to sell a $5 product to someone who would otherwise pay $50. But it's good to sell a $5 product to someone who would not otherwise be a customer (provided, of course, that the marginal revenue exceeds marginal cost). For Safari Books Online, for direct sales of our e-books and now for this (single) iPhone app, the data suggests that they have created growth without sacrificing print market share. For example, our market share for printed computer books sold at retail was 14% in 2004, and is now 16%. According to Nielsen Bookscan data, the print version of iPhone: The Missing Manual has sold nearly as many copies as the next two competing titles combined in the time period since the app version went on sale in December.

This data only goes back to mid-January, but the 90-, 30- and seven-day averages on Amazon sales rank for the printed book have been steadily improving, suggesting that sales of the iPhone app version are not cannibalizing print sales--and may even be helping them.

I could, however, afford the $229 iPod Touch - and got it as a gift, as it happened. It has most of the same goodies: a Web browser, e-mail, YouTube. And it stores way more music than the iPhone. (Ha!)

Plus, the other day I used it to call China.

Yup, a call around the world - on a device that doesn't have a phone. A handful of applications on Apple Inc.'s iTunes store will let you do this, as long as you're in a Wi-Fi hot spot.

My iPhone complex hasn't disappeared, but at least now I have a device that looks just like it, has no monthly service fees, and lets me make free or cheap phone calls.

The best part of these applications - which require the second-generation iPod Touch that came out last year - is that they are free to download, and calls to other people using the same app won't cost you anything.

Two of the services I've tried, Truphone and Fring, will also let you make free calls to Google Talk users and type instant messages to friends online. Both automatically queue up a list of buddies from different services you might have, including Gmail chat, AIM and MSN Messenger, once you log in.

But it's Truphone's pay feature that puts it ahead of the others. TruPhone charges you to make calls to landlines or regular cell phones, but generally at better rates than most wireless carriers. And it's upfront about what you pay.

Your balance - which you can add to with a credit card, either on the device or on your computer browser - pops up with the dial screen. Calls in the U.S. are all 5 cents per minute (2 cents if you sign up to pay a $4 monthly fee).

Rates outside the U.S. vary wildly but you can check in the application before you dial. To call cell phones in China, for instance, is only 5 cents per minute, while France is 25 cents. Antarctica? A whopping $2.25.

You can make regular calls with Fring using a Skype account, but that's another layer to deal with.

The calls on these services sound pretty good, a little tinny but clearer than my regular cell phone connection. IPod Touch users will need Apple's $29 ear buds that have a tiny microphone on the back of the volume control along the cord.

The most serious drawback is the most obvious: While the iPhone uses AT&T's wireless network to provide Internet access anywhere, on the iPod Touch you'll need to stick to Wi-Fi hot spots. For rural or suburban dwellers who don't encounter lots of free Wi-Fi zones, that may very well mean limiting yourself to your house, or other places where there's a computer with the same Internet phone call capabilities anyway.

That means these apps probably won't replace your cell phone. But they can moderate your iPhone envy.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

Ahead of the Bell: Analysts cheer iPhone update

Apple Inc.'s new iPhone operating system should help the company win a larger share of customers buying smart phones, analysts said.

Thomas Weisel analyst Doug Reid said Apple's presentation on the new features Tuesday left him "more confident that (Apple) remains well positioned to gain share in the smart phone market."

In a client note Tuesday, he estimated the Cupertino, Calif. company will capture 11.8 percent of that market this year, up from 7.7 percent in 2008. He kept an "Overweight" rating on shares.

Apple's new software will allow users to cut and paste text for the first time and offers new tools to third-party software makers, including the ability to create applications that have items for sale within them and access to customers' iTunes library of songs.

Needham & Co. analyst Charlie Wolf told clients in a note Wednesday that the new system shows "that Apple is not standing still but continues to build on its leadership in the smart phone operating system and application software market." He kept a "Strong Buy" rating on the shares.

Copyright 2009 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

How iPhone 3.0 Will Feel Different

In a few hours, Apple is for the first time showing off its iPhone 3.0 operating system at an event at its headquarters in Cupertino, Calif. The event, which came up at the last minute, is expected to showcase some major changes to the platform. Today, I’ve heard what one of those change may be.

Apple is likely looking at a way to integrate iPhone and iPod touch apps with other devices, a trusted source tells me. Basically, this means that if you have an app on the iPhone, Apple wants to allow other devices, including those not made by Apple, to be able to access those apps. This would likely occur through the 30-pin dock connecting socket, says my source.

While there are some significant ramifications to such a move short term, in the long term, this still says to me that Apple is looking for a way to move its robust app platform beyond the iPhone and iPod touch, and into several devices.

Being so close to the actual event, I haven’t had the opportunity to corroborate this potential feature, so I’ll leave it as a rumor. But again my source is trusted, and even if this isn’t part of the announcement tomorrow, I’m confident that this will be coming eventually.

For what it’s worth, my source also didn’t believe that a tablet device would be a part of the announcement tomorrow. While they believed that eventually this will be a part of Apple’s plans, they didn’t see the timing as lining up well for tomorrow’s event.

VentureBeat will be at the event tomorrow, covering it live both on the site and in this FriendFeed room.

Shaking Up Advertising

Dockers' iPhone ad is the next wave of mobile marketing.

The iPhone's lead over smartphone upstart Android may be short-lived, according to an industry watcher's predictions.

Android smartphone sales will outstrip iPhone sales by 2012, market researcher Informa Telecoms & Media has predicted in a new report.

Last month, Telefonica Europe said that sales of the iPhone topped 1 million in the U.K. Although T-Mobile UK--the exclusive carrier of the first Android device, the G1--wouldn't say exactly how many of the devices had been sold, it did say the handset now accounts for 20 percent of its contract sales.

Photos: Hands-on with the HTC Magic Android phone

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Web behemoth Google released the first beta developers kit for its Android open OS platform in August, with the first handset--the G1 smartphone--launching the following month. A second handset, the Magic, is expected to arrive next month.

Apple's iPhone has a slightly longer heritage--with the first device arriving in the U.S. in June 2007. However, the iPhone 3G hit stores last July, giving it only a few months' head start on its Google rival.

Both Android and OS X are eating into the market share of the best-selling smartphone OS maker, Symbian. Last year, just under half of smartphones sold were based on Symbian--a drop of 16 percentage points from the year before when it had 65 percent market share. BlackBerry OS, Linux, and Windows Mobile are also gaining popularity and eating some of Symbian's share, according to Informa.

However, London-based Informa believes Symbian's switch to open source will help the Symbian Foundation maintain its leadership over Android, Linux, and Microsoft over the next few years.

Nearly 162 million smartphones were sold last year, surpassing laptop sales for the first time, according to Informa. The market researcher forecasts that smartphone penetration will reach 13.5 percent of new handsets sold this year and that the figure will reach 38 percent by 2013.

Informa also suggests smartphone sales will be immune to the global economic downturn, maintaining a prediction of "robust growth" of 35.3 percent year over year.

Total handset sales, by contrast, won't be as resilient and are set to fall 10.1 per cent year over year, Informa predicts.

Natasha Lomas of Silicon.com reported from London.