Careful, iPhone users: Your smart phone may be smarter than you think.

On Thursday researchers at Finnish cybersecurity firm F-Secure said they have spotted the first known instance of iPhone "spyware" called Mobile Spy, a piece of commercial software that sells for $99 a year.

Mobile Spy developer Retina-X Studios says the software can invisibly track the call logs, text messages and even the GPS data of any iPhone it's installed on, allowing the eavesdropper to track the user's whereabouts on a Web site that hosts the stolen data.

"Mobile Spy will reveal the truth for any company or family," the company's site advertises. "You will finally learn the truth about [your family members' or employees'] call, mobile-Web and text-message activities by logging into your Mobile Spy account from any computer. The world's first iPhone spy software!"

Smart phone spyware for other platforms isn't new: Commercially available spyware for Windows Mobile and Symbian operating systems have existed for years. But Mobile Spy's software is the first spyware vendor to target Apple's (nasdaq: AAPL - news - people ) growing marketshare in the telecom world.

While Mobile Spy currently targets only iPhone 3G users, another vendor known as Flexispy advertises a similar program that is compatible with both iPhone versions launching Dec. 21. Both programs require the user to "jailbreak" their targets' iPhone, a simple software hack that allows applications not approved by Apple to be installed.

Since before the iPhone's 2007 launch, cybersecurity researchers have been warning about the potential for malicious software that could secretly install itself to steal passwords or use the iPhone to send spam--just as cybercriminals have long been hijacking PCs (see "Hacking the iPhone"). While hackers have demonstrated those kinds of exploits in theory, "in the wild" threats have yet to appear. And cybercriminals aren't likely to use commercially available software like Mobile Spy and Flexispy to infect victims via the Internet.

Meta Data: Stormy BlackBerry Sales?

The BlackBerry Storm is no iPhone. But it's not the great failure some had predicted, either.

In a Dec. 17 research note, RBC analyst Mike Abramsky reported that 33% of Storm owners described themselves as "very satisfied" with their phones. In contrast, 77% of iPhone owners surveyed by researcher ChangeWave in July 2007, when Apple (nasdaq: AAPL - news - people ) first released the handset, characterized themselves as "very satisfied." Though low, the Storm results are in line with the satisfaction ratings for owners of other just-released phones, Abramsky wrote. (See "Smart-Phone Calling.")

Even so, a good number of Storm owners plan to return the phone. In a December survey from ChangeWave, 2% of respondents said they were "very likely" and 7% said they were "somewhat likely" to return the device. The reasons for returns: low battery life, touch-screen and difficulty of use. In a sign of how divisive the Storm's screen is, users that liked the device listed its touch technology, large screen and sharp image resolution as their favorite features.

Typically, 1% to 2% of owners of a particular phone return the device, making the Storm figures "higher than average," but "not alarming," according to Abramsky. He estimates that BlackBerry maker Research In Motion (nasdaq: RIMM - news - people ) sold 300,000 to 400,000 Storms in the third quarter. RIM is expected to address the phone-return issue Thursday when it reports third-quarter results.

Most Storm owners are smart-phone devotees, according to Abramsky, with 31% of buyers identifying themselves as prior BlackBerry owners and 29% as prior Palm (nasdaq: PALM - news - people ) Treo owners. That trend could have ramifications for Palm, which will release its fiscal second-quarter earnings Thursday.

Steve Jobs' decision to skip the convention could mean the company doesn't have a hot new product to show off.

Steve Jobs' Greatest Surprises

Apple's chief executive is the master of surprise--and not just when he's launching new products.

BURLINGAME, Calif.--Mark your calendars. Thanks to Steve Jobs, January has become the season of surprises for the technology industry.

Over the past decade, Jobs has taken over the global music business, turned Apple's (nasdaq: AAPL - news - people ) clunky computer business into a juggernaut and stormed through the wireless industry with the iPhone. As a result, the Cupterino, Calif., company's shares have risen more than 1,000% over the past 10 years. By contrast, mighty Microsoft's (nasdaq: MSFT - news - people ) shares have fallen more than 40%.

So what's next? Nobody knows. That's what makes Apple so dangerous. The only certainty: Apple will surprise us with something during the first full week of January at MacWorld in San Francisco. The week is usually marked by big news from Apple Chief Jobs.

In Pictures: 10 Great Steve Jobs Moments

So what will it be this year? Rumors abound. Some speculate that Apple will introduce a tablet computer. Others say Apple will roll out a line of low-cost iPhones. Anything is possible. That's in large part because Apple has been so unpredictable over the past decade.

The biggest surprises have been unexpected new products. The pattern was set in 1998, when Jobs unveiled the candy-colored all-in-one iMac. Since then, Jobs has launched a barrage of surprises. The biggest include the MacBook Air and the Cube.

So what will it be this year? Rumors abound. Some speculate that Apple will introduce a tablet computer. Others say Apple will roll out a line of low-cost iPhones. Anything is possible. That's in large part because Apple has been so unpredictable over the past decade.

The biggest surprises have been unexpected new products. The pattern was set in 1998, when Jobs unveiled the candy-colored all-in-one iMac. Since then, Jobs has launched a barrage of surprises. The biggest include the MacBook Air and the Cube.

Even the widely anticipated iPhone was a surprise. While reporters had teased out the new products name, few guessed that Apple would introduce a touch-screen phone that didn't sport any buttons.

Probably the biggest shock was Apple's switch to Intel (nasdaq: INTC - news - people ) processors. While the switch had been rumored for months before the 2005 Apple Worldwide Developers Conference, many had dismissed the rumor as absurd. Instead, it turned out to be true.

Illustration by Peter Arkle

A few years ago, if someone asked what sort of cell phone you had, your response would probably be to name a network, like Sprint (S) or Cingular (T). Wireless carriers so completely controlled the business, especially in the U.S., that many manufacturers weren't even allowed to put their brand names on handsets. Now this relationship is changing in ways that will reduce the power of carriers and, with luck, increase consumers' choices.

The relationship started to shift when people began using phones for more than voice calls and text messages. As browsers and e-mail systems became important, it mattered more whether you had a Palm (PALM) Treo or a BlackBerry (RIMM) than whether your phone ran on the Verizon Wireless or AT&T (T) network. Then along came Apple's (AAPL) iPhone to rewrite the rules completely.

The conventional wisdom holds that AT&T scored a coup when it signed on as the exclusive U.S. iPhone carrier, and on one level this is true. The company reported that it activated 2.4 million of the new 3G iPhones in the third quarter, that 40% of those customers came to AT&T from rival operators, and that their average monthly bill was 1.6 times that of other subscribers. But the impact on AT&T's bottom line is another story. Mostly because of the fat subsidy it pays Apple for each iPhone, AT&T's third-quarter earnings of $3.2 billion were $900 million less than they would otherwise have been.

AT&T should eventually recoup the subsidy from monthly fees, especially if subscribers don't come in for a new subsidized phone the minute their two-year contract is up. But what the carrier has probably lost forever is ownership of the customer, a process economists call "disintermediation."

Before the iPhone, relatively few owners of any phones—smart or dumb—downloaded applications. The carriers had a nice business selling ringtones and the odd game. But with iTunes and the App Store, Apple became the exclusive supplier of applications as well as music and videos. The content suppliers got about two-thirds of the revenue, Apple kept about a third, and the carriers were frozen out.

"It's remarkable the impact [Apple] has had," says Jim Balsillie, co-CEO of BlackBerry maker Research In Motion (RIMM). "They exposed a lot of disintermediation risk in the industry." Balsillie says when RIM proposed application stores a couple of years ago, the carriers were hostile. But Apple's success is forcing the carriers to play. "Now everyone wants [an app store]," Balsillie says, and RIM will oblige next year, offering terms that will give carriers some of the action. Google (GOOG) has the Android Market, and Microsoft (MSFT) is considering an app store for Windows Mobile.

A key test of the new relationship between handset makers and smartphone software publishers, carriers, and customers will arrive when turn-by-turn driving instructions come to the iPhone. Apple seems to have created the phone with navigation in mind, yet the App Store prohibits programs that offer real-time driving instructions. Such services are available for other smartphones, typically for $10 a month, with revenues split between the carrier and a service provider such as TeleNav or Networks in Motion. Apple is mum about its intentions, but rumors are flying that it plans a navigation offering that leaves carriers in the cold.

I wish Apple were less controlling and less opaque about what may be sold at the App Store, but on the whole, I think the development of a robust market for third-party smartphone applications is a great thing for consumers. It's a huge improvement from the days when stodgy, innovation-averse carriers ran the show.

This shift in power is a bad thing for wireless carriers, whose nightmares of being turned into commodity sellers of bandwidth are coming true. But it's a win for everyone else.

This is a transcript of the Market Update: Afternoon Outlook.

So, you just got laid off from the struggling portal. Congratulations.

Wal-Mart will start selling iPhones by the end of the year, but it is unlikely that they will be available in time to take advantage of holiday sales.

Of more importance, perhaps, is that the phone may be sold for its lowest price yet—$99.

The rumors started circulating last week that a partnership between Wal-Mart (nyse: WMT - news - people ) and Apple (nasdaq: AAPL - news - people ) may be in the works, but Bloomberg confirmed today that employees at five California stores said that Wal-Mart will offer iPhones by the end of December, likely after Christmas.

Two of the representatives said the store will carry two models.

Bloomberg said analysts are suspecting that Apple may use the partnership to sell a discontinued 4-gigabyte version, which will allow it to hit what is considered a low price point for a smartphone.

Wal-Mart will be the second outside chain to be allowed to sell the device, following Best Buy (nyse: BBY - news - people ).

Currently, two models are for sale—an 8-gigabyte and 16-gigabyte version for $199 and $299.

Apple Inc.'s famous veil of secrecy appears to have stretched thin in trying to cover thousands and thousands of Wal-Mart stores.

A Wal-Mart employee in Uniondale, N.Y., told The Associated Press on Monday that the store will start selling Apple's iPhone, confirming media reports over the weekend.

The employee, who would not give his name, did not know when the phones would go on sale, and said the store had no merchandise yet. The San Jose Mercury News reported late Friday that store employees in California said the phone would be on sale by the last week of December, and maybe before Christmas.

Wal-Mart Stores Inc. would be the second independent retail chain after Best Buy Inc. to sell the phone. The phone is also sold at Apple and AT&T Inc. stores.

Wal-Mart spokeswoman Anna Taylor said the company had no announcement about iPhone sales. Apple was officially quiet as well. As rumors about the iPhone at Wal-Mart have mounted in recent weeks, Apple has neither confirmed nor denied them. The company did not return a message Monday.

From the launch of the second-generation iPhone on July 11 to the end of September, Apple sold 6.9 million units, making it one of the world's most popular phones. The iPhone 3G is sold in two versions, with 8 or 16 gigabytes of memory. In the U.S., the price is $199 or $299, respectively.

Apple shares rose $4.55, or 4.8 percent, to $98.55 in midday trading as U.S. market indexes also rose. Wal-Mart shares fell 96 cents, or 1.6 percent, to $57.25.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

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