Apple has fundamentally changed the smartphone game, and it could have devastating consequences for Sprint and the Palm.

When the doors at Best Buy and Sprint stores opened just last Saturday, they did so to a world where the Palm Pre and iPhone 3G were identically priced. Today, only four days after the Pre launch, two more upgraded iPhone models are on the showroom floor at AT&T – the 3GS 32GB and 16GB models – and the same iPhone 3G for $100 less than it's original $199 price tag.

What’s perhaps most notable about Apple’s moves yesterday is the extent to which the company is now leaning heavily on software while simultaneously leveraging its existing hardware. The company avoided the redundancy and high production costs of the rumored iPhone Nano and will now run through its existing inventory of 3Gs at a recession-palatable price point. 

iPhone 3GSTo some extent, the new 3GS isn’t that different from the existing 3G. Sure, it’s faster, has more memory and a better camera that can handle video, but it’s essentially the same phone. However, with the new APIs and features offered by the iPhone OS 3.0, every iPhone gets an overhaul, even the now lowly 3G. Let’s not forget that up until about 11  a.m. Pacific time yesterday, the 3G was still seen as one of, if not the premium, smartphone on the market.

Has that really changed in 24 hours? No. Instead, Apple has managed to expand the iPhone’s demographic in a way that is inclusive of the 3G and creates a kind of status strata for its product with the 3GS 32GB model crowned as king. And what of the Pre? Well, there it sits, $100 over its nearest competitor and still unproven, which is to say nothing of the two companies clinging for dear life to its inevitable success or failure.

But while Apple may have redefined smartphone pricing, will such a drastic reduction in the price of the 3G hurt sales of the 3GS? Only time will tell, and unlike Palm and Sprint, Apple has plenty of that. Does Apple really care if 3GSs aren’t immediately flying off the shelves? Sure it would be nice, but it’s not going to hurt them if early sales are shy of record breaking.

And when all those $99 3Gs are gone, Apple will have effectively increased adoption and can discontinue the 3G, moving the 3GS to the forefront of AT&T’s upgraded 7.2 HSPA network. Pairing of the 3GS and an upgraded AT&T network could be the fastest smartphone/network combination the industry has ever seen. As it stands, the old 3G is actually faster than AT&Ts current 3G network.

With an App Store that has already recorded 1 billion downloads and a new rush of development that makes use of over 1,000 new APIs included with the iPhone OS 3.0, it is almost unthinkable that any device will rival Apple’s current smartphone supremacy in the near future. But then again, only time will tell.

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