So iPhone equals iPod plus what?

So Digg's Kevin Rose "confirms" two iPhone models, according to Ars Technica's Mac blog. The big details are a small form factor, a separate battery for music, and two price tags of $249 and $449 for two models (4GB and 8Gb).

Ars Technica thinks the alleged separate battery will "firmly make this a music-playing device," though I'm not sure why anyone has had any doubts over this for a second since July 21, the day Peter Oppenheimer gave the secret away.

The large gap between the two models suggests more than just a difference in capacity, though it's anyone's guess what else is in the cards. The larger model may have a camera or, as rumored, some smartphone functionality as well.

The most interesting question is, though, how much of an iPod and how much of a telephone the iPhone is going to be. Did Apple focus on simply converging the iPod with a cellphone (any cellphone) so that you don't need to carry two devices? Or does the iPhone go way beyond that? And how does it affect Apple's product line-up?

Apple currently sells Macs and iPods. That's about it. With the iPhone, will a third category emerge, or will it the iPhone still be an iPod? And even if so, will it transform the iPod?


I can imagine the following scenarios.

1. The name's "iPod phone": Apple adds a so-so phone to the mighty iPod. When the iPhone emerges, it turns out to be just an iPod nano that can make phone calls. The new baby is integrated neatly in the iPod product matrix, probably called iPod phone. Phone functionality is less than groundbreaking (possibly even licensed from a third party), as Apple fears the unknown and simply wants to unify two existing kingdoms: its own, the iPod, and a foreign one, cellphones. The marriage would supposedly cement the leadership of the iPod in its own sector.

Odds: 3 to 1. Easiest to pull off, though rumors suggest otherwise.
Wow factor: 40%. "Still, Apple's making a phone! Wow."

2. Apple starts a cellular revolution with music as a Trojan: Apple adds a so-so iPod to the mighty iPhone. What if Apple wants to take on cellphones? Having tackled music, now it wants to show the world how phones are done. However, as mobile telephony is a large and mature market, Apple's only chance for entry is by grafting iPods on its phones. In this scenario, expect true cellular innovation from Apple, with the iPod as an add-on.

Odds: 5 to 1. Harder than it sounds, and Oppenheimer's words suggest otherwise.
Wow factor: 99%. "Wow, Apple makes the best cellphones! Who'd've thunk that?!"

3. It's iPod 2.0, and it can do phones as well: Apple expands the iPod platform into a handheld computer, iPhone is just one application. OK, imagine this. Apple doesn't stop at putting video, games, calendars and some basic contact management on an iPod. Nope: Apple takes it all the way to the next level. With a touch-screen interface, the iPod could do anything. Apple could kick new life into the PDA market it created (though it wasn't Steve). It could consummate the mission of this MP3 player of truly evolving into the Next Big Thing. Oh, and it could also function as a phone. Let's dedicate one model to that. Ladies and gentlemen, meet the iPhone.

Odds: 9 to 1. I'd put in a larger number, but this is Steve Jobs we're talking about.
Wow factor: 300%. As in, "Holy @#$^%!!!"

These three scenarios may not play out this purely, but I think one of them will definitely prevail. It'll be interesting to see which one. Do they all sound insane? You bet. But one of them will be reality soon. It's exciting to be an Apple head these days. (Just look at the Mac Thought Crime logo for proof.)