iPhone 5.0: What's next

(Business 2.0 Magazine) -- Settle down, kids. The iPhone's much-heralded revolutionary ride has only begun.

For all the iPhones now flying off store shelves, Apple (Charts, Fortune 500) still has a long, long way to go before it comes close to ruling the mobile phone market. Even if Steve Jobs & Co. sells, as it hopes, 10 million handsets by the end of 2008, that's still a mere 10 percent of the iPods sold to date and just one percent of the global cell phone market.

Steve Jobs set the iPhone bar high when he called it "best iPod we've ever made." A future model could be encased in zirconia.

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And remember that Apple likes to tinker with its fast sellers. The iMac, for instance, has morphed from a curvaceous box with a handle into a thin, flat screen. The iPod music player, now in its fifth generation, is not only a lot slimmer than it once was, it can also play movies and games.

It's not a stretch to think that iPhone 5.0 is likely to bear as much resemblance to its earliest ancestor as we humans do to the Neanderthals.

So make yourself comfortable. This will be a long -- but awfully adventurous -- ride.

To catch a glimpse of iPhone 5.0, forget the notion that we're all bound to own the same model.

For one thing, look closely at iPhone 1.0 and you'll see that this is a device with a lot of customization in its future. See that tantalizingly blank row of icons on the main screen? The software that fills that row will depend largely on what you, the user, want from the device.

For example, future iPhones might have programs that let you play World of Warcraft or cruise through Second Life. And while you can already download applications like iZoho, which lets you edit Word and Excel documents, to your iPhone, it probably won't take Apple long to add a similar feature.

The iPhone's hardware will change too. Apple's recent patent filings suggest that one day we'll have an iPhone encased in zirconia and another with an iPod-like trackwheel on the back. And when Jobs described the iPhone at its January unveiling as "the best iPod we've ever made," it was a strong hint that future iPods too will start looking a lot like the iPhone.

It's now hard to imagine that the next iPod won't have the iPhone's gorgeous touchscreen features, the better to watch movies with. Conversely, the iPhone would be vastly improved with the iPod's supersized storage and easier access to iTunes. And while Apple engineers are at it, why not use the same basic motherboard, screen, and interface for both devices -- with touchscreen on the front and a trackwheel on the back, perhaps?

But that's where the similarity between the two devices should end. Here's why:

Not every iPod listener wants cell phone service. Not every iPhone user requires music. Some of us need only 5 gigabytes, while some of us won't be happy until we get our hands on 500 gigabytes. Some might even like the whole thing encased in zirconia.

In theory, there's nothing stopping your local Apple Store from selling you the feature set you need at a price that makes sense, just as so many Apple products have been sold in the soft pastel color of your choice.

It also doesn't take a crystal-gazer to predict, based on past performance, that there will be at least one smaller version of the device and one that's much bigger.

Perhaps all you need is a Shuffle Phone -- a tiny device that clips on to your shirt, providing both music and voice-activated dialing. Or maybe you're looking for something a little more laptop-like? The Apple faithful have often suggested the company work its design magic on Microsoft's uninspiring Tablet PC, but Jobs would hate to be seen fast-following in Gates' footsteps. Call it something like an iPhone Ultra, though, and no one could accuse Apple of copycatting.

In short, we're dealing with a company that cannot stop fiddling. Just about every iPod upgrade suggested by reviewers has been added (like color screen, photos, movies and games) plus many cool details no one had ever thought of (such as the new trackwheel, first used on iPod Minis).

So yes, fanboys, you will very likely get your 3G-networked GPS iPhone with video camera. Teens will get their ringtones and iChat. Corporate IT departments will gain an Exchange client and the ability to shut the phone down remotely if it gets stolen. You just won't necessarily get it all in the same device.

And what of AT&T (Charts, Fortune 500), whose lousy cell reception and creaking EDGE network has made it the butt of every iPhone review on the planet?

Legally, Jobs is obliged to use its service exclusively for another two years, unless he feels like another costly lawsuit. But look at it from the perspective of iPhone 5.0. Two years is nothing. AT&T is like an overweight slob that's been given a chance to date a supermodel; if it doesn't shape up soon, it'll be easily replaced.

By iPhone 5.0, Apple could be selling rival phone plans on iTunes -- and the 700 millionth iPhone user won't have to wait so long for activation as the 700,000th user did.

Chris Taylor, a senior editor at Business 2.0 Magazine, regularly blogs about the next big business opportunity.