Apple iPhone Leak Kicks Off Campaign of Hype

The leak of Apple's iPhone 4G raised a lot of speculation -- that's about it.
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CUPERTINO, Calif. (TheStreet) -- Apple (AAPL) - Get Report may have misplaced its iPhone 4G last week, but the alleged leak left much of the mystery surrounding the device intact.

If Gawker Media blog Gizmodo is to be believed, Apple employee Gray Powell's love of German beer and bloggers' penchant for lifting material gave the curious public a peek at Apple's latest handheld plaything. Beyond reports of a bigger iPhone battery, a forward-facing video camera, a new flash and an iPad-style micro-SIM card, however, the murkiness of the iPhone's origin and nonexistence of seemingly wiped software gave the device only one tangible feature: a whole lot of speculative interest.

"Much of what makes the iPhone special is the software, not the hardware, and Apple revealed a lot of what will be on the iPhone when they unveiled iPhone OS4," says Ian Fogg, a mobile-phone analyst at

Forrester Research

(FORR) - Get Report

. "This alleged leak, assuming it is a real phone, hasn't told us anything more than we could have surmised."

What still hasn't been determined is how, exactly, the iPhone 4G will earn its 4G moniker. Earlier this year, iPhone carrier

AT&T

(T) - Get Report

signed deals with its 3G equipment makers

Alcatel-Lucent

(ALU)

and

Ericsson

(ERIC) - Get Report

to bring the provider into so-called long term evolution (LTE) 4G by the end of 2011. In March, though, AT&T CTO John Donovan predicted that "decent" LTE devices wouldn't arrive until 2012, making the iPhone 4G either a misnomer or a tarted-up 3G update.

"There's a reason why Apple doesn't have an LTE story to tell, because, right now, enabling LTE is an ugly, ugly engineering challenge that hasn't been solved," says William Stofega, a mobile-phone analyst at IDC. "In other words, Apple emphasizes industrial design while the LTE handsets we've seen in pre-production are going to be clunky, not very cool and not very hip."

Even in 3G, the iPhone has room for improvement. The iPhone accounts for more than 14% of smartphones sold worldwide, according to Gartner, with ComScore numbers ceding Apple roughly a quarter of the U.S. smartphone market. Since October 2008, ComScore says the iPhone's overall U.S. market share has nearly quadrupled, but is still only 4.8% -- compared to 8.2% for

Research in Motion's

(RIMM)

competing BlackBerry products. While Apple seems content with the iPhone's place in the upper echelons of both pricing and demographics, some of the device's software offerings still lag behind its peers and down-market competitors.

"Apple's peers have been making great hay with building Facebook, Twitter and numerous other social networks into their phones," Forrester's Fogg says. "Apple, to date, has relied on third-party apps to offer access to those social networks, but hasn't done anything yet to integrate them into Apple communication, calendar and contact apps."

Updating and further integrating apps like the anemic, cloud-based MobileMe personal-information app seems like an evolutionary tweak, but it could go a long way in restoring whatever good faith existed between Apple and its independent developers. After Apple prohibited the use of third-party programming tools and

Adobe's

(ADBE) - Get Report

Flash in developing new iPhone apps, analysts including IDC's Stofega cast doubt on offerings for the 4G and accused Apple of not being a team player.

"A lot of the reasons why some of the cooler applications and developers work with Apple is to get away from

Microsoft

(MSFT) - Get Report

, which basically said 'It's us or the highway,' " IDC's Stofega says. "They have patents for mobile commerce, mobile ticketing, mobile banking and, by virtue of the fact that they're not playing in the world with everyone else and finding standards, that's a concern going forward."

None of that may matter, as the leak's biggest revelations are the likely interest in and demand for the new iPhone, which, historically, hasn't needed much help drumming up business. When the iPhone 3G was introduced in July 2008, sales spiked from little more than 700,000 iPhones the quarter before to almost 6.9 million in the three months that followed. The 3GS last summer drove sales from nearly 3.8 million the quarter before its release to 5.2 million afterward. Last quarter, the more than 8.7 million iPhones sold worldwide more than doubled the amount sold in the same period of 2009. Considering that Gizmodo's story about the abandoned iPhone garnered more than 8 million views, the curiosity is there even if the real product isn't.

"The law of big numbers says the same growth rate can't be sustained," says Roger Entner, an analyst for Nielsen. "But it's up to the consumers to make that choice, and they haven't stopped buying these devices because the utility is there."

-- Reported by Jason Notte in Boston.

Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.