New iPhone Thinner, Lighter, but Faces Same Tough Competition

The company is working to stay ahead in a crowded smartphone market.

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It's thinner and faster, with a bigger, clearer screen. But the iPhone 5 may not let Apple clear many of the hurdles it faces in a crowded smartphone market.

Apple CEO Tim Cook and his colleagues presented a long-awaited iPhone 5 Wednesday with a bevy of new features. The screen is now half an inch taller, bringing it to four inches (meaning enough real estate for a fifth row of icons). The improved camera can take panoramic pictures. It has 4G LTE connectivity. All that, and it's 18 percent thinner than the 4S.

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Apple senior vice president of worldwide marketing, Phil Schiller, told the crowd at the San Francisco unveiling that the phone is "the most beautiful product we have ever made, bar none."

Still, some of these advancements reflect a company working to fend off a field of competitors. Many other phones boast larger screens and already have 4G LTE connectivity. And the Android operating system has bested Apple's operating system in the smartphone market. According to market research firm NPD Group, Android ran on 59 percent of smartphones in the U.S., compared to 31 percent for Apple's iOS. However, Americans still own more Apple phones than any other brand, at 31 percent. The closest competitor is Samsung, with 24 percent, says NPD.

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An army of loyal Apple consumers will likely help the iPhone to sell well, inspiring the round-the-block lines that have become familiar with new Apple product launches.

"The people who have committed to the Apple ecosystem, the Apple platform, are staying with Apple," says Michael Holt, senior equity analyst at investment research firm Morningstar. "It's seamless to stay with Apple" and transition apps and data from one device to another, he says, as opposed to changing over to a new Android phone, for example.

But that theory works both ways. Just as customers may be hesitant to move away from an iPhone, they also might be hesitant to make the jump to Apple from an Android or Windows phone. That could make it all the harder for Apple to gain a larger foothold in the smartphone market. And the population of people without smartphones grows ever smaller, meaning that there are fewer new consumers for any company to win over to its platform.

So how do you win people over? New features, like those that Apple unveiled on Wednesday. Wednesday. Apple has been remarkably successful in this area, according to one analyst.

"We haven't really had a precedent in history where a company has had as many resources as Apple does," says Sarah Rotman Epps, senior analyst for market research firm Forrester Research. "They have so much cash, there's no excuse not to innovate."

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However, those innovations may become more and more subtle. In coming years, says Holt, many smartphone developments may be the kind that aren't readily apparent. Updating the hardware—making a sleeker phone or a sharper screen—becomes more difficult all the time, meaning that new developments will be the kind that you can't see.

"As we go into the next couple years, I'd be looking at 'What are the software features?' " he says.

And even if those software developments are above and beyond what the competition offers, the question of what customers want will always remain. Holt believes that consumers largely saw Siri, one of the most-touted developments on the iPhone 4S as mostly an accessory and not a reason to buy.

All of which means that even the ubiquitous iPhone could fall out of favor if new bells and whistles fail to sufficiently impress customers.

"Every successful product eventually fades if the company doesn't sufficiently innovate," says Epps. Which means that the iPhone—or the Galaxy, or the Viper, or any other phone in the tough smartphone market—will have to have to adapt or go the way of the BlackBerry.

Danielle Kurtzleben is a business and economics reporter for U.S. News & World Report. Connect with her on Twitter at @titonka or via E-mail at dkurtzleben@usnews.com.