Steve Jobs Delivers a Surprise with iPhone 4 -- Videoconferencing

Apple (AAPL) CEO Steve Jobs displayed his showmanship Monday, unveiling the iPhone 4 as expected, but with a kicker ending -- videoconferencing capabilities.

The FaceTime video conferencing feature took attendees at Apple's World Wide Developers Conference in San Francisco by surprise, given the level of leaks regarding the next-generation iPhone. And while a number of the new iPhone features amounted to improvements of varying degrees over the current iPhone and its operating system, the videoconferencing capability is the one particular feature that is likely to move the needle far beyond the early adopter techno heads that tend to snap up the latest, shiny gadgets.

Competitive Smartphone Market

More importantly for Apple, it widens the gap against its rival Google (GOOG) and the progress the Web search giant has made with its Android-based smartphones in grabbing more market share.

Apple's next- generation iPhone 4 will be available for pre-market orders on June 15, later hitting the stores on June 24 in the U.S., France, Germany, Japan and the U.K. The company expects to sell its iPhone 4 in 88 countries by the end of September. The new phone, which will come in either black or white, will retail for $199 for a 16 GB version or $299 for a 32 GB, with a two-year AT&T (T) carrier contract. Jobs made no mention of switch to Verizon Wireless for iPhone carriers, despite a conference attendee shouting out the request during Jobs's keynote speech.

After flashing a sentimental video featuring FaceTime on the iPhone 4 as a way to connect with loved ones despite any geographical separation, Jobs said: "This is one of those moments that remind us why we do what we do."

Videoconferencing Between iPhone 4 Users

FaceTime videoconferencing can only be done between iPhone 4 users over a WiFi connection. The iPhone comes with a front-facing camera and a second in the back, and the user can toggle between the two when doing a video call. Jobs forecast that devices running FaceTime will be in the "tens of millions" by the end of the year. To some that may seem a rather grandiose figure, but consider that over 2 million iPads have sold since their debut roughly two months ago.

"This is the biggest leap we've taken since the original iPhone," says Jobs of the smartphone that debuted in 2007.

In addition to videoconferencing, the iPhone display is getting a major overall with Retina display, which touts four times the amount of pixels per inch and is designed to bring greater clarity to images and text.

iBook Comes to the iPhone

"The iPhone 4 has 78% of the pixels of an iPad right in the palm of your hand," Jobs says, adding that he believes it will set the standard for displays for a number of years. It has yet to be seen, however, whether e-book readers will want to read their material on a small-screen smartphone versus a tablet computer.

Apple, however, in bringing its iBook to the iPhone 4, is allowing users to download books or PDFs, a new feature, for one price but also to distribute the material to all of their i-devices: iPod, iPhone and iPad. In addition, any changes a user makes to their bookmarks and highlighted notes will also be shared among the three devices, allowing users to avoid losing their places.

Jobs also trotted out financial figures to whet the appetite of non-Apple developers, whom he's banking on to continue rolling out inexpensive applications for users to download from Apple's App Store.

A few days ago, Apple cross the $1 billion milestone on revenue generated from sales from its App store. Developers receive 70% of all App Store sales of their applications. Developers also receive 60% on advertising revenue generated from iAds placed in their third-party applications, says Jobs, noting that a number of major advertisers have signed on to use iAds -- committing $60 million for the second half of the year.

Shares Didn't Reflect Excitement

Jobs, who completed the keynote speech roughly an hour before the markets closed, apparently failed to move Apple's share price into the black. Apple sank with the broader markets, ending the day at $250.94, down 2%.

But it may also have been a case of investors needing to catch up on the news, as Apple's after market trading pushed the stock slightly into the black to $251.25, up 31 cents a share.