1. The inclusion of a 3G radio which allows data to be transferred at about 200-300% faster rates (roughly, assuming good signal quality), compared the to the EDGE radio in the original iPhone.
2. They changed the case. The design is more of a wedge shape versus the rounded shape of the original iPhone. According to most people, this makes the new 3G iPhone more comfortable to hold in the hand. The original had a brushed aluminium backplate, and the new one has more of a hard plastic back. Also they added a new color choice to the phone: white.
3. They added a GPS - so Google maps now has a real-time updating GPS versus the previous system which relied on something like trangulation of cell phone towers to determine location but which only gave a relative idea.
4. They improved the battery life - the battery lasts about 2 hours longer for calls.
5. They unrecessed the headphone jack on the new iPhone - the original iPhone had a recessed jack that made it hard to plug in a lot of headphones.
6. They changed the screen color from a vaguely bluish tinge to more of a yellowish tinge. It's not easily noticed but some people prefer the original over the newer one.
7. They improved the microphone quality and the speaker quality to make it easier to listen to music without headphones and it makes calls clearer.
8. They changed the method of signing up for a contract - you used to be able to wander in and buy one... with cash originally without having to sign a contract. You just walked in and bought it and walked out and then figured out the contract when you plugged it into a computer at home.
9. They changed the price. It appears that they lowered the price by lowering it from $399 to $199 (for the 8GB model), but they raised the monthly fee by $10 - which adds $240 over the two year mandatory contract period... so it costs $40 more (over 2 years) than the original one.
They will likely continue to come out with a new model every summer. This would be similar to what Apple does with other products like iPods, so it's a fairly safe guess that next summer around June/July 2009, there will be a newer version of the iPhone.
The major differences is the price, the built in GPS, the speed, The apps, and the Microsoft Exchange feature. The price will be cut all because people said they didn't have an iPohne because of the price, so Apple wants everyone to have one and be able to afford it. The GPS will be a cool feature, which is like a plug-in for Maps. You will now be able to drive to places and knowing exactly where you're at. The speed will change about 2.8 times faster than the older iPhone because of the change from EDGE to 3G. 3G is a much faster network. The new iPhone 3G will come already with an app store where you can buy or get for free, depending on the developer, different types of apps like games, utilities, etc. They are quite different from the old web-based apps, which don't take full advantage of the app features. Microsoft exchange is there so you can sync calendar, contacts, and email from a PC. The original iPhone will have the App Store as a free upgrade only. If your looking for faster internet in your pocket and built in GPS get the iPhone 3G, otherwise you're good with the original iPhone.
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