Apple's hardware has been responsible for differentiating the iPhone from the rest of the bunch. Stunning design combined with unmistakable features like multi-touch have helped the iPhone become what it is today. Customers are fickle when it comes to hardware, but Apple hasn't had to worry much as many so-called iPhone killers have come and gone. The Palm Pre appears to be the first  smartphone worthy of the title, but don't expect existing iPhone customers to jump to the new smartphone. Thanks to the App Store, Apple has created what Barclay's analyst Ben Reitzes describes as the "lock-in effect". Sure most iPhone owners are locked into AT&T contracts, but it's the App experience that will prevent most from never jumping to a competitive phone.

“This software strategy enables a distinctive “stickiness” for the iPhone, which should enhance customer loyalty over the long-term. We believe ‘apps’ personalize iPhones to levels that competitors cannot match. We also believe strong interest in the App Store is helping to pull through iPod touch units.”

via Fortune