alt Hacker NewsHah. Yeah, they really didn't see it coming. I worked on music player stuff for Nokia's janky 2007 handsets [0] in 2004-2006 and it wasn't on the radar. The security around the iPhone project must have been really good. When Apple was working on the iPod I was getting intel for at least a year in advance because they were talking to so many people in the music biz about it.
[0] https://repo.aalto.fi/uncategorized/IO_764fa227-8853-45dd-91...
Interesting. I worked with another competitor at that time, we got intel that they're working on an exclusive device with AT&T, after Verizon rejected their conditions.
But it was nothing special. It was Apple building a premium touch screen phone (no apps yet, only iTunes and Browser), struggling alot with the connectivity part of it (barely able to assure a stable cellular modem connection for one carrier, let alone a full region of them). Huge 3.x" display, battery runtime less than 24h (in a world where cellphone standby was still measured in days)
What we didn't know at that time was that Steve Jobs managed to push AT&T into a revenue-share deal along with a mandatory data-flatrate bundle, both ensuring a constant revenue-stream beyond the initial launch which would skew the entire competitive field forever.
Because while everyone else earned money only through sales, Apple had not only its above-average sales-margin and their iTunes revenue, but also an incremental monthly revenue-share from AT&T that grew with each device sold.
Within 6 months AT&T paid Apple a per-device share for a million devices each month. We never got the exact figure they paid per device but it was rumored to be more than 10 USD.
So by end of 2007 Apple had a constant influx of more than 10M USD/month on top of ~600M in HW sales-margin, excluding any additional iTunes-profit they made with that always-online iPod (e.g. the only way to get a custom ringtone was to buy one on iTunes at a hefty premium)