When Apple's iPhone came out last summer, techies had a couple of complaints: It wouldn't work on the fast "3G" networks that make it practical to use the Internet and it didn't have a GPS. The rest of us just had one: The price.

Yesterday Apple introduced the iPhone 2.0, which solves all three problems. The speed makes it practical to download music and short video clips from anyplace within range of a 3G network, not only an open WiFi node. The GPS makes one of the device's killer apps, Google Maps, work even better. It also makes the iPhone an obvious value. Now that it costs $199, or $299 for a version with more memory, it's competitive with high-design phones that don't have GPS, let alone a touch screen.

In the long run, the iPhone may not be such a bargain. As the Apple 2.0 blog points out, AT&T raising its monthly service fee by $10 – $240 over a two-year contract – which wipes out any savings. Since customers care much more about sticker price, Apple will almost certainly sell many more phones – perhaps enough to eventually challenge the BlackBerry.

More importantly, it means that Apple is changing its iPhone business strategy. The initial idea was to create a closed system, then share in the revenue generated by mobile operators like AT&T. Now Apple seems to be more interested in dominating the mobile market, encouraging the growth of third-party software applications and collecting various vigs on the entire business. That's a profound change. As Steve Jobs hagiographer Steven Levy trumpteted, "Today marked the official transformation of Jobs's original vision of the iPhone — from a world-beating product to a contender for the first big operating system of the 21st century."

To grasp how significant this is, keep in mind how much it has in common with the strategy of Apple's arch-rival: Microsoft. The parallels are inexact, since Microsoft never made devices. But it's not as though the iPhones are made in California. Apple really is establishing an operating system, even if it's one that happens to come with hardware. And it may be the only way that an electronics company can succeed. Any device that can easily be copied will be made in China – either by companies that push the price down or outright rip-off artists. There's just not that much profit in making televisions or computers anymore. Only the iPod has resisted this trend, because the code inside the device is harder to copy than its design. The iPhone works the same way. Long after consumers have tired of its slick look, they'll still like the multi-touch interface.

Steve Jobs may have been pushed to the margins of the personal computer business. But he's just become a serious contender in mobile media.