The video-calling software, called FaceTime, was announced by CEO Steve Jobs as his "one more thing" tradition of revealing blockbuster technologies at the very end of his keynote addresses at the annual Worldwide Developers Conference.
In addition to only working over Wi-Fi, FaceTime only works from one iPhone 4 to another. Users can automatically switch from the front-facing camera focused on their faces to the rear-facing camera -- to show others what they are seeing -- with a simple screen touch.
Analysts said Apple might reveal later whether Skype video calling and other third-party video chat software could be supported. Jobs said the FaceTime software will be made into an open industry standard, which could theoretically, allow connections from other devices than Apple products.
But the fact that FaceTime will work only on iPhone 4 devices could be a way of building some product cachet as the concept catches on, said Kevin Burden, an analyst at ABI Research.
"We've had some video-chat and video-calling capabilities before, but now Apple is saying, 'Here is FaceTime and only you iPhone 4 people get to use it,' which could help build a user community, since some people like being in a somewhat exclusive group," Burden said.
However, Burden said, because FaceTime will only work within iPhone 4 products and only with Wi-Fi, enterprise interest in that functionality will be severely limited. "[Apple is] saying, if you want this functionality you have to invest in this technology," Burden said. He doubted a large company would want to invest in the iPhone 4's to get video chat functions, since they won't interoperate with other devices.
"I don't see any major benefit to business users with FaceTime," added Jack Gold, an analyst at J. Gold Associates. "Even for consumers, after using it once or twice, will you continue to use it?"
But other analysts say FaceTime will catch on, especially with consumers, at first. "I don't think enterprises are clamoring for [video chat] right now, but consumers drive the enterprise and it will take off," said Ken Dulaney, a Gartner Inc. analyst.
"Businesses could use [FaceTime] in some cases," he said. "Maybe doctors."
Ezra Gottheil, an analyst at Technology Business Research, said Apple seems to be positioning its FaceTime and iPhone 4 front-facing camera to a wide-buying audience, as opposed to only consumers or business users.
"At this point it looks pretty consumer-oriented and only between two iPhone 4s," Gottheil said. However, the technology could have wider adoption if the front-facing camera is included in the realm of APIs (application programming interfaces) that developers could link into third-party video chat programs, such as Skype. "Restricting it to iPhone 4 users is [Apple's] way of getting started," he said.
Gottheil said the possibility of connecting iPhone 4 users to a video and audio streaming service through Apple's upcoming data center in North Carolina could be made in a future announcement. He noted that Jobs talked about using Pandora, a third-party streaming music program, in a multi-tasking manner, but not Apple's own streaming service.
"FaceTime is somewhat what I expected, but I expected to hear more about APIs and an appeal to developers about video chat, so maybe this is Apple's way of kind of building a critical mass for [video chat]," Gottheil added.
IPhone multi-tasking and the newly announced iMovie for iPhone video-editing application will be used hand-in-hand by video chat users, Gottheil said. Jobs also introduced a higher-resolution Retina display that will aid in video playback and video chat.
"Clearly, Apple is providing the [video chat] platform with what looks to be better than Skype quality, so they are starting to seed the market with video chat users," Gottheil said. "They seem to be wanting to become what Kodak used to be to photos, with video chat for all and not just geeks."
The fact that only Wi-Fi is being used for video chat at first is Apple's acceptance of reality, that Wi-Fi works faster than 3G cellular, analysts said. In his presentation, Jobs said Apple is working with cellular providers to prepare their networks to work with FaceTime.
Dulaney said the use of Wi-Fi-only is probably because AT&T needs to more fully upgrade to HSPA plus, a faster network speed. At one point, in reference to other functions in iPhone 4 , Jobs said the HSPA speeds are expected to be 7.2 Mbit/sec. for downlinks and 5.8 Mbit/sec. for uplinks.
AT&T, the exclusive iPhone carrier in the U.S., has repeatedly called attention to its improvement to HSPA-plus, adding software and fiber-optic connections to cell towers, but the rollout is expected to last into next year, which could indicate when cellular-based FaceTime would be offered .
Jobs had to ask conference attendees several times during his presentation to stop using Wi-Fi so that all the iPhone 4 applications on stage could be demonstrated. However, Gottheil said Wi-Fi would be able to support video chat functions well, noting that many in the audience were using several Wi-Fi devices, and even base stations, that would connect to other Wi-Fi devices, providing much more bandwidth consumption than in a typical Wi-Fi zone.