That launch turned into a debacle as Apple's servers failed to cope with the load of new customers trying to activate their phones. People who already had iPhones were trying to install a software update on the same day, adding to the pressure.
This year, Apple and AT&T Inc., the phone's U.S. carrier, defused the drama by taking pre-orders for the new phone online. That means fewer prospective buyers had a reason to stand in line, and it sped up the activation process.
Apple also released its software update for previous customers two days early. There were only scattered reports of problems with that upgrade.
The new model is called the 3G S. AT&T said it had taken pre-orders for "hundreds of thousands" of the phones. Apple sold one million units of the older model, the 3G, in the first three days last year.
For new customers signing a two-year contract with AT&T, the 3G S costs $199 or $299 depending on the memory capacity. Compared to the 3G, it has a faster processor and an upgraded camera.
Owners of the previous model, the iPhone 3G, will have to pay more than that. Most of them are not eligible for the new-customer pricing because AT&T subsidizes the cost of the phone and requires customers to "pay off" the subsidy through their monthly service fees before it will subsidize a new phone.
In line at the Fifth Avenue store, Brandon Dennie, 27, was not put off by the prospect of having to pay the unsubsidized price of $599 for the new phone. He's had a 3G for only six months, so he didn't qualify for the lowest price.
He's creating his own subsidy by selling his old phone for $200 to a colleague, and he has an Apple gift card.
"I want the video option and the speed," Dennie said.
In its two-year life, the iPhone range has revolutionized phone design and given AT&T a leg up on its rivals in recruiting customers willing to pay high monthly fees.
Competitors have started to catch up to some of the iPhone's signature features, like a user interface that's designed from the ground up to be navigated with finger touches. In particular, Palm Inc.'s Pre, which came out two weeks ago, has generated a lot of buzz and favorable reviews.
But the iPhone is still the king of smart phones. Pacific Crest analyst James Faucette estimated that exclusive carrier Sprint Nextel Corp. sold 90,000 to 100,000 Pres in the first week of sale, far lower than expected sales of the 3G S.
To grab even more market share, Apple is now selling the older 3G for a lower price: $99 with a two-year contract.
At an AT&T store in the New York borough of Queens, there were three people in line at 5:45 a.m. Sarah Gates and Ed Phyfe, the couple who were first in line, didn't know about the pre-order option until it was too late, and wanted to be sure to get phones from the small stock set aside for walk-ins.
"We got Sprint smart phones since just before the first iPhone came out, and we immediately regretted it," said Gates, 33. She has nothing against Sprint Nextel Corp., but the Motorola Q phones were awful, she said.
"I feel kind of bad to leave Sprint ... but I don't like any of the phones they have half as much the iPhone," she said.
Apart from the U.S., the phone went on sale Friday in Canada, France, Germany, Italy, Spain, Switzerland and the U.K. Other countries will get it throughout the summer.
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