As expected, Apple's Steve Jobs introduced a touchscreen iPod Wednesday, one that looks almost exactly like the iPhone, but without the phone.
Dubbed the iPod Touch, the device has a 3.5-inch full-color screen, Cover Flow music-browsing software and a photo library.
It also has Wi-Fi wireless networking abilities, which could undercut one of the big selling points of the iPhone.
In fact, the new iPod has many things the iPhone has, such as the Safari Web browser and a special YouTube application, and one thing it doesn't, at least for now: the ability to wirelessly download songs from iTunes.
"It's one of the seven wonders of the world — it's just incredible," Jobs said from the stage at the Moscone West exhibition center in San Francisco.
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"We've built in Wi-Fi, and we've made it usable," he said in a dig at Microsoft, which put the wireless networking protocol in its Zune media player last fall but restricted its use to inter-Zune communication only.
Microsoft cut the price of the Zune, which has a 30-gigabyte hard drive, to $199 on Wednesday in the hours before Jobs' speech. It said the timing was purely coincidental.
Jobs said the iPhone Touch would use flash-based memory, with price points at $299 for 8 gigabytes of storage and $399 for 16 gigs. It hits stores later this month.
To further compound the chagrin for early adopters of the iPhone, the price of the 8-gigabyte iPhone was cut from $599 to $399 — and the 4-gigabyte one, which had been priced at $499, was eliminated altogether.
"We want to put the iPhone in a lot of stockings this holiday season," said Jobs.
Analysts, however, were scratching their heads about the drastic iPhone price cut, which took place less than 10 weeks after the much-ballyhooed device hit stores to great fanfare — and great sales.
"People who bought the iPhone weeks or months ago must really be annoyed, and with good reason," Tim Beyers, an analyst at The Motley Fool research and investment group, told the Associated Press. "They might think twice about being the first to buy future Apple products. This smacks a little of desperation, and it's very unlike Apple."
An unconfirmed report on the Gizmodo tech blog said a reader bought a now-discontinued 4-gig iPhone for $299 from an Apple retail store as Jobs was still giving his address.
A Gizmodo blogger also reported that the iPhone would be getting the Wi-Fi version of the iTunes Store next month.
Apple stock actually fell 5 percent after Jobs' show-and-tell, having risen nearly 14 percent in the past week following the announcement of Wednesday's event.
"Buy the anticipation and sell the reality," Paul Foster, an options strategist at the Chicago-based theflyonthewall.com financial Web site, told Reuters. "I guess investors were anticipating something more positive from Apple."
It's not clear what that "more positive" thing might have been. The only rumored thing that didn't materialize was the addition of the Beatles catalogue to the iTunes Store.
Instead of Paul McCartney and Ringo Starr on stage with Jobs, the crowd got Scottish singer-songwriter KT Tunstall singing her hit "Black Horse and the Cherry Tree."
In keeping with the slightly bohemian light-pop theme, Jobs announced an interesting new music partnership with Starbucks coffee shops.
Beginning next month, whenever an iPod Touch gets near a Starbucks with a Wi-Fi router, a dedicated Starbucks icon will light up.
Users can then download the song that's playing in the shop or get a list of the 10 most recent songs played.
The Starbucks partnership — which executives at both companies have been working on for two years — starts with 600 stores in New York and Seattle on Oct. 2.
In November, it will be available at 350 stores in the San Francisco Bay Area, and by the end of next year it will be in all Starbucks with Wi-Fi nationwide.
In other iPod updates, the Nano caught up to the "full" iPod with a color 320 x 240 screen to show video, widening the device's face but not making it appreciably thicker. Also bundled into it were three video games, including Sudoku.
Replacing the previous 1-2-4 gigabyte size spread among three models, the Nano went back to two sizes: $149 for 4 gigs, $199 for 8.
The regular brick-like iPod, the one with an old-fashioned hard drive, got a serious storage boost, a new color and a new name: the iPod Classic.
The 80-gigabyte iPod will now cost $249, formerly the price of the 30-gig model, which is gone. Replacing the 80-gig model at the $349 price point is one with a whopping 160 gigs of storage — enough for 40,000 songs of average length.
As with the previous generation, the sixth-generation iPod will be available in black — but not in white. Instead, the other color will be silver, in keeping with Apple's recent iMac redesign.
The iPod shuffle got a smaller update — the 1-gigabyte model's price got kicked down to $79, the 512-kilobyte model got killed, and a PRODUCT (RED) model, matching an earlier Nano, was added as part of the popular African-relief campaign.
Also demonstrated was a new iTunes feature that lets users "build" their own ringtones from a library of 500,000 songs for 99 cents a pop.
The Associated Press contributed to this report.