SAN FRANCISCO (Reuters) - The first iPhones won praise for their sleek design and elegant touchscreen, but Apple's new computer phones, arriving this week, will use the power of software to make the device like no phone ever seen.

Whether it's faster Web speeds, security for business users or using the phone's direction-finding capability to let it act as a game controller or location-aware device, it's software, not hardware, that should define the iPhone from here out.

"The emphasis on software shifts the debate from how cool a device it is to what it can do for you," says Tim Bajarin, an analyst with industry research firm Creative Strategies of San Jose, California, and a veteran Apple-watcher.

"It's basically redefining what a phone is," said Raven Zachary, open source software analyst for industry research firm The 451 Group and founder of iPhone Dev Camp, a conference for independent developers of software for iPhones.

Get over how it looks. It's the power of the computer inside, combined with supporting technologies that let it perform many powerful tasks no phone has managed before.

Is that a Computer in Your Pocket?

IPhone gaming features are a good example. A built-in accelerometer lets the device know when it's being tilted or swung, allowing it to act like a Nintendo Wii game controller, not just an input device where the user punches buttons in four directions to control game movements.

Similarly, the iPhone's Global Positioning System (GPS) chip allows software to go far beyond obvious functions like maps. Web search or photo-sharing sites can now assume a user's location and adjust what they see to their local surroundings.

San Francisco start-up Stitcher (http://stitcher.com/) introduced software in February that detects what streaming audio news iPhone users like and lets them "stitch" audio programs into personalized radio stations.

With GPS, Stitcher can deliver local news, weather or sports, co-founder Mike Ghaffary said, calling it "YouTube for audio" -- for when users are driving or unable to watch video.

The iPhone 3G also works on faster networks, so software runs twice as fast as the first-round devices. This makes it more effective at running complex software with functions that trip up phones on slower networks, forcing users to hop on standard computers to get any real work done beyond replying to e-mail or quickly scanning the most vital work documents.

Furthermore, Apple is eliminating the complexity for users to install and run software on phones.

The new AppStore, offering one-button access to buy and install programs on iPhones, is expected to transform what is expected from software on phones. Unlike PCs, phones tend to offer little or no choice of what programs run on them.

Apple's iPod followed a similar trajectory. When introduced in 2001, the device that would redefine how music is sold was derided as just another digital music player -- and an expensive one at that, albeit slicker-looking and lighter in weight, recalls Gartner Inc industry analyst Mike McGuire.

But it was not until 2003, when iTunes began offering a seamless way to shop for, install and play music, eliminating many technical hurdles, that the impulse era of digital song buying began and iPod sales soared. The AppStore promises to bring that same spontaneity to software use, analysts say.

"It was the first inkling that the iPod wasn't just a music player. It became a gateway that opened up to a larger set of services," said Web consultant Peter Merholz of the photos and movies and other features that followed.

Merholz is co-author of a book called "Subject to Change" arguing how iPhones are an example of how companies should stop thinking about products as products and instead see them as ways to connect customers to useful services. He is president of Web design firm Adaptive Path and perhaps best known for coining the term "blog" in 1999.

Apple resisted opening up the iPhone to software developers at first, meaning that only Web-based software could run on it. But a change of heart by Apple since October has brought software developers flooding in to take advantage of new powers to run programs on the phone rather than, slowly, via the Web.

The changes mean software can store data on the iPhone. It means passwords and "virtual private networks" -- secure pipelines over the Internet into office networks that companies require to gain access to sensitive business data -- now work.

"From the Palm days up to now, the smartphone market has suffered because the average consumer does not understand how to load software on a phone," said Paul Moreton, vice president of product management for Quickoffice, the most widely distributed productivity software for use on smartphones.

Quickoffice is a package of word processing, spreadsheet and presentation software that comes pre-installed on 60 million Symbian software-based phones from handset makers including Nokia, Samsung and Sony Ericsson.

Taking advantage of the high-resolution iPhone screen, Quickoffice has created a version of its software that lets iPhone users view full-screen PowerPoint presentations or zoom in to read or edit individual characters in the document.

(By Eric Auchard, Additional reporting by Sinead Carew in New York and Duncan Martell in San Francisco; Editing by Braden Reddall)

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