(This is the second of a two part post.   The first part can be found here)

The ubiquitous iPhone/iPod Touch devices are stealing Bug Labs’s thunder.  To understand why, realize that the iPod/iPhone are no longer mere personal music devices carried around in a pocket.  Instead, they’re increasingly purchased as stand-alone devices that serve a specific purpose.  For example, my brother in law’s restaurant (No 7 in Brooklyn) uses a dedicated iPod Touch with the Pandora app to play streaming music all night long.  Previously they would have needed XM Radio or a full computer to serve this same purpose.  Was the iPod Touch intended to be mounted on the wall of a restaurant (like a thermostat) and stream music for eternity?  Certainly not.  But at $200, it’s a great investment for this purpose.

Back to Bug Labs for a moment.  A classic product example the company has used: you want to build an alarm clock with GPS that wakes you up as you reach your destination on the train.  Great idea.  So you start with the base module (Bugbase, $249).  Then you add a GPS module (BUGlocate, $99).  And a speaker (BUGsound, $99).  Cost: about $450.  Can you do this with an Apple device?  Yes.  How?  Well folks, you probably guessed it — “There’s An App For That!” iNap costs 99c.

And if iNap didn’t exist, you could easily create it.  Most people associate Apple’s App Store with cheap games, free communication apps, and simple utilities.  But there’s an entire half of the App Store that the mainstream media has overlooked: high end apps. There are dozens of $200+ medical apps (Lexi-Comp), $450 salesforce software apps (MyAccountsToGo), and $900 camera surveillance apps (iRa Pro).

But wait, there’s more!  In addition to high end apps, there’s a whole other section of apps that will never see the light of day on the app store: enterprise apps. These Apps aren’t designed to be sold publicly — they’re proprietary in-house applications designed by companies and deployed for internal use under Apple’s enterprise distribution program.  The point is that the Apple devices are powerful and versatile enough to fit almost any need.

Consider the minimalist design of the iPod Touch and the iPhone and you start to realize they’re the ultimate hardware devices. A single large touchscreen. The screen is the primary input and output method.  It can be used to display a single large button.  Or a thousand small buttons.  Or just enough buttons to represent an on-screen keyboard.  Or to represent an on-screen piano keyboard.  The user interface is infinitely configurable.

Additionally, these devices have accelerometers, location awareness, audio inputs and outputs, memory storage, internet access.  To top it all off, there is a well documented and robust SDK (software development kit) and a very active community of developers.  And the devices are cheap.  An iPod touch retails for around $200.

Bug Labs’ saving grace right now is that their hardware itself is open-source, modular,  and infinitely configurable.  Can you add a temperature sensor to an iPod touch?  No.  But it’s coming. When Apple announced their iPhone/iPod 3.0 OS due out this summer, the addition of ‘Copy/Paste’ stole the headlines.  But tucked quietly into the announcement was the fact that these devices will soon be able to interact freely with the outside world through bluetooth and via the devices’ 30 pin dock connector.  That opens an entirely new marketplace: companies creating custom accessories or interfaces for talking to existing devices.  This is a game changer.

Previously, the iPod Touch and the iPhone devices could only interact with external speaker docks.  But now, the consumer, business, and scientific applications are endless. Expect the generic devices to come first: input devices (external keyboards, game controllers), output devices (monitors, LCD display boards), readers (bar codes, RFID, infrared), sensors (temperature, water, heat, weight, chemical).  Soon, more specialized accessories serving different market verticals will follow: medical equipment, sound mixing boards, lighting control, video production equipment etc.

Are you starting to see why I’m worried for Bug Labs? There are 37 million iPod Touch and iPhones in the wild and most people are very comfortable using the devices.  They’re extremely powerful hardware devices.  They’re cheap and readily available.  The user interface is infinitely configurable.  They support powerful custom software development and in house application deployment.  There’s already a thriving high end market for software on apple devices.  With the advent of custom hardware accessories and interfaces, Apple devices will become the dominant platform for interacting and controlling all sorts of equipment across many verticals.  Bug Labs’ is going to have to change strategy quickly.  They’ll need to shift their goal from creating the dominant open source hardware platform and start focusing on building around the Apple devices.  A recent article suggests that this is already happening.

Still need convincing about Apple’s upcoming dominance?  Check the latest edition of Newsweek:  The Military is using the iPod Touch as a handheld field device.  Amazing.