The iPhone faces a critical test this month with several factors coming together to threaten the dominance of the popular smart phone. First of all there's the Pre, a shiny new comer that threatens to overtake Apple's cool factor when it's released by Sprint this month (as I wrote about in Are You Ready for a Thing Called Pre). RIM and their Blackberry series surpassed the mighty iPhone in first quarter sales figures according market research firm NPD. Not only that, Nokia just opened an App Store and all the players are following suit after the great success of the Apple App Store (as I wrote in 1B Downloads Later: My 5 Favorite iPhone Apps).

With these factors in place (and probably others I'm not seeing), Apple will in all likelihood announce its new generation of iPhone next week at the Word Wide Developers Conference. The question out there is: have they hit a wall with iPhone popularity or will they offer enough compelling new functionality to make people want to buy or upgrade to the latest phone?

Oh That Pretty Pre Thing

There's a ton of hype surrounding the release of the Pre, which is set to be released this weekend on June 6th. We are not seeing lines yet outside of Sprint phone stores that we saw in the week prior to the release of the first two generations of the iPhone. So far, only one lonely person is sitting outside a small Sprint store hoping to guarantee he will get one of the four phones allotted to his local store. This is in stark contrast to the lines that sprouted outside of Apple and AT&T stores prior to the release of the iPhone.

Still MocoNews reports that the company predicts the Pre will sell out early and there could be shortages for a while, whether this is artificial to drive demand or actual, only the manufacturer knows for sure. (If you want to see the Pre up close, check out this excellent InfoSync slideshow.)

App Stores Everywhere

You don't have to have your Ph.D in business to get that Apple hit the jack pot with the App Store. It's a huge money maker for them (as I wrote in Apple Earnings Continue to Defy Logic). If copying is a form of flattery then Apple should feel very good about itself because Microsoft, Nokia and RIM have all opened App Stores and as Michael Gartenberg wrote on Twitter recently:

Let's face it. App stores are table stakes for mobile platforms today. If you don't have one, you're not even in the game.

Against this back drop, we have the new iPhone. Apple has to know it needs something special to wow the mass market again and I'm guessing we will hear something to knock our socks off at the WWDC next week. If we don't get something rich and gooey, the masses might go elsewhere looking for the next big thing and Apple could be struggling to find its way. But if i know Apple, it won't disappoint.