1. Price--how quickly this falls to a level that is attractive to the mainstream user
I would say that this has already happened. It really doesnt cost much to add a MP3 player and flash slot into a handset. I believe that Nokia has stated that the 6230 (MP3 enabled with MMC card slot) was their best selling mid-tier handset ever. The successor (the 6230i) just came out and is already available free on most postpaid plans.
2. Battery life--camera, PDA, video capabilities certainly take their toll on the battery, which doesn't leave much time for taking calls or continuous music playing unless battery life improves dramatically; there's also the issue of charge time
I did some hunting and couldnt find many explicit comments on MP3 usage and battery life. I was actually pretty surprised that I couldnt find some complaints, but decided not to assume and asked the question explicitly. Basically, it seems that an hour a day of MP3 usage and a hour a day of talking should still allow for more than two days of usage of the Nokia 6230
howardforums.com
This might not sound like much to an iPod user, but I think the usage model for handsets is quite different. If you are using your MP3 player for 6 hours a day, you absolutely should get a stand-alone player. However, for the vast majority of the world, this type of usage is unlikely. I see an hour or two a day to be the upper limit for most users.
3. Soft features, i.e. interface, ease of use (e.g. music management, mode of download, etc.)
This is where I think that the risk lies for the handset manufacturers and the opportunity lies for Apple. If you read the responses to my question on the HowardForums, you can see that the comments about features/ease of use are lukewarm at best. I have always thought that the biggest competitive advantage that Apple has going with the iPod is the tight integration between their hardward and iTunes. I think that this will be the toughest area for the handset manufacturers to duplicate....but if they do, it will be awfully tough for Apple. We'll have to wait and see how the 2nd generation of more music focused handsets perform in this area.
It seems to me that licensing an iTunes client for handset manufacturers (at a very nice premium) might provide a solution for Apple. If they also turned iTunes into a subscription based model, they might have the best of both worlds. People would download a ton of music (more than a flash-based handset could handle) and keep their must haves on their handset and keep everything else on a 20GB type miniHD iPod. Just thinking out loud here....
For MP3 handsets to replace a dedicated music player like the iPod in a big way, the user would have to be allowed to upload their own music. If this feature is not available, then MP3 handsets will be a whole lot less attractive to the mainstream user. Someone who already has 20GB of music (whether from their CD collection or online purchases) is not going to want to pay their cell phone service provider for the same music.
As far as I know, none of the carriers block you from putting your own MP3's on the handset. I think we get a slightly skewed view in the US since Verizon is probably the most controlling carrier in the world. There isnt a GSM carrier in the world that would think about crippling Bluetooth like Verizon has done in a couple of handsets.
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