The App Store for the iPod has been getting a lot of attention, but another intriguing aspect of the iPhone has gone relatively unnoticed. During the recent preview of the iPhone 3.0, Apple announced that they would be opening up the 30-pin connector at the base of the device for third-party hardware accessories (and software apps that can take advantage the inter-connect).

This is a big deal. Why? Because now, this “device” can talk to other “devices.” Imagine all types of input or output devices, from blood pressure or glucose monitors, to breathalyzers, to biometric or security devices. This list goes on and on, for both consumers apps as well as very focused B2B applications. The great thing is that Apple already has an installed base of 30 million devices with a very powerful (and ever-growing) developer base with over 25,000 applications deployed to date.

Hardware and software, products and services. The lines are blurring more and more – all requiring more refined service design.

During the dot com meltdown and the resulting economic "correction," companies cut everything they could think of in order to stay afloat. Many were over-leveraged and had to stop all forward-thinking momentum just to keep the lights on.

Sound familiar?

There were a very few companies, however, that took every dollar they could get their hands on to create in the midst of the downturn. They hired the innovative creatives and put them to work. The goal was to come roaring out of the recession with some new service or product (or both) that would take some existing something and make it new again.

Case in point?

Apple’s iPod and iTunes.

Love it. Hate it. It doesn’t matter. That product and the service that accompanied it changed everything.

The iPod took an existing idea, the "Walkman " and more modern "Discman " and made it smaller, gave it better battery life, and created rewritable capacity that was far larger than a CD or cassette tape.

iTunes tapped the vast but complicated world of online illegal music sharing, gave it an intuitive interface, charged a reasonable amount of money, and set it free in the wild. (DRM is another issue entirely that crossed the minds of  few at the time.)

As the iPod made the Discman a relic of the past, iTunes made illicit music sharing the realm of only the most die hard of pirates.

This is service design. Seek out that sweet spot where product and service meet customer reality. Then innovate. It’ll blow things wide open.

Ethan Nicholas, developer of a tank artillery game called iShoot, told Wired.com he quit his job the day his app rose to No. 1 in the App Store, earning him $37,000 in a single day.

Until recently, there has been no realistic way for individual programmers to make serious money on their own. Most of the software market is dominated by big companies, and the traditional distribution method for independent developers — shareware — isn’t conducive to striking it rich. By contrast, Apple’s iTunes App Store provides a platform for marketing, selling and distributing software; all a developer needs to provide is a good idea and some working code. It wasn’t easy for Nicholas, either. After getting off his shift as an engineer at Sun Microsystems, he worked on iShoot eight hours a day, cradling his 1-year-old son in one hand and coding with the other. He didn’t have the money to buy books to learn how to write an iPhone app, so he taught himself by reading websites.

When iShoot launched in October, business was slow for a while. And then Nicholas found some spare time to code a free version of the app — iShoot Lite, which he released January. Here’s how that helped: Inside iShoot Lite he advertised the $3, full version of iShoot. Users downloaded the free version 2.4 million times. And that led 320,000 satisfied iShoot Lite players to pay for iShoot. The game soared to the No. 1 spot — and it stayed there for 26 days.

Full story here.