Rumors about a miniaturized iPhone version intensified last week when Bloomberg, The Wall Street Journal and TechCrunch  harmonized with reports based on talks with "people familiar with the matter." This week, a seal of approval from Rupert Murdoch’s Wall Street Journal gave the rumor a new breathe of life.

Folks who allegedly saw a prototype device codenamed N97 reiterated that Steve Jobs, who recently took medical leave for an unspecified period, is focusing his energies on a line of inexpensive iPhones to be sold alongside its bigger counterpart. "Significantly lighter" and "about half the size of iPhone 4," the rumored iPhone nano is described as featuring "an edge-to-edge touchscreen" and "voice navigation."

Apple is apparently working on a revamped MobileMe online services suite apparently set to go free this June. The service should be bundled with the smaller iPhone to play an important role as an online "locker for personal memorabilia such as photos, music and videos, eliminating the need for devices to carry a lot of memory," authors Yukari Iwatani Kane and Ethan Smith underscored. This is where the real kicker comes in.

Popular Apple blog Cult of Mac dropped a bomb Monday claiming the iPod nano will have no local storage whatsoever. Powered by "a cloud-based iOS", the iPhone nano would keep your images, movies, music – everything – in the cloud, editor-in-chief Leander Kahney wrote:

The iPhone nano will have no memory for onboard storage of media, our source says. It will have only enough memory to buffer media streamed from the cloud. The iPhone nano will pull ALL it’s content from MobileMe.

When users buy a movie or TV show on iTunes, it’s available to stream to their iPhone or iPad. The service is based on technology from LaLa.com, a streaming service that Apple bought last spring and then shut down.

However, some memory (like four gigabytes) would presumably be needed to hold the operating system, temporary files, settings, camera-roll images and apps.


Side-by-side rendition of the iPhone 4 (left) and a rumored iPhone nano (right)
Mockup credit: DevianART user DorianDarko

But discarding the 16GB/32GB flash chips that amount to about one quarter of iPhone 4’s bill of materials would help Apple sell the phone unsubsidized for up to $300 while still commanding a premium margin. California-based Apple sells iPhone 4 to carriers for about $625 per handset, paid upfront. Customers pay only $199 because wireless operators through an obligatory two-year service agreement gradually recoup their subsidy.

But what about the intriguing "voice navigation" mention in the Journal’s report? iOS already includes a basic set of voice commands and it’s unclear whether the Journal was referring to an all-new voice-based navigation or an expanded set of voice commands to operate the handset. Maybe the iPhone nano will use advanced voice search intelligence from search assistant Siri that Apple acquired early last year for an undisclosed sum.

Siri’s free iPhone app (shown in the below clip) lets you find nearby places of interest by speaking aloud open-ended queries like "what’s happening this weekend around here?," "get me a taxi" or "book a table at a good steak house" so it would make sense to incorporate this technology deep inside the bowels of iOS.

The iPhone nano rumors date back to the original iPhone, but never before have we seen mainstream media put their credibility on the line with such certainty, especially Apple’s unofficial mouthpiece, The Wall Street Journal. From today’s perspective, the iPhone nano seems like a no-brainer. Android has the momentum and it’s rapidly growing its market share. A huge market segment of mid- and low-range phones dominated by Symbian is up for grabs now that Nokia is rebooting and there’s no doubt this is a new gold mine for handset makers. The Californian company is in a need for a mass-market iPhone due to the Android threat and a huge growth opportunity in this untapped market segment, especially in Europe and Asia where pay-as-you-go devices are still a norm.