Symbian devices(mostly from Nokia) and Blackberries did dominate the smartphone market at the time, no?
Things like the Blackberry were widespread but that wasn't what the iPhone was intended to compete with
The iPhone wasn't going to compete with the Blackberry and Symbian(which had an even beigger market share worldwide)? Well the iPhone (together with the Androids)has managed to wipe out the market shares for Blackberries and Symbians.
“Microsoft faces the more difficult situation that having tipped their hand, they've given Apple and their third-party accessory vendors many months to come up with competing features. “
Yes, but then Apple tipped their hand with the IPhone announcement too. Till his dying day, Steve Jobs believed that Google ripped of Apple's iOS for their Androids. However, it never stopped the iPhone from being widely successful, did it?
Let me restate what I meant, hopefully more clearly, using the venerable car analogy.
Wheeled passenger vehicles existed long before automobiles appeared. Let's say the existing horse-and-carriages all had one horse. If (say) Henry Ford had come out with a two-horse carriage, that would be "competing" -- he offers a similar product with some "advanced features". He could be said to be advancing the state of the art of horse carriages, but he's not going to wipe out one-horse carriages simply because his has new features.
But if instead he comes out with an automobile, that's not what I think of as "competing", so much as "replacing" -- it replaces the old market with a new one that is radically different. It's a different product type. No matter how advanced a horse and carriage might be, it no longer has a place, except where automobiles are disallowed.
When Apple came out with the iPhone (and its associated apps and store), it was radically different. There simply was no longer a place for the Blackberrys and Symbians. Those older phones were useful horse-and-carriage products. Apple came out with an automobile, and within a short time, the old carriages were obsolete and disappeared.
With Surface, Microsoft has proposed another automobile, similar to the existing autos, but with a different engine and styling, and they've added a radio and a backseat for folks who want to go parking on a Saturday night. It will compete with the existing automobiles, and probably well, but it will not replace them because it's fundamentally the same product type, differing only in features that other manufacturers can add if they want to.
All I was saying is, competing with entrenched dominant products is a lot harder (sales-wise) than coming out with something radically different, that replaces the entire older product market.