A little under a year ago in this very newspaper I reviewed the Apple iPhone 3G and its new firmware release: "Now that the Applications store is up and running," I wrote, "you will soon find it a very common sight indeed to see people crowded around each other's iPhones showing off the latest impossible, breathtaking and ground-breaking application. 'Ah, but mine can do this!' will be heard in every cafe and bar. Satirical sketches will be written and performed on Channel 4 mocking the trend. Once again Apple has changed the rules and nothing will be ever be quite the same again."

It is very rare for any prophetic utterance of mine to bear fruit, but in this case it seems I was bang on the money. On 11 July 2008 the Apple iTunes App Store opened its virtual doors and the world changed. The diversity, originality and imagination that has since gone into the authoring of apps has created, from the standingest of starts, a whole new business model, and one that benefits cottage industry amateurs quite as much as established software houses. With over 50,000 apps and more than 1bn downloads, it is hardly surprising that Blackberry, Nokia, Microsoft and Google have all now jumped on the app emporium bandwagon. Apple has shown that a mobile phone can be a pedometer, a restaurant guide (one which can make the reservation, direct you there and let you know which kinds of sustainable seafood you can order with a clear conscience), an ensemble of musical instruments that can be blown down, tapped and strummed, a library, a periodic table, a performer of magic tricks, a translator, a Skype phone, a Twitter client, a radio, a games platform and a device that can set your home satellite TV to record any programme you like wherever you are in the world. Not to mention a fart machine and ­perpetrator of other mad, pointless and preposterous one-time-use pranks, japes and wheezes. Now that the ­others are all playing catch-up, it is easy to forget what a risk Apple took in creating a market out of nowhere.

There were shortcomings with 2008's iPhone 3G and its software. "No text manipulation (not even basic cut and paste)," I moaned last July, "no Flash plug-ins for the browser, no video recording, no voice memos."

This week the 3.0 firmware was released. It runs on the new 3GS iPhone, last year's 3G, the original 2G and the iPod Touch and has addressed many user demands, although not the provision of Flash, which Apple has its own reasons for disbarring from the iPhone: Flash provides a back door through which developers could smuggle in unauthorised apps and Apple (for good reasons and bad) is allergic to the word "unauthorised". An excellently ­intuitive cut and paste functionality is at last present (with a cute and ­unheralded "shake to undo" feature), there are noticeably increased browser rendering speeds, global search, voice notes, better autocorrect glossary learning (non-editable ­however), tethering (allowing you to use your 3G or 3GS as a modem) and MMS. That's right, MMS – Apple had never seemed very interested in Multimedia Messaging Service, dismissing it as a vestigial or "legacy" service. "Why pay to send pictures and video," Apple's chief, Steve Jobs, asked, "when you can send them for free by email?" Apple has relented and sweetly smooth MMS implementation is now available.

Whether current iPhone users choose to upgrade their phones or not, they should certainly upgrade their firmware – 3.0 makes a real difference in speed, function and performance. All of the above features and additions and more are possible on your original iPhone, but what about the new model – the 3GS? Well, the "S" stands for speed and plenty of extra zip is delivered ­courtesy of the ARM Cortex-A8 processor and PowerVR SGX GPU (rated seven times faster than the MBX Lite graphics processor found in previous models) as well as 256MB of DDR RAM. Apps open much faster, everything is smoother and sprightlier than ever before. Using a 3G and 3GS side by side the difference is very noticeable indeed. As with turning left on entering an aeroplane, the experience is spoilingly good.

Aside from the very welcome sight of "32GB" printed in silver on the back, the 3GS is identical in appearance, whether in black or white, to its progenitor. A relief that we won't be having to fork out on a whole new raft of sleeves, covers and other accessories. A 3-megapixel camera with well integrated focus and exposure features allows for really excellent stills and good quality video recording. An intuitive trim tool will help with the uploading of video footage directly over the air to YouTube, MobileMe, email or MMS. The 3GS also contains a digital compass or magnetometer. Used in conjunction with GPS, Wi-Fi and cellular positioning your iPhone now knows exactly where it is and which way it is facing. This allows the fascinating possibility of tour guide uses ("you are now looking at the west door of St Paul's Cathedral") and other applications (fully featured turn-by-turn SatNav, for example) that will doubtless astonish us in the months to come.

Voice Control is as simple as can be imagined: "Play songs by The Incredible String Band" you say and sure enough it does. "Play more like this" you add, and an on-the-fly Genius list is assembled. "Call Steve Jobs, office" you demand, and it's done. "What song is this?" you wonder and are told (in a slightly prunes and prism English accent) that it is "Rhinocratic Oaths by the Bonzo Dog Band" or whatever it might be. All this can be done straight into the device or by way of the new earphones that come with it.

Look out too for future peripheral devices that can control or be controlled by the iPhone, thanks to the now addressable dock connector API. Another less trumpeted but typically thoughtful innovation is the addition of an oleophobic coating to the touchscreen that repels greasy smeary fingermarks. Nice touch, Apple. Literally.

In short, the 3GS is triumphantly the product of a company at the absolute top of its game, their best device yet. If it were a BMW car it would be badged as the "M" version. Power and performance can be considered a luxury until you try them and realise how much more functionality, ease of use and productivity they can deliver. Cost is a whole other issue: if you already have an iPhone3G you may find an upgrade expensive. Could be worth waiting to see what deals emerge over the next month or so. The more people who do wait, the more pressure there will be on O2 to lower prices.

I know I can sound like an unquestioning Apple fanboy, but believe me when I say that I don't want them to have it all their own way. I want to see real competition and biodiversity in the smartphone world. For the moment however, no one can deny that with the iPhone 3GS the gold standard has been set.

© Stephen Fry 2009