It's important to keep in mind that for Apple, hardware and software are not independent products. The software, as great as it often is on its own, exists to sell the hardware. Most of the iPhone's most compelling features, judging from what Apple chooses to promote, come in the form of software that takes advantage of new hardware. Think FaceTime with the iPhone 4, or video recording with the iPhone 3GS. These aren't the kind of big splash features that can typically come with just a software update.<p>Also consider the significant fact that new iPhones come with huge public exposure. Usually glowing stories on The Today Show and Good Morning America, articles in The New York Times, etc. This is publicity you can't buy. Free iOS updates, even if they have major version numbers attached to them, just don't have the same sex appeal with the public.<p>New hardware just seems to focus the customer's mind in a way that I'm not sure software can.