The big thing that helped the iPhone take off, the App Store, wasn't out yet. Things changed rapidly.
I think when you go back and look at changes, many time it focuses on mainstream people who were wrong. But it was really everyone in the industry was wrong at that time, and shows how amazingly time and innovation through research and development can unseat the current reality.
I know I realized how big it was the moment I read OpenGL ES and the announcement of the SDK at the Keynote in that it was a new handheld gaming market. However I thought it would be a smaller market like the current social/casual game market at the time. It turned into engulf and change the entire thing and has the biggest player population of all now while putting the other companies in defensive positions (Nintendo/Sony/Microsoft).