I agree with taylorh, you should define fail.
Personally, I think the biggest issue for me would be form factor. I absolutely love the current iteration of the iPhone, metal backing and all. I think the current form factor adds incredible prestige that no other phone can match. If they step away from the current materials, as it looks like they will, it'll be hard for me to immediately jump on board.
But then again, Apple has rarely, if ever, put out a product that I didn't think was THE best looking product in its class. I put my trust in Jonathan Ive and his magical team of Oompa Loompas, or whatever they use over in Cupertino.
Guess we shall see.
Oompa Loompas! LOL!
<cough> Excuse me <cough>
Ok, anyway... I can't see them "failing" unless they completely fail to deliver. If they release the 3G iPhone and its
only upgrade is 3G, well, I predict a shizzy storm of unprecedented magnitude. I don't think they need to live up to all the hype, but they had better come damned close. Simply put, if a company is going to be more secretive than the CIA about their goings on, and as such leave all the intraweb rumors unanswered, they better be packing, and packing big.
As far as I can see, the important aspects need to be the following:
1. A form factor true to the company. It needs to keep in line with the original iPhone while mixing it up ever so slightly to keep it fresh. People are going to want their 3G iPhone to not only be recognized as an iPhone, but also recognized as the latest and greatest iPhone. The caveat is that they want this from a distance; they don't want to have to show the tiny badge at the bottom of the back of the device. (Generalization, but it holds true) Aside from that, people just want an aesthetically pleasing device. Apple wins prestigious awards for their designs, so I doubt this will even be a concern.
2. It needs to include some of the BEGGED for features. MMS is a given, but not the killer one due to being able to send MMS through email if you use your brain. The killer is cut and paste! People have begged, and begged for this from the word go, and for good reason. I have seen it done via Jailbroken apps, so I KNOW Apple has the coding knowledge to do it too. If they choose to ignore all other asked for features, they had better still add this one. While I don't think it will be the end all, be all decider of the device's future, it will certainly play a factor in the current fan/pseudo-fan-base's faith in Apple's ability to listen and implement.
Obviously, listening to the cries for the addition of multiple attachments per email, forwarding SMS, stereo bluetooth, saving email images/web images (supposedly coming with FW2.0), etc; is important as well. Cut and paste just seems to have an importance all its own though...
3. Price! I mentioned in another post that increasing the memory —and features for that matter— is important. This is assuming that you can keep the cost reasonable in light of the improvements. If the cheapest iPhone is $499, and the most expensive is $699, there is going to be a problem. I know the rumors are flying about subsidy, but subsidy is worthless to someone that isn't a new customer, or up for contract renewal. No, they need to make the retail price reasonable as well. I would rather own a $400 16 gig iPhone than stare longingly at a $7-800 64 gig version.
I can't see Apple making this particular mistake again though; not after the flak they caught during, and immediately after, the initial iPhone launch.
Summary? Style, adding REQUESTED (read: BEGGED FOR) features, and price. These are the three most important things for Apple right now. We already know 3G is coming, we already know GPS is likely, we already know it will offer business friendly Exchange support. What we don't know is what the three items I mentioned are going to turn out like.
I would like to add, finally, that I can't see an ultimate Apple failure, regardless of what they do right or wrong. I personally think that the worst case scenario for Apple right now is their iPhone being relegated a niche product, much like their main computer line is now. Apple is a highly successful company that caters to a highly specific market. If that never changes, I would be fine with that and I am sure they would too. Basically, I don't think they will ever outright fail with the iPhone; they may just fail at making it the next mainstream thing.