The first iPhone was basically just eye candy. It looked futuristic compared to the other smartphones. But it was very limited.
It was also a way for Apple to start to bring iPods, which were wildly popular, and cell phones into one device. Even though Apple was new to the phone business, they already had a strong customer base and were quite successful in the consumer electronics hardware business including mobile devices.
Instead of buying an iPod and a cell phone, you could get one device that did both (especially as music streaming was becoming popular) and more.