The iPhone had a killer app in the full web(minus flash) web browser. No other phone at the time had a web browser anywhere near as good as mobile safari is. That and google maps and mail made a compelling case to buy the phone.
The N95 was out for a year earlier and had a mobile webkit browser and 3G. That said, the 2G iPhone had a larger screen.
When I say that there wasn't a competitor that was close I mean in total experience not just having the web. In my opinion all the little things matter immensely.