I just want to clear up a few things, and I'll probably get in trouble for this.
I know I'm splitting hairs here, but some economists out there may agree. What you're talking about here is not "market demand" per se, but demand for a specific product. Theoretically, demand cannot be created, because demand has to do with consumer behavior and it takes some exceptional circumstances to change that. The wireless phone which caused a sea change is actually a better example than the iPhone, which is an improvement over existing PDA's, but not behavior-changing (maybe more people are surfing the Web via mobile -- but that could be a factor of 2G/3G as well).
Although there are some good points here, there are several misstatements. For example, differentiation is not the same as competitive advantage. Your product may be "different" than a competitor's, but that difference doesn't necessarily give you an advantage.
Sure the pet rock was a fad, but it made millions and didn't require people to buy another one. The fashion industry deals with perpetual fads and does well with it. That's their business model.
It's important to get the terminology right. When we address these kinds of issues in our businesses, we want to make sure we're coming up with solid solutions -- not magic bullets, like promising to double or triple your business in a few years.
I could go on, but I won't, because I know I'm going to get flamed. Sorry Kirk. I like the iPhone too, but hey, you never know when someone's going to come up with something that's faster, better, cheaper. And that product won't create market demand (most likely), it will just be a vast improvement.