Don't get me wrong. Apple's iPhone 5 is an improvement over its predecessor. It's thinner, taller and lighter (all the things I want to be), it has a bigger screen, a faster processor and it can use the cellular carriers' faster LTE networks. But, at the end of the day, it's just a phone and mostly an incremental improvement over the iPhone 4s.
Yes, it does feel good in your hand and yes it's lighter, but I don't recall too many people complaining about the weight and bulk of the old iPhone. To some extent, I miss the "heft" of the iPhone 4s, which also feels good in my hand. Also, the 4s fits nicely into my pocket and even though it weighs just under an ounce more than the iPhone 5, it's hardly what I'd call a heavyweight.
As far as I can tell, the only significant feature upgrades are the larger screen and the ability use LTE networks. The phone is a little faster, but the iPhone 4s is still plenty fast. LTE does download apps and load websites faster, but even this needs to be put into perspective. First, it's only an advantage if you're not on a WiFi network (I download most of my apps when I'm connected to my home network) and even if you do have to download something at 3G speeds, its still pretty quick. As for web surfing -- remember you're looking at a small cell phone screen so you're not generally loading a lot of data when you hit websites. It will make a big difference when streaming video but unless you have an unlimited data plan, you may wind up having to avoid that little pleasure anyway.
As for the larger screen -- I agree it's an improvement. But somehow I managed to love my old iPhone with its smaller screen and though I like the new screen better, it's not a major game changer.
In my side-by-side comparisons between a iPhone 5 using Verizon's LTE network and an iPhone 4s on Sprint's 3G network, I did notice a difference loading websites, but it wasn't earth shaking.
You can "upgrade" your old iPhone with iOS 6
The main thing I like about the iPhone 5 is the iOS 6 operating system, but you don't need a new phone to get it. And if you have an iPhone 4s, you can also use the enhanced version of Siri, who got a lot smarter with the upgrade. Despite all the criticism of the new map app, I still prefer it to the one it replaced because of the turn-by-turn directions.
Can't put a price on the cool factor
Having said this, I'm not suggesting that people shouldn't upgrade. It's hard to put a price on style and on the feeling one gets from having what many people consider the coolest phone on the planet. I visited an Apple store on the morning the phone became available and couldn't help but notice the excitement and the smiles on people's faces as they left with their new phones. Think about the thousands of extra dollars people pay to get a cooler or more stylish car. Chances are more people will see you with your phone than with your car, so I can understand why some people would consider a cool new phone is a fashion statement that's worth spending money on.
Getting your phone cheap(er), even if you're under contract
If you're under contract, ask the carrier what it would cost to buy out the contract or just add another line of service. If the contract is expiring in a few months, it may be cheaper to just pay for a minimum line of service or pay the buyout (if it's available) rather than pay $650 or more for an subsidized phone.
And regardless of whether you get the contract rate or pay full price, conside selling your old one.
Gazelle.com is paying $240 for an iPhone 4s in good condition, which is $41 more than the cost of a subsidized iPhone 5. If you buy a new iPhone from Sprint they'll buy back your iPhone 4s for $235. Trouble is, if you bought a 4s it's probably still under contract. Sprint is paying $125 for an 8 GB iPhone 4 and Gazelle is paying $145 for a 16 GB iPhone 4 which means that it you can get the $199 upgrade price, your out of pocket could be as little as $54.