Legal Music Downloading:

Steve Jobs discusses Apple’s success in the legal music downloading market through iTunes, which was relatively new at the time. The service had over 70% market share of the legal downloads, although it only represented about 2% of the total music sold in the U.S. Jobs views this as an upward trajectory, predicting that the legal download market could expand to 5% in the next two years.

Competition with Piracy:

Jobs acknowledges that the real competition is not other music download services but piracy. He indicates that it’s unclear whether piracy rates have gone up or down but suspects they have “moderated” somewhat due to the threat of lawsuits. Despite this, piracy remains a significant competitor, and convincing music labels to fight piracy rather than their platform has been a challenge.

Music Labels and Pricing:

Jobs describes the complex relationships with music labels. He says there are multiple perspectives within each label on pricing and strategy, and stresses the importance of having multiple labels in the industry. He also expresses concerns about the quality of technological advice the labels are receiving. Regarding the potential for music labels to raise prices on digital tracks, Jobs reveals that iTunes has renewed its agreements, ensuring stable pricing for the foreseeable future.

The Expanding Scope of Apple:

Jobs outlines Apple’s diverse product range, from hardware to software, including operating systems and application software. He emphasizes that Apple is much more than just a computer company, citing the iPod as a “special purpose computer” and iTunes as a complex service that appears simple.

Company Core Competencies:

The core competency of Apple, according to Jobs, lies in their ability to create advanced technology that is user-friendly. This quality, which has been part of Apple’s ethos since its inception, is being applied to new end products like the iPod and iTunes.

Market Share and Future Direction:

Steve Jobs is asked about the stagnating market share of Macs, despite the generally favorable reviews and innovations. He concedes that while Mac’s market share hasn’t grown significantly, the rise of the iPod, which became a billion-dollar business in just two years, has commanded the company’s attention. Jobs suggests that the company is applying its core competencies in user-friendly technology to areas beyond computers, potentially indicating a shift in the nature of the company.

Choosing Not to Enter PDA Market:

Steve Jobs talks about the importance of not just the products Apple has made but also the ones they’ve decided not to make. He specifically mentions resisting pressure to bring back the Newton or create a Personal Digital Assistant (PDA). Apple analyzed the market and concluded that cell phones would soon replace PDAs for information retrieval, making entry into the PDA market less strategic.

Enterprise vs. Consumer Markets:

Jobs highlights the challenge of entering the enterprise market, particularly in sectors like cell phones where the decision-making is centralized among a few key players. He suggests that Apple’s strengths lie in dealing with a broader consumer base rather than navigating corporate hierarchies.

Mac Market Share:

When asked about Mac’s market share, Jobs states that while they’ve faced challenges, particularly in education, their consumer market share is expanding. He mentions the influx of new customers via Apple’s retail stores, stating that over half of CPU sales in these stores are to customers new to Mac.

Retail Strategy:

Jobs discusses Apple’s retail stores, initially intended to provide a superior customer experience and education at the point of sale. He notes that the strategy has proven to be incredibly successful, with the retail stores going from zero to a billion dollars in sales faster than any other retailer, previously a record held by Old Navy.

Diversified Product Range in Stores:

Finally, Jobs mentions that Apple retail stores do sell other companies’ products, specifically in accessory categories like digital cameras and camcorders. This indicates a broadened retail strategy that goes beyond merely pushing Apple products.

Overall, Jobs emphasizes the importance of strategic choices, whether it’s about entering a market or choosing not to. He also underscores the value of a strong retail presence for educating consumers and generating sales.

Digital Hub Concept:

Steve Jobs discusses the concept of a ‘Digital Hub’, contrasting it with Bill Gates’ and Carly Fiorina’s views on the centrality of the PC. He argues that even though mobile devices have become more capable, PCs will continue to serve as the central hub for managing various kinds of digital media.

Role of PC in Digital Media Management:

Jobs emphasizes that PCs serve as a secure repository for digital assets like photographs and songs. Even if you have these media files on portable devices like iPods or mobile phones, they are usually synced from a PC. This ensures that the data is not lost if the portable device is misplaced or damaged.

Syncing and Docking:

Jobs points out that unlike cell phones, devices like iPods can dock with PCs to sync data. This makes it easier to manage digital files. Cell phones have been missing this feature, making it cumbersome to transfer and manage personal data, such as contacts and calendars.

PC Beyond a Backup Server:

When asked if the PC is relegated to being just a backup server, Jobs asserts that the PC is much more than that. It is the platform where digital experiences like photography, music, and video editing happen. The PC remains relevant due to the very nature of these activities, which can’t be fully accomplished on smaller devices.

Questioning the Media Center Concept:

On the topic of Media Center PCs designed to move media around the house, Jobs is skeptical. He argues that the market has not embraced this concept, as evidenced by low sales numbers. HP, the largest seller of such PCs, only sold 200,000 units, indicating limited market interest.

Impact of Hardware Miniaturization:

Jobs acknowledges that technological advancements, like shrinking hard disks, could allow more storage on mobile devices. However, he notes that these devices will not replace the PC because of their small screens and the risk associated with storing the only copy of important digital assets on them.

Steve Jobs asserts that despite the advancements in portable devices, the PC retains a central role in the digital ecosystem due to its storage capabilities, large display for media management, and role in creating digital experiences.

Market Context:

Steve Jobs discusses the state of the tablet PC and why it has not gained much traction, attributing it to a lack of seamless integration and high cost. He further notes the proliferation of devices for streaming media around homes but highlights their limited market penetration due to similar issues of complexity and cost.

iTunes Music Store:

Jobs states that iTunes is the most popular online music store, holding a 70% market share. With 85 million songs, iTunes is expanding to Europe, reflecting its global success. He emphasizes the different spaces where people wish to listen to music: their computers, iPods, cars, and home stereos.

The Problem:

According to Jobs, people are struggling to play their digital music on other platforms like their car stereos or home systems. The available solutions are inadequate and cumbersome. He suggests that the problem lies in a lack of seamless integration and high costs, mirroring his earlier comments about tablets and media-streaming devices.

iPods & Other Solutions:

Jobs outlines the popularity of iPods, which hold a 52% market share in units, not dollars. He also mentions other available solutions like car adapters and docks, but none provide the seamless experience that consumers desire.

Airport Express:

As a solution, Jobs introduces Airport Express, a mobile base station that plugs directly into the wall. This device is positioned as a simple and seamlessly integrated way to connect music from a computer to a stereo. The product leverages Apple’s experience with wireless networking, being pioneers in 802.11 technology, to provide a hassle-free experience for users wishing to play their digital music across different platforms.

In summary, Jobs argues for the need for simple, seamlessly integrated solutions for an ever-expanding digital music ecosystem, introducing Airport Express as an example of Apple’s approach to solving these problems.

Compact and Versatile Wi-Fi Base Station:

Steve Jobs introduces a Wi-Fi base station about the size of a power brick on a laptop. It operates on the 802.11G Wi-Fi standard. The device has three connectors: Ethernet, USB, and a third for audio output. It can easily be plugged into a broadband connection in a hotel room or a DSL at home.

Extended Capabilities:

Beyond its role as a base station, it includes a USB port for printing, a full firewall, and can act as a Wi-Fi repeater. This device is not limited to Apple products; it is compatible with non-Apple base stations and routers as well.

User-Friendly Configuration:

Jobs emphasizes ease of setup, stating that the PC has become a “first-class citizen” for this product. An app ships with the device to make the installation as easy on a PC as it is on a Mac.

Audio Integration:

One of the standout features is audio output capabilities. Both analog and digital outputs are built into the device. The digital is fiber optic and compatible with most stereo systems. It also supports 5.1 surround sound and uses lossless data compression over airwaves, maintaining high audio quality. The base station also integrates seamlessly with iTunes, without requiring separate software.

Rendezvous Technology:

Using technology called Rendezvous, the device automatically detects a computer, whether it’s a Mac or PC, and establishes a connection to transmit music to the base station. iTunes will automatically create a pop-up list to choose the base station to which the audio should be transmitted.

Cost and Availability:

The product will be available next month for $129. Jobs presents it as a solution to a specific problem, acknowledging its limitations, such as not being able to send video or output to multiple rooms simultaneously.

The presentation reflects Jobs’ knack for combining functionality, simplicity, and aesthetics into a single device, making advanced technology accessible and easy to use.

Product Relevance:

Steve Jobs emphasizes the importance of making products that people actually want, stating that technology alone is insufficient for success. He notes that some products, despite being interesting, fail because they don’t meet a genuine consumer need.

Focus on Music:

Jobs explains Apple’s focus on music products like iPods, stating that they identified a market demand for transferring music from computers to stereos. This focus led to the development of products that were widely accepted.

Market Timing:

When questioned about being late to the music market, Jobs does not directly address the timing but emphasizes their efforts to make iPods more affordable. He underscores that they are “working very hard” to drive down the prices.

Unexpected Demand:

Jobs admits that the demand for iPod Mini outstripped their expectations. He dismisses the notion that there is a shortage of components; rather, they are working to ramp up production to meet the overwhelming demand.

Competition and Impact:

When asked about the potential impact of Microsoft entering the market, Jobs acknowledges that they would indeed have a significant impact, particularly on smaller competitors like Music Match, stating, “They’re going to eat their young.”

Love for Music:

Beyond business strategy and competition, Jobs adds a personal note, saying that the real success of the iPod and iTunes lies in helping people to rediscover their love for music. He states that one of the motivations behind their efforts is a genuine love for music.

Future Uncertainties:

Regarding new areas like video distribution, Jobs hints that they are taking cautious steps. He indicates they haven’t heard strong consumer demand for transferring movies from computers to TVs, unlike music.

Strategic Pricing:

Jobs is questioned on the pricing strategy of the iPod Mini, which was criticized as too expensive at its launch. However, Jobs indicates that the device is selling faster than they can make them, suggesting that their pricing strategy was sound after all.

Corporate Strategy in Tech:

Steve Jobs acknowledges that Apple has not been as successful in selling to corporations compared to consumer markets. However, he explains that their “prosumers” (professional consumers) led them into server and storage solutions like the Xserve. Despite not matching the sales volumes of competitors like Dell, Apple has found success, and Jobs sees it as a venture worth continuing, bolstered by the company’s strong financial position.

Managing Dual Roles:

Jobs was also asked about his dual role as CEO of Apple and Pixar. He attributes his ability to manage both companies to staying in constant touch through email and shifting his physical presence depending on current projects. Jobs highly praises Pixar’s creativity, likening the artistry and technology in their films to Renaissance works like Michelangelo’s David.

Creative-Tech Culture Gap:

Steve Jobs discusses the cultural divide between the tech and creative industries. He describes how tech people often do not understand the creative process, and vice versa. He suggests that the lack of mutual understanding is not due to an “attitude problem,” but an “experience problem.” He indicates that attempts to bridge this divide are slow and that there’s a “big gulf” between the two industries.

Internet Adoption in Creative Industries:

When questioned about the digital literacy of executives in the music and movie industries, Jobs responds that there’s a “large dynamic range” in the adoption and use of technology. He cites Doug Morris of Universal as an example, noting that despite his lack of personal computer use, Morris is exceptionally savvy about the online music business.

Technology and Creativity Mutual Misunderstanding:

Steve Jobs outlines a mutual misunderstanding between technology and creative sectors. He elaborates that technology people often underestimate the creativity required in arts and entertainment, while creative companies often see technology as merely a tool, not appreciating the creativity involved in its development.

Airport Express Range:

The audience sought clarification on the range of Airport Express, a wireless product from Apple. The range was confirmed to be 50 meters, giving customers an idea of how many units they would need for home coverage.

Device Color Options:

A quick query about color options for certain devices was addressed. The audience learned that the options are limited to white, without customization options like pink.

Apple’s Ecosystem and Third-party Devices:

The central discussion revolved around Steve Jobs’ viewpoint that devices like iPods and digital cameras act as repositories for digital content. An audience member expressed a desire for an Apple version of the Trio (a device similar to a smartphone). Steve Jobs’ response indicated that as the Trio already exists and serves the same purpose, there was no immediate need for Apple to create an equivalent product.

Consumer Flexibility:

One significant concern raised was the issue of data portability, especially with music files. The audience expressed dissatisfaction that legitimately purchased music could not be easily transferred between different brands of music players, like the iPod and Rio. Steve Jobs argued that this is how the ecosystem is currently structured, pointing to the high market share of the iPod as evidence that consumers have effectively made their choice.

Music Portability:

The talk delved into the limitations of moving purchased music between different devices. Jobs justified Apple’s approach by mentioning the availability of iTunes on Windows, effectively suggesting that consumers adopt Apple’s ecosystem for a smoother experience. The counter-argument was that consumers do not want to be tied to one company’s products, highlighting a consumer desire for interoperability.

Market Share Discussion:

The discussion briefly touched upon the market share of various Apple products. Steve Jobs highlighted the dominance of the iPod in the market, contrasting it with the limited share of other players like the Rio. The audience member noted that Apple’s situation with computers was similar, where their market share was in single digits.

Future of Desktop Software:

Steve Jobs addresses a common question about the future of desktop software, particularly in the era of increasing internet capabilities. He points out that despite the notion that all data will move to the internet, desktop PCs and software still play an essential role.

Bandwidth vs. Data:

Jobs attributes the enduring relevance of desktops to the explosion of data sizes and limited bandwidth. He notes that as data—especially for multimedia like photos and videos—grows exponentially, the capacity of internet bandwidth to handle this surge hasn’t kept pace. This results in a user experience that is smoother when data is stored locally.

The Role of iTunes in Digital Media:

Jobs discusses the impact of Apple’s iTunes platform on the way people consume music. When questioned about the integration of movie trailers and music videos into iTunes, he denies any hidden agenda. Instead, he mentions the convenience this brings to users since they can access multiple forms of digital media from a single platform.

Movies vs. Music Distribution:

Towards the end, Jobs compares the music and movie industries, highlighting how each has different challenges and opportunities when it comes to digital distribution. While music had limited options before iTunes, movies already have multiple distribution channels like theaters, DVDs, and streaming. Jobs suggests that this maturity in movie distribution makes it a very different case from the music industry, warranting different strategies for digital platforms.

Convenience Over Quality in Audio:

Steve Jobs observed a surprising trend in the music industry where convenience triumphed over quality. When transitioning from physical formats like LPs and CDs to digital, people chose MP3, a lower quality format. This was the first time Jobs saw a downgrade in quality being accepted by consumers, driven by the convenience of easy online sharing.

High Standards for Video:

Contrarily, video consumers aren’t willing to sacrifice quality for convenience. Jobs stated that people have graduated to the DVD format and will not revert to VHS-level quality for faster internet downloads. As we move into high-definition (HD) video, this trend is expected to continue.

Bandwidth vs. Data Size:

The bandwidth needed to download high-quality video, especially in HD, vastly outstrips the average home’s internet capabilities. Jobs predicted that, despite any future bandwidth improvements, downloading a high-def movie would still take about half a day due to the sheer size of the files.

DVD Burners: A Looming Threat:

Jobs identified DVD burners as Hollywood’s biggest challenge rather than internet piracy. Once DVD burners reach a certain penetration rate in households, there is a risk of rampant content piracy similar to what happened with music and CD burners.

Limited Appeal of Internet for Movies:

According to Jobs, another issue with internet downloads is that they don’t fit the typical movie-watching experience. Most people prefer watching movies on a TV rather than a computer. Streaming them from a PC to a TV introduces additional complications, making the internet less of an opportunity for the movie industry compared to music.

This summary captures Jobs’ perspectives on the evolving digital landscape, emphasizing the diverging trajectories of audio and video in the context of quality, convenience, and technology.