Secrecy and Innovation:

Steve Jobs acknowledges the anticipation around Apple’s future products but refrains from revealing details. He mentions an old saying at Apple about how a ship shouldn’t leak from the top, emphasizing the importance of secrecy in Apple’s corporate culture.

Market Dominance:

The conversation turns to the iPod’s market dominance, which has been maintained for a long time—a rarity in consumer electronics. Steve Jobs does not dismiss the possibility of future competition catching up but notes that some companies have successfully retained large market shares.

Focus on Quality:

Jobs states that Apple’s primary focus is on delivering the best products. He mentions that the market share for iPods has actually increased in the last year despite strong competition.

Competitive Landscape:

Steve Jobs concedes that competitors are coming closer to replicating Apple’s products. However, he suggests that Apple has “pretty great things in the lab,” hinting at future innovations that may help the company maintain its edge in the market.

Trade-offs in Device Design:

Steve Jobs discusses the inherent trade-offs involved in designing multi-functional devices like iPods. Using the PlayStation Portable as an example, he highlights that optimizing a device for one function makes it suboptimal for another. For instance, the desire for a larger screen for video games conflicts with the need for a device small enough to fit in a pocket for music listening.

Video on Small Devices:

Jobs explains why video is suboptimal on small devices. The constraints include screen size, which must be small to fit in a pocket, and battery life. He also notes that while headphones can deliver an excellent audio experience, there is no equivalent for video that matches the experience of a large display.

Wireless Connectivity and Battery Life:

Jobs acknowledges that integrating wireless capabilities into an iPod could be beneficial but would be constrained by battery life. Wireless technologies like 802.11 consume significant power, which conflicts with the user’s desire for a longer-lasting device.

Discovering and Buying Music:

He emphasizes that buying and discovering music are more effectively done on larger screens, like those on personal computers. In his opinion, the experience on a smaller device, optimized for portability, would be less satisfying. He doesn’t rule out the possibility of changes in the future but states that such solutions aren’t on the horizon.

Partnership with Motorola:

When asked about Apple’s partnership with Motorola to put the iTunes store on a phone, Jobs doesn’t provide a detailed answer. This leaves open the question of how he reconciles the trade-offs in that particular venture.

Motorola Partnership:

Steve Jobs clarifies that the partnership with Motorola involves placing an iTunes player, not a store interface, on some Motorola phones. Users can transfer music from iTunes on their PC or Mac to the phone, without over-the-air downloads. Jobs suggests that the action won’t primarily be in over-the-air downloads.

Carriers and ARPU:

Jobs explains that mobile carriers invest in adding features like 3G networks, video, and music capability to phones with the aim of raising their Average Revenue Per User (ARPU). However, he notes that ARPU isn’t going up as expected. For example, despite adding cameras to phones, people aren’t sharing photos enough to justify the cost.

Challenges with Mobile Music Sales:

He predicts that selling music directly to phones will result in a poor buying experience for consumers. Jobs warns that carriers will try to sell music at $2 to $3 per song, which will be more expensive than buying it on a computer. He suggests that consumers aren’t likely to accept this model.

Ringtones and Walled Gardens:

When the issue of expensive ringtones comes up, Jobs points out that carriers have created ‘walled gardens’ that restrict how ringtones can be added to phones. As a result, they can charge higher prices for ringtones. He implies that consumers will seek other options for carrying their music.

Prospects of an iPod Phone:

Finally, when asked about the possibility of an iPod phone, Jobs doesn’t provide a concrete answer. The question remains open, suggesting that the idea might be under consideration but is not confirmed.

Challenges in Entering the Cell Phone Market:

Steve Jobs discusses the difficulty Apple faces entering the cell phone market, saying that Apple has not been great at penetrating Fortune 500 companies due to its inability to navigate through intermediaries like CIOs. This challenge is intensified in the cell phone market, which has fewer gatekeepers (carriers), but more influence over handset manufacturers. Jobs indicates that Apple isn’t skilled in conforming to carrier demands, something the major handset manufacturers are increasingly subjected to.

Why Not Form an MVNO?:

When asked about forming an MVNO (Mobile Virtual Network Operator) to circumvent carriers, Jobs expresses skepticism about the sustainability of such a model, especially in a competitive industry with many players. He says it’s unclear whether there is room for “a lot of hands in the till” as industries grow more competitive.

Music Subscription Models:

Jobs addresses music subscription services like Yahoo’s new offering. He says Apple isn’t religiously opposed to a subscription model but notes that customer demand for such services is not compelling. He points out that music companies love subscriptions because it allows them to incrementally increase prices. Jobs also reveals skepticism about Yahoo’s low introductory pricing, suggesting it will increase once a customer base is established.

Customer-Centric Approach:

Despite Apple’s reputation for setting trends rather than following customer surveys, Jobs notes that the company does engage with iTunes and non-iTunes customers to gather feedback and make course corrections. He says Apple is keenly watching the competition to adjust its strategies accordingly.

Relationship with the Music Industry:

Jobs touches on Apple’s complex relationship with the record industry. He discusses the Grokster case, stating that Apple couldn’t fully support the music industry’s stance on the protection of copyrighted content due to the vague concept of ‘intent.’ Jobs also mentions that despite making the record companies more money through iTunes than CD sales, there are tensions over pricing because of Apple’s dominant market position.

Introduction of iTunes 4.9:

Steve Jobs presents iTunes 4.9, the next release of Apple’s music store platform. This new version introduces a dedicated section for podcasts, changing how people interact with radio shows and similar media. The podcasts can be browsed and subscribed to through iTunes, offering a seamless experience for users.

The Appeal of Podcasts:

Jobs showcases how various prominent media organizations and public radio stations are already utilizing podcasts. The content is free for listeners, and includes a range of categories such as news, business, and entertainment. Jobs suggests that the business model for podcasts is likely to be advertising-supported, resembling traditional radio.

Features and User Experience:

The updated iTunes offers an intuitive interface for podcasts. Users can easily subscribe and unsubscribe, with the latest episode automatically downloaded to their iTunes library and synced with their iPod. The podcast section also incorporates features like artwork and chapters, enhancing the overall user experience.

Open Platform:

Jobs clarifies that podcasts on iTunes are not restricted to being hosted by Apple. They can be submitted through an automated service, allowing anyone to share their podcasts. The platform is also available for both Mac and Windows users, suggesting a more universal approach to content distribution.

Editorial and Discoverability:

In addressing the concern of the podcast volume, Jobs mentions that Apple will have editorial oversight to highlight popular or exceptional podcasts, much like they do with music. This allows for better discoverability and ensures that quality content gains visibility.

Democratization of Radio:

Jobs and other speakers note that this new podcast feature democratizes radio, allowing anyone to produce and distribute content without gatekeepers. It’s described as a significant shift, freeing radio from regulated channels and putting it into the hands of individuals.

iPod Halo Effect:

Steve Jobs acknowledges the so-called “iPod halo effect” as likely beneficial for Apple’s other product lines, specifically the Macintosh. He notes that the company’s growth in recent quarters has been three to four times faster than the rest of the industry, attributing it partly to the popularity of the iPod.

Role of Apple Stores:

Jobs emphasizes the significant impact of Apple’s retail stores on the company’s success. He mentions that the company has over 105 stores, with 100 in the U.S., attracting more than a million visitors a week. The retail experience, he says, plays a large role in customer satisfaction.

Genius Bar and Customer Experience:

Jobs speaks highly of the Genius Bar, an in-store service where experts provide free tech support and troubleshooting to customers. The Genius Bar, Jobs notes, has been so successful that the New York store has nearly 100 “geniuses” on staff.

Mac Market Share:

When asked about the Macintosh’s market share, which has historically been lower than its competitors, Jobs is cautiously optimistic. He states that the U.S. market share is “starting with a four,” indicating some growth, but admits it’s less in international markets. He avoids making any specific predictions about reaching a 10% market share.

Product Quality and Customer Loyalty:

Jobs stresses that Apple aims to produce the best personal computers and operating systems in the world. He feels confident that they are achieving this, as evidenced by their devoted customer base of over 25 million people. He further points out that the iPod has served as an introduction to Apple for many customers, leading them to explore other products in the Apple ecosystem.

Consumer Discovery:

The iPod’s success serves as a catalyst for potential customers to learn about Apple’s broader range of products. Jobs believes that when people are introduced to the quality of one Apple product, they often become curious about what else the company offers, fueling further growth and customer loyalty.

OS X Security:

Steve Jobs addresses the robustness of the Mac OS X in terms of security. Despite a smaller market share making Macs a less attractive target for virus creators, Jobs doesn’t take the issue lightly. He emphasizes the operating system’s best-of-class practices like requiring authentication before loading an application. These measures have kept Macs relatively free from viruses, and Jobs credits Avi Tavenian for these ahead-of-his-time decisions.

Heterogeneous Environments:

Jobs mentions that some companies have come to Apple to create more heterogeneous computing environments to mitigate vulnerabilities. This suggests that the Mac’s strong security record is becoming a factor in attracting a broader customer base, including potential enterprise users.

Corporate Space:

While Apple does not proactively market to Fortune 500 companies, Jobs states they seldom say no to such clients. This indicates that Apple is open to expanding into different market spaces when the opportunity arises but doesn’t see the corporate sector as their primary target.

Viruses as a Competitive Advantage:

Although OS X has been largely free of viruses, Jobs does not see this as a point for competitive marketing. He states that it’s a universal problem that shouldn’t be used to get ahead of competitors.

Authentication in OS X:

Jobs describes how users must authenticate themselves before loading applications into OS X. This authentication process was controversial during the design phase, but has proven to be an effective security measure. He credits these design choices as one of many reasons why OS X has been resilient against attacks.

Introduction of Mac OS X Tiger:

Steve Jobs discussed the launch of Mac OS X Tiger, the latest release and fifth major iteration of Apple’s operating system at the time. According to Jobs, Tiger is Apple’s best and most successful OS, based on sales and critical reviews.

User Adoption Rates:

While queried about the percentage of users that had switched to Tiger, Jobs refrained from providing specific figures due to pending earnings announcements.

Spotlight Feature:

Spotlight is introduced as a core feature of Tiger designed to revolutionize search on local computers. Jobs emphasized that in the “Google era,” it was easier to find information on the internet than on one’s own computer. Spotlight aims to rectify this by being integrated directly into the operating system, allowing for a more comprehensive and instantly updated search index.

Comparing Spotlight to Competitors:

Jobs explained that unlike desktop search tools from Google, Microsoft, and Yahoo, Spotlight is more comprehensive, always up-to-date, and integrated directly into various applications. This integration allows developers, including Microsoft’s Mac business unit, to build Spotlight into their applications.

Changing the Way We Interact with OS:

Jobs elaborated on the changing role of file systems in operating systems. With Spotlight, users wouldn’t have to interact with complex file systems; instead, they could trust Spotlight to find everything instantly. Apps like iTunes and iPhoto already managed their own files, decreasing the need for direct interaction with the file system.

The Future of File Systems:

Jobs predicted that the traditional file management system would eventually become an app for professionals, while most consumers would rely on Spotlight and specialized apps like iTunes and iPhoto. This shift would make the operating system more user-friendly, reducing the learning curve associated with file management systems.

Design Philosophy for Previews:

Steve Jobs responds to a query about why their search feature in Tiger OS doesn’t offer as many previews as Windows or Yahoo. He explains that during user testing, most people preferred to find files by their names or file types, which the Tiger OS search feature provides. The absence of extra previews is due to a design decision to save space and to prioritize showing “more stuff” instead of previews.

Introduction of Dashboard:

Steve Jobs introduces the “Dashboard,” described as the most popular feature in Tiger OS. Dashboard provides quick access to ‘widgets,’ mini-applications that offer various functionalities. Users can check the weather, track flights, and monitor stock prices, among other things. These widgets appear and disappear instantly, allowing users to get quick information without disrupting their workflow.

Third-Party Widgets:

Dashboard isn’t limited to Apple’s own widgets; it also supports third-party widgets. Examples include a countdown widget, an Amazon search widget, and a CNN news widget. These add a layer of customization and functionality to the user experience.

Text to Speech Feature:

Another feature of Tiger OS is text-to-speech, which is briefly mentioned. This functionality adds another layer of accessibility and interactivity to the operating system.

Steve Jobs presents these features as part of a broader ecosystem that “all works together,” emphasizing the seamless user experience Tiger OS aims to provide.

Time Management & Movie Business Dynamics:

Steve Jobs mentions that he spends at least one day a week at Pixar, although this can vary depending on a movie’s release schedule. He contrasts the movie industry with the computer industry by explaining that the former is not a zero-sum game. While computer sales can be competitive—buying a Mac often means not buying a Dell—the movie industry thrives when multiple good movies are out, potentially benefitting all producers.

Competition and Synergy in Animation:

Jobs points out that the success or failure of one animated movie does not necessarily impact another. He cites the example of “Shrek” and “Monsters, Inc.” releasing in the same year and both being successful. According to Jobs, the movie business focuses on creating movies that people will want to watch multiple times and then purchase on DVD.

Disaggregation of Media and The Long Tail:

The concept of media disaggregation is discussed, and Jobs mentions the phenomenon in the context of iPodcasting. The conversation moves to the “Long Tail” theory, which suggests that in a digital world, there is economic value not just in hits but also in niche products. Jobs points out that Hollywood has also capitalized on this through the DVD market, which releases not only new movies but also older, less popular films.

Fate of Unsuccessful Movies:

When asked about the repercussions of a potential box office flop, Jobs pragmatically states that such a scenario would likely result in a drop in stock prices. He suggests that they could then use their cash reserves to buy back stock.

Keys to a Hit Movie:

The dialogue closes with a question about what it takes to make a hit movie. While the answer is not provided, the underlying sentiment seems to be that the Internet has the potential to make even small, niche films successful by efficiently reaching target audiences.

Pre-Editing in Animation:

Steve Jobs explains the difference between live-action and animated movies, focusing on the editing process. In live-action, directors shoot more footage than needed, sometimes 10 to 100 times more, and then assemble the movie in the editing room. In animation, because of the high cost, only a few percent more than the required scenes are created. Jobs emphasizes that animated movies are “edited” before production starts.

Role of Storyboards:

Walt Disney’s approach to solving this issue involved storyboarding. A storyboard consists of key scenes represented through pictures. Disney took this a step further by photographing these sketches, adding “scratch” voices and even some music, allowing creators to watch the movie in a rough form before animating it. Pixar follows a similar method but uses video for a more sophisticated approach.

Iterative Reel Testing:

Jobs highlights the iterative nature of the process, explaining that the reels—these rough video sketches—are constantly tested and revised. Invariably, many ideas that seemed good on paper do not work when seen as part of the reels. Only once a concept successfully survives this testing phase is it finally animated.

The Primacy of Story:

Despite the importance often given to the story in Hollywood, Jobs criticizes the industry for being willing to proceed with a movie even when the story isn’t working. He takes pride in Pixar’s different approach, which was influenced by John Lasseter. According to Lasseter, “no amount of technology will turn a bad story into a good story.” Therefore, Pixar stops production to fix the story if it’s not working, regardless of the costs involved.

Technology vs Story:

Jobs concludes by stating that even though Pixar is the most technologically advanced studio, it emphasizes the story above all else. Pixar gets to perfect its movies in the form of reels before full production, which is crucial for its success in producing quality films.

Importance of Story:

Steve Jobs elaborates on the ongoing importance of storytelling in Hollywood. While everyone acknowledges its importance, Jobs notes that it’s often sacrificed due to budget constraints and time pressures. When it comes to crunch time, according to Jobs, that’s when you find out how much people actually prioritize the story.

Technology in Animation:

When asked about the technology curve, Jobs points out a paradox. Despite computational power increasing by about 10,000 times since Pixar started, it still takes approximately three hours to render a single frame in a movie. This, he says, is because as technology improves, the creative appetite for richer, more detailed animation grows in parallel, keeping the rendering time constant.

Detail and Realism:

The technological advancements have allowed for increased detail and realism in animated movies. Jobs explains that the level of realism depends on what the director wants. For example, “The Incredibles” had caricatured humans, whereas “Cars” aimed for a more realistic appearance. The settings in these movies have become so detailed that they often resemble live-action sets.

Software-Centric Approach:

Jobs emphasizes that much of this innovation is not just about hardware but is driven by increasingly sophisticated software. He contrasts the capabilities of new video game consoles with what Pixar’s technology can put on screen, stating that current animations are orders of magnitude more detailed and sophisticated.

Hardware Used at Pixar:

Interestingly, Jobs mentions that Pixar uses a combination of Macintosh computers and PCs running Linux for their operations, indicating a multi-platform approach to meet their computational needs.

Media Disintermediation:

The conversation starts to touch on the disintermediation of media in Hollywood, hinting at how the industry is evolving from traditional film to other formats like DVDs, although this point was not fully elaborated on.

Hollywood vs. Music Industry:

Steve Jobs makes a comparison between the music and film industries, focusing on their distribution models. While music was traditionally less flexible, requiring consumers to buy entire CDs, Hollywood offered a variety of channels—DVD purchases, rentals, pay-per-view, and free TV. This made film consumption more economical and flexible, reducing the incentive for piracy.

Internet and Content Security:

Jobs warns both industries that content will inevitably find its way onto the internet, due to hacking or other unauthorized distribution methods. The solution, he suggests, is not to prevent leakage but to create business models that are more appealing than pirated content, citing iTunes as an example.

iTunes and Multimedia Content:

Jobs discusses unannounced iTunes features that offer video clips. The goal is to make album purchases more appealing by adding value through extra tracks, PDF booklets, and music videos. These features aim to give consumers more reason to purchase albums over individual songs.

Legal Battle Over Journalism:

When questioned about lawsuits against journalists for revealing Apple trade secrets, Jobs insists the law is clear: First Amendment rights don’t protect unlawful actions. He differentiates between responsible journalism and indiscriminate publishing of confidential information, hinting at the evolving dynamics in an age where “anyone can be a journalist.”

Future Considerations and Ethics:

Jobs mentions that existing laws already set a precedent regarding trade secrets and journalism but admits he’s concerned about the implications in the current political environment. He even suggests that the case might go to the Supreme Court, indicating the gravity and potential long-term impact of these legal battles.

Hardware and Software Integration:

Steve Jobs emphasized Apple’s commitment to providing a complete hardware and software solution. He said Apple believes they make the best hardware in the world, and that their OS X operating system is a crucial part of that ecosystem. Rather than selling OS X as standalone software, Apple aims to provide a full package for their customers.

Recycling Programs:

On the issue of recycling, Jobs claimed that Apple already has a robust recycling program in place. They accept old devices, including iPods, in their stores and have various battery exchange programs. Despite some external criticisms, he affirmed that Apple is proud of its environmental efforts.

Sub-Notebooks:

When questioned about the absence of sub-notebooks in Apple’s product lineup, Jobs acknowledged the existence of this market. He mentioned that sub-notebooks, which generally don’t have optical drives, are mostly aimed at business executives and represent 15% of the notebook market. Apple had been focusing on other portables but is open to exploring this segment.

Book Controversy:

Regarding a book that apparently portrayed Apple or Jobs himself in a way they did not appreciate, Jobs explained that the company decided not to sell that particular publisher’s books in their Apple stores. He noted that the decision was based on how they were treated by the publisher, and not an attempt to dictate what should be written or read.

Business Decisions:

Throughout the Q&A, Steve Jobs made it clear that Apple’s actions and strategies are not solely driven by market trends or criticisms. Whether it’s about focusing on complete solutions, environmental initiatives, or choosing business partners, Apple stays true to its core philosophies.

Health and Resilience:

Steve Jobs opens up about his personal battle with a rare form of pancreatic cancer, highlighting his good fortune in its curability through surgery. Jobs expresses a newfound respect for the human body’s resilience and shares his appreciation for the outpouring of good wishes that he received during his time of hardship.

WMA Support for iPod:

In response to an audience query, Jobs discusses why iPods do not natively support Windows Media Audio (WMA) files. He notes that unencrypted WMA files are automatically converted by Apple’s system. Jobs adds that Apple chose not to support WMA primarily due to Microsoft’s onerous licensing terms and Apple’s preference for open-source or open-standard encoders like AAC.

Corporate Blogging:

Jobs explains that he doesn’t blog due to the time commitment involved, echoing a sentiment expressed by Bill Gates. He also mentions that Apple restricts its employees from blogging because of the sensitive nature of the company’s work, aiming to avoid leaks or misjudgments in disseminating information.

Podcast and RSS in iTunes:

Jobs confirms that iTunes will allow any RSS feed or podcast to be added and emphasizes that Apple plans to initially offer podcasts for free. However, he suggests that the company is open to collaborations for paid content.

Set-Top Boxes and Industry Limitations:

The discussion shifts to potential collaborations between Apple and TiVo, but Jobs explains that Apple has no current interest in acquiring TiVo. He further elaborates on the challenges in the set-top box industry, blaming the lack of innovation on the gatekeepers like Comcast who subsidize their own boxes. This distortion of the market, Jobs argues, has limited opportunities for companies like TiVo and even Microsoft’s Media Center.

Future Industry Changes:

While acknowledging the setbacks in implementing innovative set-top boxes or media centers, Jobs shows a cautious optimism. He feels that “plate tectonic changes” in the industry will eventually loosen the grip of current providers, potentially paving the way for more innovation.

The segment covers a range of topics from Jobs’s personal challenges to technical standards and limitations in the tech industry, all delivered in his characteristic straightforward manner.