UPDATE: D has posted video highlights of Steve's and Walt's talk, our original liveblog follows after the jump.
Thanks for the joint session with Gates... let me ask you an odd question, you've changed the name of Apple, so what business is Apple?
We're in two busineses today, we'll be very shortly in three business and a hobby. One is our Mac business, second is our music business, third business is the phone business, handsets. And the hobby is Apple TV. The reason I call it a hobby is a lot of people have tried and failed to make it a business. It's a business that's hundreds of thousands of units per year but it hasn't crested to be millions of units per year, but I think if we improve things we can crack that.
We all use Macs at Apple, we love the mac. We think we make the best notebooks in the world, we think we make the best computers in the world. We've always been a little ahead, I can see a time where notebooks are 80-90% of what we sell. We continue to improve our OS -- we had a big release that we didn't get too much credit for... the OS X product line to Intel. It was very seameless for the customers. The growth that we've seen since the Intel transition has been about 3x the market growth rate.
12:22pm - ... And your market share is what?
If you measure it worldwide it's like 3%. If you measure it in the US it's like 5-6%... if you look at US notebook sales it's like 12%. If you look at US retail we have double-digit market share... but we can't really calculate the consumer market share.
12:23pm - Funny question: this is your gradual exit out of the computer business with the name change?
No. If you come to WWDC we're rolling out our new version of OSX -- massive investments in desktops. You'll love it.
So a while means since last September? [awkward silence] This is a fast moving business.
[Some really awkward banter!] Ok. Ok. Sorry I wasn't taking your feelings into account.
We're working on the best iPods that we've ever worked on... and they're AWESOME.
12:25pm - Ok! Moving right along... what phone are you carrying?
[ flashes the iPhone, puts it back away] Best iPod we've ever made, best phone we've ever made!
When are you planning to ship? Like the last day of June? It will be available in volume?
Late June... I hope not! I hope so!
Do you expect to sell most of these through your stores? Cingular?
We'll be selling these through our stores Cingular which is now the new AT&T... laughter...
Cingular bent and broke a lot of rules, this was an all new deal for them... Apple apparently has a lot of respect for Cingular's trust on Apple. "Cingular invested in us, and likewise we took a gamble on them. I will never forget that."
12:27pm - Why do you think they did it?
They did it for two reasons: first is because music on phones hasn't been successful so far, they wanted to do something good with music on phones. The second reason is more profound: they have spent and are spending a fortune to build these 3G networks, and so far there ain't a lot to do with them. People haven't voted with their pocketbooks to sign up for video on their phones. These phones aren't capable of taking advantage of it. Youv'e used the internet on your phone, it's terrible! You get the baby internet, or the mobile internet -- people want the REAL internet on their phone. We are going to deliver that. We're going to take advantage of some of these investments in bandwidth.
12:28pm - Your goals that you set for sales for the iPhone are not gigantic -- but in a billion unit market that's 1%. They didn't sign the deal for a high volume product.
A billion units is a worldwide number... people have forgotten more than we know about this market.
12:29pm - Any features on the iphone you haven't announced you'd like to share?
Uh, nope! [Laughter]
12:30pm - You put out a press release this morning about iTunes without DRM... is it only EMI?
It's only EMI right now but there are zillions of independants that want to jump on. We worked really hard not to add complexity. The first time you buy an iTunes Plus song it asks if you only want to buy it where it's available? So wherever it's available you get those. We're also offering people a special offer to upgrade every song they own to iTunes Plus for $0.30 per song or 30% of the album price.
[Chatting about the DRM-free business model going forward, and the open letter.]
12:32pm - A lot of your rivals were lobbying labels for a long time... there are these issues of lock-in. Were you just getting ahead of the train that was already moving?
If you look at the total number of iPods and total number of songs sold on iTunes, it's less than 25 per iPod. They're clearly not getting the majority of their songs from iTunes, so this notion we have a lock-in is ridiculous. You can get MP3s from anywhere, they rip their CDs, and get their music from... other ways. The way we've always felt, we have the best music player people will buy iPods. If we have the best music store people will buy music. We felt that we have a great solution --
12:33pm - This part of your business is the iPod. Not the --
There's three pieces. The iPod, iTunes -- the jukebox -- on the Mac and PC. And there's the online store in the cloud.
12:34pm - But the iPod is the biggest part. Most of what I pay goes to the label... do you jeopardize that when DRM goes away?
Again, if people are getting the vast majority of their music not from the store I think that's because the iPod is the best music player.
12:35pm - Is the iPhone a wireless iPod? Or a phone that has an iPod in it?
It's three things: the best iPod we've ever made. An incredibly great cellphone -- we've really revolutionized how to use a cellphone. If it was nothing but a cellphone it'd be really successful. Third thing is it's the internet in your pocket for the first time. If it was any of those three it'd be successful. If it was just the internet in your pocket it'd sell better than the Sony Mylo...
12:36pm - How much debate was there -- do you even have any debate at Apple?
There's lots. [Laughter] If you want to hire and keep bright people you can't tell them what to do... very often. Once a year, maybe twice, you have a silver bullet now and then, but basically you don't do that. At Apple it's about ideas, and we argue about ideas constantly.
12:37pm - So how much argument was there about not having a keyboard on the iPhone?
So you had no one in Cupertino that thought that was a good idea?
12:38pm - Why?
A few reasons. Once you actually use this magical display there's no going back. We actually think we have a better keyboard. It takes a few days of getting used to, but I bet you dinner that after a few days of using it you'll be convinced. It takes a week -- you have to learn how to trust it. When you learn how to trust it, you'll fly. And we can use that physical space for other things where you don't need a keyboard -- we can add new applications... it provides incredible flexibility and you don't take up half the space of this thing with a phsyical keyboard.
12:39pm - How much time do you have before people copy the physical form-factor? Was there a cost to announcing early?
If you zoom out and you say why does the iPod exist? Why is Apple successful in this business? What's the answer? Because the Japanese CE companies who were the preeiminent hardware makers just couldn't do software as well it needed to be done. If you look at the iPod, it's a software product -- in beautiful hardware. Software wrapped in a beautiful package. The Japanese CE companies couldn't make the leap to create that kind of software. And that's why Apple enjoys the success it does with the iPod.
If you look at handsets it looks very similar. The handset makers have their hardware down, but haven't been able to make the leap to software. Like Microsoft's PlaysForSure -- licensable, it's of a certain cailber... but our software is at least 5 years ahead of anything we've seen. We've spent years working on this. We started with an OS we've been working on for well over a decade...
12:42pm - But the iPhone doesn't REALLY have the whole OS X operating system on there...
The answer is: yes it does! The entire Mac OS is gigs, a lot is data. Take out the data -- every desktop pattern, sound sample -- if you look at Safari it's not that big. It's REAL Safari, REAL OS X. We put a different user interface on it to work with a multi-touch screen... it's an amazing amount of software.
12:43pm - On the technical side... could a Mac OS X app run on an iPhone?
We don't think that's a good idea. We don't have a mouse, we don't have pull-down menus... we have a very different user interface on the phone. [Ha! Nice non-answer!]
12:44pm - The Holy Grail -- one is a great pocket device... one is connecting content to your TV... why do you describe it [Apple TV] as a hobby? When I tested it it was very easy to set up, why isn't it dead simple to imagine people buying that in large numbers?
Coming from the PC market you first think about getting content from your PC to your livingroom. I'm not sure that's really what most consumers want. It's great to show photos, play your music, but we tend to think of that as the entree -- that's the peas on the side.
I brought something to show you.
[Going through the interface -- talking about streaming.] One of the things we stream directly is movie trailers -- here's a little moving coming out at the end of June, it's called Ratatouille.
12:48pm - Works fine off cable modem -- works even better on 100mbit fiber optic networks I hear people have. You can buy movies off iTunes as well. It's pretty good quality -- we arent selling high def... at this point. But I think in the future that might change!
12:49pm - We're going to sell our 100 millionth TV show this year.. it's fun. [Talking more about how Apple TV works.]
12:51pm - But this is all peas? This isn't the main entree?
12:52pm - We'll see over time, but I'm not so sure it is... we'll see. So what we're going to do today is introduce something really cool. People want to buy a lot of video... wouldn't it be great if you could see YouTube on your Apple TV... it's available as a free software upgrade available in a few weeks. Normally I wouldn't announce it early, but hey, it's D.
12:56pm - Did you ever think you'd associate the Apple brand with this?
You know, it's funny, since we got this working we've been watching a TON of this stuff.
12:58pm - Does that mean Leopard is being delayed again?? [laughter]
I'm nervous up here, I hit the wrong keys...
Yeah Steve, because you're REALLY BAD at stage presentations. [Laughter]
[Showing the human slingshot video.] "It's like the Darwin Awards." [People are laughing already.]
Only at D, YouTube on a hundred inch screen. I don't know what the res is of this video setup... but I imagine you have a bigscreen TV... YouTube clips don't even look great on a smail window on your laptop...
The biggest thing that limits the quality is the source YT gets... you get what you get, like you I'm a stickler for quality. But this stuff is so fun to watch.
1:00pm - I'm telling you, Leopard delayed again! Why not let the Apple TV go anywhere to get video?
That's a good idea! Let's do it! No... these ideas will percolate up, we'll have a collection of ideas of what we can do with this stuff. I think a normal web browser is not necessarily what people want in their living room.
1:02pm - So even with the human slingshot and quick-change -- that's not going to take Apple TV from a hobby to a real business?
I use the word hobby because it's provocative, but the iPod started this way. The iPod started off feeling a lot like this.
But you're committed?
But it's a set-top box...
No, we've wanted to do this for a few years. But we thought of this as a set-top box replacement. The minute you have an STB you have gnarly issues, CableCARD, OCAP... that just isn't something we would choose to do ourselves. We couldn't see a go-to-market strategy that makes sense. But wait, there are a lot more DVD players than STBs, we just want to be a new DVD player for the internet age. And that's what we can be. So our model for the Apple TV is like a DVD player for the internet.
So when you bring an ATV and iPhone home, all you need is iTunes software. You don't need to go into the windows control panel... they have their method. You just take care of that in iTunes. [wow, fluffy Walt!] So the question: how many copies of iTunes are out there?
Several times as many copies of iTunes out there. 300m or more.
1:05pm - Almost all are on Windows computers?
Statistically? In reality? In this dimension? So that makes you an enormous Windows software developer.
It's like giving a glass of ice water to somebody in hell!
1:06pm - There's that Steve Jobs humility. Does the scale surprise you? This piece of software is on all these Windows computers...
The scale of all these things surprises me. I never thought we'd ship 100m iPods. No, never.
1:07pm - Do you think video on portable devices is a success? A big deal, people want it? When you were here before you didn't think anyone would want it...
I was definitely more skeptical than customers. What happened was, with the iPod video they proved us wrong. We talk to our customers a lot, do a lot of research. Video has been the number one or two reason people have bought that product... people watch a lot of video on those iPods. The screens are small, but they're $249. Video is here to stay, and its use will grow.
1:08pm - You don't have a video service for the iPhone...
Sure we do... it's iTunes. Not over the air. People have tried it with music and it's failed. Part of the reason that it's failed is the phone isn't the best place for discovering music or browsing catalogues. Then there's the cost of wireless vs. terrestrial internet. Then you get it on your phone you have to sync it back to your PC... we've got 100m iPods we've sold that people know how to sync, they know how to buy music on iTunes.
1:09pm - So you have no plans to put any version of the iTunes store on the iPhone itself despite the fact that you have a big screen and non-baby OS?
We certainly have nothing to announce today.
Our business, all we are is our ideas, all we are is our people. That's what keeps us going to work in the morning. I've always felt and feel even more strongly that recruiting is the heart and soul of what we do.
Q: [From Blake from Sling!] Two parter: can you comment on the 2.5G nature of the iPhone?
Interesting thing, it automatically switches to WiFi automatically -- I'm in this industry, we were the first to ship a laptop with WiFi, shipped the first G, first N routers... [nope!] If you choose to join a network it remembers that. But if you're in a place and you want to join a WiFi network you haven't joined before it prompts you. But it's EVERYWHERE. There's like 10x more WiFi out there than I ever thought there was. WiFi is faster than any 3G, and EDGE is very fast too.
Q: Apple doesn't really advertise on the internet... 95% of the people who'd see your ad are using the inferior product. Seems to be a good opportunity.
I can say that our Mac vs PC campaign we advertise online quite a bit... but not on those porn sites.
Q: All indications appear that the iPhone is closed, we'd love to develop apps...
This is an important tradeoff between security and openness. We want both. We're working through a way... we'll find a way to let 3rd parties write apps and still preserve security on the iPhone. But until we find that way we can't compromise the security of the phone.
I've used 3rd party apps... the more you add, the more your phone crashes. No one's perfect, and we'd sure like our phone not to crash once a day. If you can just be a little more patient with us I think everyone can get what they want.
Q on iPhone battery life.
When you're talking about a portable device it's all about power, it's all about battery life. We've been fighting that fight for a long time with our notebooks. We were able to bring all our experience to the phone -- you've hit a key theme of portables.
Q about Steve's cancer -- "How are you now?"
I'm still vertical! laughter. I'm feeling great, thanks.
Q: Apple DRM is AAC -- transcoding, ripping, burning, etc. -- why not make Apple's DRM-free music MP3? [Applause]
Let me point out a few things. All the MP3s you guys sell will play fine on iPods. We chose AAC because it's a much better encoder. We don't own it. Anyone can license it, the majority of players out there can play it, and most of the big players out there play AAC. [Umm, no, not actually true!] We're not trying to keep anyone out, we're just trying to use a superior audio technology. You can encode all your stuff in AAC as well, it'd be really easy...
Q: Do you want to get into the video capture space?
We do build video cameras into most of our computers now... MacBooks are pretty tiny. We're not planning on getting into the camcorder market.
Q: Do you read the Fake Steve Jobs blog? No, the real question that's meaningful to me... you're obsessed with entertainment, but is that irrelevant? What REALLY changes the world moving forward?
I have read a few of the FSJ things recently, but I thought it was pretty funny! (questioner: I don't write it.) I am interested in storytelling, I got involved with Pixar, I'm the one of the cheerleaders at Disney and I love a lot of the stuff they do, so I love storytelling. but what we do at Apple is try to make tools for people, tools to enjoy and create, whether it's Macs or phones or iPods. This age we're living in... these tools can always surprise you on the upside. We didn't design the ATV for YouTube, we didn't design iTunes for universities, but as of this morning there's iTunes U... alumni can get at it, MIT, Stanford, Berkeley, and this is iTunes, and it's free. So who would have thought? That's what I love what we do -- we make these tools and they're constatntly surprising us.
Thank you Steve.
[Steve walks offstage, we're all done!]