Steve Jobs on Apple's Turnaround: The Hierarchy of Skepticism

Well, good morning. I'm Colin Crawford. I'm the President and CEO of Mac Publishing, publishers of Macworld Magazine. And on behalf of all the sponsors, I'd like to welcome you to New York and Macworld Expo. You know, it's tremendously exciting to be able to bring such a major event for the Apple industry to the Big Apple. After all, it's one of the largest concentrations of Macintosh users in the country. Yeah, exciting. That's a word that has once again come to be associated with our industry, and that's a real pleasant change. You know, a year ago, friends and colleagues would be commiserating with me for having the misfortune of working in the Apple industry. Now, 12 months later, they accost me, demanding details of Apple's cool new products and information about the company's future plans. Even Apple's harshest media critics of the past are now praising the achievements of the last year. I think some of them appear to have had mind-altering experiences.

They've emerged as born-again Apple supporters. Even a former CEO of Apple has been praising the recent marketing achievements. Yeah, and although the achievements at Apple have been the result of the dedication and efforts of a huge number of people, I'm convinced that without the leadership and direction of Steve Jobs, the results would not have been so dramatic. I think it deserves a round of applause. With Pentium's smoking performance of the G3 desktops and sleek, state-of-the-art powerbooks, and now the introduction of the head-turning iMac consumer computer for the whole industry, Apple has products for us all. And Apple's announced a long-term operating system strategy that really makes sense for developers and users.

And in just a couple of minutes, we're going to hear an awful lot more about Apple's future plans. At Macworld Expo this week, you're going to see exciting new products from over 230 vendors covering design and publishing, the education segment, and the consumer market. The editors of Macworld will be on hand to pick the best products, and they're going to be announcing the best-of-show winners this afternoon. Macintosh games are going to be a key focus for the Expo this year, and not only will you hear about exciting new titles coming to the Mac, you're going to have a chance to show your gaming prowess at the first national Macintosh Gaming Championship, and it's going to be a way to win some fantastic prizes.

Also, check out the conference tracks. We've got Macworld Pro and the Macworld Users Conference, and they're designed for you to get the most out of your investment in the Macintosh platform. And throughout the week, Macworld Live will be covering the Expo, and we'll be broadcasting through macworld.com and macweek.com. So be sure to stop by the Macworld booth. You'll see key Apple and other industry executives being interviewed by the Macworld editors. But personally, I think that Macworld New York will be remembered most for the iMac, and the significant support shown for this product by a wide variety of vendors.

So now, it's my privilege to turn over this opening session to Apple Computer, and to a very special guest, Apple's Interim CEO, Steve Jobs. APPLAUSE MUSIC Here's to the crazy ones, the misfits, the rebels, the troublemakers, the round pegs in the square holes, the ones who see things differently. They're not fond of rules, and they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them, but the only thing you can't do is ignore them.

Because they change things. They push the human race forward. And while some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do. MUSIC APPLAUSE Thank you. Thank you very much.

Thank you very much. This is good. I just got off a red-eye to get here. I didn't think I could be here today, and I managed to make it, so this is good. We've got some great stuff to talk about today, so let's get into it. An American named Abraham Maslow came up with a theory that he called the Human Hierarchy of Needs. And this theory was a very simple one in concept, somewhat profound in its implications, that humans have needs that must be met, and these needs can be stratified into certain levels. And they need the bottom needs to be met first, and then they progress to the next level, and when those are met, they progress to the next level.

So you start off with the physiological needs, food, clothing and shelter, let's say. If those are met, or once those are met, you then start to be concerned more with the safety of your environment. Eventually, with love, with esteem, with self-actualization. I don't know if this is true or not, but this is what Abraham believed. And I thought this was a good model, so I borrowed it today to construct Steve Jobs's version of this, which I call the Apple Hierarchy of Skepticism. And let me explain this to you. When I came to Apple a year ago, all I heard was that Apple is dying, Apple can't survive. And it turns out that every time we convince people that we've accomplished something at one level, they come up with something new.

And I used to think this was a bad thing. I thought, when are they ever going to believe that we're going to be able to turn this thing around? But actually now, I think it's great. Because what it means is we've now convinced them that we've taken care of last month's question. And they're on to the next one. So I thought, well, let's get ahead of the game. Let's try to figure out what all the questions are going to be, and map out where we are. So that's what the Apple Hierarchy of Skepticism is, and it borrows from Dr. Maslow. So the first level, what we encountered a year ago, was survival. And a lot of people thought Apple was in some sort of death spiral, which I think there was some truth to.

What did we do? We did many, many things, but the three things that stood out in people's minds were We brought in a new management team to run the company, a new board of directors, it's got some phenomenally experienced people on it, and we did a deal with Microsoft. The largest software company in the world wanted to help Apple was a fact that didn't escape very many people, and it added a lot of credibility to what we were doing. And the combination of these three things and a lot of other medium-sized things, I think, convinced people fairly rapidly that survival, at least in the short term, was not an issue. And it gave us some time to demonstrate that we could accomplish some other things. So, immediately, once we did these things, then everybody moved up a level.

And, you know, I can't see when you do that. Thanks. So, maybe later could we do some more? That really helped me. Thanks. So, they moved up a level. So, if it wasn't about survival, it was, well, but there's no stable business in the Mac market. That was the next level of the hierarchy. So, we had to start demonstrating that we had a stable business, and that one could be made from the Macintosh market because it's a great market. So, what did we do? Well, the most important thing was profits. In the end, that's what a lot of people look at. And so, the first full quarter of the new management team, Apple delivered profits of $47 million, right, for the quarter ending the end of December.

And in the next fiscal quarter, the second fiscal quarter, ending the end of March, Apple delivered a quarter with $55 million worth of profits. This went a long way to convincing a lot of the skeptics. And we will be announcing the results of our third fiscal quarter, the one that just ended at the end of June, a week from today. And I'm very pleased to tell you that it will be our third consecutively profitable quarter. Fred Anderson, our really great CFO, would cut my head off if I told you the results. I'm dying to, but I can't.

So, I think you'll be pleased. In addition to that, we're seeing the resources of Apple rise, in terms of cash, in terms of people. Our retention has gone way up. We're losing hardly any people from the company now, and we're hiring incredibly good people into the company. We also realigned our distribution channels. And, of course, the most visible part of that was CompUSA. There have been many other parts of it as well, but CompUSA is a very important part, and sort of the symbol for the whole realignment of distribution, and it's working great. And we began an advertising campaign for brand around Think Different, and for some very specific product advertising. So, for the first time in a long time, people saw Apple on television, and in outdoor, and in print.

And, we also invested in an online store. And we went from nothing online, to, I think, the gold standard of e-commerce now, in terms of ease of use and clarity. And we've won every award in the book. We are one of the largest e-commerce sites now on the Internet. And, if you take all of Apple's websites together, this is a pretty good indication about the interest level in the company. It went from a million hits per day a year ago, to 10 million hits per day today. And that's terrific. So, the aggregate of all of these things, was that the market value of Apple's risen from about 1.8 billion dollars a year ago, to about 4 billion dollars yesterday.

I don't know what it is today. And, what this means is that people are seeing a stable business, which is good. And that a business that is under control, which is also good. So, what do they do then? Well, they don't send us a card or anything. They just go on to the next one. So, what's the next one? Well, if you've survived and you've got a stable business, well, what's your product strategy? You know, you're a product-driven company. You better have a doggone good product strategy. And we did not talk about that much for many months. And the reason we didn't talk about it for many months, was because we wanted to keep ourselves and the outside world focused on what we were doing at each moment in time. Our results.

Not some vision out in the future. So, we didn't talk about it, but we were working our tails off on it. And, in the month of May, we disclosed it all. At two events. One we called the Big Bang on May 6th. And the other a week later at the developer conference. And let me take you through that product strategy now. Because it's been very well received. When we got to the company a year ago, there were a lot of products. These were the product platforms. Fifteen product platforms. And a zillion variants of each one. I couldn't even figure this out myself. After about three weeks. I said, how are we going to explain this to others when we don't even know which products to recommend to our friends.

There was no way to do it. So we went back to business school 101. And we said, what do people want? Well, they want two kinds of products. They want consumer products. Consumers want them in general. And education wants, for the most part, consumer products. And we need pro-products. Because our design and publishing market wants pro-products. And some consumers do, and some education do as well. And in each of those two categories, we need desktop and portable models. And what this told us was, if we had four great products, that's all we need. And as a matter of fact, if we only had four, we could put the A-team on every single one of them. And if we only had four, we could turn them all every nine months instead of every 18 months. And if we only had four, we could be working on the next generation or two of each one as we're introducing the first generation.

So that's what we decided to do, to focus on four great products. And the first one that we introduced, of course, was the desktop pro-product, which was the Power Mac G3. And this thing has been an incredible success for Apple. It's a great product. The performance is stunning. If you go out and find the fastest Pentium II machine money can buy, a 400 megahertz Pentium II machine, it bite marks out at 5.6 bite marks. Right? And look at the G3s. The slowest G3 toasts it. Dramatically faster results. And Intel, of course, not believing this, Intel went to Bite magazine and said, My God, your tests must be wrong.

You must have some bits flipped the wrong way. They spent tons of energy and Bite magazine, after doing everything with Intel that they could think of, re-ran the tests, and they were exactly the same, and they published the same results, and they said, We're standing by our results. These are real results. We wanted to tell people about them. We wanted to tell people about them, so we put it into our advertising. And we have sold over three quarters of a million G3s to date. So we're very happy with this. And we're very happy with this. And that is our pro desktop product.

The next product was the pro portable. And as you know, that is our new PowerBook G3. These are wonderful products. You can get them with screens up to 14 inches. They're gorgeous, giant screens. The fastest Wintel portable you can buy has a Pentium II 266 in it, and you can fry an egg on it. They can't put faster ones in there because their power is so high. The G3 is a beautiful chip in that it uses literally 15% of the power of these Pentiums. So we can put our fastest ones in the portables right away. And so our fastest portable with a 292 MHz G3 is faster than any Pentium machine, portable, or desktop in the world that money can buy.

And we've tried to tell the world about this, too. Now, we had some availability problems about a month ago. This thing has been so popular that it outstripped our ability to make them. But we've shipped right now probably tens and tens of thousands of these last quarter. And the spigots really open wide right now. So I apologize if you've had trouble getting these things. They've just been really popular, and the spigots as wide as we can make it now. I think that the supply should catch up with the demand in the next few weeks. Another thing that we're announcing today is that we are bringing DVD video to the PowerBook G3. And the way in which we're doing it is going to work for everybody who's just bought one.

Because it's an add-in DVD drive. As you know, the PowerBook G3's got these two great docking bays. You can just pull out your CD-ROM drive, pop in a DVD drive, and a PC card that goes right in one of the two card slots for the decoding. So you can not only have DVD-ROM, but you can play consumer DVD video and actually watch it on the PowerBook. If you want to see this, I'll show it to you now. Yeah? Okay, let's go look at it. Great. So let me just play a little video for you here. So you can just see, of course you know this video. This is playing right on the PowerBook. So you get the idea there.

So I've got my menus up here and I've got... I can go to preferences as an example. We did all this ourselves. All the hardware, the software is all from Apple, not a third-party product. And I can go to, as an example in preferences, parental controls. And I can set parental controls to say, well, I really want to only let my kids watch up to PG-13. And I can set a password on this thing. So this is really great. And the other thing that's kind of cool is... is we've got this really cool controller here. And it controls all the playing, as you see. And I can go forward on this thing if I want to. Actually, it's this one here.

Go forward at a fast rate. And all these other nice things. I've got some... I've got a little... Okay, thank you. I've got a little door here with all my advanced features under it. And it's pretty nice. It's a second-generation DVD-ROM drive, so it reads all the CD-R drives and things like that. And the PC card supports MPEG-2, AC-3, all the great stuff. So this is now the coolest way to watch movies on airplanes in the whole world. So that was our pro-portable product. Now, we also announced on May 6th that we are developing a consumer-portable product and that we will make that available and announce it in the first half of next year.

And we're hard at work on that, and I think it's going to be quite nice. Which brings us to our consumer desktop product and something we're going to spend a fair bit of time on today, which, of course, is the iMac, which combined the excitement of the Internet with the simplicity of a Macintosh. And that was our goal in this product. When we got to Apple a year ago, it was very clear within the first month that Apple was walking away from the consumer market because Apple didn't have a compelling product under $2,000 and had not had one for some time. We immediately began a program to build the most kick-ass consumer product we knew how to do, and that's the iMac.

So we're really, really happy with this thing. It's gorgeous. It's going to change the way we believe it's going to change the way computers look and should look. And as you see these things, there's, I think, between 50 and 100 iMacs here today. It is really, really beautiful. The keyboard, the mouse. It's very nice. And this is the competition. Now, the first thing to note about the competition is it's not exactly nice-looking. But more importantly, the competition is powered by a new type of processor. While the iMac has a G3 in it, and I think that was one of our most important decisions, was let's not wimp out here.

Let's put a killer engine in this car. And we put a G3-233 in it. The other consumer products have the Celery processor in them, running at 266 megahertz. And let's take a look at this. The Intel Celeron benchmarks out at 3.2 byte marks. 3.2. The iMac, 7.9. It blows them away. But, even more impressively, let's add the rest of the Wintel lineup. The fastest Pentium money can buy at 400 megahertz is slower than our consumer product.

Key point. So, what's in an iMac? G3-233 processor. Half a megabyte backside cache. The thing screams. A gorgeous 15-inch display with 10x7. We said, you know, what's the most wonderful display you could ever build into a consumer product? And we built it in. And we designed it all ourselves. And the quality of this is gorgeous. You've got to go see these on the show floor. They're gorgeous, gorgeous displays. A really nice complement of memory. 32 megabytes of RAM, expandable to 128. A 4 gigabyte disk drive and a 24x speed CD-ROM. And an outstanding complement of communications.

We built in a 100 megabit per second Ethernet because our education customers want it. Many consumer customers are starting to network in their homes. And even some of our design and publishing customers want to use the iMac because it's terrific for some of the jobs that they do. So we built in super fast networking. A lot of the other consumer products don't have networking. And on many, you can't even add it. We decided to go to a whole new system of I.O. A whole new way to talk to your I.O. called Universal Serial Bus. It's an emerging industry standard. Runs at 12 megabits per second. We have two USB ports built in. And a 33.6 KB modem. Now, we got some feedback on the modem.

And while we have many faults at Apple, one of them is not not listening to our customers. And so it's my pleasure to announce today that we have upgraded the modem and that starting from iMac number one, they're all shipping with a 56 K modem. Thank you for your cards and letters. We really do read them. Four megabit infrared, which is wonderful for talking to some of these new digital cameras, etc, etc. Stereo surround sound. Great keyboard and mouse. Not a cheesy one. Great keyboard and mouse. And some great bundled software.

Starting with, of course, Mac OS 8.1, which is a really nice version of the Mac OS. And the best internet software for getting online in the world. Microsoft Internet Explorer. Microsoft Outlook Express. And America Online that has a new version of the browser. Hey, hey, hey, hey. I gotta tell you, I use IE and I like it. So, I think it's the best browser out there. But you can make your own choice. But choice is good, don't you think? So, I choose to use IE. And I suggest you take a look at it if you haven't. It's pretty good. In addition to what we think is the best internet software, we've thrown in a few other things to boot.

We've thrown in Quicken 98 Deluxe from our buddies at Quicken, who are enthusiastically staying on the platform. I haven't played with the Williams-Sonoma disc, but I've heard it's great. It's all about cooking and it teaches you how to cook, which some of us need to know. AppleWorks. Whole new release of AppleWorks, which is terrific. Some great fax software. Metacreation Soap, which is wonderful to use with digital cameras. And two great games we're gonna bundle. Nanosaur, which is wonderful, and MDK. So, these are great games. So, this is the complement of software we're gonna be bundling with every iMac. This is the product. This is the price for everything you've seen. Complete. And we're announcing here today that our rollout of the iMac is gonna happen on schedule.

Our US launch date is Saturday, August 15th. You will have a lot of iMacs on the shelves in the stores. Maybe not for long, but they'll be there. So, we are rolling out in the US on August 15th. Now, I wanna go back to something we talked about a few minutes ago, which is Universal Serial Bus. This is a really big deal. Because what it does is it extends Macintosh's legendary plug-and-play even further. First of all, Universal Serial Bus is 30 times faster than the old Apple serial ports. 30 times faster. Up to 100 times faster than some of the other older IOs. So, it's really fast.

You can plug up to 127 devices on Universal Serial Bus. And it's hot-pluggable. What does that mean? It means you can plug things in and out with the power on, without having to restart the computer, without having to turn it off. And all of the drivers load dynamically. So, you plug a USB device in, and that's it. If the driver's not loaded, the operating system goes to the hard disk and tries to load it. If not, it asks you for the driver, and down the road, we'll even be going to websites to download it automatically and fully dynamically links it in without having to do anything, without having to restart the computer, without having to know anything about it. And USB is an emerging industry standard, which means that all of the peripheral vendors making peripherals for any computer can have that same peripheral work on the Mac with no hardware changes.

They have to just write a Mac driver. So you're going to see a lot of peripherals now available for the Mac that were not in the past, and we're very excited about this. And we believe that Apple has jumped into the lead on USB. The USB that's shipping on iMac and in Allegro, our software release coming out this fall, we believe is better than any other USB software in the world. So let's talk about some of the devices that are going to support it. First of all, our keyboard and mouse are all USB. You have two USB devices on the iMac. One of them goes to the keyboard, and the keyboard is a USB hub. So it actually has two ports on it itself. You plug in the mouse on the right or the left, depending on whether you're right or left-handed. You have one left. So you have one on the unit itself and one on the keyboard and mouse to plug in two additional USB devices.

So what are some of those? iMation, a few weeks ago, announced that they are going to have their SuperDrive available on USB for the iMac. You can see that they're trying to incorporate some of the iMac's industrial design and colors in their design. And this product reads and writes the 120-megabyte floppies as well as being fully backward-compatible with all floppy disks. And here's one right here. You can see one of these at the show, and they're really nice. Second, this is something that's super popular with our customers, the Zip Drives. 100 megabytes. iOmega has taken their great product. They're shooting it in some colors that resemble the iMac. Here's one right here. You can see it at the show. Great product. Going to be available this fall for the iMac on USB. And third, SyQuest.

SyQuest is bringing their one-gigabyte Zip Drive. SyQuest is bringing their one-gigabyte Spark Drive to the iMac. Unlike the photo I have in black, the thing is in translucent red, and it's really cool. And you can see one of these today, too. They're very, very nice, all three of them. Then we've got some printers. Hewlett-Packard has introduced USB printers for the iMac and other Macintoshes that support USB. Epson has introduced, I believe, two printers for the iMac. Canon has introduced a set of printers that will be sold in Japan for the iMac. So we're doing really well on the printer side. Kodak just introduced a series of digital cameras that support USB and the iMac.

Microsoft is going to be introducing their joystick and some game controller stuff that supports the iMac. Connectix has a camera that supports live video over USB for the iMac. Palm is announcing today that they are going to be creating a cradle for USB to support the iMac for their Palm 3. And if you want to hook in all of these devices at once, you can take your two available USB ports on the iMac and take one of them and plug them into a hub. And Entrega is announcing a hub device so you can get up to 127 ports with a few of these hubs and plug in as many devices as you can possibly afford. We think USB is going to be a big deal for the Mac market in general.

And all of our products are going to support USB in the future with the iMac leading the way. And we are really, really excited about all these partners jumping in and supporting the iMac with USB peripherals this fall. So, that is the iMac. And I have a video... I have a video that we made for the launch on May 6th. If you want to see it, it's a few minutes. You want to see it? Yeah? Let's run it, see if you like it. All of the images you are about to see on the large screen will be generated by what's in that bag. Hello, I am Macintosh. It sure is great to get out of that bag. It sure is great to get out of that bag.

Millions of people bought a Mac because it did things that no other computer could do. It really got people excited. This is a personal computer like none other before. And for many years Apple got away from that. It forgot how to be different. The original Mac is an impossible act to follow. I think what we can do is one benefit from the philosophy that was really the foundation for the original Macintosh. This product came to be because the exec staff said stop. Let's focus on one thing. Making the best personal computer. A computer that Macintosh customers will truly love. Well, what computer would the Jetsons have had? That's the perfect way of capturing the problem. Which was, it was like the future yesterday. It defines simplicity, elegance, incredible ease of use, tremendous performance and great value.

This particular machine really delivers on that promise. It makes you feel a lot like you felt when you first sat down to use your Macintosh. When we have this wealth of creativity that cross our campuses, that cross our schools in K-12, what we want to do is unleash that capability. The team was a hand-picked team from around the world. It's a remarkable place to be as a designer. There's one company where this group could exist, and that's unquestionably Apple. That's what gets me really jazzed and gets me up in the morning is coming in every day and knowing, you know, I'm working with a world-class team to build the best products in the world. Wow, that's some look, that's some box. My first reaction was, my gosh, what is that? People have to use their hands to describe it. They struggle to find words to describe it. It's the first time we've seen something in our industry that wasn't a beige box.

Just imagine what's going to happen the first time somebody gets one of these home. I'm going to pull this thing out, I'm going to pick it up, and it's this gorgeous new shape. The surface as well is totally seductive. I mean, it's a lovely thing to touch and to hold. This cool keyboard with translucent keycaps. The connectors are translucent. I'm going to pull out this exciting new mouse. It looks like no other mouse you've ever seen before. You turn it on and it comes alive. It's always changing, it's always moving. And before you know it, in the first five minutes of opening the box, you're already in love with this thing. I'd like to play with one, I want to see one, I want to see what it'll do, I want to put it through its paces. But then you look a little farther and you say, holy smokes, look at the capabilities of this machine. This inside is the heart of the line. I mean, this thing screams.

This is not last year's product rehashed, this is next year's product delivered today. A lot of power, a lot of features, it's attractive, it's exciting, and it's well-priced. We're going to sell tons of them, and I think this is the first product that will make PC buyers switch to Mac. You see shock and recognition that, my God, Apple wasn't sitting back in this affordable consumer space. They truly have a great idea here. The fact that the Apple name is now, once again, going to stand for every man, everybody, mass market, I think is terrific news for all of us. We talk internally. Will we have enough product to take care of the demand? I'd like the first one off the production line. I will stand there at the end of the production line when the first one comes off. Mac consumers have been loyal, they've been patient, they've been frustrated, they've been zealots.

Okay, well, it's going to show it paid off waiting. We feel pretty strongly about the iMac. So that is the hardware strategy and product lineup. And what you're going to see over the next several years is us constantly upgrading these products, making them better, making them faster, making them sleeker, putting new features and fun stuff in them.

And we're just going to be doing that constantly with these products because unless we learn something new, these are the four products that all of you are telling us you want and you want them all to be great. So we're going to do our best to deliver four great products at every moment in time in this matrix. So the next thing that we disclosed a week later at the developer conference was our software strategy. And I want to just review that very briefly with you. It's got two parts to it. Mac OS 8, which is doing wonderfully and we're improving it every six months. The software team is doing a phenomenal job on this. And we announced Mac OS 10. In the future of the Mac OS, we will announce the first version in production, the quarter a year from now.

So what is Mac OS 10? I think we all know what OS 8 is. What is OS 10? OS 10 is the product of Mac OS 8 and a lot of the technology that was in Rhapsody. And the goal was to make a very modern OS that runs Mac apps. We don't have to write new apps to get all the modern features we want. So what are these modern features? Memory, right? When an app crashes, it doesn't bring down any other apps or the system. It's great virtual memory where the computer manages the memory for you in a very intelligent way. Preemptive multitasking, true multitasking, so that when an application tries to hog the machine, of course, the operating system partitions the time in a different way.

Multi-threading, fast networking, really fast networking in the future. We've got great networking now on OS 8, but we're taking it even further with OS 10. Very fast file I.O. Fully power PC native, so the operating system in general screams. And the most important thing, runs all OS 8 apps and with a very minor tune-up that will take a developer from two to four weeks to do. Their existing Mac OS 8 apps will spring to life on OS 10 with all the new features I just outlined. And the developers love this. They said, thank God, you now understand what we want. We don't want to rewrite our apps to get these features. We want to take our existing apps, tune them up, and have them run on a modern OS.

And you've given us exactly that as a plan. A very easy transition for our developers and their apps, and we believe our end users too. So that's what Mac OS 10 is. And if you take a look at the timeline, we shipped 8.1 in the first calendar quarter of this year. We're going to ship release 8.5, which we call Allegro, late this quarter. And it's a great release. And then we're going to ship 8.6 in the first quarter of next year. And Sonata, again, in the third calendar quarter of next year. So that's the roadmap for System 8, starting with 8.1. And as you can see, about every six months, there is a release.

So that's where we are with System 8. Where are we with Mac OS 10? Well, we put out the draft spec of Mac OS 10 at the developer conference. We've been getting tremendous amounts of feedback. We put out some tools to allow the developers to run on their existing apps, to tell them roughly how much work it was going to be to tune up their apps. And the data that's come back, thousands of people have run their apps through this stuff and given us the data back. And it's exactly what we predicted. So we're right on the money, I think, with this. So the spec has been fantastic. We're getting lots of great feedback from our developers. Then, we are shipping what we used to call Rhapsody. And we are renaming, we will rename Mac OS 10 Server around the end of this quarter, early next quarter.

And this is the OS guts of Mac OS 10 as a server product. And it's a Dynamite server product that we're going to ship around the end of this quarter or early next quarter. We're going to be shipping, then, in 1999, a beta of the Mac OS 10 desktop software in Calendar Q1. And our goal is to ship production version of Mac OS 10 Calendar Q3 of 1999. So this stuff is not two or three or four years out. This stuff is all happening a year from now. We're very, very excited about it. So again, you can see the OS 10 going from the spec to the shipping product. The reason we can do this so fast is because a lot of it already exists.

We've been working like crazy for the last year. And we only divulged our plans a few months ago. And we are fairly far along on this stuff. So, which brings us to Allegro. Allegro Mac OS 8.5, I believe, is going to be the most important release of the Mac OS in the last many, many years, surpassing even OS 8. And so what I'd love to do is we'd love to show you some of this today. I'd love to invite Phil Schiller on the stage. Phil, you saw on our video just then, he runs Worldwide Product Marketing, to give us a demo of a few features of Allegro OS 8.5. Phil? Hey, Steve. Thanks a lot.

I'm actually incredibly excited to be able to do the first public demonstration of just a couple of the features that are inside this great new release that we call Allegro, lovingly call Allegro. And what I'd like to do is actually bring up an Allegro machine, running a early beta of Allegro, and focus on two key features, two features that we think will be of extreme importance to all of our customers. One feature will be a new search engine, a search engine so powerful that we're going to give it a name. We're actually going to call the search engine Sherlock, because it's like having your own private detective inside your computer, helping you to find all the information you need, anywhere in the world. And then the second demonstration I'd like to take you through is of network copy performance.

Anyone on a network who works with large files, which is most all of our professional customers, live and die by fast networking performance. We have a lot of great surprises there in Allegro. So to begin with, here we are in Allegro, up on the screen now in front of you. And as you know, in macOS 8, we delivered some new finding features. As I pull down the find control panel, you'll see I have the ability in macOS 8 to search files on my disk. So for example, if I type in the name or the words USB and hit return, it's now finding across my large hard drive all of the documents that have USB in the title. And there they are. And I can scroll through some of them. And there are things like USB connector documents and USB specifications and USB drivers.

And that's a very powerful way to find file attributes. But now with Allegro, we can go much, much farther. With Allegro's new search engine, Sherlock, we can actually find content inside all of your documents. So here I've brought up the next control panel. And let me type in a find. It can be a very natural English statement. Like, let's look for cool USB products. It would help if I was a great typer. For iMac. And of course, the more I write, the more specific it can be. Let's look for printers and floppies.

And now what the search engine Sherlock is doing, it's going over my hard drive. I have 10,000 documents on my hard drive. 10,000 documents. It's searched them. It's looked for that content. And it's ranked it by relevance. See this new column that's highlighted? Relevance. It actually looks inside the documents at the text and ranks them by the relevancy of the statement I've written. And it looks inside all of your popular documents that we all use every single day. It looks inside my Word documents. My QuarkXPress documents. My Clarisworks or Appleworks documents. It searches all of these and comes up with the information. Let's just pick the first one right on top there. And here I open up a document and inside it is actually information about HP's new DeskJet printer.

Later. And there's the information presented to me. Now that took a few seconds. Maybe there's a faster way to find out if that's the document I want. I can actually simply click on a document, pull down a control panel, and say, Summarize this document. And now the Sherlock search engine has gone and created a two-paragraph summary of a long document. Pretty nice. Isn't that nice why we gave it a name? Well, with Sherlock, we can search all of these ten thousands and more documents on all your drives and across your network.

But what if Sherlock could reach out on the Internet, the entire World Wide Web, and find whatever content you like to find? So here we click on the third panel, Search the Internet. And now I can type in a statement and Sherlock will look out across the whole World Wide Web. And we've worked with a number of the world's best search engines to work on getting all the access to the content on the Web. So here's AltaVista. Our own tech info library you can search. An encyclopedia on the Web. Excite. HotBot. Lycos and others. All accessible to you here. And it can dynamically update itself to find latest search engines that we've added. And you can choose which search engines you'd like to go out and find information on. So let me type in yet another search here.

Because on the Web you can get the latest information. So let's look for Pricing and Availability of the iMation SuperDisk for iMac. The kind of thing we'd all like to look for. And now when I hit Return, it is actually talking with all these search engines and getting back very quickly information from these search engines about the documents they all know about on the Web. And I can scroll through and again they've been ranked by relevance. And I can look at these documents and I can click on any one of them. And I'll get a summary right there in the summary panel from that search engine. They're actually feeding me back their summary of that document. And better yet, I can simply double-click on that document, and Microsoft Internet Explorer, my browser of choice, opens up and goes right to that document.

I didn't have to go to another site into the search engine and click again. I actually jumped right to the document out there on the World Wide Web. It just never has been any faster to get the information. Thank you. Now, wouldn't it be great if you could save all these searches and just do them over and over whenever you need to? And with Sherlock, you can. You can save your search criteria right as files on your desktop to run them whenever you need to. And, more importantly, these documents, these URLs, these live web documents can now be treated like any other document on my system. I can grab a document, one of my favorites, an Apple website that talks about iMac, and simply drag it to my desktop.

And there it is. It's now a new live Internet document that works like all of my local documents. I can save them. I can copy them. I can e-mail them. And when I open them up again just by double-clicking, I go instantly to that web page. So live documents work just like the regular documents you're used to on your hard drive. Now I can save this document. I can put it into a pop-up folder with all my favorite web documents. And as I look through it, let me double-click on one more of those documents in here. Here's a ZDNet document about Macworld, but we're actually going, this is live, across the web to Japan. And here's something that you haven't seen before. I'm on an English-language Macintosh, and the document's in Japanese.

It's actually opened up a Japanese web page and rendered the fonts properly. So Allegro is the most universal of operating systems, the ability to actually work with and render documents in other languages, even on your local language system. And we worked with Microsoft to make sure this works beautifully. So that's Sherlock, the most powerful search engine in a personal computer, and it helps you find all of your documents on your local system, inside all of the content, and on your own network, and across the entire worldwide web. And we hope it's something that every user will value and find of tremendous power. Now for the next demonstration, I'd like to move over to another Macintosh and a PC next to it.

Now what we're going to show here, yes, you can boo for a minute if you want, that's okay. But you know what, it is a multi-platform world and we need to work together, and we think that's fair, and we're working very hard on that at Apple. But while we work together, it's also nice to beat them every now and then. It really is. So what we're going to do here is we're going to do a network copy performance test here. I have on your left, and on my left up here, a Power Macintosh G3 300 running the beta of a Lego that you've just seen. And it is sitting on a dedicated 100 megabit Ethernet network, which is something we'd all like to have, right, your own dedicated network. And what's sitting behind it is another G3 Macintosh, the exact same kind of unit, running Apple Share IP6 as its dedicated file server.

On your right-hand screen, I have a Compaq Desk Pro running a Pentium II at 400 megahertz, the fastest Pentium you can get, running the world's fastest networking file system, NT4. It's sitting on its own dedicated 100 megabit Ethernet network, and behind it is a Dell server, Pentium II server, also running NT4. And we've made sure the specs are exactly the equal on these machines, same memory, same partitions, so it's really a very equal test. And all we're going to do is the simplest of actions, copying a file. Steve, if you could give me a hand with this. I'm going to bring up two folders, one from the client and one from the server on each of the machines.

We have the exact same file, a 100 megabit Ethernet, we have the exact same file, a 150 megabyte image file, the kind of things all of our customers use in Photoshop, and all we're going to do is drag it from the client to the server, see who's faster. I can help you with that. Okay. Three, two, one, go. So we started the file copy, you see the Mac on the left, the Windows machine on the right. Obviously, this is something that was not the best feature of macOS. We would not exactly win. Well, something has happened. Let's try that again.

Let's delete the file. It's a good thing this is beta. Yeah. I think, okay, we're fine here. I have no idea what's going on. Let's try it again. Try it one more time. Three, two, one, go. There we go. I promise when we ship it will be this fast. And you'll only have to do it once. And you'll only have to do it once. There we go. What customers will find when they purchase Allegro, that the performance of network copy has improved 3x, making it now 50% faster than Windows NT.

And in this demo, we're actually using over 80 megabytes per second, a megabit per second of the Ethernet network, the theoretical maximum. Windows NT is using just over 60 megabits per second. So, truly getting up to 50% faster in a lot of our demo tests. Steve, thank you. Thank you, Phil. So, we're convinced that Allegro is going to be an incredibly hot release of macOS 8. And we're working very hard so that the quarter beginning about a year from now, we're going to be delivering macOS 10, which we think is going to be the most significant enhancement to the macOS since it was introduced in 1984.

So, that is our software strategy. And again, our developers really loved it at the developer conference. We're working with many, many of them on this. And we rolled out our product strategy on May 6th and a week later and I think it was very well received. It wasn't one day later before we started hearing the next level in the hierarchy of skepticism. And that was, well, okay, so you survived. Now, you have a stable business. That's really great. You're making some profits. That's really good. Business is in control. That's wonderful. And you've got a dynamite product strategy. You've got to execute on it. But you guys have been executing pretty well. We'll give you that. But, you know, are you going to have the applications? And, of course, we anticipated this a year ago.

And we've been working with a lot of developers in the last year. And it's amazing how many of our developers just hadn't been talked to, hadn't been listened to. And we've been doing tremendous amounts of that and really forging business partnerships with our developers. And it's been fantastic. But let me take you back to a year ago. A year ago, that was not the case. When I first got back to Apple, I called a lot of the big developers up. And they were just hopping mad at Apple. Hopping mad for having lost some market share, but even more hopping mad for not having paid any attention to them. And we knew we had to turn this around. And we started asking some of these developers to repartner and recommit to Apple so that we could together turn this situation around.

And you know who the first one was? It was Microsoft. They said, we want the Mac to succeed. We've got a fantastic business selling Mac software. We think the Mac is great. We want the Mac to succeed. We want to partner with you, our first developer partner, which we announced a year ago at Macworld. And I'm really pleased to tell you that despite the boos we received a year ago at Macworld, this partnership has blossomed. And it's done what every good partnership should aspire to do, which is to deliver great products to our mutual customers. And I'm very happy about this. And I think when Microsoft committed to the Mac, it helped a lot of the other developers get over whatever historical baggage and hurdles that they had and recommit to the Mac.

And it's been fantastic. And so in talking about applications, I want to kick this off for a few minutes by introducing Ben Waldman, who's the general manager of the Macintosh business unit at Microsoft. This is the second largest Mac developer outside of Apple. Ben? I have to tell you it's really exciting to be able to come to Macworld and be from Microsoft and actually get some applause. But I guess maybe that's what happens when you finally learn how to write some good Macintosh software. It was about a year ago at Macworld in Boston, where Steve Jobs first announced a new partnership between Apple and Microsoft, and people were stunned.

Actually more than that, a lot of people booed, and to tell you the truth, I think if I'd been using word six as long as some of those people, I would have booed too. But the thing is, we really meant it, and so for the past year, Apple and Microsoft have been working very closely together to bring out products like Microsoft Office 98 and Microsoft Internet Explorer 4.0, products that are not ports of Windows applications, but products built for the Macintosh from the ground up, based on feedback from our Macintosh customers, and this is my favorite part, products which have many innovations available first on the Macintosh, and only in the Macintosh version of our software.

Steve first showed me the iMac sometime last year, when I was visiting Apple on a trip down there, and when I looked at the machine, I thought about it, and actually the first thing I thought was, boy, these guys really are thinking different, and actually seriously, I looked at the machine and I thought, what a great consumer platform, what a great machine for any user in the home or in education, and we knew that as Apple's partner, it was our job, our responsibility to create some really innovative software to go along with this great new hardware from Apple. And so with Office 98, we made sure not to create some high-end product with some obscure features that only a small percentage of our users, you know, would ever use.

We spent over 80% of our effort working on features that every single user would use every single day to make Office 98 indispensable to all Macintosh users, whether they're using a G3 desktop, one of the fabulous new G3 portables, or of course, the new iMac. And in fact, we thought that iMac and Office are such a great combination that today, Apple and Microsoft are announcing that every customer who buys an iMac and then buys a copy of Office 98 will be eligible to receive $100 back from Microsoft. Applause Or for our education customers, actually, a free copy of Microsoft and Carta on Microsoft Bookshelf.

Applause Great, love those products too. And actually, this is another first for us, another, this promotion is actually first on the Macintosh and only on the Macintosh from Microsoft. Of course, the I in iMac stands for Internet. So, Apple and Microsoft are also very happy to announce today that the iMac will be the first Macintosh to ship with a brand new Internet Explorer 4.01, a product which is actually 30% faster than the last version of Internet Explorer and also a product full of features available first and available only in the Macintosh version of Internet Explorer. Applause To tell you the truth, being the I in iMac is really a big honor for us, but more than that, it's also a big responsibility and it's one that we take very, very seriously.

When we look at what's been going on with browsers in the past few years, we've seen so many people talk about this technology or that technology, does the browser support this acronym or that acronym, and one thing we never really heard much about was users. It was about customers. And at Microsoft, we think that with Internet Explorer, the most important thing we can do is understand what sort of tasks people are trying to accomplish on the Internet and what sort of problems they have accomplishing those tasks and to create products which help the users solve their real problems more than just have some technology bullet points on some list. And that's exactly what our design goals have been with Internet Explorer 4.0. And I thought I'd want to show you some of those features today.

We found that a lot of people spend a lot of time just typing in URLs in the browser, spending time typing things on the keyboard, and we thought, you know, these Macintoshes have a great PowerPC processor in them, they have a G3 processor in them, and maybe we could do a little bit better. So if we go in the browser and we start typing a URL, if we type www.a, we're automatically going to guess that you want to go to Apple's website because that's the website that you visited most recently that starts with www.a. We thought maybe we could guess and save you some typing time. Sometimes we'll guess wrong. We make mistakes at Microsoft, yeah. And so when we do that, you can actually click on the pop-up menu to the left of the address bar, and we'll actually show you all the websites that you visited which start with www.a.

And that's a feature available first and available only in the Macintosh version of Internet Explorer, that pop-up menu. Another area where we thought we could do a lot better was searching on the Internet. So if we bring up the new search bar in Internet Explorer, and let's pick Excite as our search engine, and let's look for some cafes in New York. So we'll type in Cafe New York, and we'll see a bunch of search results come back on the left side in the search pane. And we'll try one. Let's try that. And it turns out it's the wrong page. Now in other browsers, you might have to go and click the back button right now, and then you'll have the back button and it'll reload the page, and you'll try another one, and it's kind of a pain in the ass.

So we thought we could do a bit better. So now you can see the search results and the content at the same time in your browser. A radical idea, but we think it makes things a lot easier. And I'll tell you, the day that this feature appeared in the beta of Internet Explorer, I threw out everything else on my machine and haven't used another product since. So let's try looking at another link. And you'll notice that if I hover the mouse over some of the other links, you'll see that it'll actually give me a summary of what's on the page to give me another hint of what I might want to click on. So let's click on this other link, and I see some cyber cafes, and I'll go to alt.coffee. I live in Seattle, so I'm supposed to make coffee jokes, they told me. And again, this is the page where I wanted to go and visit.

Another place I could go, of course, would be New York Sidewalk, one of Microsoft's city guides, where we can show you restaurants, events, and places that you can go in a bunch of different cities, Microsoft's New York Sidewalk. I said that we did a bunch of research with our Macintosh customers, and about a year ago, we went to the San Francisco airport for a day, and we tracked down every PowerBook user in the airport. And we asked them, what do you wish that you could do with your PowerBook while you're on the plane? And people said to us, well, I really wish I could browse the web. We're like, yeah, like I'm ever going to be able to do that. Well, you can. Because in Microsoft Internet Explorer, you go to the File menu, and you pick Save, just like you'd expect in a Macintosh application. And you can save an entire website to your hard disk in just one file, what we call a web archive file.

And you can save sounds or images or links, however deep you want to do that. And it actually takes a while, so we're going to cancel that right now. And I actually did this before we started the demo, before we started the show this morning. So let's go and pull the network cable out of the iMac right now to show you that we're not making this up. And let's look at New York Sidewalk again, while we're not connected to the Internet. So let's look at some restaurants. We can look at some restaurants, maybe, for Internet Explorer. I think we have some restaurants specially selected for Bastille Day. We can look at events that are going on inside of New York or other places that you can go, all without being connected to the Internet, because I just went to the File menu and picked Save.

And that's actually available first and available only in the Macintosh version of Internet Explorer. The other thing that's really important to Macintosh customers is color fidelity. So when a designer designs an image and you see it on your screen, you want it to look exactly like what the designer intended it to look like. And, of course, that's important to graphics professionals. But more than that, it's also important to every person using their iMac at home. Because as you buy things on the web and do electronic sales, you're actually selling So Apple has some fabulous technology called Color Sync to ensure color fidelity. And Internet Explorer is the only browser on any platform to support Color Sync technology. And let's see why that makes a difference. If you look at the image on the left, it's kind of a little bit different than the way the designer designed it, because he designed it in a different monitor.

So if you look at the image on the left, it's kind of a little bit different than the way the designer designed it, because he designed it in a different monitor. So if you look at the leaves on the bottom, they're kind of too saturated. And if you look at the lion's faces, they're kind of a bit too green. So it doesn't look very good. So let's go turn on Color Sync support inside of Internet Explorer, which is on by default, but we turned it off for the demo. And then reload the page on the right, and now you can see the image exactly like what it's supposed to look like. And again, Color Sync support is available only in the Macintosh version of Internet Explorer. First on the Mac, and only on the Mac.

So that's been some of the work that we're doing in Internet Explorer, and I've talked about what we're doing now, and I want to talk a little bit maybe of what's coming up for Microsoft in the future, if you want to hear that. A few people, okay. One of the things we've just done at Microsoft is actually reorganize our Macintosh groups. We've taken the 200 people working on Macintosh software today at Microsoft and put them into one organization, my group, the Macintosh Business Unit, and the reason we did that is because we think if we can get all the Macintosh fanatics at Microsoft, and there are a lot of us together, we can share a lot of great ideas and make sure that the innovations that we come up with are available throughout our Macintosh product line. So if you like Office 98 today, you're really going to like the work that we're going to be doing in Internet Explorer, and vice versa.

And another reason that we think that that's really great is that I can now make this promise to you that Microsoft will never again ship ported versions of Macintosh applications. I guess you could say we learned our lesson, and from now on, we will be shipping Macintosh products built from the Macintosh, from the ground up, for our Macintosh customers with a lot, and I'm telling you a lot, of innovations and features available first on the Macintosh and only on the Macintosh from Microsoft. And so I want to thank all of you today who are using our products, who are using Office and Internet Explorer on the Macintosh. We're actually giving away some free CDs at our booth if you want to try those out as well.

And so thank you for using our software, and I invite you to join with us as we work on with Apple to continue creating great Macintosh software in the future. Thank you very much. Thank you, Ben. You know, when we announced this partnership a year ago, I was trying to think of analogies. I thought, well, Nixon goes to China, or Reagan and Gorbachev. But then somebody had to be Nixon, you know, or Ronald. And so I don't know what the right analogy is. I guess it's just Apple working with Microsoft to bring some great products to our customers, and I feel really good about this. So we've been doing a lot in the last year with Microsoft and with others, and we announced, as I said, we announced the iMac on May 6th. Now, that was just nine weeks ago today, exactly nine weeks ago. That is 63 days ago.

And since that time, a lot of the work that we've been doing with some of these developers has come to fruition, and even some developers that we hadn't talked to have called us on the phone, and an extraordinary thing has happened. I'm really happy to tell you today that in the last 63 days since the iMac has been launched, over 177 apps have been announced for the Mac. Huge. So these are totally new apps. They're upgrades. The whole bailiwick, 177 new commits for apps to the Mac since iMac was launched. Now, I've got about 20% of them I just want to run through with you. Obviously, some great Internet software. You heard about a new version of IE.

MacOnline's got a great version for the Mac of their new browser. It's terrific. Much better than their prior version. On the web, we've got some great software to create websites. Electrifyer, NetObjects Fusion, and CyberStudio Go Live, and they've got a new consumer edition of this product out, and it's great. In our core publishing market, Adobe shipping a landmark upgrade, Photoshop 5, that's been extraordinarily well received by our customers, Coral coming out with the Draw and Paint programs, some fantastic stuff from Metacreations, some upgrades like SuperGoo, and some totally new products like Show, four new products from Metacreations, and some products in the audio and video space, and the most important of those is Avid Cinema, but Cubase's product to create audio is also stunning, and these are great, great products.

In the productivity space, new version of Clarisworks, renamed AppleWorks, Quicken 98 Deluxe, and Britannica is now on the Mac. Some utilities, we've got Norton Antivirus and Conflict Catcher have been announced, and we've been really working on some games. For some reason, for some reason, the past senior management teams didn't like games. I don't know why, but we do, and we've been really trying to get some games back on the Mac, and we're doing great on this. First of all, the X-Files game, which is really hot, it's coming out on the Mac. Three of the great fantasy games, Riven Legacy of Time and Douglas Adams Starship Titanic, all coming on the Mac or are on the Mac today with new versions.

Star Wars, right, LucasArts, coming back on the Mac, as well as two great Star Trek titles from MacSoft. Civilization, great shoot-em-up titles. And these are two incredible ones, actually. Real Pool is an incredibly cool 3D pool game. Now, dear Hunter, I haven't played, I'm a vegetarian, but I'm told that this is incredibly popular probably in the Midwest, with the guys, but if you have a rifle in your truck, you ought to check this out. Okay, Tomb Raider, super hot game. Lara Croft coming to a Mac near you, and we are extremely excited.

The whole Tomb Raider series is coming over, and we're extremely excited about this. And that's a lead-in to basically your teenage boy games. And we've got a lot of them, you know, a lot of them. And so we hope we can keep our teenage boys in our market very, very happy with these games. We think they're going to be very cool. But we also have some girls in our audience, and Mattel has announced that they're bringing their three most popular Barbie titles over, and when your daughters are done with them, they can get a cosmopolitan virtual makeover. Also coming to a Mac near you. Some fantastic young learning software. Sesame Street, coming back to the Mac.

Some fantastic stuff. Dr. Seuss Rugrats, incredibly popular and good software. Kid Pix, again, incredibly popular software, coming back to the Mac. Some fantastic reading software. The Read-A-Rabbit series, as well as some other reading software that's terrific. And some math and some history software. Again, edutainment and educational coming back to the Mac. Also some terrific games. So I think we've got a tremendous complement of stuff from some tremendous developers coming back in these areas. And again, this is like 20 percent of what's been announced in the last 63 days. But in addition to software delivered on CD-ROMs there's also been a lot of online software that has been introduced.

And we want to highlight one today that we're super excited about. A company that I've had a long partnership through my association with Pixar, which is the Walt Disney Company. And Disney's doing some fantastic stuff, and one of the coolest things they're doing is Blast Online. And it is my pleasure right now to introduce Richard Wolpert, the president of Disney Online, to announce what they're planning on doing with us on the IMAX. Richard. How are you guys doing? I always feel like a little bit of a rock star. I want to say, good morning, New York! Steve talks about people coming back to the Mac. And for me, this is an exciting day for a couple reasons. And one of them is I actually started my career at Apple in 1985, and I was going through one of my old boxes of stuff over the weekend.

You guys aren't going to be able to see it, but I actually found, I don't know if it's legal that I kept this, Steve, but I found my employee badge from 1985. And there it is. And I realized two things when I looked at this. One was Apple really has been a part of my life. I'll talk a little bit more about that in a second. And the other is I've aged a lot in 14 years. So two people that I know looked at this this morning and said, is that you? So, you know, Apple really has been part of my life. I had a software company for several years called After Hour Software, which specialized in Macintosh software. Probably more important than that, I actually met my wife at Apple. She was an employee at Apple as well. We've been married for six years. And she's due with my second daughter in about two weeks. So I'd like to give my wife a hand for letting me come to this show.

The other reason I'm excited today, well, one reason, I saw Sinbad in the audience. And that's exciting for me right there. Hi, Sinbad. How you doing? All right. So that was exciting. I'm doing a demo for Sinbad. That's pretty cool. And what's that? OK, we'll talk later, Sinbad. My people will call your people. I have some people they'll call you. We'll do a breakfast. Gregory Hines. We're doing a musical. It's going to be funny. We'll have Hines and Sinbad. It's going to be great. The other reason I'm excited today is we are announcing today the launch of Disney Blast for Macintosh.

It is available today as a beta for free to anybody who wants to go to it. It's available at www.disneyblast.com. If you want to get straight to the Mac sign-up, you just do a slash Mac at the end of that. It's something we've been working really hard on, especially in the last several months. We've had a lot of great help from Steve and his team to bring what we've wanted to bring in terms of a great Internet experience for kids to the Macintosh. Let's just talk about Disney Blast for a second, and then I'll go into a demo. Disney Blast is really, in our opinion, the definitive online service for kids. It not only has great online content, but it's a great community experience for children and their parents and friends. We have great parental control software included, so parents can control who the kid is communicating with and not communicating with.

Probably most importantly, we feel like we're really taking advantage of the Internet by having kids participate not just in looking at the content, but creating the content and being involved in directing the content. So with that, I'm going to turn around and do the demo myself. It's a union thing. I'm not allowed to have any help. And I was going to start my demo with a big file copy, but I'm going to skip that part. So hopefully I look good from the backside. I haven't been working out quite as much as I used to. So this is Disney Blast, and one of the nice things about Disney Blast is it changes literally every day. We have different live events with characters and chats with kids every single day. And Disney, as I'm sure you all know, has a big focus right now on Mulan.

So there's a lot of Mulan content on the site right now. We have another movie coming out, the Bugs Life movie in a few months will be a lot of that content on. And Blast itself, and I think we're missing sound. So if somebody, there we go. Blast itself is broken into a variety of different areas. We have comics, games, Scoop, which is actually made up of a lot of kid reporters who contribute. We have a special section this month with Mulan, Blast Junior, which is educational for young kids, and then Studio Blast with effectively online print kits and activities. And I want you guys to keep in mind as I go into some of this content, this is using IE, and I think this is where I'm supposed to say, IE is my browser of choice. Did I do that right? Was that good?

All right. And this is all in the browser. So what you're about to see is a lot of really rich multimedia content that we spent a lot of time creating that's in the browser using the standard types of plugins that you're familiar with. We use Flash and Shockwave Director a lot. We use some Java. This is an example of a Mulan comic that Blast Junior, the Disney Blast product overall, is meant for three to 12-year-olds, which is really the core Disney audience. And there's some sound instructions on this one. So this one is effectively like that game, if you guys remember from a long time ago, Simon, where there's a pattern that you have to recognize. So you click play. Follow Goofy. He'll show you the way. So Goofy's going to show you the way. So first I've got to click on the drum, and I click on the drum.

Goofy gives me the big, all right, you got it. And then he's got the drum and the cymbals. And if I mess it up and get the tuba, no. And they'll repeat the instructions. So the point here is in the Blast Junior area, which is aimed at the three to five-year-olds, we do have entertainment, but it's much more focused on early learning. And that's an example of something we have in there. The events calendar is really important for showing the live events nature of what we do. Every Friday we have chats with characters. So here's a chat with Rabbit from Poo. Yesterday we had a Nintendo chat, a chat with your DPals, which are your friends. We have a multi-player game starting this week where you can go and play trivia against lots of different people. And the last thing I'm going to show you is something called Studio Blast.

And there's a couple different things in here. One is we offer different print studios. So an example of a print studio would be Lion King Print Studio with coloring pages, wallpaper, calendars, greeting cards. If you wanted to make a calendar online, you simply choose the character you want. You can choose any month that you want. And you create the calendar and you can print these out. One of the great things about Blast and the online mechanism that we have is every couple weeks you get a new print studio. So we just released the Mulan one now. There'll be another one coming out in a few weeks. And you get great stuff here. The other thing people ask us is, well, if I go to Blast, am I just going to get Disney stuff? I'm showing you a lot of Disney stuff. But part of what we're striving to do is have Disney traditionally branded stuff but also reach out a little bit. And with that, we have a section called D-Toys.

And I'm going to end by showing you one of my favorite D-Toys, which was actually inspired by my mother. It's called Fridge of Horrors. My father always used to say, you're going to kill us one day. I don't even know what that was at one point in its life. So for those of you who have parents who have refrigerators that they don't clean out, you'll know what this is. But the concept here is a D-Toy. And it's just something to play with. It's kind of like a game, but there's no real scoring involved. And it speaks for itself, really. The instructions are, click the food. So those are fairly self-explanatory. And there's various food that you can choose to put in the refrigerator. So I'm going to start with the pizza. And you take the pizza, and you think, I might be eating the pizza in a couple of days or an hour. So you put it in the refrigerator. But then time goes by. Time goes by. So a little pepperoni does that thing from the fly that, help me!

So you guys missed that. And somebody made me promise to show the milk, so I'll show the milk as well. And there's a new D-Toy every couple weeks as well. So that's a quick overview of Disney Blast. Again, it's available today as part of the free public beta, disneyblast.com. I would personally like to thank Steve and the people at Apple. They've been tremendously helpful for us and to us in the last six months in some of the technical things that we needed to do to make this happen. And thanks for the opportunity to be here today. Thank you.

Thank you, Richard. This is great, isn't it? If you've got young kids like I do, I think they're going to be very successful with this. So, 63 days, 177 applications. And I think this has startled even us. If we can keep going at anywhere near this rate, we're going to be doing great. So, I've got a video on applications that I'd like to show you. It's about three minutes long. Is that okay? Some of the developers talking about this. So let's go ahead and roll that. Apple hasn't pursued the consumer market effectively in at least two years. Now they are. A whole new constituency is coming into the market.

And it's crucial that Apple have an offering for that new market because it's the fastest growing segment. And it's the home really where the installed base is growing so fast as computer penetration goes up in the United States and across the world. The consumer market is critically important to Disney where Disney focuses on the family and children market. And creativity is the fastest consumer software category in the market today. And that's why we feel so excited about our relationship with Apple because Mattel really cares about creativity and it's a great partnership. With the renewed enthusiasm that Apple has for the iMac and the consumer market, we're really on board big time with Apple.

For most consumers, the primary thing is going to be that whole price performance issue. They really want a machine that performs well but they don't want to have to pay an arm and a leg for it. The great thing about the iMac is just the sheer sort of piratical daring do about saying, well, we're going to do an entry level machine but just for the hell of it, it's going to be more powerful than the top highest level machine produced by the opposition. I think it's very young, I think it's very contemporary, I think it's very hip. The internet integration that the iMac has is probably one of the most compelling things about the iMac product. For us at Encyclopedia Britannica, because increasingly our services and applications are going to be delivered online.

The design is terrific, the ease of use that's always been the promise of Mac is still there and then some, the power is fantastic and now the price is right in the sweet spot. It's games that drive technology because that's the area where people want the next Gizmo, want it to be a bit more powerful, want faster ray tracing, want all these different things. We've chosen to make a major commitment to the Macintosh by bringing our top product, Tomb Raider, over to the Mac for the first time. Apple is enabling technology for our software and I think that it's time that the iDust games and other games come back to the Apple platform. We came back into the Mac market to make a version of Cosmopolitan Virtual Makeover specifically for the iMac because we're so excited about it.

We have more new games coming out for the Mac in the second half of 1998 than we've ever had in a six month period since Macsoft was conceived. for a cyber studio and a personal edition to give the full-powered version for the iMac, what I think the best consumer computer today. You can just imagine what that means for every consumer running the full-color, very fast real-time technologies that Metacreations creates. If we're going to do anything with learning in it, we have to be on the Macintosh. There's so much tradition there, particularly among educators. The past year at Microsoft has been the best year for our Macintosh business in years. There's no way anybody can look at Apple Computer two years ago and look at Apple Computer today and not be blown away with the new vitality and energy that we see from all the Apple employees and from the Apple customers, too.

This is not religion. This is business. I was here for the first Macintosh, and I can't believe that we're recreating it again. If Apple sells more computers to the consumer market, we're going to sell more games. It's that simple. Apple is back, and they get it. So we've survived. We've demonstrated that we've got a really great, stable business. We've laid out the roadmap of a fantastic product strategy, and we're getting apps back on the Mac in unprecedented numbers. So what more could you ask for?

Well, there's always something, right? The last one is growth. Well, if all this stuff's so good, show me some growth. How are you going to grow, right? And again, when I hear these things, I think it's great. Because what it means is we're building the foundation of the layers below, and people are looking at the next layer, right? And so growth has now come up, and that's great. And I think it'll come up even more as we tell the application story and people understand that apps are coming back to the Mac. Okay, what's the next thing to be skeptical about? Growth. So what are we going to do about growth? A year ago, when the new management team got to Apple, we looked at the marketplace and we said, although Apple's market share has declined, it's still extraordinarily strong in the design and publishing market, where Apple's market share is between 50 and 90, depending on what segment you look at, and in the education market, where Apple owns over half of the installed base and about 35% of the new selling units, bigger than anybody else.

What we didn't say was that Apple had declined rapidly in the consumer market. A market that it invented. Apple invented the market for selling computers to consumers, and yet it had failed to come out with compelling products at consumer price points for several years. So even though we didn't talk about it, we began a program to get back into the consumer market with a vengeance. And this is where we see a tremendous amount of growth for ourselves. We are doing extremely well in the design and publishing market and starting to do much better in the education market, but adding the consumer market to that will make both of those even stronger. And we're going to do it with the iMac. We think we've got some incredibly unique assets to go make this happen, beyond just the products themselves.

So what are some of those? I'd like to cover four today. The first one is the brand. In a world that is completely overloaded with information, where people are overwhelmed with information coming at them every day, brands become even more important. People don't have the time to choose everything in their lives, and brands help them make those choices. And there is no brand in the computer industry that is as remotely as strong as Apple's. Apple's brand around the world is right up there with Disney and Sony and Nike in terms of recognition and in terms of consumer loyalty. Now it's also worth pointing out that the other three brands on this slide have all had serious problems.

Look at Disney when Michael Eisner got there. Look at Nike and Sony over the last half a dozen years. But when these companies have straightened out their problems, their brands have come back stronger than ever. Brands take decades to build, and we think we have one of the best in the world. We are also investing heavily in our brand. And when we started our Think Different campaign, we said, Apple has to tell people who we are and what we stand for. And we thought a lot about how to do that, and the best way that we could think of was to say who our heroes are. You can learn a lot about somebody by asking them who their heroes are, can't you?

And so we've said, these are our heroes, and we've put them out there trying to tell people who we are, what we stand for, what our values are, alongside some slightly more aggressive product advertising. The second unique asset we have is our installed base. Apple is very fortunate to have an installed base of somewhere between 22 and 25 million customers. And I've used the low end of that range, 22 million customers here on this chart. Ten million of them are in the consumer market. There are 10 million max in homes. We do a lot of research on this, and our research shows that these people have been defecting at less than 10% a year to the opposition, as Douglas Adams would say. Less than 10%, these are very loyal customers, but most of their max are three, four, five years old.

They have not been upgrading as they should have, and as their counterparts in the Wintel space have been, because Apple has not been offering them great products at those consumer price points. And so we think these 10 million consumers are ripe for a product like an iMac. In addition to that, the six million education machines out there, many of them are ripe for upgrading, and the response from the education market to iMac has been off the charts. So 16 million of just our own installed base to go after, not to mention the tens of millions of Wintel customers and the millions of customers each year entering the market that do not own a computer at all. The third unique asset we have is what we call design or fashion.

We believe that as the price points come down, as the consumer market blossoms, design and fashion become even more important. Let me give you an example. This is the most popular watch in the world, and it's popular not because it tells time better than any other watch. It's popular because of its design. I'll give you an interesting statistic. Ten years ago, the average American owned one watch. Because of design entering watches, the watch market, today the average American owns seven watches. Seven watches because of design, because of fashion. Now when we dream, we dream of this.

One of the great joys that I found at Apple a year ago was the best industrial design team I've ever seen in my life. The designs for the new PowerBook G3 and the iMac, they're all done inside Apple by some brilliant, brilliant, super hardworking people. You're going to see a continual stream of very innovative design out of Apple. I think the best in the industry by a mile. And lastly, let us not forget simplicity. We've got the easiest to use, easiest to set up product in the world. The other guys have tried to copy us for ten years, but it's still not as good. And for once in a long time, we're not standing still anymore.

So how do we measure simplicity? I've got my final video to show you, and it's wonderful. It's a simplicity shootout, and I'd like to run it now. The iMac's superior performance is easy to benchmark, but its real power lies in its simplicity. How do you measure simplicity? Meet Adam Taggart, age 26. He will be assembling a Hewlett-Packard Pavilion 8250. Meet seven-year-old Johan Thomas. He'll be setting up an iMac. Johan will be assisted by Brody, a border collie. Let's start the clock and see how long it takes to get from out of the box onto the internet.

Adam's Hewlett-Packard 8250 is based on the Intel Celeron 266 megahertz processor and boasts lots of features. It's a good computer. For a Wintel PC, it comes in two big boxes. Johan's iMac comes in just one box, but that doesn't mean he's working with less computer. The PowerPC G3 processor that powers every iMac makes it twice as fast as Adam's PC. The iMac is loaded with all the same features, plus it has built-in 100BASE-T Ethernet networking and a bigger 15-inch display. More power wrapped in an all-in-one package. Adam was off to a good start, but he's falling behind.

He has lots of components to unpack and hook up. He needs help. Let's speed him up to make it fair. The iMac's all-in-one design makes it easy for Johan and Brody. Connect the power, keyboard, mouse, and built-in modem. Adam's getting confused. Putting together a PC takes concentration. He's double-checking the directions. At 4 minutes and 40 seconds, Johan powers up the iMac. Time for a break. Those external speakers are costing Adam time.

And look at all those cables. Johan is close to the finish line. Using Internet Setup Assistant, from out of the box onto the Internet, he logs on at 8 minutes 15 seconds. Game over. At 14 minutes 51 seconds, Adam finally powers up the Pavilion. Now might be a good time to review some of the extensive documentation that comes with every PC. With all the time he saved, Johan checks his stock portfolio. At 18 minutes 10 seconds, Adam locates his Certificate of Authenticity and starts to register Windows.

Do we really need to see more? Adam's final time to log on is 27 minutes 39 seconds. Now you're probably thinking, this isn't fair. You're right. Brody helped. So... By the way, that was totally real.

We just got these two guys and filmed them. Didn't tell them anything, and it was totally real. We gotta make that into a commercial, don't we? So... These are four incredibly powerful, unique, compelling assets. The brand, the installed base, especially in the consumer and education markets, the ability of our design to really take these products into that consumer space of fashion, and the fact that our products are dramatically simpler to set up and use than our competitions. Incredibly important. And we think these things, along with products like the iMac, are gonna allow us to grow in the consumer market, and grow in the education market, and grow in the design and publishing market.

So, with this product starting off with, we expect to see some growth in the next six months at Apple. And we will share that with you as it happens. So, again, going back to Abraham Maslow, he created his hierarchy of needs. And we borrowed it today to take a look at a hierarchy of skepticism that's followed us for the last year as we've slowly demonstrated, step by step, that Apple is coming back in a very big way. And we spent a lot of the last year working on these three things, which are now visible. The survival of the company, a very stable and healthy business, and a terrific product strategy. And we are now gonna demonstrate these last two steps.

Applications coming back to the Mac. People are absolutely gonna be able to get the applications they want on the Mac. And in many cases, they're going to be the best versions available. And how this all translates into growth for Apple, for its developers, and for the market in general of Macintosh customers. So, I really appreciate the chance to be with you today. We've got a great show. Go check out the iMacs. Go check out a lot of the USB peripherals. And go check out a lot of this great software. Thank you very much. Thank you very much. Thank you very much.