Steve Jobs on the iTunes Music Store: Buying Music Online

Ladies and gentlemen, Steve Jobs Morning nice chair. Yeah, pretty good, huh? So first of all, thank you for coming thank you for inviting me You're not a habituated these conferences and so we really appreciate you being here you were there at the beginning of The digital personal computer revolution you and Steve Wozniak developed. What was the first really successful? Personal computer for the mass market and that was 26 years ago. I think 77 this spring will too and you've You stayed with it all this time in different ways different formats you Run the most digital movie studio there is with Pixar and I have to say that they have a new movie coming out in a couple of days but Where do you think we are in the arc of this story of the PC the internet the whole the whole digital deal?

Well, the personal computer has been a pretty amazing thing in that it's morphed Into these different things over the over the years in the decades the first first it was a hobbyist tool and the reason the Apple 2 was successful was because we Saw that for every hardware hobbyist that wanted to put a hardware kit together there were thousands of software hobbyists that didn't know how to do that didn't have soldering irons, but wanted to mess with software and So we we sold really the first ready-to-go personal computer and that's what it was for the early days and then Bricklin and Frank Frankston who's here Frankston is here. I know I saw him last night invented the first spreadsheet and That kicked off something entirely new and before long the personal computer was being welcomed into business And the whole productivity the age of productivity began, and that's what really fueled a lot of the growth But then as the personal computer sort of saturated that Particular function People were speaking of its plateau and even its demise in the in the early 90s the internet came along and all of a sudden the the next great age of the personal computer started and Everyone replaced their personal computers with faster ones that could Run these new web browsers and everybody got on the internet and the industry was very healthy for a while and then You know starting in the early 90s Decade that had plateaued and everyone was saying the personal computer with past its prime But we we feel very strongly at Apple that there's a third great age of the personal computer coming And it's it's where that the personal computer becomes sort of that your digital hub and we articulated this, you know three years ago and

A lot of people have said the same words since then but but but hardly anybody's A lot of people have said the same words since then but but but hardly anybody's delivered on it But it's slowly starting to happen. I think we've tried to deliver on that as well and and people say well, what's that mean? And you know, how many of you have a digital camera? Right. Well, you can't do anything with a digital camera without a personal computer. There's nothing to do with it I mean you look at the pictures on the tiny little display on the camera. That's about it So your pictures are in your computer now Anyone under 25 their entire music libraries in their personal computer now, it's not in CDs in some bookshelf in their living room it's on their personal computer and and hopefully on their iPod and so it's becoming the hub for your photography your movies your your your Music obviously and and it's really your you know, it's it's it's the number one High-speed connection you have to the outside world in terms of data So, I think it's it's starting to become integral to our digital lifestyle And you think it'll always remain there at the hub or do you think and there's perennial talk about well The television will be a a hub or a point of contact with your digital stuff Things like the iPod. He makes a music player. Do you guys know that the iPod?

Why couldn't that have its own Wi-Fi connection to the Internet and and not require you to Use the computer. Well, it can but a personal computer. I mean, it's very basics. It's got a really big hard drive in it It's got a really big display It's got a really big keyboard and it's got a really fat pipe to the Internet and it's got a reasonable Processor in it that can run really big applications. So the iPod might be great and holds all your music But we see it more as a satellite device because you'd never you Couldn't really do a music store on it as an example because the music store needs just more screen real estate and these things fight Each other so if you want a compact thing you can put in your pocket Unless there's a breakthrough and foldable displays over time or something like that It's gonna be hard to really browse a music store and find the music you want on the iPod itself Even if it has an internet connection, so since you've been back at Apple, it's been about I think what six years 97 you came back six years this 4th of July. You've had quite a few hit products and gotten lots of critical praise Not only in terms of the Mac, but the the iPod also being generally regarded as by far the best music player But the market share for Apple and there's a whole history of reasons why Apple doesn't dominate the field We won't go over that but the market share for Apple has not really increased dramatically So why you're doing great products? You're actually you're much more price competitive in some cases You're in my in my research. You're actually priced more aggressively than a Windows counterpart in some of your models How come you're not doubling your market share or whatever?

Well, we ask ourselves that a lot if you if you get a little surgical about it What you see is that the markets that we serve we serve many markets, but but the three primary ones are consumer Education and and the creative professional market The problem that we've had is that Our creative professional market, you know graphics houses ad agencies, etc Etc have been in the toilet for the last several years more so than the general market has and so our creative pro markets been suffering secondly education we've made some mistakes and You know education is down the last three years So some of your rivals are have gained ground on you in education, right? Well, actually some of our rivals have great gain ground primarily by taking share away from their competitors But we've made some mistakes too. And so two of our three markets are down or depressed In the consumer market, we've more than doubled share in the last year. Really? Yeah, really What is your share in the consumer? It depends who you talk to but it's somewhere I'm talking to you Our share of the consumer markets between five and ten percent, okay good And our stores have been phenomenal we have almost 60 retail stores open which were the best buying experience for personal computer on the planet and And doing quite well, we've had over 15 million people 15 million visitors through them since we opened the first store two years ago a lot of people think given this string of great products you've done that And given the iPod that's a portable device that you know, you should be making a PDA you should people is constantly rumors You're gonna make a PDA. You're gonna make a tablet. You're gonna make a cell phone

Can we just touch on those sure because there's a lot of excitement around those in generally in the industry So let's just start with say a tablet. Are you gonna make a tablet? What do you think about the tablet no plans at the current time to make a tablet? No, you saw your old friend Bill Gates up here being really enthusiastic about it last night. What do you think about it? Well, I mean, I think it's great that they're trying but but it turns out It turns out that I would characterize a little bit differently than Bill Bill characterizes is a device You can take to meetings and take notes Well, I see people with notebook computers at every meeting I go to taking notes so I don't think that's what it's about I think it's about handwriting input versus a keyboard and Handwriting recognition has been tried over and over again And even when you get a really good it turns out Apple Believe it or not after all that pain that they went through with Newton has the best handwriting technology in the world now It's way better than anything else. Really? Yeah, you know the problem. It doesn't matter. It's really slow to write stuff You know, you could never keep up with your email if you had to write it all out And so it turns out that people want keyboards I mean when I started in this business that one of the biggest challenges was people couldn't type you know and and and one day we realized that death would eventually take care of this and And so People know how to type now And and they if you if you if you do email of any volume You've got to have a keyboard. And so if you've got a device, that's a I don't know Bill said it's really easy to do a handwritten email last night You know So we look at that. We look at the tablet and and and and and we think it's gonna fail You think the tablets gonna yes we do

What about the tablet as a reading device because my own feeling having tested and I didn't give it a great review But what I said was and I believe this It's actual strength in a funny way is that it's a much more natural way to read like a long Web article or a long word document or PDF file or something then then a clamshell It it's really true. If you've got a bunch of rich guys who can afford their third computer, you know, they got a desktop They got a portable and now they're gonna have one of these to read with that's your market Okay, people accuse us of niche markets What about a PDA. I mean, I would point out for those who don't have an iPod that actually they have a, even though it's designed hardware and software as a music player, you can put your calendar and your contacts on your iPod now and you've even improved that a little with the new ones. What about a PDA?

Well, you know, my email address is out there and so I get an email every time somebody, you know, goes to the bathroom in Iowa. And we've got, I get a lot of emails about that. Over the years, we have tremendous pressure to do a PDA. And we thought about this a lot. And what we decided was that we believe that for everyone using, for all the universe of people using a PDA, 90% of them really just want to get the information out. Only 10% want to do major input on this thing. And so if what they really want is a repository for data that they can get out, occasionally putting in a phone number or correcting an address, we believe the cell phones are going to do that. And we saw that several years ago. We just see that the curve of cell phones going like this and you're going to have to have a phone in your pocket. So that's going to have to be the device that carries this information. And we started working rather than doing a, we didn't think that we were going to be successful in the cell phone business because of the carriers. I mean, we're not the greatest at selling the Fortune 500 and there's 500 of them, 500 CIOs that are orifices you have to go through to get to the Fortune 500. In the cell phone business, there's five in this country. So we don't even like 500. We'd rather run an ad for millions of people and let everybody make up their own mind. You can imagine what we thought about five.

And so we decided we might not be successful in that business. So what we've done instead is we've written, I think, some of the best software in the world to start syncing data from your personal computer onto your cell phone. Anyone who's used a Palm knows that there are two great revolutions in the Palm. One was the focused function and form factor, but the second was the dock, the cradle, that allowed you to sync it to your PC so that if you lost your Palm, you didn't lose your life. You could buy another one, stick it in there and refresh it and off you go. And so we believe that that mode is what cell phones need to get to. That's the mode we copied for the iPod, as an example. Where your personal computer is your hub, all your data is safe and secure there. You can enter it on a big screen with a real keyboard, et cetera, et cetera. Sync it to your phone.

You can still make changes on your phone. It's a little painful with that small keyboard, but you can do it on occasion. And yet, for 90% of the people plus, they're going to be able to get all the information they want out of that phone. And that's the direction we see it going. Well, so are you working with Nokia and Motorola and the other cell phone handset makers? Yes. Absolutely. Are you going to make this happen? Absolutely. Because really, unless you're talking about a combo like the Trio, which has a lot of PDA DNA in it, a regular phone, the calendar and the address book in there are terrible. Yeah, I know. They are terrible, but they're improving at a fairly rapid rate right now. So I think they're going to get there. So all of your fans who are predicting a PDA, predicting a phone. We chose instead to do the iPod instead of a PDA. That was our, that we put our resources behind that.

What about, how many iPods have you sold, by the way? Well, I don't know. As of today, we'd sold 700,000 a few months ago. And the new one's on fire. So I suspect we'll probably sell our millionth iPod sometime later this summer. What's the next step for that? Is it video? Is it photos? I mean, do I, why don't, why shouldn't I want to, there are already a couple on the market that can show videos and photos. Yeah, you know, we've clearly got stuff like that in the lab, too. And it turns out that, you know, watching movies on a tiny little screen is really not very much fun. And you again get into that fight between form factor, you want to put it in your pocket, and you want a giant screen to watch movies on.

So right now, the best way to watch movies on a portable device is to buy a personal computer and stick a DVD in it. And that's what, that's the most popular way to watch DVDs when you're away from your television. And I'm not convinced that people want to watch movies on a tiny little display they carry around. And photos, your family photos? Photos are nice. What you really want to be able to do is plug it into television when you get somewhere and show somebody your photos on your television. That kind of stuff will come over time. But one of the, you know, I paraphrase Bill Clinton when I, when I am in meetings like this and just keep saying, it's the music, stupid. It's the music. It's about music. People have, what's interesting is that, you know, putting photos on an iPod, putting movies on an iPod, these are speculative markets. Will people want to watch movies on a little portable device? Who knows? Somebody will try, we'll find out. But music, music's been around for a long time. You know, good tens of thousands of years.

Prior to 1977. Yeah, prior to 1977. And it will be around for an awful long time. And people have had portable ways to listen to music for a long time and it's huge. So this is not a speculative market. It's a real tangible market. And I think if we can bring some value to that market, then we'll succeed. So how come you were the, you were the company that was the latest, the last to figure out MP3s and music? That's interesting. If it's so universal and so obvious, I mean, you know. We maybe weren't quite the last, but we were certainly near the last. And the reason was, was because we were focused on video. What happened was Apple invented this technology called Firewire. And they licensed it to all these companies. And all the Japanese consumer electronics companies licensed it, put it into digital, new generation of digital, then new generation of digital camcorders. And the only company that forgot to put it in something was Apple. So we decided to put it in to one of the early iMacs. And we got some video editing software written. And we were very excited about that.

iMovie. iMovie, exactly. So the idea is you plug your camcorder into the computer. Yeah, no cards, no nothing. It was pristine digital quality. The movie just appears and you can edit it. Yes. And you could, and a mere mortal could edit it without reading a manual. And so we came out with iMovie and it was a really big hit. But then what do you do with your movie? You put it back on the camcorder and you can send a tape to your friends, but they might not have a camcorder to play it. So we clearly saw that the brass ring was to be able to write a DVD that you could send to your friends or grandma or whoever. And we pioneered the drives that could write DVDs. And we worked with Pioneer, who was way ahead of anybody else. And we wrote most of the software for that. And we wrote a software package called iDVD, which could make DVDs. And we were the first ones out with that. And we were so focused on that that this music thing happened around the side and we weren't paying enough attention to it. But we finally got hit over the head with a brick and saw that it was happening. And then we came on fairly strong. We put CD burners in almost every machine. We wrote iTunes, which some think is the best jukebox software in the world. And that led us in less than a year to the iPod. So we came on pretty strong when we came on.

And some people in the record business actually didn't realize you were late. They thought you were leading the charge to stealing music because of your ad slogan at the time, right? Right. We ran an ad. We called it Concert. And the slogan was Rip, Mix, Burn. And it turns out, you know, you laugh. And there were billboards that said that, right? Rip, Mix, Burn. Oh, yeah. We spent lots of money on this. Magazine covers. Magazines, billboards, and TV commercials. And it turns out what rip means, if you know young people that do this, is the word came from ripping the bits off a CD and putting them on your hard drive. That was where that phrase came from. Which means you have a physical CD, right? Theoretically yours. And you rip the bits off and you put them on your hard drive. Some industry executives who did not have teenagers living at home, especially some in Hollywood, thought rip meant rip off. And they did not do their customary homework.

And some of them even went to Washington and testified and held us up in effigy. But in reality, what it meant was get CDs and put them on your hard drive. So now you're in the music business, right? A little bit, yeah. Three weeks ago you announced what I think is the first usable, attractive, legal music service for downloading songs. You're a computer company. Why are you in that business? What's the deal there? Well again, the definition of what a computer company is, is morphing. A computer company is a company that cares deeply about digital photography now. A computer company is a company that cares deeply about digital movie making. Between iMovie and a pro product we have called Final Cut Pro, we're the largest video editing supplier in the world now. We're the largest pro video editing supplier with Final Cut Pro, much bigger than Avid now. And our stuff is used by more consumers than anyone else.

So we care deeply about video editing and we care deeply about music. And as you know, Napster and Kazaa hit the music industry like a tsunami. They didn't know what hit them for a few years. And everybody's threatening to sue everybody else and everybody's at war with everybody else. And we looked at this and we thought, gosh, there's got to be a middle path out of this. And when we did the iPod, we tried to walk a middle path. We said, you know, this thing could be the coolest thing ever invented and it could also be a theft shuttle. And we're optimists. We believe that 80% of the people stealing music don't really want to steal music. We think they'd rather be legal if somebody offered them a competitive, compelling way to be legal. And we felt that most of the people using an iPod really would want to use it in an honest way. So we put software in there that makes it so it's not so easy to make it a theft shuttle for a normal, honest person.

You could say that you crippled it for an honest person because it is perfectly legal to take your music from an iPod and move it from one of your computers to another. There's nothing illegal about that. And you didn't allow that. in some ways to try to walk that middle path. Everybody has to, both sides have to give up something to walk the middle path. And we did. We made it so that it will only sync with one version of iTunes. So if you take your iPod over to your friend's house, it'll put all their music on it, but it'll take yours off. If you take it back to your house, it won't put their music on your computer. It'll put yours back on and take theirs off. Unless you download one of 20 free utilities. If you want to get around it, you can. With all this talk of DRMs and this and that, I guarantee you there's nothing that can't be hacked. The question is, will it keep honest people honest? Will it give them a nudge in the honest direction?

And I think we did walk a really good middle path with the iPod. I think a lot of people have held it up and said, hey, this is pretty good, on both sides of that. When you did that, were you already thinking ahead that you wanted to do deals with the labels to do your music service? It had crossed our mind, but we hadn't started yet. So you were able to say to them, look how we constructed the iPod and all that? Yeah, but as Bill said last night, Apple also is one of the few companies in our industry that has a lot of intellectual property. I mean, other companies don't. But Microsoft, Apple, we have a lot of intellectual property. And software looks a lot like music, you know, bits on a disc to steal. We don't want people stealing our software either. So about three weeks ago, you launched this iTunes music store. And there are a lot of things that differentiate it, I think, from the other services, but one of the big ones is that you got better digital rights from the labels.

So that your customers at your store can do more with the songs they buy. They can actually buy them instead of renting them, and they have some freedom to do it. How did you do it? Why did they do that for you? Was it because you were in the movie business? Was it because you were charming? Was it, I mean, because they figured the Mac is only a tiny part of the world, it doesn't matter? Sure. You know, you've got to step back even a step further. One of the things I learned at Pixar is the technology industries and the content industries do not understand each other. In Silicon Valley and at most technology companies, I swear, most people still think the creative process is a bunch of guys in their early 30s sitting around on an old couch, drinking beer, thinking up jokes. No, they really do.

That's how television's made, they think. That's how movies are made. And I've seen from Pixar that couldn't be further from the truth. The folks on the creative side work as hard as any technology folks I've ever seen in my life. They're just as disciplined. The process is just as difficult and disciplined as an engineering process is. And the contrapositive's true, too, which is people in Hollywood and in the content industries, they think technology's something you just write a check for and buy. They do not believe that they're... They don't understand the creative element of technology. They don't understand that all technology's not created equal. They don't understand that this stuff is created by people working extraordinarily hard with passion, just like the creative talent that they have.

And so these are like ships passing in the night. I mean, one of the greatest achievements of Pixar was it brought these two cultures together and got them working side by side. And so when we looked at the music industry, most of the folks in the tech industries thought the record companies were completely brain-dead. You know, why haven't they jumped on this new business model? Why don't they understand where things are going? Well, it turns out that record companies, the most important thing they do is not distribute music. That's not what they do. It's not even market music. It's picking which of 500 people are going to be the next Sheryl Crow. That's what they do. And some of them do it quite well. And it's an intuitive process.

There's not enough data, but they have to pick, and they have to decide who to invest in, and they manage a portfolio, and some of them do it awfully well. And if they don't do that well, the rest of it doesn't matter. So that's what they do well, and people that do well at that end up running the music companies, the good ones anyway. And so it's not surprising that they didn't understand Napster. It's not surprising that they didn't understand that distributing their content over the Internet was the next big wave. And we went to them, and we talked to them about this, and they told us we were all wet. This was a few years ago. And we made a lot of predictions. We said, we think MusicNet and PressPlay are going to fail, and here's why, and this and this and this and this.

And they said, well, you're all wrong. Get out of here. And about nine months later, we started to get some phone calls. We went back to them, and they said, you know, talk to us some more, because you guys were right about some of this stuff. And we started talking to them about this middle path and about how their content needed to be protected from getting back onto the Internet for honest people, but their real competitor was Kazaa. That was their competitor. And Kazaa was offering unlimited CD burning. Kazaa was offering an ability to have your music where it never went away if you stopped paying your subscription fee. Kazaa was offering the ability to put your music on a portable player. And if they were not willing to offer the user those kinds of rights, they couldn't compete with Kazaa.

They might as well just put a big sign that says Kazaa this way. And they got it. These are smart guys. And I think one of the things that appealed to them about Apple was that, you know, we do have a smaller sandbox than the whole market, so if the thing went radioactive, it would only go radioactive on, you know, 10% of the market. And another thing I think that appealed to them was that we could do the whole thing. You know, we made the operating system. We could write the applications. We made the computers. We made the iPod. And we could control the whole thing. I think a third thing that appealed to them was we were a large company with a lot of money in the bank, and if we did something wrong, they knew who to sue. Hard to sue Kazaa. They're trying. Hard to sue Kazaa. Hard to sue some of these small companies. There's nothing there.

Well, I know you're very shy and usually don't like to do demos, and you're reluctant to promote Apple products, but everybody's heard about this store, and I'm betting that most of our audience has never seen it because for some reason they may not be Mac users. How many of you have never seen the iTunes Music Store? If you could raise your hands. So would you give us a few minutes, like a five-minute demo, and we'll take a look at it? So one of the most important things is in the iTunes Music Store, you get to buy your music. People have bought LPs. They've bought cassettes. They've bought CDs. And they want to buy downloads. People don't want to rent their music. Even the subscription services now, if you want to download on top of the subscription, you've got to pay money. You've got to pay $0.99 or $0.49 or whatever it is.

And to burn a CD, most of them charge you every time you burn the same track on a CD. So if you have your favorite song, you pay $9.99 a month plus you pay $0.50 to download it every time you want to burn it on a CD. So if you want to put it on 100 CDs, you're paying a lot of money for that. So people want to buy their music and own it, and that's what the iTunes Music Store lets you do. Second thing is, you can't do this with a web browser. Web browsers are really slow. They're not very interactive. And so you have to have a client application. If you're going to have a client application, the last thing you want is for it to put your downloaded music in some random folder somewhere that you've got to go dig out and then drag into your jukebox. So we decided to build it right into the jukebox itself. So here's iTunes. This is our jukebox. And what we did was we put over here a music store.

You're in it. When you download music, it puts it right in your jukebox. So the screen we're looking at now, this is coming from a server at Apple. This is coming from a server at Apple. The first screen was songs you have on your hard disk that you own. Yeah, these are the songs I have on my hard disk, and I own them. And this is our jukebox, and you can just, you know, play one. ♪ And you can go to the music store now. Here's the home page of the music store. And what it features is it shows us our top song downloads and top album downloads over here. And so I can get the songs over here. It shows us a few featured songs, new releases. New release Tuesday happened yesterday. This is when the music industry releases their new songs. You can look at those. Here's some featured artists over here. And so let me just go through a way of finding some music.

You can go over here and say, you know, your top album download, Jack Johnson. You know, here's an album of his. And in Jack Johnson, we can, you know, just go to a song and play it. Now, this is a really big deal. There are free 30, there's a free high-quality 30-second preview of every song on the store. And it turns out 30 seconds is a long time for a song. It's like 20% of a song. And so you can listen to what you might want to buy and move all around, and every single song has a preview. We also show you the, you know, the top downloads of that particular artist. So we'll go to another album here. Just click on these things. And up on the top here, it shows us the breadcrumbs, the home page, rock, Jack Johnson, and here's his album.

I can go to Jack Johnson if I want. And we'll go to his artist page right here. Here's the artist page for Jack. We can go to his website. We can see all of his albums. He's only got three albums out. He's a young artist. We can watch a video that he's got right here. We can stream a video if we want to. Okay, but the heart of this is that you can just buy the songs when you want them, right? Well, yes. Let's go back and find some songs some other ways. So we can go to an album here. We can say, you know, here's an old Fleetwood Mac album. And we have some exclusive tracks from artists that you can't even get on CDs. So these are some cuts from Fleetwood Mac that you can't even get on a CD. And to buy one of these tracks, all you do is you push this button.

And to buy one of these tracks, all you do is you push buy song. I have to type in my account here. Whoa, okay. They don't know who you are, Steve. They don't know who I am. Okay, this should work. Try one of your other passwords. I only have one. Try Yahoo. Yeah, try Yahoo. I'll get it. Okay. Anyway, you'd hit that download button and you'd download the song Wayne. You know a password that I don't know? No? Such is life. So let me go back to the home page. What's that? Jingle. Jingle. Oh, okay. Great. Everybody got that down? Great. So I push a button, it connects, and I'm downloading the song.

So now you can't take it back. You click. That's right. That song's getting downloaded. You click, you own it. We have one-click downloads. We have an online store that does between a billion and two billion dollars a year. We have one-click shopping. We're the only other folks in Amazon that do. We have extended that to one-click downloads. You click the button, it builds your credit card, downloads the song. So if your seven-year-old gets on this and starts clicking, you're hosed. Well, you have a lot of great music. Okay. And so now I can go to my purchase music playlist, and there's my song. And I've got, you know, album art here and whatever else I need. Now that song now is on this Mac. It's on the hard disk. It's on the hard disk. I own it. Nobody's ever going to take it away from me if I quit paying a monthly subscription fee. I can burn as many CDs as I want. I can put it on as many iPods as I want. I own it. And you can put it on how many computers?

Up to three Macs. No Windows computers? Not yet. Okay. But we're going to have a version of Windows by the end of the year. And what if I upload this to Kazaa? It will only play on those three Macs. So somebody else can download it, but... Won't be very interesting. Won't be very interesting. Yeah. Okay. So now let me go search for some music. I can search for, you know, Soak Up the Sun. And I can just type it in here. And boom, there's that album off of Sheryl Crow. That song, excuse me. And I can go back here and, again, go to Sheryl Crow's page. I can go to that album. I can see all the music that she's got. Pick any album. Go there. Play any of the songs I want. Now, there are some big artists you don't have on here. Yes, there are. I mean, you have, what, 200,000, 210,000, something like that?

Yeah, we have over 200,000 tracks. We don't have the Beatles yet. Some of the big artists have carve-outs in their contracts that don't allow the labels to distribute them online. We visited with many, many artists personally. Fortunately, most of them use Macs and they all have iPods. And so they were very, very trusting of us and let us put their music on here. But we don't have it all. We're getting more every single week. I want to show you one other thing on here that I love. All right. Just, you can type in a song. Oops, you've got to know how to type. One for the Road. It's an old song, One for the Road. And it's just amazing when you start getting these large music libraries, what you can see in here. Like, here's a bunch of versions of it. Here's Willie Nelson. ♪ And my friend, to the end of the episode ♪ Ella Fitzgerald.

♪ Drinking, my friend, to the end of a brief episode ♪ Henry Belafonte. Here we go. ♪ So sentimental, Joe ♪ Billie Holiday. ♪ So sentimental, Joe ♪ ♪ I've got a little story ♪ Bette Midler. You name it. ♪ For my baby and one more for me ♪ And, of course, Frank Sinatra. ♪ I hope you didn't mind my abandoning you here ♪ And if you wanted these, you just click that buy button and you own them. And one last way to find music is browse, which we've never seen before on anything online, which is all the genres here.

So you can pick, you know, I want rock and roll. You pick the rock genre. And this lists all the artists. You can find any one. And, you know, you just pick any one. It shows you all their albums. You can pick all their albums and see all their songs right here. Or you can pick any album and just see the songs on that album. Can we try one more thing? Sure. For some reason that I don't understand, Kara Swisher's favorite song is Copacabana by Barry Manilow. You have no idea how hard it was for me to stop her from playing that as one of the songs here at the conference. How do you spell it? Just put Manilow, maybe, and you can find it. I don't know. Just wondering if you have it. M-A-N-I-L-O-W. Is it a big seller on the Apple Store? I wouldn't know. And so we can sort by song and we can go down here.

And he's got 195 songs on here. And there's two versions of Copacabana. Copacabana. Am I right? I mean, you know, there it is. Great. Yeah, that's great. Thank you. All right. Let's just take some questions. All right. We have time for some questions, a few. Please come to the mics. Well, one of the other things I wanted to say about this that's really fun is, of course, we've gotten a lot of questions, are you going to sell videos this way? And maybe someday videos will be in the future, especially when we all get more bandwidth to our homes. But one of the great things about music is that you can deconstruct it down to these little 99-cent morsels.

And at 99 cents, you know, you can buy three songs for the price of a Starbucks latte. And so it's really kind of wonderful. You hear something on the radio, you get into work, you buy it. Let me ask you one more thing before we go to the questions. This looks great. And you have demoed it before, I think, we could tell. But everybody's going to have this, right, by the end of the year? You're going to have it on Windows. Our friend Rob Glazer, who's here, he has a music service, he's going to have it on Windows. Not the kind of thing they have now, but something like this. I read in the Wall Street Journal that Amazon's going to have it. Microsoft is trying to do it. So you no longer, you know, you look cool, you look great, you're on the covers of magazines, you get big articles. That's a six-month phenomenon, right? At the end of the year, you're just one of the guys, everybody has it.

Well, that's assuming it's really easy to do. And what we found, maybe these guys were a lot smarter than us, they probably are, but we found it's pretty hard to do. You don't really believe that? I don't know, we'll find out. We think it's really hard to do. It's really hard to get the labels to give you the rights that you need. And I don't see them sprinkling those rights around everywhere, letting a thousand flowers grow quite yet. It's really hard to write software, you know, and do a good job at it. So, you know, this is not something that can be done well on a web browser. You need a client application, and you need a jukebox. You've got to own a jukebox, so that kind of cuts it down a little bit. So we've got MusicMatch, they have a jukebox. Yeah, you've got MusicMatch. Reel has a jukebox. Reel and Microsoft and others. So it gets you down to a handful of players, and it's an awful lot of work.

And then you might say, you know, it would be great if you could put it on portable players. And, you know, you might want to put it on the most popular portable player, which is an iPod. And so, you know, we like to sell iPods, so we're really open to working with those folks. But, you know, so far, very few of them have even come and asked for that. And so we'll find out. We'll find out. But I think it might be a little harder than it seems. Yes, ma'am. Steve, you talk about handwriting and keyboard. How about speeches use interface? People have been talking about it for years. You know, the last part of that question is exactly right. I've been in this industry almost 30 years, and speech has always been five years away. It's been constant time to completion, just moving along five years away. And most of the really smart people in speech I know have gotten out of the field.

It's like nuclear fusion. A lot of bright people went into it, and people now think it's a ways away. Now, you can do adequate speech today, but it means you're correcting a lot of stuff. If you just have, you know, even a 1% error, it drives you nuts because it turns out you can speak a lot of words, you know, in a five-minute interval. So it's got to be very accurate. And so far, no one's come up with the technology. I mean, Apple's got a very—we've got a speech group working on stuff. Microsoft has a group. A lot of great work's being done in academia. But it doesn't look like it's going to be real any time soon. I wish it was different. Yes, sir. Steve, in addition to music and video, Apple has been one of the early, early leaders and proponents of Wi-Fi at the airport.

What are you currently planning as the equivalent of the music store for wireless? You're correct. Apple was the first computer company to ship really a low-cost Wi-Fi device with airport three and a half years ago, maybe three. And we've sold a lot of Wi-Fi products. We were the first ones to ship 802.11G at the beginning of this year, which is a 54 megabit per second version of 802.11, which is backwards compatible with B. And G is clearly going to be the next standard. A lot of folks made a lot of noise about A, but A is going to fail and G is going to be the next one because it's compatible with everything that's out there and A is not. And we're shipping a whole lot of that. So, you know, we're building it into all of our computers.

We have for a few years now. And we've built it into the software so that it's completely seamless now. And that's what we're doing. I think like any network, it'll just disappear and it'll just be there for you. Except in this room. Except in this room. Steve, the Internet piracy has been blamed for a lot of the decline in sales in the music industry. But as I think about it from their perspective, much of their growth has come from essentially unwanted bundling for a long period of time. When you bought an album that had 12 or 13 or 14 songs, two of which you really wanted, and the rest you really wouldn't buy on an all-or-five basis. If you look at the margin structure of that business, versus what will happen in an all-apart universe where you can buy things individually, it seems like there's a huge leg down yet in margins for that business.

If you're successful, and if the industry is successful in this, what happens? With EMI teetering on the edge of bankruptcy today, what happens to the industry, or does it just radically evaporate? Well, you know, that is the conventional wisdom, but I don't think it's true. And it turns out, you're right, a lot of the music companies, most of the music companies, are losing a lot of money right now. What we've found so far, in four weeks of operation, is that over half the tracks we've sold, we've sold over three million tracks, over half the tracks we've sold were bought as albums. Isn't that amazing? Making it so easy to buy a $0.99 song, over half the tracks we've sold so far have been sold as albums. And what do albums cost, typically? We made the song pricing uniform at $0.99, the albums float a little bit based on what we buy them for from the labels.

So they're $7.99 to $11, $12.99, but almost all of them are $9.99. And don't you think, maybe, that this high rate of album purchases, just because you're at the very beginning of this, people are kind of thinking in terms of albums, but as he said, maybe over time, it'll be lower and lower and lower, and people will just buy a la carte singles. I think the answer is nobody knows, but my personal belief, and this is just a guess, is that the labels will be lowering album prices over time and keep enticing you to buy the albums, and that a significant share of the songs sold will continue to be albums. The other interesting thing that we've learned, though, is that the record labels, you can only buy about 20% of a catalog that a record label owns, right? Like, if you take Warner, a great record company, you can only buy about 20% of their songs.

Why is that? Because the rest of them don't sell enough for the record stores to carry the CDs. They won't carry the inventory. So 80% of music we've never heard over the last, you know, few decades. It's in a vault somewhere, I hope, but it's not on the record store shelves. Well, when you don't have inventory, like in an online store, all of a sudden, that catalog can open up, and you can find stuff you've never heard before. And I expect that the catalogs are going to be worth a lot. Tim. I'd be interested in your response to a question that Walt asked Bill last night. But if you were 17 years old and starting all over again, what would you put your bets on? Intellectually, I mean, when I was 17 years old, I didn't imagine I would be in technology, so I don't know.

But intellectually, the most exciting thing to me is, you know, biosciences. Okay. Yeah. Excellent lead-in. Has, is Apple thinking at all about using this architecture of these distributed devices having centralized information, making that information more personal in that area of medicine or biosciences or biomechanical devices, anything at all to basically help individuals in that realm? We haven't so far. A really, really good old friend of mine, really smart person I know, suggested that to me just yesterday. And, you know, I certainly think it's something our industry should take a look at, but I don't think there's a lot of work going on today.

Thanks. I'd be interested in hearing, since you came back to a struggling Apple six years ago, what's the hardest decision you've had to make in the last six years? Always the hardest decision I think anybody leading an organization makes is to let people go. And at the beginning at Apple, it was pretty tough. Apple was in worse shape than I thought when I joined. I'd just come back temporarily at the beginning. And the individual contributors were unbelievable. I asked a lot of them, why in the heck did you stay? And they had a phrase that I'd heard several times. They said, well, we bleed six colors. But the folks that were less good was the management. And we had to change management of the company.

And so we had to let people go. And, you know, when you're a little younger and you don't have a family of your own, maybe it's a little easier. You don't think about it as much. But when you start to have a family of your own and kids, you realize that the person you're laying off has got to go home and tell their family they don't have a job. And it's pretty tough. It's pretty tough. So that was, I think, the hardest thing I've had to do in the last many years. Now, fortunately, you know, we got that out of the way in the first year. And our competitors have laid off tens of thousands of people in the last two and a half years. And we haven't. We haven't had no big layoffs. And we decided to innovate our way through this downturn. And so we're turning out more products now than we ever have in the company's history. But the first year was very hard.

Thanks very much, Steve. Thank you, Will. Thank you. Thank you. Thank you.