Walt: What was the most fun? Tell the story about the most fun that was later.
Kara: Or maybe later, not the most fun.
Walt: Let them talk.
Kara: Teasing.
Bill: Well, you know, Steve can probably start it better. The team that was assembled there to do the Macintosh was a very committed team. And there was an equivalent team on our side that just got totally focused on this activity. Jeff Harbers, a lot of incredible people. And we had really bet our future on the Macintosh being successful, and then, hopefully, graphics interfaces in general being successful, but first and foremost, the thing that would popularize that being the Macintosh.
So we were working together. The schedules were uncertain. The quality was uncertain. The price. When Steve first came up, it was going to be a lot cheaper computer than it ended up being, but that was fine.
Kara: So you worked in both places?
Bill: Well, we were in Seattle and we’d fly down there.
Walt: But Microsoft, if I remember correctly from what I’ve read, wasn’t Microsoft one of the few companies that were allowed to even have a prototype of the Mac at the time?
Steve: Yeah. What’s interesting, what’s hard to remember now is that Microsoft wasn’t in the applications business then. They took a big bet on the Mac because this is how they got into the apps business. Lotus dominated the apps business on the PC back then.
Bill: Right. We’d done just MultiPlan, which was a hit on the Apple II, and then Mitch did an incredible job betting on the IBM PC and 1-2-3 came in and, you know, ruled that part of the business. So the question was, what was the next paradigm shift that would allow for an entry? We had Word, but WordPerfect was by far the strongest in word processing dBase database.
Walt: And Word was kind of a DOS text …
Bill: All of these products I’m saying were DOS-based products.
Walt: Right.
Bill: Because Windows wasn’t in the picture at the time.
Walt: Right.
Bill: That’s more early ’90s that we get to that. So we made this bet that the paradigm shift would be graphics interface and, in particular, that the Macintosh would make that happen with 128K of memory, 22K of which was for the screen buffer, 14K was for the operating system. So it was …
Walt: 14K?
Bill: Yeah.
Walt: The original Mac operating system was 14K?
Bill: 14K that we had to have loaded when our software ran. So when the shell would come up, it had all the 128K.
Steve: The OS was bigger than 14K. It was in the 20s somewhere.
Walt: I see.
Steve: We ship these computers now with, you know, a gigabyte, 2 gigabytes of memory, and nobody remembers 128K.
Walt: I remember that. I remember paying a lot of money for computers with 128K in those days. So the two companies worked closely on the Mac project because you were maybe not the only, but the principal or one of the principal software creators for it, is that right?
Steve: Well, Apple did the Mac itself, but we got Bill and his team involved to write these applications. We were doing a few apps ourselves. We did MacPaint, MacDraw and stuff like that, but Bill and his team did some great work.
Kara: Now, in terms of moving forward after you left and your company grew more and more strong, what did you think was going to happen to Apple after sort of the disasters that occurred after Steve left?
Bill: Well, Apple, they hung in the balance. We continued to do Macintosh software. Excel, which Steve and I introduced together in New York City, that was kind of a fun event, that went on and did very well. But then, you know, Apple just wasn’t differentiating itself well enough from the higher-volume platform.
Walt: Meaning Windows, right?
Bill: DOS and Windows.
Walt: OK. But especially Windows in the ’90s began to take off.
Bill: By 1995, Windows became popular. The big debate wasn’t sort of Mac versus Windows. The big debate was character mode interface versus graphics mode interface. And when the 386 came and we got more memory and the speed was adequate and some development tools came along, that paradigm bet on GUI paid off for everybody who’d gotten in early and said, you know, this is the way that’s going to go.
Walt: But Apple wasn’t able to leverage its products?
Bill: After the 512K Mac was done, the product line just didn’t evolve as fast–Steve wasn’t there–as it needed to. And we were actually negotiating a deal to invest and make some commitments and things with Gil Amelio. No, seriously.
Kara: Don’t be mean to him.
Bill:I’m sorry?
Kara: Just saying the word Gil Amelio, you can see his…
Bill: So I was calling him up on the weekend and all this stuff and next thing I knew, Steve called me up and said, “Don’t worry about that negotiation with Gil Amelio. You can just talk to me now.” And I said, “Wow.”
Steve: Gil was a nice guy, but he had a saying. He said, “Apple is like a ship with a hole in the bottom leaking water and my job is to get the ship pointed in the right direction.”
Walt: Meanwhile, through all this–I want to get back to the thing we saw in 1997 at Macworld there–but Windows was just going great guns. I mean, Windows 95, to whatever extent earlier versions of Windows had not had all the features, all the GUI stuff that the Mac had, and Windows 95 really was an enormous, enormous leap.
Bill: Yeah. Windows 95 is when graphics interface became mainstream and when the software industry realized, wow, this is the way applications are going to be done. And it was amazing that it was ridiculed sort of in ’93, ’94, was not mainstream, and then in ’95, the debate was over. It was kind of just a commonsense thing. And it was a combination of hardware and software maturity getting to a point that people could see it.
Walt: So I don’t want to go through every detail, the whole history of how you came back, but…
Steve: Thank you.
Walt: But you in that video we all saw, you said you had decided that it was destructive to have this competition with Microsoft. Now, obviously, Apple was in a lot of trouble and I presume that there was some tactical or strategic reason for that, as well as just wanting to be a nice guy, right?
Steve: You know, Apple was in very serious trouble. And what was really clear was that if the game was a zero-sum game where for Apple to win, Microsoft had to lose, then Apple was going to lose. But a lot of people’s heads were still in that place.
Kara: Why was that, from your perspective?
Steve: Well, a lot of people’s heads were in that place at Apple and even in the customer base because, you know, Apple had invented a lot of this stuff and Microsoft was being successful and Apple wasn’t and there was jealousy and this and that. There was just a lot of reasons for it that don’t matter.
But the net result of it was, was there were too many people at Apple and in the Apple ecosystem playing the game of, for Apple to win, Microsoft has to lose. And it was clear that you didn’t have to play that game because Apple wasn’t going to beat Microsoft. Apple didn’t have to beat Microsoft. Apple had to remember who Apple was because they’d forgotten who Apple was.
So to me, it was pretty essential to break that paradigm. And it was also important that, you know, Microsoft was the biggest software developer outside of Apple developing for the Mac. So it was just crazy what was happening at that time. And Apple was very weak and so I called Bill up and we tried to patch things up.
Bill: And since that time, we’ve had a team that’s fairly dedicated to doing the Mac applications and they’ve always been treated kind of in a unique way so that they can have a pretty special relationship with Apple. And that’s worked out very well. In fact, every couple years or so, there’s been something new that we’ve been able to do on the Mac and it’s been a great business for us.
Steve: And it’s actually–the relationship between the Mac development team at Microsoft and Apple is a great relationship. It’s one of our best developer relationships.
Kara: And do you look at yourselves as rivals now? Today as the landscape has evolved–and we’ll talk about the Internet landscape and everything else and other companies that have [gone] forward, but how do you look at yourselves in this landscape today?
Walt:Because, I mean, you are competitors in certain ways, which is the American way, right?
Kara: We watch the commercials, right?
Walt: And you get annoyed at each other from time to time.
Kara: Although you know what? I have to confess, I like PC guy.
Walt: Yeah, he’s great.
Kara: Yeah, I like him. The young guy, I want to pop him.
Steve: The art of those commercials is not to be mean, but it’s actually for the guys to like each other. Thanks. PC guy is great. Got a big heart.
Bill: His mother loves him.
Steve: His mother loves him.
Kara:I’m telling you, I like PC guy totally much better.
Steve: Wow.
Kara: I do. I don’t know why. He’s endearing. The other guy’s a jackass.
Steve: PC guy’s what makes it all work, actually.
Walt: All right.
Steve: It’s worth thinking about.
Kara: So how do you look at yourselves?
Walt: I mean, let me just ask you, Bill. Obviously, Microsoft is a much larger company, you’re in many more markets, many more types of products than Apple is. You know, when you were running the company or when Steve Ballmer is running the company, you think obviously about Google, you think about, I don’t know, Linux in the enterprise, you think about Sony in the game area. How often is Apple on your radar screen at Microsoft in a business sense?
Bill: Well, they’re on the radar screen as an opportunity. In a few cases like the Zune, if you go over to that group, they think of Apple as a competitor. They love the fact that Apple’s created a gigantic market and they’re going to try and come in and contribute something to that.
Steve: And we love them because they’re all customers.
Walt: I have to tell you, I was actually told by J Allard, I’m serious, that because of the nature of the processor, the development platform they used to develop a lot of the software for the Xbox 360 was Macs. And he claimed that at one point, they had, like, placed the biggest order for whatever the Mac tower was at the time of anybody, and it was Microsoft.
Bill: I don’t know if it was the biggest, but, yeah, we had the same processor essentially that the Mac had. This is one of those great ironies is they were switching away from that processor while the Xbox 360 was adopting it. But for good reasons, actually, in both cases. Because we’re not in a portable application and that was one of the things that that processor road map didn’t have. But yes, it shows pragmatism, but we try and do things that way. So that was the development system for the early people getting their software ready for the introduction of Xbox 360.
Steve: And we never ran an ad on that.
Walt: I see. Admirable restraint. That’s wonderful restraint.
Steve: There were hundreds of them.
Bill: Steve is so known for his restraint.
Kara: How do you look at Microsoft from an Apple perspective? I mean, you compete in computers and…
Walt: I mean, you can say you don’t compete, you know, the era of destructive whatever, whatever you said in 1997, but you think–you’re consciously aware of what they’re doing with Windows, you followed Vista closely, I think.
Steve: You know, what’s really interesting is–and we talked about this earlier today–if you look at the reason that the iPod exists and the Apple’s in that marketplace, it’s because these really great Japanese consumer electronics companies who kind of own the portable music market, invented it and owned it, couldn’t do the appropriate software, couldn’t conceive of and implement the appropriate software.
Because an iPod’s really just software. It’s software in the iPod itself, it’s software on the PC or the Mac, and it’s software in the cloud for the store.
And it’s in a beautiful box, but it’s software. If you look at what a Mac is, it’s OS X, right? It’s in a beautiful box, but it’s OS X. And if you look at what an iPhone will hopefully be, it’s software.
And so the big secret about Apple, of course–not-so-big secret maybe–is that Apple views itself as a software company and there aren’t very many software companies left, and Microsoft is a software company.
And so, you know, we look at what they do and we think some of it’s really great, and we think a little bit of it’s competitive and most of it’s not.
You know, we don’t have a belief that the Mac is going to take over 80% of the PC market. You know, we’re really happy when our market share goes up a point and we love that and we work real hard at it, but Apple’s fundamentally a software company and there’s not a lot of us left and Microsoft’s one of them.
Walt: But you may be fundamentally a software company, but you’ve been known, at least to your customers and to most journalists as the company that kind of pays a lot of attention to integrating software and hardware.
Microsoft has made some recent moves to be a little more like that, obviously not in your core biggest businesses, but with Xbox and Zune and, you know, the Surface computing device we saw today is another example.
These aren’t markets that hold up in size to Windows or Office, but they’re some of your more recent initiatives.
Are the companies’ approaches to this merging a little or …
Steve: Alan Kay had a great quote back in the ’70s, I think. He said, “People that love software want to build their own hardware.”
Walt: Well, Bill loves software.
Steve: Oh, I can resist that.
Bill: The question is, are there markets where the innovation and variety you get is a net positive? The negative is that in the early stage, you really want to do the two together so you want to do prototyping and things like that, you know, really as one thing.
And then take the phone market. We think we’re on 140 different kinds of hardware. We think it’s beneficial to us that even if we did a few ourselves, it wouldn’t give us what we have through those partnerships.
Likewise, if you take the robotics market, very undeveloped. We have over 140 tiny-volume robots using Microsoft software. And the creativity, building toys, security things, medical things, we love the innovation and the ecosystem that’s going to grow up–who knows when, but we’re patient–around that and we’ll have a great asset with this robotic software platform.
So there are things like PC, phone, and robot where the Microsoft choice is to go for the variety. Apple, it’s great. For them, they do what works super well for them.
And there’s a few markets like Xbox 360, Zune, and this year we have two new ones, the Surface thing and this RoundTable, which is the meeting-room thing, where we’ll actually, through subcontractors, but the P&L on the risk and all that for the hardware, the design is completely a Microsoft thing.
Walt: The RoundTable: Is that something you’ve announced or were you just announcing it here?
Bill: We’ve shown prototypes of it. That’s the thing where it’s got the 360-degree …
Walt: Oh, right. It’s like Cisco has something in that market and HP too, right?
Bill: Oh, HP has a very high-end thing that’s a tiny bit like it, but anyway.
Walt: All right. Do you ever regret–was there something you might have wanted to do differently? And maybe you feel like this happened after you left Apple, something you might have done differently where you could have had a much bigger market share for the Mac?
Steve: Well, before I answer that, let me make a comment on Bill’s answer there, which is, it’s very interesting, in the consumer market and the enterprise market, they’re very different spaces. And in the consumer market, at least, I think one can make a pretty strong case that outside of Windows on PCs, it’s hard to see other examples of the software and hardware being decoupled working super well yet.
It might in the phone space over time. It might. But it’s not clear. It’s not clear. You can see a lot more examples of the hardware/software coupling working well. So I think this is one of the reasons we all, you know, come to work every day is because nobody knows the answers to some of these questions. And we’ll find out over the coming years and maybe both will work fine and maybe they won’t.
Walt: Yeah.
Steve: Yeah. It’s good to try both approaches . In some product categories–take music players–the solo design worked better. In the PC market, the variety of designs at this stage has a higher share.
Walt: It has a higher share? It has a lot higher share.
Steve: It’s not that much different than music players the other way around.
Walt: Is there some moment you feel like I should have done this or Apple should have done that, and we could have had …
Kara: You stuck to this idea of the hardware/software integration and it’s working very well right now.
Steve: There’s a lot of things that happened that I’m sure I could have done better when I was at a Apple the first time and a lot of things that happened after I left that I thought were wrong turns, but it doesn’t matter. It really doesn’t matter and you kind of got to let go of that stuff and we are where we are. So we tend to look forward.
And, you know, one of the things I did when I got back to Apple 10 years ago was I gave the museum to Stanford and all the papers and all the old machines and kind of cleared out the cobwebs and said, let’s stop looking backwards here. It’s all about what happens tomorrow. Because you can’t look back and say, well, gosh, you know, I wish I hadn’t have gotten fired, I wish I was there, I wish this, I wish that. It doesn’t matter. And so let’s go invent tomorrow rather than worrying about what happened yesterday.
Kara: We’re going to talk a little bit tomorrow, but let’s talk about today, the landscape of how you see the different players in the market and how you look at what’s developing now. What has surprised both of you since having been around for so long, and still very active and everything, and your companies are still critically key companies There are many, many companies that are becoming quite powerful. How do you look at the landscape at this moment and what’s happening especially in the Internet space?
Steve: I think it’s super healthy right now. I think there’s a lot of young people out there building some great companies who want to build companies, who aren’t just interested in starting something and selling it to one of the big guys, but who want to build companies. And I think there’s some real exciting companies getting built out there. Some next-generation stuff that, you know, some of us play catch-up with and, you know, some of us find ways to partner with and things like that, but there’s a lot of activity out there now, wouldn’t you say?
Bill: Yeah, I’d say it’s a healthy period. The notion of what the new form factors look like, what natural interface can do, the ability to use the cloud, the Internet, to do part of the task in a complementary way to the local experience, there’s a lot of invention that the whole approach of start-ups, the existing companies who do research, we’ll look back at this as one of the great periods of invention.
Steve: I think so, too. There’s a lot of things that are risky right now, which is always a good sign, you know, and you can see through them, you can see to the other side and go, yes, this could be huge, but there’s a period of risk that, you know, nobody’s ever done it before.
Kara: Do you have an example?
Steve: I do, but I can’t say.
Kara: OK.
Steve: But I can say, when you feel like that, that’s a great thing.
Kara: Right.
Steve: That’s what keeps you coming to work in the morning and it tells you there’s something exciting around the next corner.
Walt: OK. So the two of you have certainly–you’re involved every day with the Internet, you have Internet products, you have a whole slew of stuff on the Internet, you have iTunes and “.Mac” and all of that, but on another level, you’re the guys who represent the rich client, the personal computer, the, you know, big operating system and all that. And there is a certain school of thought–and I’m sure it’s shared by some people in the room–that this is all migrating to the cloud and you’ll need a fairly light piece of hardware that won’t have to have all that investment, all the kind of stuff you guys have done throughout your careers. So as much as people might think of you as rivals, one way to think of you is the two guys …
Steve: We’re both dinosaurs?
Walt: Huh?
Steve: That we’re both dinosaurs?
Walt: Dinosaurs? Yeah, whatever. I can talk about that. No, seriously …
Kara: You’re betting on a system that is changing.
Walt: In five years, is the personal computer still going to be the linchpin of all this stuff?
Bill: Well, you can say that it will be predicted that it won’t be. You know, the network computer took this over about, whatever, five years ago we disappeared. Remember the single-function computer? There was somebody who said that these general purpose things are kind of a dumb idea.
Kara: Larry Ellison.
Bill: The mainstream is always under attack. The thing that people don’t realize is that you’re going to have rich local functionality, I mean, at least our bet, whereas you get things like speech and vision, as you get more natural form factors, it’s a question of using that local richness together with the richness that’s elsewhere.
And as you look at the device, say, that’s connecting to the TV set or connecting in the car, there are lighter-weight hardware Internet connections, but when you come to the full screen rich, you know, edit the document, create things, you know, I think we’re nowhere near where we could be on making that stronger.
Steve: I’ll give you a concrete example. I love Google Maps, use it on my computer, you know, in a browser. But when we were doing the iPhone, we thought, wouldn’t it be great to have maps on the iPhone? And so we called up Google and they’d done a few client apps in Java on some phones and they had an API that we worked with them a little on. And we ended up writing a client app for those APIs. They would provide the back-end service. And the app we were able to write, since we’re pretty reasonable at writing apps, blows away any Google Maps client Just blows it away. Same set of data coming off the server, but the experience you have using it is unbelievable. It’s way better than the computer. And just in a completely different league than what they’d put on phones before.
And, you know, that client is the result of a lot of technology on the client, that client application. So when we show it to them, they’re just blown away by how good it is. And you can’t do that stuff in a browser.
So people are figuring out how to do more in a browser, how to get a persistent state of things when you’re disconnected from a browser, how do you actually run apps locally using, you know, apps written in those technologies so they can be pretty transparent, whether you’re connected or not.
But it’s happening fairly slowly and there’s still a lot you can do with a rich client environment . At the same time, the hardware is progressing to where you can run a rich client environment on lower and lower cost devices, on lower and lower power devices. And so there’s some pretty cool things you can do with clients.
Walt: OK. So you’re saying rich clients still matter, but–maybe I misunderstood you, but your example was about a rich client that is not a personal computer as we have thought of a personal computer.
Steve: What I’m saying is, I think the marriage of some really great client apps with some really great cloud services is incredibly powerful and right now, can be way more powerful than just having a browser on the client.
Kara: You’re talking about a software company being a software and services company rather than a …
Steve:I’m saying the marriage of these services plus a more sophisticated client is a very powerful marriage.
Walt: Bill?
Bill: Yeah. Architecturally, the question is, do you run just in the cloud and all you have downloaded locally is the browser? And that is the same question for the phone as it is for the full-screen device. There will always be different screen sizes because these are, you know, the 5-inch screen does not really compete with the 20-inch screen, does not compete with the big living room screen. Those are things that there will be some type of computing behind all of those things, all connected to the Internet, but the idea that locally you have the responsiveness of immediate interaction without the latency or bandwidth limitations that you get if you try and do it all behind, that’s what leads to the right balance.
Bill: That’s what leads to the right balance.
Kara: What does that device look like in five years? What would be your principal device? Is there one or…
Walt: I could be wrong, I think you carry a tablet with you, right?
Bill: Right.
Walt: Which has not necessarily stormed the world yet.
Bill: Yeah. This is like Windows 1992, I think . That is, I’m unrepentant on my belief.
Walt: OK. But to go back to Kara’s point, what would you each imagine that you would carry as your principal, let’s say, thing to do the Web and…
Kara: I mean, Jeff Hawkins showed a very lightweight device.
Walt: Yeah. I don’t know if you guys saw, but Jeff Hawkins showed a Linux-based, very small–I think he called it a companion to a smart phone today.
Kara: A phone companion, which sounded a little naughty.
Walt: It doesn’t matter, you weren’t there, but what would you think you each would be–I assume you carry a tablet PC. I don’t know what brand it is. Maybe you change them up, I don’t know. You obviously carry a MacBook Pro, I would guess, or a MacBook.
Steve: Yeah. Well, and an iPhone.
Walt: And an iPhone?
Kara: You have one?
Steve: I do.
Kara: Right here?
Steve: Yes.
Walt: Well, he has one. He took it out before. Really.
Kara: Sorry.
Walt: He flashed his iPhone earlier today.
Kara: Anyway, go ahead. So what is your device? What’s the device that we should be carrying?
Walt: What’s your device in five years that you rely on the most?
Bill: I don’t think you’ll have one device. I think you’ll have a full-screen device that you can carry around and you’ll do dramatically more reading off of that.
Kara: Light.
Bill: Yeah. I mean, I believe in the tablet form factor. I think you’ll have voice. I think you’ll have ink. You’ll have some way of having a hardware keyboard and some settings for that. And then you’ll have the device that fits in your pocket, which the whole notion of how much function should you combine in there, you know, there’s navigation computers, there’s media, there’s phone. Technology is letting us put more things in there, but then again, you really want to tune it so people know what they expect. So there’s quite a bit of experimentation in that pocket-size device. But I think those are natural form factors and that we’ll have the evolution of the portable machine. And the evolution of the phone will both be extremely high volume, complementary–that is, if you own one, you’re more likely to own the other.
Kara: And then at home, you’d have a setup that they all plug into?
Bill: Well, home, you’ll have your living room, which is your 10-foot experience, and that’s connected up to the Internet and there you’ll have gaming and entertainment and there’s a lot of experimentation in terms of what content looks like in that world. And then in your den, you’ll have something a lot like you have at your desk at work. You know, the view is that every horizontal and vertical surface will have a prrojector so you can put information, you know, your desk can be a surface that you can sit and manipulate things.
Walt: Can I please have a room in my house that doesn’t have a screen and a projector in it?
Bill: You bet.
Walt: Thanks.
Bill: The bathroom.
Walt: Well…
Kara: That’s the perfect place for it, actually.
Walt: So what’s your five-year outlook at the devices you’ll carry?
Steve: You know, it’s interesting. The PC has proved to be very resilient because, as Bill said earlier, I mean, the death of the PC has been predicted every few years.
Walt: And here when you’re saying PC, you mean personal computer in general, not just Windows PCs?
Steve: I mean, personal computer in general.
Walt: Yeah, OK.
Steve: And, you know, there was the age of productivity, if you will, you know, the spreadsheets and word processors and that kind of got the whole industry moving. And it kind of plateaued for a while and was getting a little stale and then the Internet came along and everybody needed more powerful computers to get on the Internet, browsers came along, and it was this whole Internet age that came along, access to the Internet.
And then some number of years ago, you could start to see that the PC that was taken for granted, things had kind of plateaued a little bit, innovation-wise, at least.
And then I think this whole notion of the PC–we called it the digital hub, but you can call it anything you want, sort of the multimedia center of the house, started to take off with digital cameras and digital camcorders and sharing things over the Internet and kind of needing a repository for all that stuff and it was reborn again as sort of the hub of your digital life.
And you can sort of see that there’s something starting again. It’s not clear exactly what it is, but it will be the PC maybe used a little more tightly coupled with some back-end Internet services and some things like that. And, of course, PCs are going mobile in an ever greater degree.
So I think the PC is going to continue. This general purpose device is going to continue to be with us and morph with us, whether it’s a tablet or a notebook or, you know, a big curved desktop that you have at your house or whatever it might be. So I think that’ll be something that most people have, at least in this society. In others, maybe not, but certainly in this one.
But then there’s an explosion that’s starting to happen in what you call post-PC devices, right? You can call the iPod one of them. There’s a lot of things that are not…
Walt: You can get into trouble for using that term. I want you to know that.
Steve: What?
Walt:I’m kidding. Post-PC devices.
Steve: Why?
Walt: People write letters to the editor, they complain about it. Anyway, go ahead.
Steve: Okay. Well, anyway, I think there’s just a category of devices that aren’t as general purpose, that are really more focused on specific functions, whether they’re phones or iPods or Zunes or what have you. And I think that category of devices is going to continue to be very innovative and we’re going to see lots of them.
Kara: Give me an example of what that would be.
Steve: Well, an iPod as a post-PC…
Kara: Well, yeah.
Steve: A phone as a post-PC device.
Kara: Or maybe later, not the most fun.
Walt: Let them talk.
Kara: Teasing.
Bill: Well, you know, Steve can probably start it better. The team that was assembled there to do the Macintosh was a very committed team. And there was an equivalent team on our side that just got totally focused on this activity. Jeff Harbers, a lot of incredible people. And we had really bet our future on the Macintosh being successful, and then, hopefully, graphics interfaces in general being successful, but first and foremost, the thing that would popularize that being the Macintosh.
So we were working together. The schedules were uncertain. The quality was uncertain. The price. When Steve first came up, it was going to be a lot cheaper computer than it ended up being, but that was fine.
Kara: So you worked in both places?
Bill: Well, we were in Seattle and we’d fly down there.
Walt: But Microsoft, if I remember correctly from what I’ve read, wasn’t Microsoft one of the few companies that were allowed to even have a prototype of the Mac at the time?
Steve: Yeah. What’s interesting, what’s hard to remember now is that Microsoft wasn’t in the applications business then. They took a big bet on the Mac because this is how they got into the apps business. Lotus dominated the apps business on the PC back then.
Bill: Right. We’d done just MultiPlan, which was a hit on the Apple II, and then Mitch did an incredible job betting on the IBM PC and 1-2-3 came in and, you know, ruled that part of the business. So the question was, what was the next paradigm shift that would allow for an entry? We had Word, but WordPerfect was by far the strongest in word processing dBase database.
Walt: And Word was kind of a DOS text …
Bill: All of these products I’m saying were DOS-based products.
Walt: Right.
Bill: Because Windows wasn’t in the picture at the time.
Walt: Right.
Bill: That’s more early ’90s that we get to that. So we made this bet that the paradigm shift would be graphics interface and, in particular, that the Macintosh would make that happen with 128K of memory, 22K of which was for the screen buffer, 14K was for the operating system. So it was …
Walt: 14K?
Bill: Yeah.
Walt: The original Mac operating system was 14K?
Bill: 14K that we had to have loaded when our software ran. So when the shell would come up, it had all the 128K.
Steve: The OS was bigger than 14K. It was in the 20s somewhere.
Walt: I see.
Steve: We ship these computers now with, you know, a gigabyte, 2 gigabytes of memory, and nobody remembers 128K.
Walt: I remember that. I remember paying a lot of money for computers with 128K in those days. So the two companies worked closely on the Mac project because you were maybe not the only, but the principal or one of the principal software creators for it, is that right?
Steve: Well, Apple did the Mac itself, but we got Bill and his team involved to write these applications. We were doing a few apps ourselves. We did MacPaint, MacDraw and stuff like that, but Bill and his team did some great work.
Kara: Now, in terms of moving forward after you left and your company grew more and more strong, what did you think was going to happen to Apple after sort of the disasters that occurred after Steve left?
Bill: Well, Apple, they hung in the balance. We continued to do Macintosh software. Excel, which Steve and I introduced together in New York City, that was kind of a fun event, that went on and did very well. But then, you know, Apple just wasn’t differentiating itself well enough from the higher-volume platform.
Walt: Meaning Windows, right?
Bill: DOS and Windows.
Walt: OK. But especially Windows in the ’90s began to take off.
Bill: By 1995, Windows became popular. The big debate wasn’t sort of Mac versus Windows. The big debate was character mode interface versus graphics mode interface. And when the 386 came and we got more memory and the speed was adequate and some development tools came along, that paradigm bet on GUI paid off for everybody who’d gotten in early and said, you know, this is the way that’s going to go.
Walt: But Apple wasn’t able to leverage its products?
Bill: After the 512K Mac was done, the product line just didn’t evolve as fast–Steve wasn’t there–as it needed to. And we were actually negotiating a deal to invest and make some commitments and things with Gil Amelio. No, seriously.
Kara: Don’t be mean to him.
Bill:I’m sorry?
Kara: Just saying the word Gil Amelio, you can see his…
Bill: So I was calling him up on the weekend and all this stuff and next thing I knew, Steve called me up and said, “Don’t worry about that negotiation with Gil Amelio. You can just talk to me now.” And I said, “Wow.”
Steve: Gil was a nice guy, but he had a saying. He said, “Apple is like a ship with a hole in the bottom leaking water and my job is to get the ship pointed in the right direction.”
Walt: Meanwhile, through all this–I want to get back to the thing we saw in 1997 at Macworld there–but Windows was just going great guns. I mean, Windows 95, to whatever extent earlier versions of Windows had not had all the features, all the GUI stuff that the Mac had, and Windows 95 really was an enormous, enormous leap.
Bill: Yeah. Windows 95 is when graphics interface became mainstream and when the software industry realized, wow, this is the way applications are going to be done. And it was amazing that it was ridiculed sort of in ’93, ’94, was not mainstream, and then in ’95, the debate was over. It was kind of just a commonsense thing. And it was a combination of hardware and software maturity getting to a point that people could see it.
Walt: So I don’t want to go through every detail, the whole history of how you came back, but…
Steve: Thank you.
Walt: But you in that video we all saw, you said you had decided that it was destructive to have this competition with Microsoft. Now, obviously, Apple was in a lot of trouble and I presume that there was some tactical or strategic reason for that, as well as just wanting to be a nice guy, right?
Steve: You know, Apple was in very serious trouble. And what was really clear was that if the game was a zero-sum game where for Apple to win, Microsoft had to lose, then Apple was going to lose. But a lot of people’s heads were still in that place.
Kara: Why was that, from your perspective?
Steve: Well, a lot of people’s heads were in that place at Apple and even in the customer base because, you know, Apple had invented a lot of this stuff and Microsoft was being successful and Apple wasn’t and there was jealousy and this and that. There was just a lot of reasons for it that don’t matter.
But the net result of it was, was there were too many people at Apple and in the Apple ecosystem playing the game of, for Apple to win, Microsoft has to lose. And it was clear that you didn’t have to play that game because Apple wasn’t going to beat Microsoft. Apple didn’t have to beat Microsoft. Apple had to remember who Apple was because they’d forgotten who Apple was.
So to me, it was pretty essential to break that paradigm. And it was also important that, you know, Microsoft was the biggest software developer outside of Apple developing for the Mac. So it was just crazy what was happening at that time. And Apple was very weak and so I called Bill up and we tried to patch things up.
Bill: And since that time, we’ve had a team that’s fairly dedicated to doing the Mac applications and they’ve always been treated kind of in a unique way so that they can have a pretty special relationship with Apple. And that’s worked out very well. In fact, every couple years or so, there’s been something new that we’ve been able to do on the Mac and it’s been a great business for us.
Steve: And it’s actually–the relationship between the Mac development team at Microsoft and Apple is a great relationship. It’s one of our best developer relationships.
Kara: And do you look at yourselves as rivals now? Today as the landscape has evolved–and we’ll talk about the Internet landscape and everything else and other companies that have [gone] forward, but how do you look at yourselves in this landscape today?
Walt:Because, I mean, you are competitors in certain ways, which is the American way, right?
Kara: We watch the commercials, right?
Walt: And you get annoyed at each other from time to time.
Kara: Although you know what? I have to confess, I like PC guy.
Walt: Yeah, he’s great.
Kara: Yeah, I like him. The young guy, I want to pop him.
Steve: The art of those commercials is not to be mean, but it’s actually for the guys to like each other. Thanks. PC guy is great. Got a big heart.
Bill: His mother loves him.
Steve: His mother loves him.
Kara:I’m telling you, I like PC guy totally much better.
Steve: Wow.
Kara: I do. I don’t know why. He’s endearing. The other guy’s a jackass.
Steve: PC guy’s what makes it all work, actually.
Walt: All right.
Steve: It’s worth thinking about.
Kara: So how do you look at yourselves?
Walt: I mean, let me just ask you, Bill. Obviously, Microsoft is a much larger company, you’re in many more markets, many more types of products than Apple is. You know, when you were running the company or when Steve Ballmer is running the company, you think obviously about Google, you think about, I don’t know, Linux in the enterprise, you think about Sony in the game area. How often is Apple on your radar screen at Microsoft in a business sense?
Bill: Well, they’re on the radar screen as an opportunity. In a few cases like the Zune, if you go over to that group, they think of Apple as a competitor. They love the fact that Apple’s created a gigantic market and they’re going to try and come in and contribute something to that.
Steve: And we love them because they’re all customers.
Walt: I have to tell you, I was actually told by J Allard, I’m serious, that because of the nature of the processor, the development platform they used to develop a lot of the software for the Xbox 360 was Macs. And he claimed that at one point, they had, like, placed the biggest order for whatever the Mac tower was at the time of anybody, and it was Microsoft.
Bill: I don’t know if it was the biggest, but, yeah, we had the same processor essentially that the Mac had. This is one of those great ironies is they were switching away from that processor while the Xbox 360 was adopting it. But for good reasons, actually, in both cases. Because we’re not in a portable application and that was one of the things that that processor road map didn’t have. But yes, it shows pragmatism, but we try and do things that way. So that was the development system for the early people getting their software ready for the introduction of Xbox 360.
Steve: And we never ran an ad on that.
Walt: I see. Admirable restraint. That’s wonderful restraint.
Steve: There were hundreds of them.
Bill: Steve is so known for his restraint.
Kara: How do you look at Microsoft from an Apple perspective? I mean, you compete in computers and…
Walt: I mean, you can say you don’t compete, you know, the era of destructive whatever, whatever you said in 1997, but you think–you’re consciously aware of what they’re doing with Windows, you followed Vista closely, I think.
Steve: You know, what’s really interesting is–and we talked about this earlier today–if you look at the reason that the iPod exists and the Apple’s in that marketplace, it’s because these really great Japanese consumer electronics companies who kind of own the portable music market, invented it and owned it, couldn’t do the appropriate software, couldn’t conceive of and implement the appropriate software.
Because an iPod’s really just software. It’s software in the iPod itself, it’s software on the PC or the Mac, and it’s software in the cloud for the store.
And it’s in a beautiful box, but it’s software. If you look at what a Mac is, it’s OS X, right? It’s in a beautiful box, but it’s OS X. And if you look at what an iPhone will hopefully be, it’s software.
And so the big secret about Apple, of course–not-so-big secret maybe–is that Apple views itself as a software company and there aren’t very many software companies left, and Microsoft is a software company.
And so, you know, we look at what they do and we think some of it’s really great, and we think a little bit of it’s competitive and most of it’s not.
You know, we don’t have a belief that the Mac is going to take over 80% of the PC market. You know, we’re really happy when our market share goes up a point and we love that and we work real hard at it, but Apple’s fundamentally a software company and there’s not a lot of us left and Microsoft’s one of them.
Walt: But you may be fundamentally a software company, but you’ve been known, at least to your customers and to most journalists as the company that kind of pays a lot of attention to integrating software and hardware.
Microsoft has made some recent moves to be a little more like that, obviously not in your core biggest businesses, but with Xbox and Zune and, you know, the Surface computing device we saw today is another example.
These aren’t markets that hold up in size to Windows or Office, but they’re some of your more recent initiatives.
Are the companies’ approaches to this merging a little or …
Steve: Alan Kay had a great quote back in the ’70s, I think. He said, “People that love software want to build their own hardware.”
Walt: Well, Bill loves software.
Steve: Oh, I can resist that.
Bill: The question is, are there markets where the innovation and variety you get is a net positive? The negative is that in the early stage, you really want to do the two together so you want to do prototyping and things like that, you know, really as one thing.
And then take the phone market. We think we’re on 140 different kinds of hardware. We think it’s beneficial to us that even if we did a few ourselves, it wouldn’t give us what we have through those partnerships.
Likewise, if you take the robotics market, very undeveloped. We have over 140 tiny-volume robots using Microsoft software. And the creativity, building toys, security things, medical things, we love the innovation and the ecosystem that’s going to grow up–who knows when, but we’re patient–around that and we’ll have a great asset with this robotic software platform.
So there are things like PC, phone, and robot where the Microsoft choice is to go for the variety. Apple, it’s great. For them, they do what works super well for them.
And there’s a few markets like Xbox 360, Zune, and this year we have two new ones, the Surface thing and this RoundTable, which is the meeting-room thing, where we’ll actually, through subcontractors, but the P&L on the risk and all that for the hardware, the design is completely a Microsoft thing.
Walt: The RoundTable: Is that something you’ve announced or were you just announcing it here?
Bill: We’ve shown prototypes of it. That’s the thing where it’s got the 360-degree …
Walt: Oh, right. It’s like Cisco has something in that market and HP too, right?
Bill: Oh, HP has a very high-end thing that’s a tiny bit like it, but anyway.
Walt: All right. Do you ever regret–was there something you might have wanted to do differently? And maybe you feel like this happened after you left Apple, something you might have done differently where you could have had a much bigger market share for the Mac?
Steve: Well, before I answer that, let me make a comment on Bill’s answer there, which is, it’s very interesting, in the consumer market and the enterprise market, they’re very different spaces. And in the consumer market, at least, I think one can make a pretty strong case that outside of Windows on PCs, it’s hard to see other examples of the software and hardware being decoupled working super well yet.
It might in the phone space over time. It might. But it’s not clear. It’s not clear. You can see a lot more examples of the hardware/software coupling working well. So I think this is one of the reasons we all, you know, come to work every day is because nobody knows the answers to some of these questions. And we’ll find out over the coming years and maybe both will work fine and maybe they won’t.
Walt: Yeah.
Steve: Yeah. It’s good to try both approaches . In some product categories–take music players–the solo design worked better. In the PC market, the variety of designs at this stage has a higher share.
Walt: It has a higher share? It has a lot higher share.
Steve: It’s not that much different than music players the other way around.
Walt: Is there some moment you feel like I should have done this or Apple should have done that, and we could have had …
Kara: You stuck to this idea of the hardware/software integration and it’s working very well right now.
Steve: There’s a lot of things that happened that I’m sure I could have done better when I was at a Apple the first time and a lot of things that happened after I left that I thought were wrong turns, but it doesn’t matter. It really doesn’t matter and you kind of got to let go of that stuff and we are where we are. So we tend to look forward.
And, you know, one of the things I did when I got back to Apple 10 years ago was I gave the museum to Stanford and all the papers and all the old machines and kind of cleared out the cobwebs and said, let’s stop looking backwards here. It’s all about what happens tomorrow. Because you can’t look back and say, well, gosh, you know, I wish I hadn’t have gotten fired, I wish I was there, I wish this, I wish that. It doesn’t matter. And so let’s go invent tomorrow rather than worrying about what happened yesterday.
Kara: We’re going to talk a little bit tomorrow, but let’s talk about today, the landscape of how you see the different players in the market and how you look at what’s developing now. What has surprised both of you since having been around for so long, and still very active and everything, and your companies are still critically key companies There are many, many companies that are becoming quite powerful. How do you look at the landscape at this moment and what’s happening especially in the Internet space?
Steve: I think it’s super healthy right now. I think there’s a lot of young people out there building some great companies who want to build companies, who aren’t just interested in starting something and selling it to one of the big guys, but who want to build companies. And I think there’s some real exciting companies getting built out there. Some next-generation stuff that, you know, some of us play catch-up with and, you know, some of us find ways to partner with and things like that, but there’s a lot of activity out there now, wouldn’t you say?
Bill: Yeah, I’d say it’s a healthy period. The notion of what the new form factors look like, what natural interface can do, the ability to use the cloud, the Internet, to do part of the task in a complementary way to the local experience, there’s a lot of invention that the whole approach of start-ups, the existing companies who do research, we’ll look back at this as one of the great periods of invention.
Steve: I think so, too. There’s a lot of things that are risky right now, which is always a good sign, you know, and you can see through them, you can see to the other side and go, yes, this could be huge, but there’s a period of risk that, you know, nobody’s ever done it before.
Kara: Do you have an example?
Steve: I do, but I can’t say.
Kara: OK.
Steve: But I can say, when you feel like that, that’s a great thing.
Kara: Right.
Steve: That’s what keeps you coming to work in the morning and it tells you there’s something exciting around the next corner.
Walt: OK. So the two of you have certainly–you’re involved every day with the Internet, you have Internet products, you have a whole slew of stuff on the Internet, you have iTunes and “.Mac” and all of that, but on another level, you’re the guys who represent the rich client, the personal computer, the, you know, big operating system and all that. And there is a certain school of thought–and I’m sure it’s shared by some people in the room–that this is all migrating to the cloud and you’ll need a fairly light piece of hardware that won’t have to have all that investment, all the kind of stuff you guys have done throughout your careers. So as much as people might think of you as rivals, one way to think of you is the two guys …
Steve: We’re both dinosaurs?
Walt: Huh?
Steve: That we’re both dinosaurs?
Walt: Dinosaurs? Yeah, whatever. I can talk about that. No, seriously …
Kara: You’re betting on a system that is changing.
Walt: In five years, is the personal computer still going to be the linchpin of all this stuff?
Bill: Well, you can say that it will be predicted that it won’t be. You know, the network computer took this over about, whatever, five years ago we disappeared. Remember the single-function computer? There was somebody who said that these general purpose things are kind of a dumb idea.
Kara: Larry Ellison.
Bill: The mainstream is always under attack. The thing that people don’t realize is that you’re going to have rich local functionality, I mean, at least our bet, whereas you get things like speech and vision, as you get more natural form factors, it’s a question of using that local richness together with the richness that’s elsewhere.
And as you look at the device, say, that’s connecting to the TV set or connecting in the car, there are lighter-weight hardware Internet connections, but when you come to the full screen rich, you know, edit the document, create things, you know, I think we’re nowhere near where we could be on making that stronger.
Steve: I’ll give you a concrete example. I love Google Maps, use it on my computer, you know, in a browser. But when we were doing the iPhone, we thought, wouldn’t it be great to have maps on the iPhone? And so we called up Google and they’d done a few client apps in Java on some phones and they had an API that we worked with them a little on. And we ended up writing a client app for those APIs. They would provide the back-end service. And the app we were able to write, since we’re pretty reasonable at writing apps, blows away any Google Maps client Just blows it away. Same set of data coming off the server, but the experience you have using it is unbelievable. It’s way better than the computer. And just in a completely different league than what they’d put on phones before.
And, you know, that client is the result of a lot of technology on the client, that client application. So when we show it to them, they’re just blown away by how good it is. And you can’t do that stuff in a browser.
So people are figuring out how to do more in a browser, how to get a persistent state of things when you’re disconnected from a browser, how do you actually run apps locally using, you know, apps written in those technologies so they can be pretty transparent, whether you’re connected or not.
But it’s happening fairly slowly and there’s still a lot you can do with a rich client environment . At the same time, the hardware is progressing to where you can run a rich client environment on lower and lower cost devices, on lower and lower power devices. And so there’s some pretty cool things you can do with clients.
Walt: OK. So you’re saying rich clients still matter, but–maybe I misunderstood you, but your example was about a rich client that is not a personal computer as we have thought of a personal computer.
Steve: What I’m saying is, I think the marriage of some really great client apps with some really great cloud services is incredibly powerful and right now, can be way more powerful than just having a browser on the client.
Kara: You’re talking about a software company being a software and services company rather than a …
Steve:I’m saying the marriage of these services plus a more sophisticated client is a very powerful marriage.
Walt: Bill?
Bill: Yeah. Architecturally, the question is, do you run just in the cloud and all you have downloaded locally is the browser? And that is the same question for the phone as it is for the full-screen device. There will always be different screen sizes because these are, you know, the 5-inch screen does not really compete with the 20-inch screen, does not compete with the big living room screen. Those are things that there will be some type of computing behind all of those things, all connected to the Internet, but the idea that locally you have the responsiveness of immediate interaction without the latency or bandwidth limitations that you get if you try and do it all behind, that’s what leads to the right balance.
Bill: That’s what leads to the right balance.
Kara: What does that device look like in five years? What would be your principal device? Is there one or…
Walt: I could be wrong, I think you carry a tablet with you, right?
Bill: Right.
Walt: Which has not necessarily stormed the world yet.
Bill: Yeah. This is like Windows 1992, I think . That is, I’m unrepentant on my belief.
Walt: OK. But to go back to Kara’s point, what would you each imagine that you would carry as your principal, let’s say, thing to do the Web and…
Kara: I mean, Jeff Hawkins showed a very lightweight device.
Walt: Yeah. I don’t know if you guys saw, but Jeff Hawkins showed a Linux-based, very small–I think he called it a companion to a smart phone today.
Kara: A phone companion, which sounded a little naughty.
Walt: It doesn’t matter, you weren’t there, but what would you think you each would be–I assume you carry a tablet PC. I don’t know what brand it is. Maybe you change them up, I don’t know. You obviously carry a MacBook Pro, I would guess, or a MacBook.
Steve: Yeah. Well, and an iPhone.
Walt: And an iPhone?
Kara: You have one?
Steve: I do.
Kara: Right here?
Steve: Yes.
Walt: Well, he has one. He took it out before. Really.
Kara: Sorry.
Walt: He flashed his iPhone earlier today.
Kara: Anyway, go ahead. So what is your device? What’s the device that we should be carrying?
Walt: What’s your device in five years that you rely on the most?
Bill: I don’t think you’ll have one device. I think you’ll have a full-screen device that you can carry around and you’ll do dramatically more reading off of that.
Kara: Light.
Bill: Yeah. I mean, I believe in the tablet form factor. I think you’ll have voice. I think you’ll have ink. You’ll have some way of having a hardware keyboard and some settings for that. And then you’ll have the device that fits in your pocket, which the whole notion of how much function should you combine in there, you know, there’s navigation computers, there’s media, there’s phone. Technology is letting us put more things in there, but then again, you really want to tune it so people know what they expect. So there’s quite a bit of experimentation in that pocket-size device. But I think those are natural form factors and that we’ll have the evolution of the portable machine. And the evolution of the phone will both be extremely high volume, complementary–that is, if you own one, you’re more likely to own the other.
Kara: And then at home, you’d have a setup that they all plug into?
Bill: Well, home, you’ll have your living room, which is your 10-foot experience, and that’s connected up to the Internet and there you’ll have gaming and entertainment and there’s a lot of experimentation in terms of what content looks like in that world. And then in your den, you’ll have something a lot like you have at your desk at work. You know, the view is that every horizontal and vertical surface will have a prrojector so you can put information, you know, your desk can be a surface that you can sit and manipulate things.
Walt: Can I please have a room in my house that doesn’t have a screen and a projector in it?
Bill: You bet.
Walt: Thanks.
Bill: The bathroom.
Walt: Well…
Kara: That’s the perfect place for it, actually.
Walt: So what’s your five-year outlook at the devices you’ll carry?
Steve: You know, it’s interesting. The PC has proved to be very resilient because, as Bill said earlier, I mean, the death of the PC has been predicted every few years.
Walt: And here when you’re saying PC, you mean personal computer in general, not just Windows PCs?
Steve: I mean, personal computer in general.
Walt: Yeah, OK.
Steve: And, you know, there was the age of productivity, if you will, you know, the spreadsheets and word processors and that kind of got the whole industry moving. And it kind of plateaued for a while and was getting a little stale and then the Internet came along and everybody needed more powerful computers to get on the Internet, browsers came along, and it was this whole Internet age that came along, access to the Internet.
And then some number of years ago, you could start to see that the PC that was taken for granted, things had kind of plateaued a little bit, innovation-wise, at least.
And then I think this whole notion of the PC–we called it the digital hub, but you can call it anything you want, sort of the multimedia center of the house, started to take off with digital cameras and digital camcorders and sharing things over the Internet and kind of needing a repository for all that stuff and it was reborn again as sort of the hub of your digital life.
And you can sort of see that there’s something starting again. It’s not clear exactly what it is, but it will be the PC maybe used a little more tightly coupled with some back-end Internet services and some things like that. And, of course, PCs are going mobile in an ever greater degree.
So I think the PC is going to continue. This general purpose device is going to continue to be with us and morph with us, whether it’s a tablet or a notebook or, you know, a big curved desktop that you have at your house or whatever it might be. So I think that’ll be something that most people have, at least in this society. In others, maybe not, but certainly in this one.
But then there’s an explosion that’s starting to happen in what you call post-PC devices, right? You can call the iPod one of them. There’s a lot of things that are not…
Walt: You can get into trouble for using that term. I want you to know that.
Steve: What?
Walt:I’m kidding. Post-PC devices.
Steve: Why?
Walt: People write letters to the editor, they complain about it. Anyway, go ahead.
Steve: Okay. Well, anyway, I think there’s just a category of devices that aren’t as general purpose, that are really more focused on specific functions, whether they’re phones or iPods or Zunes or what have you. And I think that category of devices is going to continue to be very innovative and we’re going to see lots of them.
Kara: Give me an example of what that would be.
Steve: Well, an iPod as a post-PC…
Kara: Well, yeah.
Steve: A phone as a post-PC device.
