A: The licensing stuff is getting worked out. It isn't totally worked out yet. Every "i" is not dotted and every "t" is not crossed, but it's getting there. I have a lot of confidence it will. This is too important not to get worked out. We'll be shipping QuickTime 6 as part of Jaguar, our next major release of Mac OS X, which ships later this summer. I expect stuff will be worked out by then. What does QuickTime 6 mean for Apple and its customers?
If you recall, Apple sort of invented digital video with QuickTime. Everybody kind of went their own way eventually, with Apple having its own proprietary codecs and RealNetworks having its own proprietary codecs and Microsoft having its own proprietary codecs. And the one thing -- and it has kind of been a Tower of Babel -- is MPEG-2. As you know, that was the breakthrough that really created the DVD industry, and MPEG-2 is used today by every DVD and every DVD player. It is an international standard. MPEG-2 still delivers the best video quality around. It is the gold standard. So people started realising this is what we need for digital video that we're going to use for streaming and other uses at lower bandwidth. The same group that created MPEG-2 created MPEG-4, which is the next, new international standard for digital video, for streaming and for other uses. What's so great about MPEG-4?
It delivers video quality as good as MPEG-2 at about one-third less the bit rate. But then you can crank down the bit rate for lower bandwidth connections and it scales down beautifully. So you can deliver incredible streaming video with MPEG-4. It has got higher quality than anything out there -- including Microsoft's upcoming Corona -- and it's totally scalable. Everybody's jumping on this bandwagon. We've announced we're going to switch over to MPEG-4. Real has said they're going to. All the mobile phone companies are going to be using it; it is the standard for third-generation mobile phone video streaming. It also features AAC (Advanced Audio Coding) audio, which is the best audio around. It blows away MP3 (and) Windows Media. And it also is the audio format adopted by all satellite radio (companies). So this is gathering a tremendous amount of steam, and I think everybody is going to be cutting over to MPEG-4, with the possible exception of Microsoft, which is going to try and push its Corona technology that comes out later this year. They haven't gone into a preview or beta mode yet, but they said they were going to release it sometime this year. How important do you think MPEG-4 will be to opening the barriers that block digital media?
I think it's going to be exactly like what MPEG-2 did. It's going to create whole new industries, because it's going to create a world standard. MPEG-2 created the whole DVD industry. I think MPEG-4 is going to be really big. QuickTime 6 is the first real implementation of MPEG-4 to be released. Not only is it a client, but with QuickTime Streaming Server and QuickTime Broadcaster, which allows real-time broadcasting of MPEG-4, we're providing an end-to-end solution for MPEG-4. And of course, it's compatible with all MPEG-4-compliant players. Many authors create their content in QuickTime. How important is getting there first with MPEG-4?
Apple has pretty much historically always gotten there first. It got there first with digital video and QuickTime. I think that Apple always has had the highest-quality stuff and been a little ahead. But what we're doing here that's different is we're adopting a standard. We're not off doing our own thing. We are adopting the next big standard. It's sort of like adopting TCP/IP or adopting HTML. This is the next one of those. With Mac OS X and other products, Apple has been pushing more open, rather than proprietary, standards.
Absolutely. I think the list of open standards we are supporting now is long -- everything from PDF (Portable Document Format) for our imaging model, OpenGL for our 3D model, to Unix itself -- FreeBSD Unix, which is totally open sourced with Darwin -- to obviously all the communications protocols we support, which are all open standards. It's a lot of stuff. We do great implementations of them, and we really do believe in open standards. It's working for us. We have customers calling us up now about Mac OS X who wouldn't even talk to us when we banged on their door before with Mac OS 9 or its predecessors. We're getting a lot of interest because of this strategy. As you may know, in Jaguar our whole directory service is going to LDAP (Lightweight Directory Access Protocol). There's a lot of support in our customer base for this and, again, we're able to attract a lot of new customers. Let's switch to eMac, which you developed for the education market, but which you now will sell to anyone.
When we announced it was just going to be for the education market, we got beat up by a lot of customers who said, "This is a phenomenal system. Why can't I buy it?" Our manufacturing ramp has gone smoother than even we predicted. So we're easily going to be able to fulfill the demand, which we think will be pretty strong from our education customers this quarter. The last thing we ever would want to do would be to shortchange them. We can build more than we thought; we are in the business of selling computers to people who want to buy them and we've got a lot of customers who say they want to buy this product. Why shouldn't we sell it to them? So we decided to change our plan...I think it's going to do pretty well. We'll find out. How does the eMac fit in with the flat-panel iMac?
Who wouldn't want a flat display? When we introduced the iMac, we even said this is the death of CRTs finally. But flat-panel prices have not necessarily cooperated with what we wanted. So (with) the iMac, as you know, we had to ramp the price $100 due to the display pricing. So that does create room for the eMac underneath it. Remember, it is $300 less. You don't get that luscious flat-panel display, but you do save $300. I think everyone will want the iMac, but the eMac is a pretty good product for $300 less. How are the sales of the flat-panel iMac?
They're doing just fine. I need to mention a four-letter word you might not like: Dell. I assume you aren't going to take Dell's success in the education market lying down.
We're certainly not taking it lying down, and we're certainly doing our best. Dell clearly is taking its share away from other PC companies competing in education. So it's a little easier for them to take market share away from the PC companies than it is us...They're succeeding very well at that, and the education market pretty much has come down to us and them. We're doing a very good job of trying to hold our own. We've got some very good products out there, and I think we're winning some very big deals. We recently announced that Maine is buying 36,000 iBooks to give to every middle school student. We're doing OK, and Dell is doing very well in education as well. Is there anything you would like to discuss about your retail strategy, maybe in relation to eMac or iMac?
Our retail stores are doing very well. We're very pleased. As you know, we've got 31 stores right now. We're going to continue to open stores through this year and get up into the forties. The customer satisfaction at the stores is huge. We have some great locations we're going to be opening this year, too. Have you learned anything new through the stores about your customers or potential PC switchers?
We have learned a ton. The data coming out of the stores right now is important in terms of bringing incremental new customers to the Mac. We'll be sharing a lot of that in future earnings calls and around the Macworld timeframe as well. So I'll save that for then.
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