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.