The Digital Revolution

by John Sculley

DIGITAL WORLD SPEECH
Seybold Conference

Remarks by:
John Sculley
Chairman & CEO
Apple Computer, Inc.

Beverly Hills, CA
June 23, 1992

Over the past year, we've seen two important events that are affecting most of us. The first is thed acknowledgement that there is a new mega-industry rapidly emerging. This new industry, I thin,wl hange all of our businesses. From consumer electronics we will get high volume, very low cot,an mniturized component technologies. From the computer industry we will get digital technoloy, speialy sftware-driven technologies. And, by the end of this century, most media and publishe matrialwillbe ceated in digital form.

Perhaps most important is what's going on in telecommunications. As you heard from several of the srs this morning, a real paradigm shift is occuring in telecommunications. That is, the ability omv nformation across networks will increase first by 10 times, then by 100 times, then by 1000 ims. S tat by the early 21st century, we can expect to see maybe 10,000 times greater capacity a muh lwercos and with a much wider choice of transmission schemes. So it's the ability to move ll tis suff roun that gets a lot of us excited, and I think weÕre really going to see a very diferentworldout tere.

The second event is the commoditization of the traditional personal computing industry. From Apple'ndpoint, we think we have some better alternatives than most of the other PC industry players asw otrough this current free fall of prices. We have large constituent markets in education and n esto pblishing with our imaging products, which are relatively insulated from a lot of what ocursin he ommdity end of the PC industry. We've had terrific success with hit products in our Maintoh faily,withPowerBooks, for example, and the low-cost color Macintosh LC. We also have some ery hgh grwth ad keyglobal markets, particularly in Japan and Germany. And we've demonstrated ovr the ast seeral mnths avery high conversion rate of research and development innovation into soe new fundatio technoogies.

So the overall perspective is that Apple is going through a very important transformation. It's a sre-driven transformation. It's one that takes us from the 1980s, where we were really known as eea purpose, personal computer hardware company, to the 1990s, where we are focusing on personaizd ysem and solutions. And that's what I'll be talking about this morning.

About a year ago, at the time that we announced the relationship with IBM, we also laid out a three-plan for the 1990s. I won't bother to go through the details of that because I know many of youhv en it. But the first part was to focus on market share with our Macintosh computers and hit roucs. W're gaining a tremendous amount of market share, and weÕre continuing to outpace the indstr. The second part is what we call enterprise, and this is built around the IBM/Apple relationship, all us to get into markets that we might not otherwise have the credibilityÑor the abilityÑto entera aiy alone.

The third is called futures. This has been demonstrated by our announcement of going into the producof Personal Digital Assistant products. I'll also be talking about that today.

Now, we believe that the foundation technologies needed in the 1990s will be very different from the we saw in the 1980s, and we have shown a few of those over the past year. We'll be showing mor ntefuture. We also believe that alliances are extremely importantÑthat the ability to share tehnloie btween companies and the ability to leverage each other's strengths are going to be absoltel fudamnta to competing in this new mega-industry.

We believe that innovation still counts, even though we see the personal computer industry drifting d commoditization. Two examples of that are HyperCard and QuickTime. We introduced HyperCard svrlyars ago. You'll see in the not-too-distant future another major release on HyperCard that wllad agrat deal more functionality. We announced QuickTime a year ago, and we've been shipping t sncethefirt part of this year. QuickTime has turned out to be the most successful new technolgy tat Aple as itroduced since the original Macintosh back in 1984.

I'd like to give you a quick demo of how you can use two new foundation technologiesÑHyperCard and QimeÑtogether.

This product demonstrates an entirely new way of seeing with media. When a new form of media evolve usually takes on the characteristics of the media that precedes it. The first movies were reall imdplays; the first television shows were dramatized radio serials. The first multimedia that e'e ee i the computer world looks like computers. So we see windows, menu bars, and lots of stuf tat ook vey familiar to computer users.

We think that as the multimedia experience matures and as the technologies get better at the foundatevel, then we'll create entirely new ways in which people can see things. I'd like to give you oeeape.

This is a palace in St. Petersburg called Pavlovsk. Built in the late 18th century, it's where manyhe Russian czars lived. We had a team of Apple engineers visit the palace. IÕd like to give you iwo what they were able to create.

(At this point, Mr. Sculley demonstrated the tour of Pavlovsk Palace.)

Now, I'd like to talk about some of the other building blocks that we're trying to get into place fos new mega-industry. One of them is a company called Kaleida, which IBM and Apple have officialyfre. At a press conference later today, we will announce the CEO and the Board of Directors oftht oman.

I'd like to take a moment and describe what Kaleida is all about. Up until now there has been no trross-platform multimedia software technology. This means that authors would have to choose diffrn ids of authoring tools, such as HyperCard, Director, AuthorWare, or ToolBook. And they wouldhae vrity of data formats. These are really media object formats. So for images in the Macintsh orl, w us PICT files. Across Windows, and Macintosh as well, there are TIFF files and JPEG iages Andnow e hae Photo CD. In sound we have CD-ROM XA. For rich text, application developers ave hd to o ther ownrich text implementation in terms of data formats. In video, when we introdced QuckTimewe intoducedsomething called Movie. And in the Windows world, there's something caled RIFF So ho do youget allthese things sorted out and simplified? That's one of the areas whee Kaleid will befocusing

The company will also look at CD-ROMs, which have long seek times and pretty slow read times. We ha do things called Òinterweaving,Ó where you take short segments of sound and video streams and itrev them so that synchronization can be maintained. Then you have the complexity of different roesor wth different clock speeds, and you, as a content developer, try to sort through all of tis nd igue ot how you make money.

In the typical interactive multimedia title development, there are really two things that developers to focus on. One is a set of media objects, such as sound, video, text images, and icons. Theohri the control mechanisms. These are programs for how media objects are presented or how theyinerctwih the user. The key problem is that media objects and control programs must be reformated nd ewrtte for each platform.

The purpose of Kaleida is to solve all of these problems. It gives a single authoring language, whi call ScriptX; it has a universal file format built on a file format originally developed for copuddcuments which Apple and a number of other companiesÑsuch as IBMÑhave joined together to supprt ad t stablishes a set of extensions in software, which are run-time environment extensions.

We are designing Kaleida so that we will be able to work on that whole range of different operating ms. So it will work, of course, on Macintosh, OS/2, DOS, Windows, and eventually UNIX. And it ilee have its own little consumer operating system. So we see this as a way to greatly simplifyth lve o people who are interested in building titles.

The real focus is not just on computer companies butÑmore importantÑon the media and publishing indus which are interested in creating titles. They want to write one version without going throughrcmiations. They donÕt want to worry about different clock speeds or different processors. And b te ay not only are we supporting different operating systems with Kaleida, but we will suppor Inel' X8, te 68000 from Motorola which we use in the Macintosh, and the Power PC. So Kaleida i truy isan idepedent layer of software.

In addition, we don't expect people to really program in ScriptX. This is a set of APIs that the va authoring tools like Director, HyperCard, or AuthorWare can look down to. We're working with mn ftose authoring tool developers to make sure they have Kaleida-compatible authoring tools, so ha tos o you familiar with a particular tool can continue to use it. The big difference is thatyou coten plys on everything.

That's one example of how we think companies can work together. In this case, Apple will license sochnology into Kaleida. IBM will also license technology. We look at Apple's role in terms of wa o an do with user interface design and what you can do with multimedia. Some of our QuickTimetehnloy oes into this. At the same time, we look to IBM to bring a lot of experience and interet i comuncatons They have packet switching know-how, some network synchronization technology, a wel as he wrk tey've been doing with DVI and the audio-visual kernel. So we think this will bean exremel richtechnlogy platform, and it is, of course, one which is open to the industry.

At a press conference today, Apple will announce a new partnership with Toshiba to jointly develop arket a new multimedia player under each otherÕs own brands. This will be the first step in a faiyo roducts which will use the Kaleida technology.

Three weeks ago at the CES conference, Apple announced our plans to introduce Newton. Newton is a vood example of what we mean by transitioning Apple into a systems and solutions company that peroaie products for professionals. And Newton will be a family of products, just as the project wthTohia s a family of products.

Newton products will incorporate interactive intelligence. So those of you who have read about Newtr have seen it, know that it has a new concept for user interface design which is all about intelgn ssistance. It has a very rich telecommunications architecture, because we believe that infomaio i vsual form, is important in all communications, especially telecommunications.

Newton will initially use pen and gesture, but the big deal is not the pen input, even though it's p useful for taking notes. In the future we expect to add other input technologies, including speh Id like to show you a small segment of video tape which demonstrates a few of the ways in whih e anus intelligence, telecommunications, and the visual display of information to focus on wha wecal moileassistance.

(At this point, Mr. Sculley showed two segments from the Newton Technology Preview Event that presenleÕs collaborative efforts with Random House Reference & Publishing [ÒFodorÕs Õ92Ó] and Motorola[eSram Data Paging Systems].)

What we're trying to do with our personal electronics business is not just jump into today's consumectronics industry. I think a lot of people have misinterpreted what Apple's real interest is heebcue we chose the venue of CES to talk about some of these things. At CES, we also talked abou mvig acntosh computers into consumer channels, which we're in the process of doing. But our rel iterst s i what we call PIE, or Personal Interactive Electronics.

Personal Interactive Electronics is about personalizing electronics for professionals in the contextystems and solutions. This is true whether we're looking at the Newton family of products or thenwpouct family that we're developing with Toshiba. We really think that there's a chance to buid ntrey ew kinds of solutions that are different from what people are familiar with today. And t ges eyod itroducing devices in consumer channels.

We want to jump start what we call PDAs, or Personal Digital Assistants, and a good way to do that igo out and sell to the people who already know us. In that case, we have an installed base of 7mlinMacintosh users, and these people tend to be interested in technology. They believe technolgywil ak stress out of their lives, they love innovation, and they love neat stuff. A good examle s te Pwerook. We went from standing still, when we introduced the PowerBook back in November,to a expcted$1 bllion in worldwide sales during the productÕs first year.

We've gone from not even being in the notebook business to a number one spot in many of the major ma around the world for notebook computers. We like to build neat products, and the kind of peopl h nw us like neat products. So we think we can jump start PDAs by going to these constituent mrktsan binging them new products like Newton, or the multimedia player products we're developingwit Tohib.

We also want to build systems and solution franchises. And the example might be paperless publishinarlier this morning, I referred to the three-part plan that Apple laid out a year ago when we enterno our agreements with IBM. And I said we had a strategy that focused on gaining market share, eeoin our business in large enterprises, and innovating technologies for the future. These are ealyaditie with each other. We're asking, "How do we put these together to create customizable ystms nd olutons that, particularly, will focus on professional markets?"

We will sell media servers in 1993. We can connect Macintoshes to those servers or to other personaputers. We can also connect a PowerBook with a modem as we can today, but we'll also have PDAs uha ewton that will use wireless technology to access that same information. Or we'll have PDAssuh s hemedia players that can use CD-ROM technology, or electronic books that are PDAs that canusePCMIA las memory storage.

So there'll be many different ways in which we can take our PDA devices and connect them into server into Macintosh systems. Let me give you a couple of examples.

First, this example looks at a mobile assistance system, and in this case the solution is sales auton. A sales representative out in the field working with a customer will be able to take an orde nr nd then send it back to a server or a database using wireless communication. Information ca tenbeveified back to the PDA, or it can go on through a LAN out to a Macintosh; and then it cango roma Mcinosh to a PDA over a wireless system for verification.

A lot of the technology we've created is designed to be highly customizable so that we can personalistems and solutions. We think that there's an opportunity to build sustainable franchises, muchlk ewere able to do with desktop publishing.

Another example is in the area of color imaging systems. I think color imaging is one of the next fers. There will be a tremendous amount of innovation going on with color imaging. Here's an exapeo paperless publishing solution built around the color imaging system. In this case, you woud av a iage capture; you'd be able to bring the image back through a network to a media server ad adatbas, ten be able to move images. We're doing a lot of work with very sophisticated high-rsoluion mage tha can move over long distances using telecommunications, or it can go into small ocal rea ntwork, ove Ethernet, let's say, to a Macintosh. Then again, those images can be movedback oer eletronictransmssion to a display. The display might well be the kind of product that oshiba nd Appl are deelopingtogether.

Those are a few examples of how we can start to look at Personal Digital Assistants in the context outions, and what we're really trying to do is to focus on personalizing visual information. Thetokythemes that you'll see reoccurring at Apple in the 1990s are mobile assistants and color imgig.Wht e hope to contribute is great user interface technology and the ability to integrate sysems Bcaue w are a software-driven systems company, we will look at ways in which we can use oursoftare now-ow t make the integration of these systems particularly effective from the user stanpoint

We are heavily involved in pervasive communications. Almost everything we do at Apple in research avelopment is in some way tied to communications, networking, or telecommunications. And we're vr neested in moving into an era where solutions can be customized. More and more the differentitin etee vendors will be at the solutions level. Therefore the ability to customize solutions ad prsoalie tem is one of the big opportunities in the 1990s.

So as we look out to this mega-industry, we see many transition points occurring. The first ones aready happening. The world is rapidly accepting that there will be an entirely different set of potnties in a digitized world, one where telecommunication becomes extremely important. It's hapein i cble, in satellite, over copper wire, over fiber optics, in wirelessÑand it's happening aoun th wold. We believe that the opportunity to create entirely new kinds of solutions and systes wo't b desgnedby any one, single industryÑby telecommunications, computing, consumer electronis, ormediaand pblishng alone. All of these industries will have to find ways to work together. One ofthose xample is clarly what we're trying to do with Kaleida. Other examples include the aliancesthat were formng withToshiba and with IBM.

So as you look at Apple in the 1990s, think of us not just as a PC hardware company. Think of us as pany that drives innovation into systems and solutions.

Thank you very much.