Former Microsoft Executive on Apple’s Hidden China Problem

1. 0:00 – 0:32

   Introduction

   1. SSSteven Sinofsky0:00

      As Tim Cook says, people think that China is about cheap manufacturing. It's the skills they have.

   2. ETErik Torenberg0:06

      Apple would just argue there was no way we could even have started the iPhone anywhere else.

   3. SSSteven Sinofsky0:10

      All the experts in 1999 were like two things: yay for global trade, this is what we all want, and also, don't worry, China, they're gonna stay a third-world dictatorship forever. They couldn't have been more wrong. [upbeat music]

2. 0:32 – 1:17

   Reuniting with Steven

   1. ETErik Torenberg0:32

      Steven, I've been looking forward to this episode because this is a full circle moment for me. You are how I got introduced to a16z. You were on the board of Product Hunt, uh, over eleven years ago, uh, which is-

   2. SSSteven Sinofsky0:43

      Wow. [laughs]

   3. ETErik Torenberg0:43

      -how I was introduced to you and the firm, and I'm glad to be back in business together.

   4. SSSteven Sinofsky0:47

      I couldn't be more excited for us to be working together on this one, and then more in the future, I hope.

   5. ETErik Torenberg0:53

      Exactly.

   6. SSSteven Sinofsky0:53

      And yeah, definitely a reunion of sorts.

   7. ETErik Torenberg0:55

      Yeah. Absolutely. So, uh, for those who, uh, haven't been longtime fans of, uh, of the podcast or the firm, before-- you've been at a16z for, for over a decade as a, as a board partner, et cetera. And, and before that, you spent many years at, at Microsoft helping lead both, uh, Office and Windows. Um, and you helped introduce the Surface PCs, which is relevant to the, the conversation we're, we're about to have. So, um,

3. 1:17 – 4:11

   WWDC Highlights: Liquid Glass and iPad Updates

   1. ETErik Torenberg1:17

      we're here to talk about Apple. We're here to talk about in-- Inspired by the book, Apple in China. But first, let's, let's briefly cover, uh, WWDC. Uh, what, what, what reactions or hot takes do we have from it?

   2. SSSteven Sinofsky1:27

      WWDC is, you know, their big yearly developer event. It's a remarkable platform that's been doing yearly releases for twenty-six years. Uh, it blows my mind, the-- what they've done and the scale that they operate at. But I think, look, there are three big things that came out of it. The, the first was, you know, obviously the big push. It was also the big reaction, which is, was called Liquid Glass, and it's the new user interface design. So having gone through multiple big user interface redesigns of widely used products, although to be humble about it, n-not one used by a billion people, the reaction is extremely predictable, which is a bunch of people, their heads just explode, and they, they don't want it. They don't like it. You can always tell they, they dive in immediately to what problem does it solve? So if there's change, it must solve a problem. But there are lots of reasons that designs change. And then there's the reality, this was the developer conference, so it's not done. And, and Apple is very, very good at finishing these things, and all the bugs and all the issues, I can't read it, it's blurry, it's noisy, the-- those will all get fixed. You know, and what's left is, i-is it, is it great, and is it unique enough? And time will tell. I, I basically am reserving judgment and not joining in the hysteria on, on either side. I have no need to defend it and no need to say it's the worst thing to happen to computing, you know, since ternary processors or something. Um, the second thing that I thought was huge, um, personally, was just that the iPad gets Windows with a lowercase W.

   3. ETErik Torenberg3:07

      [laughs]

   4. SSSteven Sinofsky3:08

      Um, and I think that's just fascinating, like twelve different ways. You know, it goes back to the original toaster refrigerator comment, or the iPad is different, or Steve holding the iPad only like th-this 'cause it was a book. And it, it's just a recognition of who uses it and what they use it for. I, I, I worry it's a little late. Like, I think a lot of people have made up their minds about what to use where. Now, the iPad sells an enormous number of units, and people who don't use them don't understand that, that it-- they sell more iPads, you know, than the laptop run rate in the US. Like, it's a big number. And they're enormously popular with different segments. It'll be interesting to see how this plays out. The weird, weirdest thing about it is, you know, the iPad is a Mac.

   5. ETErik Torenberg3:57

      Yeah.

   6. SSSteven Sinofsky3:57

      The Mac is an iPad in terms of the hardware. And so you're really talking about a difference in software and how they, they deal with that over time and what apps run where and where is the experience is, is gonna be super interesting.

4. 4:11 – 5:35

   Apple's AI Strategy and Market Dynamics

   1. SSSteven Sinofsky4:11

      The third thing was more an act of omission than commission, and which was AI.

   2. ETErik Torenberg4:17

      Right.

   3. SSSteven Sinofsky4:18

      And it-- the whole event sort of started with Craig, like, apologizing in a, not really apologizing, but in an Apple way, which was like it, it took more time than we planned, so we're not gonna talk about it anymore. And I personally think that, you know, months ago when they, with a great fanfare, launched all these AI features, that was out of character for them. They, they announced a bunch of stuff that they weren't done with yet, that hadn't baked. It was the right stuff, but they, they didn't capitalize on it, to be polite. And I think what, what they're probably doing is saying, "We're not really good at this pre-announce-

   4. ETErik Torenberg4:55

      Right. [laughs]

   5. SSSteven Sinofsky4:56

      -catch up to our own announcements thing," which of course I grew up doing.

   6. ETErik Torenberg4:59

      Right. [laughs]

   7. SSSteven Sinofsky4:59

      So I'm, like, completely comfortable in that world of just make stuff up and hope you catch up-

   8. ETErik Torenberg5:03

      Yeah

   9. SSSteven Sinofsky5:03

      ... or people forget. And so I think that they're back to, like, we're not the first mover company.

   10. ETErik Torenberg5:08

       Right.

   11. SSSteven Sinofsky5:08

       We're the first integrator company.

   12. ETErik Torenberg5:11

       Yeah.

   13. SSSteven Sinofsky5:11

       And they're gonna just sit back and watch the technology mature a little bit more. But they do have a hole in, in a perception sense, which is Siri and, and what they're gonna do about that. And to not talk about it very much i-is interesting.

   14. ETErik Torenberg5:27

       You know, a lot of people have commented on the sort of the failures of, of Apple Intelligence or just Apple's, uh, sort of, um, inability to capitalize on this, on this innovation.

5. 5:35 – 12:26

   Meta's AI Moves and Market Implications

   1. ETErik Torenberg5:35

      What-- You know, we just saw Meta, uh, sort of, um, you know, purchase forty-nine percent of, of Scale. So, so they're making some big moves. How do you make sense of, of, of Meta's move, and could we see Apple do a similar type of play where they b-- sort of buy the talent in-house or, or buy the comp... How do you think about that?

   2. SSSteven Sinofsky5:51

      I, I think what, what Meta is doing is, at the very least, it's great for AI.

   3. ETErik Torenberg5:57

      Yeah.

   4. SSSteven Sinofsky5:58

      You know, I'll let Meta decide how great it is for Meta or whatever, but it's great for AI. And the reason is, is that if you go back, the way platforms have been evolving-You know, the, the, the era of, you know, in mainframes, IBM had a hundred percent. In PCs, Microsoft had ninety-five percent. Then you start getting out there, and then in servers actually ended up being like at best case fifty-fifty, and it's been downhill, and it's all Linux now. In phones, you, you have this split, you know, eighty-twenty globally, but you have to really dig down by country where it's eighty-twenty the other way.

   5. ETErik Torenberg6:34

      Yeah.

   6. SSSteven Sinofsky6:35

      And in cloud, it's very likely we're gonna end up in a s- you know, in a sort of a forty-forty/twenty kind of world.

   7. ETErik Torenberg6:41

      Yeah.

   8. SSSteven Sinofsky6:42

      And, and so AI, i-it's almost inconceivable that there'll be one winner.

   9. ETErik Torenberg6:48

      Right.

   10. SSSteven Sinofsky6:49

       And there's-- the overlay is China and how that plays out, and the mobile industry is a really good example of how difficult it is. You know, the smartphone, so to speak, Japan had this huge lead in this thing called i-mode, but it only existed in Japan. And so i-i-- you know, like they were leaders in technology and experience. They had all these micropayments, all this stuff, but, like, it w-- it didn't go anywhere outside of the country. And so the biggest risk to AI is that it, it becomes either it... Someone tries to think it's only one player, which at times the federal government has acted like that, or one player says it should only be us, which there is a, a player sort of claiming that, or it gets geographically constrained. It doesn't matter which one of those might happen. To prevent any one of them, you just need a lot of players operating at huge scale.

   11. ETErik Torenberg7:43

       Yeah.

   12. SSSteven Sinofsky7:43

       And so we have, you know, in, in the startup world, you have Anthropic, and you have OpenAI, i, you know, and you have, um, in pure open source, you have Meta, you know, and then, then you have, um, Microsoft and Google. So we, we have like innovation happening on all cylinders and all fronts, which is great because the competition, you know, is basically making the call that it's gonna be one, and it's sort of gonna be this government-driven approach. It might not be one company, but it will be one approach that's sort of sanctioned in some way, and it'll be interesting to see how that, that plays out. So I'm-- There's nothing better than more and open for AI right now.

   13. ETErik Torenberg8:24

       Well, it's, it's, it's worth just commenting on the market structure point because when we look back at the last few years of our sort of growth investing in, in this category, we, we, we've been very aggressive, but we regret not being even more aggressive. And because one of those principles was, "Hey, we wanna back the market leader."

   14. SSSteven Sinofsky8:38

       Yeah.

   15. ETErik Torenberg8:38

       And so when you see a, a second-place company, we're like, "Hey, it's not the market leader," but in this market, as you mentioned, it's not winner take all, or just the market is so big that even the second place or third place can be, you know, generational companies.

   16. SSSteven Sinofsky8:51

       Right. And we're not even at the point yet, which is where I believe we'll get, which is the, the, the initial go-to-market has all been this cloud-based thing, but there's all these challenges with that, like privacy and security and, and, and cost. And so we're-- You know, the idea that we would foist variable cost on the entire world of software, very tough for me as a fixed cost, low price, volume mindset to think we'll sustain. So I think we're still gonna... There's a whole wave of AI on the edge-

   17. ETErik Torenberg9:20

       Yeah

   18. SSSteven Sinofsky9:20

       ... that's gonna happen, which only benefits from open.

   19. ETErik Torenberg9:23

       Right.

   20. SSSteven Sinofsky9:24

       Uh, like, and so I'm very-- There's nothing but positive to say.

   21. ETErik Torenberg9:28

       Yeah. And so I won-- You know, does it make sense to look at this Alexander Wang or this sort of scale, um, you know, pr- as something of like a fifteen billion dollar acqui-hire of Alex plus the top talent at scale, and does... If you're Apple, if you're advising Apple, or, or, you know, do they or even some of the other big incumbents need to do something similar? Obviously, Microsoft, you know, is what we'll start with op-opening out to begin with. But if you're Apple, h-how do you think about how to play here?

   22. SSSteven Sinofsky9:51

       Well, I think, you know, the, the two plays are g- or three. One is gonna be the sort of the weird partnership dance play that Microsoft and OpenAI have. I, I... It, it seems obvious that at some point, you know, Microsoft will have much more first-party software. There's the, we have always made our play by just having everything, which is, which is, um, Amazon. And so you could... Anything that comes out, they're gonna end up supporting, which is just how retail works. Like, you don't... You get all the cereals, not just Froot Loops, you know. And, and then I, I think there's just the where we're gonna go it our own way, in a sense, which is Gemini taking their approach or OpenAI itself or Anthropic itself. And I, I think that Apple needs to pick one.

   23. ETErik Torenberg10:36

       Right.

   24. SSSteven Sinofsky10:36

       You know, they did announce, like, "Hey, you can call any model through our API," but the real thing that Apple needs to do is figure out what model is gonna be tuned to run on their unique hardware on the edge and their unique offering or constraint, depending on per- of privacy-

   25. ETErik Torenberg10:51

       Yeah

   26. SSSteven Sinofsky10:51

       ... and how that plays out.

   27. ETErik Torenberg10:52

       And just to evaluate one of those paths, if Satya could go back in time knowing what he knows now, do you think he w- might have done something or would you have considered doing something different? Um, h-how should we think about how this has worked out for Microsoft?

   28. SSSteven Sinofsky11:04

       Oh, these are tricky things. You can't ask me questions about my friends.

   29. ETErik Torenberg11:07

       No, no, no pressure.

   30. SSSteven Sinofsky11:07

       But I, I, like, I wouldn't... Putting it aside as advice, I, I would say, look, I, I genuinely, to those listening, I do not know anything that's going on. Like-
6. 12:26 – 16:06

   Apple's Historical Manufacturing Journey

   1. SSSteven Sinofsky12:26

      Oh, yeah.

   2. ETErik Torenberg12:27

      I wanna segue to, to the main focus of our conversation today, which is not a book review of Apple in China, though it's a great book, but inspired by, by the book. And I was just-- there's a few, few things I just wanna say. You know, fir-first, just the, the notion that I believe they said Apple invests fifty-five billion dollars a year in, in China, and I, I think the author said that's equivalent or, or maybe even bigger than the, the entirety of the Marshall Plan. Uh, it is just astronomical. And, and this, this book talks about how Apple not only built its company in China but also helped build China it-itself. Uh, China's sort of manufacturing economy and, and introduced the, the level of talent and, and knowledge or, or sort of taught China, um, not just how to build phones but that same sort of knowledge then led, uh, then to build, uh, help build Tesla, you know, which are phones on wheels, and then led to other sort of, um, you know, uh, technologies used for the military, which we'll, we'll get to. But, but first, I, I just wanna a-ask, was this inevitable or, or, or was this-- did this make sense at the time? How do we make sense of this twenty years later? H-How did this all happen?

   3. SSSteven Sinofsky13:26

      It is crazy that how it all happened. I mean, I think you go back, like of course, Apple, we all know it was in the garage in Palo Alto. They, they famously built the computers there. Um, but the thing was, from the very beginning, Apple itself was all about super tight control. I mean, first you had Woz, you know, basically creating works of art on the motherboard. And then they built a factory.

   4. ETErik Torenberg13:48

      Yeah.

   5. SSSteven Sinofsky13:48

      You know, there was the factory right here, and that's where they built computers. And, and they, they just kept doing more of that. Tight control, build the whole computer. Then, um, Steve left Apple. Macintosh, of course, was famously the same thing, but and Steve pushed and pushed on costs and the shape of it, made the famous toaster that you carry around, and things like that. But a-after Steve left, the company had enormous difficulty competing with the IBM, uh, PC. One of the things that it did sort of, um, um, later, like in the, in the late 1990s, was a super innovative laptop. Now everybody's like, "What does an innovative laptop mean?" Well, it turns out in the late 1990s, laptops, nobody bought them.

   6. ETErik Torenberg14:31

      Yeah.

   7. SSSteven Sinofsky14:32

      They were, they were slow, expensive, bad computers. They were just portable.

   8. ETErik Torenberg14:38

      Yeah.

   9. SSSteven Sinofsky14:38

      That was their big thing, and if you had to have one, you did. But they built this thing that was the original portable for Mac called PowerBook. And they tried to cram a lot of-- they tried to make the best laptop possible. And in order to do that, they ultimately were hitting the limits of manufacturing in the US, and so, uh, Jean-Louis Gassée, who was running the Macintosh business at the time, he was very famous French, uh, executive for Apple f- that Steve hired to run Apple France, working for Sculley. He actually pushed to do an experiment of like partnering with Sony in Japan to build a PowerBook. And so the original PowerBook line had sort of three computers of different sizes, power, and whatever. And the one model was done as a joint design effort with some, which was just incredibly brazen for Apple culture to like break out like that. And they did, and, and like it came back, and the people at Apple were like, "Wow, man, this, this is, this is not so bad."

   10. ETErik Torenberg15:38

       Hmm.

   11. SSSteven Sinofsky15:38

       You know? And, um, it wasn't the best-selling model, a lot of complexity, and you could read all about it in this book or other places. But it, it, sort of a light bulb went off, like, "Maybe this helps us solve some of our constraints." Now, they had other constraints, like the chips were wrong for the Mac. The PC was like half the price, like a lot of problems they had. But it was like a wow moment. And, and that, that was really interesting. But they were failing at computers.

7. 16:06 – 21:22

   The Evolution of Apple's Manufacturing in China

   1. SSSteven Sinofsky16:06

      Tim Cook joins Apple in like 1997, and he comes from IBM. And at IBM, he was like about making PCs. And he shows up, and he's already working this whole kind of world of, of supply chain and all this other stuff. He then later goes to, um, to, uh, Compaq, which is a famous-

   2. ETErik Torenberg16:27

      Yeah

   3. SSSteven Sinofsky16:27

      ... Texas-based computer maker, um, and does-- really helps them drive that whole, whole motion of building in China. And I'll, I'll talk about that maybe in a minute. But the thing that gets built by Apple then in 1999 is, is this iMac G3. Now, most people aren't old enough to remember it, but it was this sort of gumdrop shape, translucent Jony Ive creation. And you look at that, and you're like, "Wow, that's, that's neat." And you're like, "No, no, you don't understand. It was impossible." Like, every element of that computer couldn't be built.

   4. ETErik Torenberg17:02

      Right.

   5. SSSteven Sinofsky17:02

      Uh, it-- not just the stuff that they left off, like it didn't have serial ports and parallel ports and all this other stuff, but it, it was like clear plastic. Computers came in gray, stamped aluminum metal boxes with screws, and this was like a toolless, fanless, like amazing thing. And it total- and it was all done through this, this kind of China-based manufacturing stuff. But it was done in a very unique way at the time, which was the Apple people just went there and smothered the manufacturing line. And they every step, and samples back and forth, and this whole deal. And I'm glossing over a very complex timeline of events, and it, it sounds a little bit more all or nothing and sudden, but it's a very gradual transition. But this product was, was, was huge. And then the next one was the iPod.

   6. ETErik Torenberg17:52

      Right.

   7. SSSteven Sinofsky17:52

      And, and so now they're already comfortable with this model a little bit, but the iPod was like all of a sudden the, the assembly of it starts to look like, like almost like a war games screen of all these incoming things 'cause it's, it's like a disk drive invented in Japan, manufactured in, in, um, Thailand, and all the stuff is coming together. And all the parts, the click wheel and everything are in China. And it's all of a sudden being made in one place in this incredible form factor. Like, if you were to look at the other media players at the time, they were these big honking plat-

   8. ETErik Torenberg18:24

      Yeah

   9. SSSteven Sinofsky18:24

      ... they looked like game console things.

   10. ETErik Torenberg18:27

       Yeah.

   11. SSSteven Sinofsky18:27

       Like, not thisSolid deck of cards

   12. ETErik Torenberg18:30

       Right

   13. SSSteven Sinofsky18:30

       ... glued together with no tolerances. I mean, it's incredible. And so that was really the start of designed in Cupertino, manufactured in China.

   14. ETErik Torenberg18:40

       Right.

   15. SSSteven Sinofsky18:40

       And that whole, that whole process.

   16. ETErik Torenberg18:43

       And, and that was celebrated at the time, right? Because we were excited about sort of more integration with China, so that wasn't seen as such a problematic thing at the time, right?

   17. SSSteven Sinofsky18:52

       Oh, it's, it's absolutely. It's even more than that. Like, this was like hailed as like this is the modern way-

   18. ETErik Torenberg18:58

       Yeah

   19. SSSteven Sinofsky18:58

       ... to do business. Like a, like a very, an example of this that's just super close to home about how things have changed was that in 1999, the World Trade Organization gathered in Seattle to, um, ratify China as a member of the World Trade Organization.

   20. ETErik Torenberg19:15

       Yeah.

   21. SSSteven Sinofsky19:15

       And this is the organization that, like, that sort of navigates tariffs and trade rules-

   22. ETErik Torenberg19:20

       Right

   23. SSSteven Sinofsky19:20

       ... between countries. All the cool countries were in it, but not like communist, socialist China, you know, without, with, you know, a totalitarian government, all that. And so the Clinton administration had really pushed for China to come in, and it actually split the Democratic Party. People today, their heads would explode if you tried to sell it. And it turns out the Republicans were split too.

   24. ETErik Torenberg19:43

       Yeah.

   25. SSSteven Sinofsky19:43

       Because half the Republicans were like, "Free trade, free trade, free trade," and the other half were-

   26. ETErik Torenberg19:47

       Yeah

   27. SSSteven Sinofsky19:47

       ... were like, "We hate communism, we hate communism." And, and-

   28. ETErik Torenberg19:49

       Yeah

   29. SSSteven Sinofsky19:49

       ... so the whole world, if you look back in 1990, look, it's like completely upside down-

   30. ETErik Torenberg19:54

       Yeah
8. 21:22 – 26:31

   The Rise of ODMs and the PC Industry

   1. SSSteven Sinofsky21:22

      backwards-

   2. ETErik Torenberg21:22

      Sure

   3. SSSteven Sinofsky21:23

      ... uh, I think too, because I, I... Before we get to, like, when did Apple recognize, we, we should say, like, there are other examples of-

   4. ETErik Torenberg21:29

      Yeah

   5. SSSteven Sinofsky21:29

      ... of everybody doing this, and, and it-- the reason it's important is 'cause it contrasts with Apple, which is-

   6. ETErik Torenberg21:34

      Right

   7. SSSteven Sinofsky21:34

      ... the PC industry created what enabled Apple to do what Apple did. So Apple was on this path of like, let's manufacture in China, and let's keep very tight control. But the PC industry had a whole different approach, which was this much more classical In Search of Excellence outsourcing method. So, you know, Dell and Compaq, which were the two big makers with IBM, were, were in Texas, and, you know, Michael was building PCs in his dorm room, and then they had a factory in Texas.

   8. ETErik Torenberg22:03

      Yeah.

   9. SSSteven Sinofsky22:03

      Compaq were some business guys who, like, built a whole factory in Texas. And the parts were being flown in from wherever they came from, disk drives from this country, CPUs from Intel in the US-

   10. ETErik Torenberg22:12

       Yeah

   11. SSSteven Sinofsky22:12

       ... whatever, cables from China and stuff like that, and assembling them in the US. But the problem was they were all standard parts. Like, the, whatever-- When you bought a computer from Dell and from, from Compaq, if you open them up, i-Intel processor, Seagate disk drive, also from US, you know, like all... And, and so they were really not competing on who could buy those parts and put them into a gray or beige box more quickly. They were competing on the other three Ps of the marketing mix, which is price, place, and promotion, not just product. And so if you go back to In Search of Excellence, well, the idea is, well, since we can't compete on manufacturing, let's just make it as cheap as possible.

   12. ETErik Torenberg22:53

       Hmm.

   13. SSSteven Sinofsky22:54

       And so they, Compaq led, and they, they were c- they were making the cases for Compacs, which were these, like, fifteen-pound aluminum... Like, you could, they were like shipping containers basically that held the PC. They were making those in China, so it was the biggest, heaviest part. So it sort of made sense to see, like, how many parts could we get in the box before we ship the box to the US, which was two-thirds of the market. And so they just started going to these assembly plants and, and they went to one and said, "We want you to build our PC." And they said, "You got it," 'cause these guy- these, they are hungry.

   14. ETErik Torenberg23:26

       Yeah.

   15. SSSteven Sinofsky23:26

       They, they want-- And they were just having the ability 'cause of WTO and all this other stuff to, like, open up and just do business. And so they were like the capitalists in, in South China. And so, um, they were like, "Whatever you want us to do, we're gonna do it." And so Compaq being very, you know, they want secrecy and intellectual property, so they were like, "Then we'll build you a building." And so all of a sudden, Compaq had, like, a building that was theirs. And then they went to Dell, and they're like, "We'll build you a building too." And also, there's this other company that makes music players. They have a building over here. And all these makers were starting to serve multiple PC companies. And, and then the PC companies were like, "Hey, this is kinda working for us because we're crushing Apple in the marketplace, and our PCs are getting cheaper, and people are buying more, and, and the Windows 95 thing is taking off. Everything is just dandy." And so they, they started just, like, saying, "Hey, we don't even need engineers." Like, we-- Whereas Apple was, like, flying more and more people to do more and more advanced stuff, they were like, "More gray boxes, more interchangeable parts, more lower cost. We'll just keep selling more and making it up in volume," and that's exactly what was happening. And so-The, these people, which were called ODMs, original design and manufacturers, were saying, "You just tell us roughly what you want, we'll make it."

   16. SPSpeaker24:46

       Yeah.

   17. SSSteven Sinofsky24:46

       And, and so you'd go to meetings with them, and they would just show prototypes of all the computers they could build. And they would just... You'd pick. You want this one? You... And they're like, "Well, have it a little taller, smaller, thicker, thinner." "We wanna be able to swap out graphics cards." "Yes, yes, yes, and yes, and here's the Dell logo on it." And then they got very, very good. So they were effectively moving up the stack-

   18. SPSpeaker25:08

       Hmm

   19. SSSteven Sinofsky25:08

       ... and becoming product makers and designers. And they be-- And the reason is very simple. They also couldn't compete on labor. Like, the way that the government's working, the socialist part of this experiment was y-you, you can't live anywhere you want in China. You have to, you live where you're born, and if you wanna move, it's a whole thing. You're not allowed to just move. But what China was doing was taking all the hundreds of millions of poor people and letting them live temporarily in all the factories of all kinds, clothes and cars and computers, whatever, and live for part of the year and then bring massive amounts of cash back to the rural. And that's how China lifted a billion people out of poverty.

   20. SPSpeaker25:46

       Yeah.

   21. SSSteven Sinofsky25:46

       Well, those are all the same workers. So you, you can't keep, get a better deal on labor.

   22. SPSpeaker25:52

       Right.

   23. SSSteven Sinofsky25:53

       And, and then you're all going to the same ODMs who are building the same factory, so it's hard to get a better deal on that. So the ODMs were just... They, in order to compete, they were moving up the food chain. And the American electronics world, whether it was TVs or whatever, we're like, "Yeah." Or Japan with doing it with Sony. We're like, "We love this. Just keep showing us more stuff we can put our brand, our name on, and we'll just focus on sales and marketing, distribution and branding. We're awesome." And so the start of all of this was really... And by the way, like little things, like there were all of a sudden, uh, 50 different music players.

   24. SPSpeaker26:24

       Yeah.

   25. SSSteven Sinofsky26:24

       Because all that knowledge was distributed throughout all these makers. And so it was very, very

9. 26:31 – 28:49

   Inside China's ODM Factories

   1. SSSteven Sinofsky26:31

      interesting. Now, what was really going... And so what's it like to visit one of these ODMs? Like these guys-

   2. SPSpeaker26:36

      Yeah. Wow

   3. SSSteven Sinofsky26:36

      ... are crazy. Like, so you think, like when I first went, they're like-

   4. SPSpeaker26:40

      You've been there a few times?

   5. SSSteven Sinofsky26:41

      A bunch. Oh, I, I lived in China-

   6. SPSpeaker26:43

      Wow

   7. SSSteven Sinofsky26:43

      ... like in 2004 even, and that's all I did was visit all these people all the time-

   8. SPSpeaker26:46

      Wow

   9. SSSteven Sinofsky26:46

      ... and the government, and we go on forever about it. But the, the thing about these was, um, you know, you'd think you'd go and it's like a factory. Like how exciting. And I've been to like car factories-

   10. SPSpeaker26:55

       Yeah, yeah

   11. SSSteven Sinofsky26:55

       ... and washing machine factories 'cause they're all Microsoft customers.

   12. SPSpeaker26:58

       Right.

   13. SSSteven Sinofsky26:58

       So you go and you visit them, and they all show you plants and stuff.

   14. SPSpeaker27:01

       Yeah.

   15. SSSteven Sinofsky27:01

       And you know, you go and like all of a sudden you're like, "Oh my God, this is like a hospital." [laughs] Like, and I'd been to Intel, which is like an operating room. Like it's all bunny suits and all the... But this is like they're just joining parts. It's the same thing I do in my living room when I buy a PC. [laughs] Like I'm just putting all the parts here. But they, you know, these things are football field size. And I should say-

   16. SPSpeaker27:18

       Wow

   17. SSSteven Sinofsky27:18

       ... just for a baseline, I, I did summer jobs at the factory that built, um, intercontinental ballistic missiles and surface-to-air missiles in Orlando. So I've seen big giant factory floors before.

   18. SPSpeaker27:30

       Right.

   19. SSSteven Sinofsky27:30

       There are like thousands of people on ten, hundreds of-

   20. SPSpeaker27:33

       Wow

   21. SSSteven Sinofsky27:33

       ... acres of assembly, and you just watch like computers flying off. And, and so the owners of these are very proud, and they, they take you on tours. You go and you meet the CEO, founder of these ODMs, and they take you on the tour. They show you everything. They show you every step in the line. And then they... But you know, they show you the one you're allowed to see.

   22. SPSpeaker27:52

       Yeah.

   23. SSSteven Sinofsky27:52

       So like I was at Microsoft, I couldn't see any of them.

   24. SPSpeaker27:54

       [laughs]

   25. SSSteven Sinofsky27:55

       So, but I could see he was very proud to always show me like one step in the process, and that was the step when they attached the Windows logo to the PC, something Steve Jobs would never have allowed.

   26. SPSpeaker28:06

       Yeah.

   27. SSSteven Sinofsky28:06

       But the Windows logo meant it was a legal copy of Windows. The whole reason I moved to China was because they were stealing Windows and Office left and right, and my job was to sort of somehow help to see if we could stop that.

   28. SPSpeaker28:16

       [laughs]

   29. SSSteven Sinofsky28:16

       But, but they were very proud and very legal about that step.

   30. SPSpeaker28:20

       Yeah.
10. 28:49 – 29:25

    The Evolution of the MacBook Air

    1. SSSteven Sinofsky28:49

       Air.

    2. SPSpeaker28:50

       Yeah.

    3. SSSteven Sinofsky28:50

       And so, like, the MacBook Air goes back to the original PowerBook 100 experiment, which was, how can we take what basically suck, which are laptops that people, Windows people use? Like, give you an idea. Like, when the MacBook Air came out, the typical knowledge worker in a company was traveling with about six pounds of computer gear.

    4. SPSpeaker29:08

       Yeah.

    5. SSSteven Sinofsky29:09

       Which was a laptop. It was probably an inch and a half thick, you know, nine by twelve. It had one of these padded laptop cases that you sometimes see. It was awful. I actually wouldn't even travel. I only used, like, Japanese laptops that, that would fit in envelopes and stuff. And then, um,

11. 29:25 – 30:46

    The Apple Manufacturing Miracle

    1. SSSteven Sinofsky29:25

       they would, uh... So they, Apple was building the MacBook Air, and so now we know it was this machine-milled aluminum chassis in that building that, that they showed us and, and it, and it was, like, remarkable.

    2. SPSpeaker29:38

       Yeah.

    3. SSSteven Sinofsky29:39

       Now, you, Steve held it up and put it in an envelope and everybody, "Ooh, fits." And I'm like, "My Sony fits in an envelope," but my Sony was $3,500 made by hand in Japan.

    4. SPSpeaker29:49

       Yeah.

    5. SSSteven Sinofsky29:49

       And, and this was kind of a miracle. And the problem was that the, the ODM who was on tour with me, you know, we went up... So this is what happens. You go on the tour, they take you up a secret elevator, and then you're, it's like you're literally above the factory, and all of a sudden I'm, like, in a Bond movie.

    6. SPSpeaker30:08

       [laughs]

    7. SSSteven Sinofsky30:09

       And, and, like, I... The, the elevator door opens, and you're in this football field-sized office with, like, a tea ceremony room and, like, weird ancient suits of armor for art and-

    8. SPSpeaker30:20

       Were you ever terrified?

    9. SSSteven Sinofsky30:21

       I, I was completely terrified.

    10. SPSpeaker30:23

        [laughs]

    11. SSSteven Sinofsky30:23

        I'm like, I'm like, oh my... And of course nothing ever, no one ever gets hurt.

    12. SPSpeaker30:26

        Yeah.

    13. SSSteven Sinofsky30:26

        It is like, but, like, what the hell? Like, I'm like looking. Is there a stairway that's gonna turn into a slide-

    14. SPSpeaker30:31

        [laughs]

    15. SSSteven Sinofsky30:31

        ... and I'm gonna end up being eaten by Japanese sharks, Chinese sharks or something? But there's like ancient scrolls, and we have to go through, and every single piece of art I'm getting a story.

    16. SPSpeaker30:39

        [laughs]

    17. SSSteven Sinofsky30:39

        And every... And I, and I'm like, I'm jet lagged.

    18. SPSpeaker30:41

        [laughs]

    19. SSSteven Sinofsky30:41

        I have to pee. And like, I'm here to just make sure the stickers are going on the laptops.

    20. SPSpeaker30:45

        [laughs]

    21. SSSteven Sinofsky30:45

        But

12. 30:46 – 31:49

    Challenges with Windows PC Makers

    1. SSSteven Sinofsky30:46

       I'm getting the full deal. And then we sit down and he's like-The Windows people are losing.

    2. ETErik Torenberg30:51

       Hmm.

    3. SSSteven Sinofsky30:52

       That's me.

    4. ETErik Torenberg30:53

       Yeah. Same here.

    5. SSSteven Sinofsky30:54

       And because I am building these great things and, and then he shows me prototypes for all these Windows computers. So these are the ones that he built without any help from the Apple people.

    6. ETErik Torenberg31:05

       Wow.

    7. SSSteven Sinofsky31:05

       And he's like, "We could build these, but we can't convince, you know, Michael or, or D- or Compaq or anybody to build them. They're too expensive or whatever. I can make them cheaper." But I-- And I also, and this is where they get candy, he's like, "It's very difficult to work with th- those people." They, they don't give him any degrees of freedom.

    8. ETErik Torenberg31:23

       Right.

    9. SSSteven Sinofsky31:23

       He can't be creative, but he also can't move up the stack.

    10. ETErik Torenberg31:26

        Yeah.

    11. SSSteven Sinofsky31:27

        And, and the PC people just wouldn't do it. And so two lessons from that. One is that Apple taught them-

    12. ETErik Torenberg31:36

        Yeah

    13. SSSteven Sinofsky31:36

        ... how to do this. Now, they didn't plan on doing that.

    14. ETErik Torenberg31:38

        Right.

    15. SSSteven Sinofsky31:39

        But osmosis happens.

    16. ETErik Torenberg31:41

        Yeah.

    17. SSSteven Sinofsky31:41

        And they got all these skills, and then the other was, Apple was still gonna uniquely do it, and no one else was gonna come and invest that money.

13. 31:49 – 32:58

    The Rise of Surface and Metallurgy Innovations

    1. SSSteven Sinofsky31:49

       Now, we were there also at one point to help them, help get Surface built. We were actually doing it to solve the problem. Uh, the reason Surface exists is because the PC makers wouldn't build like an aluminum computer, basically.

    2. ETErik Torenberg32:02

       Mm-hmm.

    3. SSSteven Sinofsky32:02

       Or an all-in-one, for that matter. And so, like, we actually-- we did a whole different approach to metal. We actually built a whole metallurgy plant to do injective magnesium alloy for the original Surface computer that ran Nvidia chips and all this other stuff. And then, um, and, and we were gonna light-- we were willing to make cases of any size or shape for the OEMs, but they just saw it as a niche. And so Apple-- So the PC makers just continued to stamp out routine things for at least three more years until Intel finally invested a bunch of money in the OEMs via pricing to get them to build what today look like laptops for Windows called Ultrabooks.

    4. ETErik Torenberg32:43

       Yeah.

    5. SSSteven Sinofsky32:44

       And, and but Apple just continued to do that, and they were building that expertise just inadvertently. And then Intel came in and piled on more. And so more people knew, except in the sort of the slightly more open part of, of China.

14. 32:58 – 34:14

    China's Manufacturing Prowess

    1. SSSteven Sinofsky32:58

       And so it, it just, it, it was like this slow-moving osmosis that gets us to the point where, as Tim Cook says, "People think that China is about cheap manufacturing, but it, it's the skills they have." Like, nobody else in the world could run five hundred prototyping aluminum milling machines at one time and produce the right defect rate and save all the waste and develop all the stuff. You know, all these things. Like, when we were making Surface, you know, you have to use all this pressure-sensitive adhesive and keep all the things together to make it USB thickness, and like nobody here knows how to do that. They were telling us what they were doing.

    2. ETErik Torenberg33:36

       Yeah.

    3. SSSteven Sinofsky33:36

       And, and that is what happened. And it was not by... It was not a design, and that's one of the differences I have with the book. The book is clear it wasn't on purpose, but it still makes it seem like we could have stopped it at any point. And I, I don't-- Not only do I not see that we could have, I-- there was no interest in stopping it. Like it, for the global view of trade, it was working exactly as planned-

    4. ETErik Torenberg34:00

       Right

    5. SSSteven Sinofsky34:00

       ... for everybody.

    6. ETErik Torenberg34:01

       Yeah. And so let's get, now get back to when did that start to change? Is it, I don't know if it's going to the book or someone said, "Hey, China is Apple by the balls or has us by the balls." Let's talk about that-

    7. SSSteven Sinofsky34:11

       Yeah, yeah

    8. ETErik Torenberg34:11

       ... and when did we realize that happened?

    9. SSSteven Sinofsky34:12

       At one point, it's the point of no return.

15. 34:14 – 35:04

    The Point of No Return for Apple

    1. SSSteven Sinofsky34:14

       So the point of no return was basically, I would say, two years into the iPhone. The scale was such-

    2. ETErik Torenberg34:19

       Yeah

    3. SSSteven Sinofsky34:19

       ... there was nowhere else. I ev- I'm sure Apple would just argue, "Oh, there was no way we could even have started the iPhone-

    4. ETErik Torenberg34:24

       Yeah

    5. SSSteven Sinofsky34:25

       ... anywhere else." Uh, and I could tell you, we, the, the, like Surface, there was no chance. We were... And that's a low volume product.

    6. ETErik Torenberg34:31

       Right.

    7. SSSteven Sinofsky34:31

       Like there was no, no chance. And most things are very low volume, which makes the, the non-recurring engineering costs much higher, so even more impossible to build. All the startups, y- you know, you can't even consider-

    8. ETErik Torenberg34:45

       Yeah

    9. SSSteven Sinofsky34:45

       ... doing that. So I, I, like the point of no return happened so long ago that it's sort of a weird thing to think about fifty billion dollars a year in investment, 'cause that's not what did it.

    10. ETErik Torenberg34:56

        Yeah.

    11. SSSteven Sinofsky34:56

        What did it was, was this unique blend of socialism or totalitarianism and entrepreneurship.

16. 35:04 – 39:48

    The Complexities of Global Trade

    1. ETErik Torenberg35:04

       Yeah.

    2. SSSteven Sinofsky35:04

       And that's the thing that all the experts got wrong. All the experts in 1999 were like two things. "Yay for global trade. This is what we all want," and also, "Don't worry. China is, is... They're gonna stay a third world dictatorship forever." They couldn't have been more wrong. And I, frankly, that's how I felt living there.

    3. ETErik Torenberg35:26

       Right.

    4. SSSteven Sinofsky35:27

       Like I, I was like, it, it do- you know, like yes, obviously it feels totalitarian. Like you turn on CNN and you're watching-

    5. ETErik Torenberg35:33

       Yeah

    6. SSSteven Sinofsky35:33

       ... and then it vanishes, and you're like, "Well, that was weird." You know, you try to connect to a website randomly from the link, and you can't see it anymore.

    7. ETErik Torenberg35:39

       Yeah.

    8. SSSteven Sinofsky35:39

       And there are all these people that work for the government in our office, and I can't talk to them, and I don't know why they're there-

    9. ETErik Torenberg35:44

       [laughs]

    10. SSSteven Sinofsky35:44

        ... and I'm their boss. It's super weird. Like there's a lot of stuff that as an American you're like, "This is just kind of strange." But you go to the ODM, I, I could've been visiting Kimberly-Clark in-

    11. ETErik Torenberg35:55

        Yeah

    12. SSSteven Sinofsky35:55

        ... a plant or-

    13. ETErik Torenberg35:56

        Right

    14. SSSteven Sinofsky35:57

        ... Kellogg's. It looked like a factory with a person who was like, "Just tell me what I can make and sell. I'm there for you." And, and so you're, you're in this weird hybrid world that was completely predicted wrong.

    15. ETErik Torenberg36:11

        Right.

    16. SSSteven Sinofsky36:11

        And, and so you wake up and, and you're like, "Oh, well, they were really working." And a great way to think of it is like the car industry. So the car industry, there was no auto industry when I was living in China. All the cars were Volkswagen or, or Mercedes, and that's what everybody drove around. That's what... If you owned a car, you owned a Volkswagen. If you got driven around, you got driven around in a Mercedes, and that's just how it was. And the ra- the way they got there was by doing these joint ventures with, with the Chi... And that was the mandated way, and the joint venture came with like, you know, these terms that were onerous. Like you had-

    17. ETErik Torenberg36:42

        Yeah

    18. SSSteven Sinofsky36:42

        ... to give them all your IP.

    19. ETErik Torenberg36:43

        Right.

    20. SSSteven Sinofsky36:43

        You know, and so for us, like even to get a license to sell software, not that anyone was buying it legally, but to sell software, you had to sort of allow these inspectors to come in-

    21. ETErik Torenberg36:51

        Yeah

    22. SSSteven Sinofsky36:51

        ... and see stuff. And like we had to shut down Hotmail for forever because, like, we wouldn't let them see the data center servers, which weren't even in China, and all sorts of complexities. But if you wanted to sell into the world's largest population market-

    23. ETErik Torenberg37:05

        Yeah

    24. SSSteven Sinofsky37:06

        ... that was your choice.Comply or not. In the meantime, they're-- the, the entrepreneurs in southern China are-- they're not looking at, at Beijing for government direction. They're actually going, "Well, we have to beat Korea. We have to beat Japan."

    25. ETErik Torenberg37:20

        Yeah.

    26. SSSteven Sinofsky37:20

        "We have to beat Singapore. We have to beat Vietnam or Indonesia." And those are all their neighbors, and they see them all. And, and like we met once with, um... And so the car companies, if you just fast-forward, they all are out of China now.

    27. ETErik Torenberg37:32

        Yeah.

    28. SSSteven Sinofsky37:32

        These joint ventures, they could never get their money out. They lost all their IP, their manufa- It's just horrible to-- like Volkswagen, Ford, Mercedes, it's just been a nightmare. Uh, Tesla doesn't have-- didn't have to do a joint venture, which is sort of the modern thing, just like Apple, where they were allowed to operate. But it turns out there are all these soft ways-

    29. ETErik Torenberg37:50

        Yeah

    30. SSSteven Sinofsky37:50

        ... that the company could be miserable. That's where it goes from entrepreneurship-
17. 39:48 – 42:44

    The Impact of COVID on Global Manufacturing

    1. SSSteven Sinofsky39:48

       way to view the wake-up call is, is through the lens of COVID.

    2. ETErik Torenberg39:52

       Right.

    3. SSSteven Sinofsky39:52

       I, I think. Which is all of a sudden, the entire world learned that this global system while great for prices, great for in search of excellence, focus on what you're knitting and what you do well, it turns out it's, it's actually pretty fragile.

    4. ETErik Torenberg40:06

       Yeah.

    5. SSSteven Sinofsky40:07

       And it's fragile because there's single points of failure all over the place.

    6. ETErik Torenberg40:11

       Yeah.

    7. SSSteven Sinofsky40:12

       And, and in this case, the single point of failure turned out to be like, well, you can't go all... If this city is closed, no one can go into the factory.

    8. ETErik Torenberg40:20

       Yeah.

    9. SSSteven Sinofsky40:20

       And then if, if transit is closed, then the stuff can't make it. And so I, I just think COVID was the wake-up call for the whole system. And of course, at the national security level, it's, it's massively important now because, you know, you can't afford to have a, a nation shut down-

    10. ETErik Torenberg40:40

        Right

    11. SSSteven Sinofsky40:41

        ... because of these things. And if all the technologies are based on chips which are assembled in one place and packaged by these people who have all the skills to package them, that you go, "Well, that's, that's sort of a problem." Now, the Defense Department long ago figured this out for, like, guns and rockets. Like, those are all made in the US. Like, you know, the, the military sidearm is a Beretta pistol, which is, uh, the oldest company in the world in Italy. And, you know, the first thing Italy did to win the bid was set up a factory in the US. And so good news, we have plenty of sidearms-

    12. ETErik Torenberg41:12

        Yeah. [chuckles]

    13. SSSteven Sinofsky41:12

        ... that we could throw at the drones or something. Uh, you know. But drones is the opposite end of the spectrum. Like, all of a sudden, drones are the most important thing, and like, all of a sudden, we were like, we don't even... We don't, not just we don't make the drone, we don't make any of the parts for the drone.

    14. ETErik Torenberg41:27

        Yeah.

    15. SSSteven Sinofsky41:28

        And they're all made... The only person who makes them is our enemy-

    16. ETErik Torenberg41:31

        Yeah. [chuckles]

    17. SSSteven Sinofsky41:31

        ... so to speak. So this seems-

    18. ETErik Torenberg41:33

        Yeah

    19. SSSteven Sinofsky41:33

        ... to be a problem.

    20. ETErik Torenberg41:34

        And so let's say Trump brings you in and says, "Hey, I've noticed that, uh, you know, nearly all of computing is, uh, you know, every layer of the stack is, is done in China and, and, you know, Asia more broadly, uh, and I'm trying to sort of decrease our dependencies. Um, Microsoft man, what, what should I do?" [chuckles]

    21. SSSteven Sinofsky41:50

        Well, obviously, there are much smarter people who know more and have much more at stake than I do trying to solve this. I, I mean, you have to do it.

    22. ETErik Torenberg41:58

        Yeah.

    23. SSSteven Sinofsky41:58

        Like, it, I... The thing is, it, it goes against all these academics that were experts in 2000 that said it was good.

    24. ETErik Torenberg42:04

        Yeah.

    25. SSSteven Sinofsky42:05

        But they didn't think about all of these. Like, nobody thought that the dependency would be on, on, you know, sort of the replacement for the Soviet Union in terms of-

    26. ETErik Torenberg42:14

        Yeah

    27. SSSteven Sinofsky42:15

        ... longtime enemy. And, and so you, now you, you know, no more would we be dependent on the Soviet Union for something than we would be on, on China. Like, you, there's no choice i-in that matter. Now, hopefully, our détente with China is already vastly more open than anything that up until 1990 that the Soviet Union was. So we're in a very good, sort of peaceful situation there. But that doesn't change the posture.

    28. ETErik Torenberg42:43

        Yeah.

18. 42:44 – 51:18

    Navigating the Future of Manufacturing

    1. SSSteven Sinofsky42:44

       And so, you know, Apple is, like, doing this experiment. It's obviously more than an experiment to build in India, which solves their problem. It doesn't necessarily solve the, the current administration's view of the solution.

    2. ETErik Torenberg42:58

       Right.

    3. SSSteven Sinofsky42:58

       I mean, 'cause if you think of it, like the other part of free trade that inverted, twisted and, you know, split the party, the political parties in half in the US was NAFTA in, in the early 1990s, which was like free trade with Canada and Mexico. What could be, uh, more of a no-brainer?Well, it turns out it was also the global view of things

    4. ETErik Torenberg43:19

       Yeah

    5. SSSteven Sinofsky43:19

       Like, in fact, NAFTA, half the Democrats voted against it, half the Republicans voted against it, the same as WTO kind of stuff. And, and here we are like, well, that meant that all the jobs just moved to Canada and Mexico.

    6. ETErik Torenberg43:32

       Yeah.

    7. SSSteven Sinofsky43:32

       And, and, you know, long term, also not having employed people is a bad thing. It doesn't matter if it's manufacture or anything. It's just like-

    8. ETErik Torenberg43:39

       Yeah

    9. SSSteven Sinofsky43:40

       ... weird that just being across a border would so substantially change the economics of what's made.

    10. ETErik Torenberg43:46

        Yeah.

    11. SSSteven Sinofsky43:46

        I mean, especially when you literally just drive the parts back and forth through Texas-

    12. ETErik Torenberg43:49

        Yeah

    13. SSSteven Sinofsky43:50

        ... is kind of weird, or Minnesota or whatever. And so, so I think this reset is happening broadly. I don't like the idea that, that the people who are very much in favor of this global world sort of ignore inherent risks of the polarized world, but also just immediately jump to, "No one's gonna pay five thousand dollars for an iPhone."

    14. ETErik Torenberg44:09

        Yeah.

    15. SSSteven Sinofsky44:09

        I think, what an incredibly silly argument. Because if you were to look at an iPhone and think about making it by hand, you would go, "Well, it's gonna cost like a hundred thousand dollars each one." It's like a fancy watch.

    16. ETErik Torenberg44:18

        Yeah.

    17. SSSteven Sinofsky44:19

        And so what-- the reason that it's a thousand dollars or fifteen hundred dollars or whatever is because of the innovation in manufacturing. So all that needs to happen is like another step function change in manufacturing. And of course, for decades, that's all Apple woke up and thought about. So they, they remained that whole operating mode of Apple's, of being-- sending zillions of people, being on the factory floor, desi- That's what they do.

    18. ETErik Torenberg44:46

        Yeah.

    19. SSSteven Sinofsky44:46

        They rely on skills, but they are there inventing these things.

    20. ETErik Torenberg44:50

        Yeah.

    21. SSSteven Sinofsky44:51

        And, and so, you know, if you look at, you know, the Apple, um, Apple Vision Pro, like it has all these lenses and all-- They were on top. They made all of that stuff. And so what they're gonna do is they're gonna focus on, "Okay, if we have to do this, we're, we're gonna also end up with giant factories of robots or better automation or new packaging technologies that don't require as many st-..." All the stuff that they have already the world leaders in.

    22. ETErik Torenberg45:17

        So you're, you're sort of optimistic or that this is a solvable problem that they can decrease-- that Apple can decrease its dependency and figure out whether it's French or Chinese.

    23. SSSteven Sinofsky45:25

        I think everybody is in-- I know, I, I-- You know, it's easy 'cause of the book to focus on Apple.

    24. ETErik Torenberg45:29

        Right. But everyone's in that situation.

    25. SSSteven Sinofsky45:30

        But like, everybody-

    26. ETErik Torenberg45:31

        Tesla

    27. SSSteven Sinofsky45:31

        ... faces this problem.

    28. ETErik Torenberg45:32

        Yeah.

    29. SSSteven Sinofsky45:32

        Like, you know, even if you make cars in Detroit that are really ma-man-manufactured-

    30. ETErik Torenberg45:37

        Right
19. 51:18 – 53:36

    The Role of Intellectual Property in US-China Competition

    1. SSSteven Sinofsky51:18

       Well, I, I, I think I, I would sort of just drill down on one issue that I just think is, is super important for people to really consider in the competition between the US and China-

    2. ETErik Torenberg51:26

       Yeah

    3. SSSteven Sinofsky51:26

       ... and also how it relates to AI, which is the difficulty we're all gonna have collectively to navigating the world of intellectual property.

    4. ETErik Torenberg51:33

       Yeah.

    5. SSSteven Sinofsky51:33

       You know? I, I just think, I think it's very, very easy to say China doesn't respect intellectual property, so they can't be part of the world stage flat out. I mean, they've crushed the pharmaceutical industry that way. You know, what they've done with BYD and Tesla, arguably pretty rude and stuff like that. But on the other hand, it's just as easy to say, well, because of AI, all knowledge, all content, all information just needs to be free to train and to reuse. N-neither of those are realistic positions. And, and I, I think that this issue is far more subtle and far more important than, than I think either China thinks or the sort of the digerati in the US think. And I, I believe that that's one that's gonna need a lot... And I worry about wild cards.

    6. ETErik Torenberg52:19

       Yeah.

    7. SSSteven Sinofsky52:19

       Like, I worry about the European Union going crazy in one direction or another and passing some rule, then all of a sudden, that market is weird.

    8. ETErik Torenberg52:27

       Yeah.

    9. SSSteven Sinofsky52:27

       Or Japan, which was like, went the other way because they have a language challenge-

    10. ETErik Torenberg52:31

        Yeah

    11. SSSteven Sinofsky52:31

        ... which is Japanese. Like, they could just, they're in control of Japanese, so they just said, "Yeah, we could train anything here."

    12. ETErik Torenberg52:36

        Yeah.

    13. SSSteven Sinofsky52:36

        But it's like, yeah, but that's just Japanese.

    14. ETErik Torenberg52:37

        [laughs]

    15. SSSteven Sinofsky52:38

        Or is it a loophole for English? We're not really sure.

    16. ETErik Torenberg52:40

        Yeah.

    17. SSSteven Sinofsky52:41

        And so I think that that issue is the one where policymakers need to spend the most time, but it's also structured in the US that it's just, it's a litigation issue.

    18. ETErik Torenberg52:50

        Yeah.

    19. SSSteven Sinofsky52:50

        And there's no way around it.

    20. ETErik Torenberg52:51

        Yeah.

    21. SSSteven Sinofsky52:51

        So we're in for years of kind of market uncertainty over how this plays out, and that's been a core part of Apple's advantage, has been their ability to maintain the intellectual property of a s- of s-components-

    22. ETErik Torenberg53:03

        Yeah

    23. SSSteven Sinofsky53:03

        ... and manufacturing and assembly, and, and now that's dispersed.

    24. ETErik Torenberg53:08

        Yeah. Yeah. That's a, a good place to, to end. Steven, this has been a fantastic conversation. Thank you so much for coming on.

    25. SSSteven Sinofsky53:14

        Thank you. It was great to be back together. [upbeat music]

Episode duration: 53:36