"We Had to Kill the Ipod To Save Apple" - iPod & iPhone Inventor, Tony Fadell

0:00Steve had a saying that always was, stay beginner. Look at the thing you're making and the customer journey as if you were a beginner. Don't habituate away a problem that might be inside the device or the product. Hello, and welcome to Giant Ideas with me, Cameron McLean, and me, Tommy Stadlen. We're co-founders of Giant Ventures, which builds and backs purpose-driven companies. At Giant, we're lucky to meet extraordinary people with Giant Ideas that are changing the world. This podcast brings you behind-the-scenes access to those ideas and the inspiring stories of the people behind them. We explore how one giant idea can kickstart a billion-dollar company, shape culture, and transform life as we know it.

0:42Today we're joined by technology legend Tony Fidel, the inventor of the iPod and co-inventor of the iPhone, products that have changed the world arguably more than any other consumer object in history. He's also the founder of Nest, the pioneering smart thermostat acquired by Google. Tony is also the New York Times bestselling author of Build, an unorthodox guide to making things worth making. Tony, welcome to Giant Ideas. Tommy, great to be here. Thanks for having me. I've been trying to get you to do this for literally years, and I'm really excited that you're going to do it. And tomorrow I'm seeing you do something with Al Gore.

1:19So I'm going to have to beat Al Gore in terms of the quality of my questions today. Well, it sounds like it's a great competition for the listeners. Let's see. Let's see where we get to. Let's talk about the iPod and the iPhone. You co-invented the iPhone, you invented the iPod. I want to hear what do people miss when people talk about the story of these incredible sort of smash hit products, which totally changed the world. So much has been written and said about them. But when the historians come to look at this, which they will, what do you think people miss about why these things happened?

1:48Why they were so powerful? Why they worked? what did apple and you guys get so right what do people not understand in the case of the ipod apple was not the company you knew it today which is multi-trillion dollar company it was worth like three to four billion dollars which today you know is around for almost a series b company you know it's like okay yeah that's how much you get for a round you know not even profitable so it was worth not almost anything. It had less than 1 % market share. And so Apple was on the ropes. Steve had already been back a couple of years. He launched the iMac, these lifesaver colored Macintoshes.

2:31And it was going to be, okay, Apple's back. And Apple had a kind of a resurgence for a few quarters with the new iMac. And then it all collapsed again because people weren't going to move from windows machines pcs over to mac it was just too hard it was just it wasn't happening yeah there was no apple retail apple was in debt at 500 million dollars it was barely break even apple was on its last legs right okay so michael dell said famously just close apple down give the money back to the shareholders that's it apple's over that was even after the imac this was after the iMac okay because that's good that is kind of elided that that gap in history isn't it where people just look back and go yeah they did the iMac and then it was all up and to the right yeah no no the iMac and then the shares crashed right the shares crashed because there's no more demand right and it was they were sitting there and they were still doing the okay we're better than windows we're better than windows but nobody wanted to move back like it was too hard there wasn't enough software that was when microsoft famously invested in apple right to help it When Apple had to sell its armshares, it hit at armshares back in the day because it was one of the first investors.

3:49It sold those to keep the company alive. Wow. Okay. So very, very different things. So when you say you're going to build an iPod, and many people in the team didn't want to do that because there was no cash. It was like you're going to distract everyone from this fight we're in for this. it's an existential question and decision that's going to be made saying, okay, the Mac is this other thing. This iPod thing is going to help sell more Macs. We're going to go for consumer electronics. We've never done that before for the most part. We're going to make that happen. And so when you do that, it's a huge bet.

4:36Now, I had been in the Valley for 10 years. And I had gone through countless failures, starting with General Magic or whatever. So, and Apple is a failing company, again, even with Steve back at the helm. Why would I even join? So, why should a company go off its script? Why should other people join the company who watched from the outside? It doesn't look good. And so, what is the answer to all these questions? Why did Steve Jobs take the risk? Why did you take the risk to go do this? so yeah all those are very good questions so the first thing was was steve said you know it's kind of like you know thomas edison's uh no excuse me albert einstein's uh definition of insanity tried to keep this doing the same thing over and over and expecting different results right so if you think of that like okay they're sitting here mac versus pc mac versus pc and it's not going anywhere right so it's like what are we going to do what are we going to do differently and so this was the different thing, which was we're going to get back into consumers' hands because they love music and they're going to use iTunes on a Mac and they're going to use an iPod.

5:46So the only way you're going to sell more Macs is by selling iPods because people need to have Macs for an iPod to work, which was a strategy, but it didn't work right away. So we shipped it after 10 months. So the burn the boats, we're going to make this iPod. We make a really great first generation product. And it sold for a quarter or two. And then the sale stopped. Okay. And why? Because nobody else had Macs and it didn't work with anything else. Right. And so Steve's like, we got to fix the product. We got to change these things. So we changed the product. And all the time, the team and I were all going, we have to work on Windows.

6:27We have to work on Windows. And he's like, no, we're going to sell more Macs because of the iPod. and at the end of the day, the third generation iPod finally took off. Why? Because it worked on a Windows machine. Okay, so Steve said no to that. Steve said no to a Windows-compatible iPod for two generations of the iPod, the first two generations, because he wanted to sell more Macs. Okay. And the argument was, and I made and other people made on the team, was you're you've now taken a 300 to 400 ipod and made it 2700 right because you have to buy a mac too and you have to switch your life over yeah so you're making the switching cost really really high to get into apple yeah let's make it cheaper okay and and how did that argument eventually how did you prevail in the end how did we prevail in the end that was the that was the interesting piece which was we had to go to a third party his name was walt mossberg he didn't know this But Walt Mossberg was the tech writer that everybody wanted to be at the Wall Street Journal.

7:34He was the person before Kara Swisher, before, you know, Joanna Stern, before all of them. Yeah. He was the OG. OK. OK. Great guy. And he set the tone for how people would review any product because he was able to make it very consumer. So we created it. So we were at odds. And Steve was like, no, no, no. And we were like, yes, yes, yes. And so ultimately, we had to go to an opinion-based decision. Steve didn't want to make that opinion-based decision. Neither did we couldn't. As the team, Steve had to make the decision. So he said, I'm going to let Walt Mossberg tell us, the number one tech reviewer, if this iPod on Windows is good enough to ship or not, because he's going to set the tone.

8:20So he's going to do it. But he didn't know this. So we set up a demo. he tried it he's like yeah it seems pretty good to me you know and so steve said okay we're gonna do it because wall said it was okay yeah yeah so that was the really interesting thing because he didn't want to make the decision one way or another to say he was wrong yeah yeah and you're like steve could you not have just listened to us two years ago anyway whatever that you know sometimes it like i've always said at apple when we were working under steve sometimes there were insane decisions being made right absolutely insane decisions made and i and i learned over the time over my 10 years there i was like sanity will prevail it's just a matter of time okay and so but just going back a bit tell us a little bit about your your vision for the ipod and how you came up with the idea and you know what what was it about this thing because there were mp3 players before i remember having one before and you know they kind of did roughly the same thing but they were just you know orders of magnitude less beautiful less exciting how did you what was your vision well so the the first thing was i you know i was started as a consultant they hired me and as a consultant they bought itunes um jeff robin and itunes it was bought and then they were they became itunes yeah and said we're trying to use these mp3 players out there like you you mentioned but they're they don't hold enough songs they don't have good battery life they or they hold a lot of songs and they take forever to transfer and the interface, if you have lots of songs, it doesn't.

9:51So we've tried for a few months now to make it work. They're horrible experiences. What would an Apple experience be, an Apple product be in a, for this? And we didn't have the name iPod at the time. Obviously this was, um, February, 2001. Okay. Okay. And so So what had happened then was I had already had a startup company making MP3 players, rack mount ones, looking at the future of what a portable one would look like. I was already making portable devices for 10 years. So I had a mix of things and I was a DJ as well. So I was carrying all these CDs with me around to go between gigs. So we're very heavy, all the plastic and everything.

10:38And so I had been working on handhelds and I was like, oh, here's this. We were the first handheld to do audiobooks. So audible audiobooks, like on the Amazon store. We were the first product at Philips to make audible audiobooks work on a handheld. And it was like, oh, and I'm looking at my DJ stuff and I'm like, this could be music. So and then MP3 player. And I'm like, wait a second, we could make a handheld. So it first started as a rack mount player, like literally under your TV. And then it was ultimately going to be a portable product. So I had already been working on this for a few years with a couple of people.

11:22And then Apple called and I was like, oh, yeah, I know something about this. Let me re-scan the market. And I found a company called Portal Player that had a low power chip for rack mounted MP3 players, but it was low enough power to make it battery operated. It's like, oh, OK, that's cool. And then what we're like is, wait a second, what do we need to do to make an Apple like product? So first, it has to be low power. It has to fit a thousand songs. There was a hard drive that came out in January 2001 from Toshiba that allowed us to store basically a thousand songs. It was four gigabytes or five gigabyte drive.

12:06And we could store a thousand songs on that drive, on a hard drive. So hard drive, battery, processor, okay, display. We need to have enough of a display, a bigger calculator display that can just destroyed to display text but it was not fancy it was just it was because it was black and white or grayscale okay great okay then the interface so it was all about what were all the problems make a better interface and make it really fast we gave it firewire make sure it could charge fast firewire we could charge over it so it was all of these things better better better combine fit in your pocket with a thousand songs and it worked with itunes so all of those pieces came together because of the problems we saw with the current existing players, as well as what would we love to have, which would be the next generation Sony Walkman, which was my love growing up and people on the team.

13:01So it was really about bringing a better music experience into the digital world where you could have a thousand songs in your pocket, was fast to transfer, fast to select, listen to anything and take all the music to back then, all your music with you wherever you want. Yeah. And the tagline that does kind of still stay in the mind is a thousand songs in your pocket. Yeah. You know, today everyone's got unlimited songs in their pocket. You got to limit everything on their pocket. But back then there was no connection. There was no mobile data network or anything. So you get a thousand songs. Yeah.

13:33And for us older people, that was like insane. That was, you know, that was a hundred CDs of content. Yes. Right. Let's talk a little bit about some of the products making philosophy that you had at the time. and you developed. Tell us a little bit about the concept of habituation. Steve had a saying that always was stay beginner, stay beginner. And what that really meant was look at the thing you're making and the marketing, the customer journey, as if you were a beginner, as if you have fresh eyes, what confuses you, what excites you, what, and remember that each of our customers are beginners.

14:15And so don't habituate away a problem that might be inside the inside the device or the product, because we've used it enough times and we're like, it's fine. So habituation, like a perfect example is, you know, you wake up and you get in the shower in the morning and the handle's a little sticky, you know, to set the temperature or the the volume of your, of your shower. And you're like, and you keep wiggling it till you get exactly the right volume and the right temperature. But it, you, and it's just because you're tired in the morning, it, after four or five times, you're just like, well, okay, whatever.

14:52Okay, whatever. And you just kind of go through the motions. Well, that's habituation, right? So if you were that same guy, gal waking up in the morning and it wouldn't get right to that temperature you wanted right away, you would be mad, right? And so you have to remember those emotions at that very, very initial interaction with that new experience. And so stay beginner. And then so that you can see the things that might be habituated away so you can fix them. So you can delight the user as they use the product in all respects. One of the great examples I thought of that was this idea of charge before use, which still today, I got my kid a toy the other day.

15:38So excited. Package comes. It's like a little remote control car. And then there's the enormous deflation of you then have to charge this thing for an hour. And you're just crushing this four-year-old's dreams. Yeah. You know, you're like, I just bought it. I'm excited. I want to go use it. It's ripping apart. I got to charge it. And it could take a half an hour, could take three hours. Like, I got to wait. Don't do that. And so what was really interesting was we were using a new, now it's very old, but it was a first, one of the very first consumer products that used lithium ion batteries or lithium polymer batteries, to be clear.

16:20And it could save charge over a long period of time. The previous generation is nickel, cadmium, nickel, metal, hydrolysis. they would self-discharge over a period of 30, 40 days. Well, lithium ion could store it for a long time. That's why electric cars and everything now. So, okay, we needed to also test the hard drive. We would test these things and it was called burn-in and we would burn in the hard drives for two to three hours before we'd let them leave the factory to make sure that the hard drive, the delicate hard drive was working well. So that was the same exact time we could use to charge it.

16:58So we charged the product at the same time as we tested the product and we could wrap it up and ship it right away. And it would stay charged for months, six to nine months. And so when people got it out of the package, they could use it right away. And that was like, duh, like, what are you, are you kidding me? Like today that's like, it's kind of table stakes. What about the virus of doubt? So there's a term I coined and it is to reawaken people to those things that they've habituated away. So specifically in the case of Nest, the Nest Learning Thermostat, we had a whole set of virus of doubt lines that we would use to remind people because so we were nest we're making a thermostat we're making a smart ai the first ai consumer product that i know of ever in a home we didn't call it ai then we called it the learning thermostat but it was ai right um to get people to save energy and to be more comfortable around you know around their house and so most people had forgotten about the thermostat the thermostat was there since they were a kid.

18:15It was the same damn thermostat. It was ugly for the most part. You didn't know how to use it. A lot of ways it was hidden away, usually was painted over with something. It was just this thing. It was a utility thing that no one cared about. So through that, people have had habituated away a thermostat. What? A thermostat? What? What does that have to do with anything? Who cares about a thermostat? So the virus of doubt lines were specifically, you know, that box that know that's unloved, that know everyone touches and fights over because of the temperature not being right. Do you know that ugly box that you hate?

18:55So remember, now think of each line we're using here, making people remember that it's ugly. They hate using it. They fight over it. By the way, you know, that box you hate cost you half of your energy bill every year because you're dumping money into your heating and cooling. That's the most expensive energy use device in your house that you hate, that you fight over. That's ugly. So you keep creating these virus of doubt. So you keep reminding people, you know that thing, you know that thing. And you say, there could be a better way. What if it was to learn the temperatures you like? What if it was to turn on when you're only there and turn off immediately when you left the house, those kinds of things.

19:39So you first set up like, remember all those horrible things of this thing? Things that you don't even consider anymore? And now let's give you a much better way. So you first start with the virus of doubt to dehabituate people from those learned experiences of just, I don't want to deal with that anymore. You see, that's really interesting because I think it gets to what people I think know about Steve Jobs and Apple and the culture you guys built of consumers almost don't know what they want, right? But then when you give it to them, you just delight them to extraordinary levels. Correct. Yeah, yeah, yeah.

20:15You have to understand what is the pain you're trying to solve? And it was really about understanding the pain, giving them a painkiller for that pain, and then hopefully making it a superpower for them. making it into something that was like oh my god i didn't know that this could exist i didn't know i could and i want this and it makes my life better in certain ways or what have you and so that was the that was the the you know kind of you had to walk through that um when you were making the product and designing the product to understand what the journey was you were taking users on and it had to start with pain painkiller not a vitamin no yes pain painkillers not vitamins as you say um because you don't vitamins like at the end of the day um you don't have to take vitamins they're probably good for you in certain cases and certain types of you know people but pain oh my god when you have neck pain when you have back pain when you have a headache when you have you're like give me whatever it is to get rid of this pain i have to have it right vitamins yeah yeah, well, maybe in a month or two, I'll feel better.

21:29It's not going to solve my problem right now. What pain was the iPhone solving? Oh, that was that. So at General Magic, movie that everybody should watch. Okay. But what we were doing when we were solving the iPhone, we were building the iPhone 15 years too early. And so here's the pains we were solving at General Magic. None. we were making downloadable email uh and international email we're in downloadable games uh e-ticketing we were making all kinds of we were making uh search before the internet we were doing all this stuff in 91 before the internet before anybody knew what e-tailing was whatever no one even knew what emojis were we did all that stuff in 91 because we thought that those would be great things that people would want to do in the future.

22:21Right. The iPhone 15 years later came and solved the problems that had started to be created because of the internet and all the other things. And so the pains that we thought we didn't know that we were solving for showed up 15 years later. That was okay. The iPhone. Now there were no mobile phones in 91 for the most part. So communications, people were texting and they were calling people. Okay, communications. So iPhone had that. So they had a mobile phone in their hand. Then they had productivity tools, which were Microsoft Word, Excel, whatever, email, web browsing. That was done on computer.

23:00Oh, well, I have a computer. So I have a mobile phone and I have a computer. And now I also like mobile entertainment. I have my iPod with all my music. I have my photos. I have my videos, movies, and all that stuff. So I was carrying, at that time, three devices, a laptop, a computer, and an iPod. Well, let's put them all together. And that's what the iPhone was. So we were taking that pain of carrying three devices with all the chargers and all that different stuff, and let's now put it in one compact form factor so you can take it wherever you want to go. And now, oh, by the way, it also hooks up to 2G networks or 2.5G networks.

23:38It hooks up to Wi-Fi. It hooks up to the internet. It does all that stuff. At General Magic, none of that stuff exists. Nothing existed. So we solved that problem before there was pain. The reason why iPhone worked is because everyone had the pain, or at least a good set of people. And they said, I want all of this in under one roof, which was the iPhone. And if you had to distill down why it was so magic, and it kind of was magic when it came out, why was it like that? What was it about your team, about the leadership, about the idea, the timing? Why was it so brilliant and so, so much better than its competition?

24:17Let's go back to the context of when the iPhone was created, designed and created. We talked about the iPod one. Let's talk about the iPhone. So Apple now was on an upswing. It's iPods happening. People are starting to get interested in these things called Macs. the company is profitable 50 of the revenue is coming from ipod apple's got its swagger back okay the apple brand american ingenuity is back okay things are happening okay now obviously nokia which was the number one cell phone company this mobile handset supplier and there's siemens and motorola and sony and they all see this they all see the ipod and they see apple And they're like, what?

25:06What is that? They're like, oh, that's a pocketable device that plays music. Well, we have a pocketable device. We'll make ours play music. We'll make our mobile phones work and play music. And they were like, OK, we're going to start stealing, basically, the iPod lines and everything else and start integrating it. Well, we're waking up to that, too, and going, oh, finally, Apple's successful. And we look over our shoulders and go, OK, now we have these behemoths, huge consumer electronics companies who are selling millions of units, you know, a day. And saying, oh, we're going to go take their market.

25:48And we had 80 to 90 percent market share in these MP3 players. So we had another existential problem before it was the the the the the company, right, was going to die. Now it was like, oh, this new product line could be gone because these guys take it. So we need to do something dramatically different. Okay. And so let's go and figure out how to bring communications into the iPod. So it was all about first getting, because everyone was texting and calling. Let's get texting and calling into the iPod. So we went down that route. Right. And that route was not successful. we tried it internally but we threw it away because at the end of the day we could make the user interface with a dial yes an ipod dial work yeah right so because if you want to dial a number that wasn't in your contact book you basically had like a rotary old rotary phone okay if you wanted a text you basically there was no voice commands and all other stuff we didn't have any of that right so you had to do everything with and that was like unsustainable like it doesn't work so it was like okay ipod plus phone does not work so we tried that then we had to we were building a um a video ipod which was an ipod that had a full screen without and a virtual wheel it had a virtual wheel like a software wheel that you could use on top of this full screen device that looked like a horizontal iphone today right um no no buttons or anything but but it had a single touch display that allowed you to do the same user interface as a hardware ipod it was like okay great so we have this full screen we have this pocketable unit but it had single touch and then trying to do a keyboard anything it just didn't work because there's a lot of limitations with a single touch so we're like okay well that didn't you know ipod plus phone didn't work this full screen video ipod well it sort of doesn't it works for certain things but you still can't get any good texting or anything else like and then steve was already working on with a guy steve hoteling they had just bought the company working on this thing called multi-touch to make a multi-touch macintosh which was a you know basically mac os but you could use your fingers like a tablet to or an iPad to then use the Mac.

28:23And so those three things came together, the communications, the full screen, full screen, iPod and the multi-touch interface were put together. And we had a crazy project because this was going to save Apple. and we had to basically kill the iPod to save Apple from the big mobile phone giants that were going to come and eat our lunch. And so I think that really put a test to the company saying, this is what has to happen. And Steve was driven that this is what had to happen if Apple was going to live past the iPod. I think this is really interesting that in both cases, these defining products there's an element of fear driving this right and sort of existential threat in both cases it's not just you know these kind of wonderful californians doing this cool thing and they love design and they love fonts and it's all very nice it's like fear this this thing could go under if we don't deliver on something yeah and i i don't think you know that might be a there was an undertone of that everyone's like okay this is it's serious yeah but it did it wasn't the oh god were panicked.

29:33Okay. It was the, we got to get it right. Yeah. It was like, let's do a great job. And we would never not do a great job, but we had to get even a better job than ever because Apple was back and you didn't want to slip. Okay. And we had now at that point done five, six generations of iPod and it was really flying. And everybody's like, everybody's talking Apple again. So we couldn't slip. Okay. We couldn't slip. Okay. Now this existential thing, look what just happened with Google with the, in the AI race. Yeah. Google was googly and it was like, you know, Google just kept shipping ads and they couldn't ship anything else.

30:12It was, that was it. It was ads and search. Nothing else Google did basically would work. Yeah. And then they were like, oh, well now we have an existential thing with open AI and Anthropic and they tried to ship something and got it wrong. And then it was like, oh, this is really important. And they finally turned around and got Gemini to a world leading situation. Again, I've seen this through my time in Silicon Valley, through my time at Phillips, and just in human nature in general. People don't change unless it's a near death event so we see this all the time in health yeah people are like i'm gonna get healthy i'm gonna be healthy then they have the heart attack shit now i gotta really change they wait till it's too late and maybe you know in a small percentage people do change and get but a lot of times people like and they just die and you see this with big companies too oh everything's fine till it's not nokia was a perfect example yeah nokia is gone sony gone Like all these things, because we bested them and they were like, yeah, yeah, whatever.

31:20And they didn't take it seriously enough. So whether it because companies are run by humans and humans have that same thing, unless they're really under threat. Do they actually not always, but do can they raise the occasion? And it's usually when they're under heavy threat, do they rise the occasion? It's interesting with Google that also like with Apple, the return of the founder, right? So Sergey Brin coming back and then having the founder energy of of Demis from DeepMind. That feels important. Yeah. You know, all of those things, you're going to have to shake up the culture. You can't just do whatever.

31:52So it's important to understand that if you want to make dramatic change, you've got to think about the culture. Let's throw it forward a little bit and talk about the future. Let's talk about AI. I'm really curious if you were designing a physical product, a wearable, where people were going to, you know, basically interact with AI through a physical product, which your former colleague, Johnny Ive, is now doing with Sam Orman at OpenAI. What form factor do you think you would do? And then what form factor do you think is going to be the one that in reality does get made and win? So, look, we are not going to just have one device.

32:30If you're going to have one device, the best device is a smartphone. Okay. We already have that device. It needs to get upgraded. It needs to get other things. But we've been upgrading them for 20 years now. So they're getting better and better and better. Yeah. We don't need a different device. Like we already saw Humane die, like Humane die. And you're like, oh, we're going to replace the phone. It's not about replacing the phone. AI works better when it has lots of context. Lots of context from what, and this was from the days of Nest, means a lot of devices all around you working together in a federated way to give context both on the device as well as into the cloud of what's going on to get better answers for you to get your work done or whatever you're trying to get done.

33:19And so to say there's one size fits all, absolutely not. Okay. Now, maybe in some 10, 20, 30 years from now, when we really understand what AI is and how it can get context from all kinds of things around it and everything's interconnected. Will you be able to read from the environment, the context and the AI smart enough that it can do most of the things with voice and it can project into your brain a display or in your retina. Okay. I'm saying for the next kind of 10 years. Really? Okay. You're going to see a federation of devices. You already have them. You have a watch, you have a ring, you have a, you have your metaglasses, you have your phone, you have your laptop, you have your car, you have your smart TV, all the devices in your home.