00:00:00 ◼ ► Patrick McGee, author of Apple in China, you've been doing the rounds lately, you've been
00:00:05 ◼ ► on The Daily Show with Jon Stewart, you've been on a bunch of other shows, but now you've
00:00:30 ◼ ► My first book, and based on the sort of strain it took, it might be my last book as well.
00:00:35 ◼ ► So your day job, or whatever you want to call it, what's the beat for the Financial Times?
00:00:42 ◼ ► It really is the Apple beat, but it includes other hardware, so I would have to cover robo-taxis
00:00:55 ◼ ► And the short version is that I've been at the FT for 12 years, and it was in Hong Kong,
00:00:59 ◼ ► where I basically got to understand China, Germany, where I was covering the auto industry,
00:01:03 ◼ ► so I was in and out of factories and understanding supply chain, and then Apple, right?
00:01:16 ◼ ► I mean, you write for the Financial Times, so obviously, and we'll get to some of the issues
00:01:40 ◼ ► It was when I reported the two-part series for the FT, the first of which was called How Apple
00:01:46 ◼ ► And Chris Miller, author of Trip War, essentially said, have you thought of turning this into
00:01:52 ◼ ► And I guess the sort of disconnect that I was excited by is that I knew that I was only
00:02:03 ◼ ► And yet some of the best stories couldn't be included because I didn't have the sourcing
00:02:08 ◼ ► And I also just knew that I'd just begun to really get involved with what are called manufacturing
00:02:16 ◼ ► You could argue they're as important as industrial design, which we know kind of everything
00:02:26 ◼ ► And sorry if I'm getting ahead of myself here, but like they're the people who sort of take
00:02:33 ◼ ► gloves, dozens at first, later hundreds, to really audit, train, supervise, and install
00:02:38 ◼ ► hundreds of millions of dollars worth of machinery into other people's facilities to really actually
00:03:00 ◼ ► I don't know if I told you that directly, but I don't know if it's the first book written
00:03:13 ◼ ► I don't know that I ever will, but I certainly write a lot of words and it's been on my mind
00:03:21 ◼ ► And I think Apple Notes is vastly underrated from people who formed their impression of
00:03:30 ◼ ► it in the very early iPhone years when it was like an iPhone app that sort of kind of synced.
00:03:36 ◼ ► It was like in the early years, it's it's synced via IMAP, the email protocol, which was really
00:03:45 ◼ ► But like, I don't want to get too sidetracked on this, but because it was syncing over IMAP,
00:03:52 ◼ ► if you used a Mac.com address, and this was before iCloud was sort of your magic keys to
00:03:58 ◼ ► the Apple sync kingdom, it worked really well for sync because Apple knew to get their IMAP
00:04:19 ◼ ► And I guess by 2025, a lot more email systems have the concept of live drafts where you don't
00:04:26 ◼ ► But back in like 2009, if you were using like a Gmail account through Apple Notes to sync your
00:04:36 ◼ ► So if you just wrote a note and wrote the word one, close it, come back later, hit return,
00:04:53 ◼ ► In the modern iCloud sync world, Apple Notes, to me, I live a lot of my life through it.
00:05:09 ◼ ► And so the idea that you could do a voice note or something into the app and then pick it up
00:05:16 ◼ ► And, you know, not that you're writing a spy thriller, but it's quite obvious that a lot
00:05:21 ◼ ► of your sources needed to, especially in China, maybe it is sort of like a spy thriller.
00:05:38 ◼ ► There's a bunch of us old timers in the Mac media who've read a lot of books about Apple.
00:05:51 ◼ ► But I would say one of the telltale problems I have with most of the books I read about Apple
00:06:01 ◼ ► If it's a 300-page book, it feels like a 100-page book with about 200 pages to make it thick enough
00:06:34 ◼ ► And I had someone like you in mind when I was writing, which is that I wanted an Apple nerd
00:06:58 ◼ ► But I was hoping that if you flip to a random page, you would be like, I don't even know the
00:07:04 ◼ ► So I would strenuously avoid any supply chain story, let's say, or even any Apple story
00:07:09 ◼ ► that had been told before the idea of Tim Cook telling Sabi Khan, why are you still here?
00:07:43 ◼ ► It's all sort of concentrated historically on, OK, in this time period, how was Apple, how
00:08:12 ◼ ► And I know, and this is something I'm very sensitive to now that I've been writing Daring Fireball
00:08:17 ◼ ► over 20 years, that a lot of the stuff that I still think of is kind of new isn't new to
00:08:32 ◼ ► And by 2007, when the iPhone debuted, they didn't stop selling them then, but it's sort
00:08:51 ◼ ► But yeah, like my biggest fear, I think it's something you just alluded to, is that when
00:08:57 ◼ ► They sort of sort of let me be for this initial 12 months off in which I wrote the whole thing.
00:09:01 ◼ ► And when I submitted it, my biggest fear was they were going to be like, Apple doesn't really
00:09:13 ◼ ► here you are talking about Korea, Czech Republic, Mexicali, all these places that are making
00:09:21 ◼ ► And I think probably some readers are encountering that as well, that they get this book called
00:09:28 ◼ ► But the reason why is that you had to understand just how unique and helpful China was with
00:09:40 ◼ ► You had to understand that Apple really experimented in about eight or nine countries with contract
00:09:52 ◼ ► And like that sort of archetypal example is the iMac G4, the one that looks like a sunflower
00:10:08 ◼ ► Steve Jobs has to announce that the price on all three models is being bumped up by $100.
00:10:30 ◼ ► So once you understand how problematic every other region is, then it sort of gives you
00:10:42 ◼ ► And so I have multiple chapters where I'm just showing you how obsessive they are over the
00:10:48 ◼ ► details and how insane the designs are and that nobody has the skills to actually build
00:11:16 ◼ ► My point is that China offered things no other country had and was in best position to sort
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00:13:27 ◼ ► One of the little anecdotes that I've been writing about this, and I guess that this is the other thing.
00:13:34 ◼ ► So you spent a full year writing the book, then another year, I guess, editing, working on it, figuring out, et cetera, et cetera.
00:13:42 ◼ ► Then the book is ready, or I forget when you first told me that it was coming out, like December, something like that.
00:13:49 ◼ ► There's like this frustrating months-long waste in the book publishing world, which would drive me crazy.
00:13:57 ◼ ► Because when I'm ready to publish, I mean, I don't know about you at the FT, but me as the one-man show at Daring Fireball, I hit publish, and then it's on my website like three seconds later.
00:14:16 ◼ ► Meanwhile, you've got this book done, and then you've got to wait till May for it to come out?
00:14:34 ◼ ► And other things happened, like Morris Chong was interviewed, the founder of TSMC, I think by the Acquired podcast, and he had some great insights into the TSMC relationship with Apple.
00:14:42 ◼ ► So I updated it with various things, but I actually came to really value the sort of eight months that I had because I got to create real distance.
00:14:51 ◼ ► I'm not thinking about Apple for three weeks and then read the whole manuscript from front to back and just catch little errors or you would solidify your understanding of something.
00:14:59 ◼ ► I mean, I actually felt like I got new forcing after the manuscript and sort of solved certain riddles that I didn't know the answers to that I ended up thinking.
00:15:21 ◼ ► So I really came to respect and value the time that I had to get away from it and then be able to read it with fresh eyes.
00:15:28 ◼ ► And there's this serendipity and without getting into the, well, who'd you vote for, politics of it.
00:15:39 ◼ ► And he's pursued in some ways and as promised for years campaign of instituting tariffs, especially higher ones against China.
00:15:55 ◼ ► And I think there's a general consensus that the broader, let's say, investor world had sort of chalked that up to, well, Trump's been yapping about tariffs and trade deficits his entire adult life.
00:16:12 ◼ ► He was already the president for four years from 2016 to 2020 and didn't do anything nutty with tariffs.
00:16:21 ◼ ► He's not going to do anything nutty with tariffs again, but Trump 2.0 is running very differently than Trump 1.0.
00:16:29 ◼ ► And within, I don't know, a month or two of coming into office, he instituted what most people would consider some pretty nutty tariffs, including against China.
00:16:40 ◼ ► And affecting very significantly with lots of news coverage, a company called Apple, who makes a lot of products in China.
00:16:49 ◼ ► And meanwhile, you've got this book you've already been working on two years that is ready to come out and explain a lot of this.
00:17:06 ◼ ► But the other thing was that the entire time I was off, of course, you're terrified that someone of the Wall Street Journal or whatever decides, hey, I'm going to write my own 6,000 word feature on Apple's China problem.
00:17:15 ◼ ► But instead, ChatGPT and AI was just such a story that I feel like every enterprising reporter in tech just covered AI the entire time I was off.
00:17:26 ◼ ► I mean, there were three major interviews of Tim Cook while I was on Bookly with Wired, the Wall Street Journal, and I think Vanity Fair.
00:17:34 ◼ ► And I mean, honestly, China doesn't come up with any of them, certainly not China as an entity that's a threat to Apple.
00:17:41 ◼ ► But the degree to which the topic was just ignored the entire time I was laser focused on it was a real boom.
00:17:51 ◼ ► And especially, I feel it when I'm writing a long article, which is the longest thing I've ever written.
00:17:59 ◼ ► But if I'm spending a couple of weeks on an article and I come upon an angle that I feel like, hey, this is a good angle.
00:18:10 ◼ ► I just become obsessed that it's so obvious that somebody's going to beat me to the punch.
00:18:15 ◼ ► Yeah, I'll just point out a couple of months ago, I wrote a piece that something's rotten in the state of Cupertino.
00:18:22 ◼ ► The linchpin of it was the clarity in hindsight that all of the Siri features that Apple wound up postponing for another year in March, just a few months ago, none of those were actually demoed to us in the media at WWDC last year.
00:18:40 ◼ ► And all the features they did demo to us for Siri and Apple Intelligence were all the stuff that has shipped over the last eight, nine months.
00:18:53 ◼ ► But then I thought, well, surely there must have been like a dozen articles pointing out that these features weren't demoed at WWDC last year.
00:19:06 ◼ ► So your book is filled with stuff like that, where I'm sure you were thinking, this is such a good story.
00:19:12 ◼ ► And then you're sourcing it and you're like, oh, there's a bunch of people who know about this, right?
00:19:17 ◼ ► Raising an example of that is the chapter you recently alluded to called Five Alarmed Fire, which is, I think it's chapter 36.
00:19:24 ◼ ► I mean, this is late in the book, but basically, Apple is sued in 2019 and settles just last September.
00:19:33 ◼ ► And the allegations that they lied to investors about the state of Chinese demand, in particular for the iPhone XR.
00:19:55 ◼ ► Media strategy, once the Nikkei had sort of scooped that the iPhone XR was doing poorly.
00:20:01 ◼ ► Depositions of Tim Cook and Luca Mastri, the CFO, among four or five other VPs of finance and sales.
00:20:11 ◼ ► And to have this so early and realize, am I going to be able to write this, submit it, have it be going through edits for eight or nine months and then be published and still be first?
00:20:40 ◼ ► I mean, we're talking about the two biggest telecom giants in China are literally telling Apple, stop sending us these phones.
00:20:59 ◼ ► And so it's the reason it's called Five Alarm Fire, which is when more than 100 firefighters are called to a scene, is this is how a VP describes it in an email to another colleague.
00:21:07 ◼ ► And when Tim Cook gets a new estimate, a full five, maybe six days before going to earnings, going to the earnings call and essentially telling investors everything is fine.
00:21:24 ◼ ► And one day after earnings is when the operations team literally slashes iPhone XR production for the next five months.
00:21:36 ◼ ► And it's happening within 24 hours of Tim Cook basically telling the board that things are fine, which is interesting.
00:21:41 ◼ ► I've been emailed from Tim Cook to the board of directors and telling investors that things are fine.
00:21:45 ◼ ► And in case I'm just not getting ahead of myself with the reader here, eight weeks later, Tim Cook issues the first revenue warning in 16 years.
00:21:51 ◼ ► So the historical context was 2017, 10 years after the original iPhone, Apple came out with the iPhone X.
00:22:00 ◼ ► But alongside the iPhone X, they had the iPhone 8 and 8 Plus, which were like sort of hedging their bets, you know, and they had the same whatever the A13 or A10 chip or whatever it was at the time.
00:22:15 ◼ ► But the iPhone X was the one that introduced what we now think of as the modern iPhone design.
00:22:28 ◼ ► And the iPhone 8 looked like an iPhone 7, which looked like the iPhone 6, which sort of looked like the iPhone 6S, which looked like the iPhone 5, except going back to the original iPhone.
00:22:40 ◼ ► Then the next year, but it was weird timing, and I'd forgotten this until recently too, is that the year 2017, when the iPhone 8 and the X came out, they introduced them at the same time in September.
00:22:59 ◼ ► It was very, must have been that aggressive an engineering challenge just to get it out in that year.
00:23:06 ◼ ► And so I didn't even publish my review of the iPhone X until December because I was like, well, if it didn't ship until November, I might as well take my time reviewing it.
00:23:16 ◼ ► It's just not the usual pattern of, hey, Apple announces these things in the second Tuesday of September, and those of us who get review units get one in the next day or two, and we review them in the next week, and then they go on sale that Friday or something like that.
00:23:34 ◼ ► Well, you're inadvertently describing sort of the significance of China's speed because you're saying it took you until December to write a comprehensive review.
00:23:40 ◼ ► And for the Chinese rivals to iPhone, it only takes them to November, so five months after the thing is actually shipping, to basically come out with their own versions of an infinity pool style design.
00:23:50 ◼ ► And Apple executives in China are, like, flummoxed, like, how quickly these four big Chinese rivals are able to come up with it.
00:23:59 ◼ ► And so they're sending notes back to Cupertino, and a VP of finance at the time says something like, I think Q3 is going to be really difficult for us.
00:24:06 ◼ ► So even though the fire alarm fire narrative is just three weeks, like, it actually extends another six months beyond that.
00:24:11 ◼ ► Before that, I should say, where Apple executives are realizing, like, oh, like, we've come full circle.
00:24:16 ◼ ► Like, we've trained up these suppliers, and now they're coming up with rival phones, like, at a time when we thought we'd be basking in the halo of the iPhone X, they're already replicating it.
00:24:24 ◼ ► I'll bet, and I forget if your book addresses this, I'll bet part of that isn't just the time from September 10th when Apple publicly unveils it till November.
00:24:36 ◼ ► It's the fact that so much leaks out of the supply chain and the whole industry of everyone from case makers to rival phone makers in China is so insanely, intensely interested in what is Apple going to do with the phone next year and the year after and stuff like that.
00:24:56 ◼ ► I mean, like, the rampant, rampant rumors for the last, I don't know, at least two years that this year coming in September, that Apple is going to introduce a radically thin iPhone, right?
00:25:08 ◼ ► Samsung already came out with their radically thin phone a month or two ago because the rumors have been out for a while.
00:25:14 ◼ ► Can I just ask, though, as a person who loves Apple products, has the thinness of the phone ever been a problem for you?
00:25:26 ◼ ► And people have been asking that of Apple devices every step of the way since that Steve Jobs came back to the company in 1997.
00:25:37 ◼ ► I guess it was a couple of years because the, and I want to talk about the first iMac, which was notable and famous and it's in design museums, but wasn't because it was thin or light.
00:25:49 ◼ ► And in fact, the fact that it weighed 40 pounds and had a handle was, makes for a fascinating chapter in your book.
00:25:55 ◼ ► But when Apple did start making products thinner, people would, people always say that.
00:26:04 ◼ ► And so many people have said over the years with iPhones, I think it was the iPhone 6, not the 6S.
00:26:11 ◼ ► I think it was the 6S, that had the, quote, bend the gate, where people who would put the phone, particularly if they were prone to putting it in, like, their rear pants pocket.
00:26:20 ◼ ► And if they sat on it, it didn't really have as much tension, strength, whatever you want to flick.
00:26:31 ◼ ► And there were YouTubers who would just buy one, open it up and on YouTube, just bend it.
00:26:45 ◼ ► And then if you could make the phone that thin, why not just keep it as thick as it was and just fill the extra space with more battery?
00:26:58 ◼ ► But as a reporter, I just think this sort of gets into my argument, like, sort of implicit to the book, that we're covering this company wrong.
00:27:04 ◼ ► I mean, it's one thing to have product reviewers, and that's what they do, and I get that.
00:27:08 ◼ ► But there's way too much sort of intellectual resources, media resources devoted to, like, Apple scoops that are basically just pressing fast forward on Apple's own press releases, right?
00:27:21 ◼ ► Well, I think with the thinness, though, what it is is inside Apple, and it definitely comes from Steve Jobs' DNA, that he wanted stuff to be thinner and lighter than it could possibly be.
00:27:33 ◼ ► And if you don't just have the urge to make things by the standards of what's already on the market a new thing that seems ridiculously thin, then no one's ever going to make them thinner, right?
00:27:46 ◼ ► If it wasn't for Apple driving the whole industry towards thinness for, I would say, 25 years at this point, I think all of our consumer electronics would actually be quite a bit thicker and heavier and chunkier.
00:28:00 ◼ ► And the difference, I would say, is that under – and part of it, it's a counterfactual, you just can't imagine.
00:28:09 ◼ ► What would have happened if Steve Jobs hadn't gotten cancer or if he had stayed ahead of the cancer for another five or ten years while Apple became so much bigger of a company?
00:28:22 ◼ ► Like, it's just absurd how tiny Apple was in terms of how many products they sold when Steve Jobs died, 2010, 2011, compared to now.
00:28:32 ◼ ► And so I think some of the proliferation of products – people often complain about Tim Cook that he used to brag, hey, every single product we make, we could put on one table in an Apple store.
00:28:55 ◼ ► But it's really kind of hard to be a $3 trillion company that only sells that many products.
00:29:01 ◼ ► So I think even if Jobs had been around for longer or were still around, I think Apple would do this.
00:29:08 ◼ ► But in the Jobs era, he would just get rid of the old thing and say, here's the new iPhone, and the only new iPhone is this super crazy thin one.
00:29:22 ◼ ► And then you'd go home and use it for a couple of days, and you'd be like, I have to charge it at 730 at night or whatever the problem is.
00:29:34 ◼ ► They did it with the iPod Mini going to the iPod Nano, where they were just like, we're just going to get rid of these, and you're going to lose space.
00:29:40 ◼ ► So instead of five or six gigabytes, you're only going to get one gigabyte because we're going to flash memory.
00:29:45 ◼ ► But at some point, I forget the stat, but I think someone said there was a from $50 to $550, there was an iPod available at every $50 increment, right?
00:29:54 ◼ ► So you're going from the Shuffle to the Classic to the Mini, or I guess to the Mini to the Classic, to the iPod Photo to the iPod Video, and maybe to the iPod Video with 40 gigabytes or something.
00:30:04 ◼ ► So to some extent, you would say like the iPhone proliferation actually hasn't even gotten to that complexity.
00:30:14 ◼ ► And I think, assuming that the pervasive rumors are true, that it's going to be a regular iPhone 17, but no plus size anymore.
00:30:29 ◼ ► But then the fourth new iPhone will be this iPhone 17 Air that is ridiculously thin and perhaps only has one camera on the rear.
00:31:07 ◼ ► And I'm sure I'll hear from them as they listen to the podcast where they so desperately don't want to give it up.
00:31:14 ◼ ► But I think that's the thinking, though, is that there will still be, if you don't care, if you're like, I don't care how thin it is.
00:31:28 ◼ ► I thought this was really interesting from the prologue, where back in 2012, the value of Apple-owned machinery in the country, which is China, had soared to $7.3 billion, more than Apple's U.S. buildings and retail stores put together.
00:31:45 ◼ ► Apple had essentially cracked the code on how to manufacture the world's best products without doing any of the manufacturing itself.
00:31:52 ◼ ► It wasn't really outsourcing in the normal sense, that it would be sending blueprints to companies capable of taking the orders and executing.
00:31:58 ◼ ► Instead, Apple was routinely sending its top engineers, designers, procurement specialists, and lawyers from the United States into hundreds of factories across China, where they would import machinery, train armies of workers, coordinate the delivery of intermediate goods, and scrutinize suppliers to ensure compliance.
00:32:15 ◼ ► Apple's influence was enormous, but no senior executives lived in China or understood the politics.
00:32:21 ◼ ► As far back as 2012, Apple owned more equipment in China than all of their real estate holdings in the United States, which in the stores were already getting pretty popular at that point, yet it still doesn't really own.
00:32:46 ◼ ► And I've known some of this, but to really have it spelled out like that, that they own $7.3 billion in equipment, but didn't own the factories or the plants or the real estate, is kind of bananas.
00:32:58 ◼ ► Well, I guess the significance of the narrative is that China didn't really know that either, the political leadership in China, I mean.
00:33:05 ◼ ► And so they just see this company that's really operating under the radar, and they know that the Chinese youngsters, the next generation in particular, really buying the iPhone.
00:33:21 ◼ ► It's like the iPhone represents individualism, materialism, and the West, all the things that they're happy to crush.
00:33:29 ◼ ► But the other element is that because Apple is orchestrating events from afar, but just having people fly in and then visit these factories that don't have Apple logos on them, like local cadres, Beijing, they don't really understand what Apple's doing.
00:33:41 ◼ ► So they're basing their view that Apple's an exploitative company on public data, because if you look at something like Foxconn margins, this kind of blew me away.
00:33:48 ◼ ► In the first four years of the Apple-Foxconn partnership, in absolute dollars, Foxconn is the one making more profit.
00:33:54 ◼ ► And their margins begin in double digits, and then they sort of collapse to around 2% the more they work with Apple.
00:34:07 ◼ ► So it makes sense that if you're China, you're like, wait a minute, this is a company that's just exploiting our companies, exploiting our workers, paying minimum wage and whatnot, and they're getting everything out of it.
00:34:16 ◼ ► And the sort of thesis of the narrative is the degree to which Apple, these eight executives called the Gang of Eight, sort of appointed to beat the senior people living in China, they flipped the narrative on its head to explain to Beijing, you don't understand, we're giving tuition-free training of the Ivy League equivalent of hardware engineering, just hundreds of factories.
00:34:35 ◼ ► And we're playing this instrumental role, bringing up Chinese suppliers, who in turn are bringing up Huawei, Oppo, Xiaomi, Vivo, etc.
00:34:43 ◼ ► Such that if I fast forward to today, the Chinese brands just mentioned, collectively have 55% market share globally for the smartphone.
00:34:55 ◼ ► There's also in the grand scheme of things, and certainly you're in my lifetimes, but when I was young, Chinese made was roughly a synonym for very low cost and junk, probably poorly assembled, whatever it was, whether it was a piece of consumer electronics, a piece of clothing.
00:35:22 ◼ ► It wouldn't be stitched well, the t-shirt would fray, if it was a radio or an alarm clock, it probably wouldn't last longer.
00:35:42 ◼ ► Like these companies, like the fast fashion companies like Timu and the other companies like that, where you can just buy, I don't know, you buy like whole outfits for $7.
00:35:52 ◼ ► The first time I ordered something from Timu, which I'm not really a fan of, but I was just curious when they rocketed to the top of the app store in their number one.
00:36:02 ◼ ► I'm buying like a fake pair of AirPods, a fake Apple watch, a couple of knockoff Apple watch bands.
00:36:11 ◼ ► It was something that, that it was labeled ThinkPad, but I knew it wasn't actually made by Lenovo.
00:36:26 ◼ ► I know it's going to be junk, but it, and then lo and behold, eight days later, it all came in a weird hand packaged envelope.
00:36:42 ◼ ► But I mean, so China still has that rep, but it's almost like China's reputation for assembly spans the entire gamut now from totally low cost.
00:36:53 ◼ ► Fast forward, you could get like a man suit for $40 and all the way to making $2,000 iPhone 16 Pro Max to the highest engineering standards of any company in the world.
00:37:08 ◼ ► And I think that's, I've always thought it was primarily driven by Apple, but I feel like that's one of the main themes of your book is, oh, it's entirely driven by Apple.
00:37:20 ◼ ► Like, I don't know where China would be if Apple had never started assembling stuff there.
00:37:25 ◼ ► Yeah, I'm not sure I would say entirely, but like the line that I use here is that Apple's late to going to China.
00:37:33 ◼ ► And they're late to outsourcing to China in particular, but what they see in China is really quite different.
00:37:40 ◼ ► So like, I joke with people like, what's your favorite Dell computer from the early 2000s?
00:37:53 ◼ ► Because if you're just building a beige box computer, they already know how to do that.
00:37:57 ◼ ► And what happens is the component suppliers come up with lighter materials, more durable materials or whatever.
00:38:11 ◼ ► And so when I say China didn't have the tech competence to fulfill their designs, I'm not trying to build a knock against China.
00:38:20 ◼ ► I mean, who had built a computer that was like anthropomorphic, looked like a sunflower, and had metal tubing going towards the base?
00:38:31 ◼ ► And just the degree of minutiae and obsessiveness, or to quote Steve Jobs, giving a shit, is something that they had to teach all of these people to do.
00:38:41 ◼ ► So, you know, I think what I say is like, Dell looks at China and basically sees like scale and margin, and maybe not even margin so much as cost savings that he can pass on to consumers.
00:38:53 ◼ ► But Apple sees something different, which is that they see unconstrained design potential.
00:38:59 ◼ ► Because if Johnny Ive comes up with a crazy idea, and you've got literal armies of workers in football field-sized factories carrying out the designs on a conveyor belt system, you can create anything at scale, at crazy quality levels, great yield, etc.
00:39:18 ◼ ► So I know I get sort of accused on social media of like over-exemplifying Apple's example, but like Apple is in a league of its own in terms of the care that they put into their products, and then later, the quality and quantity that they're building the products at.
00:39:31 ◼ ► And in those go-go years, like the first 10 years of the Johnny Ive-Steve Jobs partnership, like Steve Jobs and Next are reunified with Apple.
00:39:44 ◼ ► Steve Jobs discovers Johnny Ive and his colleagues, who are extremely talented in the design lab.
00:39:52 ◼ ► Jobs is expected to walk in there and fire them all because he was like, whoever designed all of these products needs to go, goes in there and finds that they didn't really, that's not, the products Apple was selling were not the products that the design team wanted to make or be selling.
00:40:08 ◼ ► And then the other funny part, of course, is Johnny Ive has his own resignation letter in his pocket.
00:40:21 ◼ ► There were legends that if you happened to stumble into an elevator with him at Apple's campus and he said, hey, what do you do?
00:40:31 ◼ ► Well, the funny anecdote that I have is he was firing so many people that this French woman from HR was literally following Steve Jobs around with a briefcase full of non, what am I trying to say, non-filled-in exit contracts, essentially.
00:41:17 ◼ ► riddles I told you that I feel like I solved was, it's not clear if you read any number
00:41:22 ◼ ► of biographies, Walter Isaacson on down, like, why doesn't Steve Jobs take the role of CEO
00:41:34 ◼ ► We always talk about him returning to being CEO, but he's just returning to the company.
00:41:39 ◼ ► My answer is that, well, he was so scarred by his earlier departure from the company that
00:41:51 ◼ ► And really what changes is the meeting with Johnny Ive, where they come to a realization
00:41:57 ◼ ► And what was allowing me to have confidence about this narrative is I got these Steve Jobs
00:42:03 ◼ ► That explain in great detail, maybe not great detail, but some detail, how Steve Jobs, sort
00:42:08 ◼ ► of his thinking of evolves over the course of a few months where he's saying we are in real
00:42:12 ◼ ► And he believes like five years out from now, I can see us being successful, but I don't
00:42:29 ◼ ► But there's no products to go buy that puts you in this league of mavericks and geniuses
00:42:39 ◼ ► He still thinks of it at the time as a network computer, which we don't need to go into.
00:43:14 ◼ ► I feel like so much happened in those years when I didn't have a site like Daring Fireball.
00:43:26 ◼ ► I wish that I had the idea or the gumption or whatever that get off my ass and just do it to start Daring Fireball earlier so that my archives would go back that far.
00:43:46 ◼ ► He kind of, him and Larry Ellison kind of make the determination, like, this guy's a bozo.
00:44:05 ◼ ► And as an outsider who really wanted, who thought, hey, this might be the path back for Apple.
00:44:44 ◼ ► So it's one of those connecting the dots, looking back type thing that he used to talk about.
00:44:53 ◼ ► But by being Steve Jobs, by being the founder, by having the control that he does without actually
00:44:58 ◼ ► taking on a role, he's not really the person to blame as things are still in a tailspin.
00:45:03 ◼ ► And yet, because he has no day-to-day responsibilities, he's able to just wander around the organization
00:45:14 ◼ ► If you remember, he said, like, give me 100 days to explore the organization and come up with any ideas.
00:45:21 ◼ ► He was more like Tim Cook than he was like Steve Jobs, at least in terms of what he thought his competence was.
00:45:26 ◼ ► So by not having responsibilities, but having the control because he was a founder really allowed him to sort of diagnose the company and then come up with a solution.
00:45:35 ◼ ► And contrary to maybe his reputation, that he made up his mind that he was going to fire all the designers because the computers sucked and he was just going to come in and before Johnny Ive could even make his case, just be like, you're a bozo, you're fired.
00:45:58 ◼ ► And Jobs, there's several interviews in the books you get into it, but that he came back.
00:46:02 ◼ ► It wasn't just Johnny Ive and his team, but that he realized when he went through the company, hey, there's some pockets of really strong engineering talent here.
00:46:16 ◼ ► But there is a lot of talent here, so we don't need to fire everybody and replace them all.
00:46:21 ◼ ► We just need to identify the pockets of talent and then set them free with a good plan.
00:46:26 ◼ ► A surprising number of people in product development that were there from the original Macintosh days, and they'd survived three CEOs.
00:46:38 ◼ ► It seems like for me as somebody who was only in my early 20s at the time, it was like, felt like an epoch difference.
00:46:48 ◼ ► But, you know, the idea that someone would still be there from 12 or 13 years prior, well, that's called having a career.
00:46:54 ◼ ► And I just know, because I've gotten to meet some of those people in the intervening years now that I do what I do, that they really also believed in the cause.
00:47:04 ◼ ► They were artists in a way, and they saw their life's work not just as drawing a salary for writing code, but for making computers or computer software or the integration of computers and computer software that really did sit at the intersection of the liberal arts and technology.
00:47:24 ◼ ► I'm going to ask you a question, because you're such a, I mean, you're Apple blog for a living, right?
00:47:30 ◼ ► And I would love to know, like, the first, I don't know, six chapters of the book, is it just like history that you already know and that you just think, yeah, well, for the layperson, Patrick needs to get the reader up to speed?
00:47:57 ◼ ► But let's take a break first, and then we come back, and I'll pick it up from that spot.
00:48:07 ◼ ► Notion is a note-taking, knowledge-based building platform, and it's everywhere you want to be.
00:48:20 ◼ ► They've got Notion AI now, which is built into the system, and it's really, really good stuff.
00:48:40 ◼ ► And so I just started, I can't mention what app it is because it's a secret beta, but I just started beta testing a new app, and the user manual is currently a Notion website.
00:48:51 ◼ ► And I was like, damn, for a beta app with an obviously draft user manual just for early beta testers, this looks like a polished final user manual.
00:49:03 ◼ ► That's one of the things that I love most about Notion is it's not just that it does work and lets you do things from anywhere for anything, but that everything looks so polished and final when it's just a draft.
00:49:26 ◼ ► It's all in one place, and it automatically does things like capture meeting notes and instantly finds the exact content you need, and it drafts detailed docs for you and lets you chat with the best AI models.
00:49:39 ◼ ► It's really just a fantastic service for just a feature, one feature among many, for capturing meetings every time.
00:49:47 ◼ ► Every idea, every decision, every next step, you can capture in Notion just by recording it while you're in the meeting, and they can be put to work right away.
00:49:54 ◼ ► And instead of just getting, like, dashed-off notes of the meeting, you get, like, this entire summary with everything you could want, and then you can query it with AI, like, three weeks later, ask about that meeting you had three weeks ago, and get answers out of it.
00:50:10 ◼ ► There's no meeting bots, and it works on any meeting platform, so you could do it on Zoom, Google Meet, or just with your computer system audio if you want to.
00:50:19 ◼ ► Transcription and summaries are automatically saved in Notion, so your notes are searchable, both by you through traditional search or with Notion AI.
00:50:32 ◼ ► Just type slash meet, M-E-E-T, not M-E-A-T, slash meet on any Notion page on desktop or mobile, and you get started immediately.
00:51:31 ◼ ► Not just a recording, not just a transcription, but something that really is AI first for meeting notes.
00:52:03 ◼ ► But as sort of the tail end of heavy CRT monitors and to herald the new design, everybody remembers that the first iMac and maybe the second generation when they went to five colors with extreme fondness.
00:52:18 ◼ ► But what I learned from your book was how it's sort of – you tell me if this is a good summary – but it's sort of the first time Johnny Ive and his team were really empowered to be set free and to lead the way on what this should be like.
00:52:37 ◼ ► I mean, Apple is banking, Steve Jobs is banking on this one-hit product, and it's going to set a design language for the rest of the company.
00:52:46 ◼ ► And you'll remember that the Tower PowerMax adopted the translucent plastic with the white and Bondi blue colors and so forth.
00:52:54 ◼ ► And the narrative that's really just untold is that, like, Johnny Ive's first design is just not possible to build.
00:53:00 ◼ ► I mean, I talk to the product design engineers who are tasked with building it, and they say, we couldn't build one in the lab, let alone mass manufacture it.
00:53:11 ◼ ► And I don't know if you want me to tell this story, but, like, Steve Jobs enters a meeting that's supposed to be a tooling review and becomes a whole product review.
00:53:25 ◼ ► I talked to multiple people that were in this meeting, and, I mean, he's just absolutely furious.
00:53:36 ◼ ► And, I mean, I was able to source it from so many people that worked on that product, including multiple people that led the product, but also Acorn, which is his favorite design consultancy, who are really interesting.
00:53:48 ◼ ► So the two guys from Acorn are who developed the NextCube computer, right, which is a magnesium.
00:53:53 ◼ ► Great thing to see at the Palo Alto Computer History Museum, but nobody ever bought the damn thing.
00:54:01 ◼ ► But through Steve Jobs, his, like, single-mindedness, they had to actually build this thing, and then they design their own, or they come up with their own design studio.
00:54:09 ◼ ► So when his own PD team, right, remember, this is a team that Steve Jobs has inherited, basically says, we can't do this.
00:54:16 ◼ ► He sends the blueprints and a team of engineers over to Acorn and says, can this be done?
00:54:21 ◼ ► And the idea is that if Acorn says, this can be done, like, you guys are all off the project and maybe even all fired.
00:54:34 ◼ ► And so Johnny Ive has to go back to the drawing board and make a number of changes to the product, and that's what ends up being in stores.
00:54:44 ◼ ► And maybe it's out there to some degree, but you tell the story with sources and with the Acorn involvement and the jobs threat.
00:54:51 ◼ ► If these guys say it can be built, then you guys are obviously a bunch of bozos because you should be at least as good as them, and you're out.
00:55:06 ◼ ► I never bought one, for me personally, because I had just purchased a very expensive Power Mac 9600 350, I don't know, in 1996 or something, 97, that lasted me for quite a few years.
00:55:23 ◼ ► We got my mother-in-law the original Bondi blue one, and she used that for years and just loved it.
00:55:29 ◼ ► It really, for the first time, was like, oh, and she didn't mind having a computer in her house anymore.
00:55:40 ◼ ► I loved the design, but I think even I had a superficial understanding of how much engineering it was to build it, right?
00:55:57 ◼ ► Power books had been out for a while, and the whole industry, you know, the 90s was sort of a large part of the PC history of the 90s, was the rise of laptops and power books.
00:56:07 ◼ ► So the idea of a Mac with reasonable performance that could run in a laptop, it was like they took a CRT and stuck a laptop inside.
00:56:16 ◼ ► The trick was they picked these translucent or semi-translucent plastics that no one had ever thought to use that the sort of nerds would laugh at and say, that looks like a child's computer.
00:56:36 ◼ ► And what your chapter really describes was, oh, well, they kind of designed that, you know, and they had this idea of a handle.
00:56:46 ◼ ► I think he even mentioned the handle of the iMac in his Patrick Collison interview recently.
00:56:50 ◼ ► I know Johnny Ive has talked about it before, that a handle sort of gives you an emotional connection to a device, that he really, you know, he has a thing for handles.
00:57:02 ◼ ► The original 1984 classic Macs, the first three, four, five models, all had handles on top so that you could carry them, even though they weren't really meant to be portable.
00:57:13 ◼ ► Yes, the iBook, yeah, it was like a handle, like a, so you could walk around with your iBook, like a briefcase.
00:57:21 ◼ ► Turns out that's not how people wanted to carry their laptops, but it wasn't a bad idea.
00:57:27 ◼ ► And if you know that Johnny Ive has a thing for handles, you could see why they tried it.
00:57:32 ◼ ► But I just didn't really think about the fact that it weighed 40 pounds, was made of plastic.
00:57:40 ◼ ► And so how exactly, when you pick it up by the handle, does a 40 pound, I mean, like you said, Jobs was secretly walking around campus with a bowling ball bag with an iMac inside.
00:58:13 ◼ ► I mean, it's not like you'd set it up in a coffee shop, but you could pick it up and wander around.
00:58:21 ◼ ► Or if you were a consultant or freelancer who, I don't know, it wasn't like you'd never moved a desktop computer around.
00:58:27 ◼ ► And the iMac was a heck of a lot easier to move around than one with a separate monitor and cables and power supplies and stuff like that.
00:58:35 ◼ ► But, yeah, just how do you make it so that you could just pick it up and it wouldn't fall apart?
00:58:46 ◼ ► But the problem was it was quite ugly inside because of how much they were trying to cram in.
00:58:53 ◼ ► But they deliberately made the first version foggy because they didn't want you to have a full view inside because they hadn't designed it very well.
00:59:15 ◼ ► And then they went back to the drawing board and made one that could be built and then had to make certain compromises.
00:59:25 ◼ ► Changed the plastic so that, well, if we add all the stuff we need to add, you don't really want to see it so clearly.
00:59:35 ◼ ► Like it was supposed to come out in early 1998, but they still did announce it in August 1998.
00:59:47 ◼ ► I mean, I've heard you and Ben Thompson talking about the iPod development, really from like product conception to being in people's hands being nine months.
00:59:58 ◼ ► Rubenstein, I think, was the guy who went to Japan and said, hey, Toshiba has all these 1.8-inch hard drives.
01:00:09 ◼ ► And he's like, Toshiba shrunk their hard drives from 2.4 to 1.8, but no one wants to buy them because all of the laptops have plenty of room for a 2.4-inch drive.
01:00:26 ◼ ► Just to give the listener a sense of just how precarious Apple's position is back then.
01:00:30 ◼ ► So when John Rubenstein figures out, oh, we could actually build a music player with this, and they corner the market, it's he and Jeff Williams, they corner the market by buying everything Toshiba can produce.
01:00:43 ◼ ► It's not clear that Apple's going to be able to even corner the market on these disk drives.
01:00:56 ◼ ► I'm worried about an article in draft that I'm going to get scooped on an observation or something.
01:01:01 ◼ ► It's like it became so clear to Apple that they should corner to the market on these tiny hard drives that they were like...
01:01:08 ◼ ► They were panicking that the iPod was going to be cannibalized by Motorola or someone with a phone that had an iPod embedded in it.
01:01:29 ◼ ► And I'll have to go off on a digression, but I think if there's a problem right now with Apple's senior leadership is that they're not nowhere near paranoid enough.
01:01:37 ◼ ► Not about AI, not about the centrality of the devices they currently make to the future of people's computing lives.
01:01:59 ◼ ► People listening to the show were probably laughing that they were worried about Motorola coming out with a phone that would put the iPod out of business.
01:02:19 ◼ ► But the other thing that that original iMac saga, the end result of that was sort of a, okay, that's the first time we've done this and we've done a design first process for a new thing.
01:02:34 ◼ ► We totally screwed up by not having, I forget what Apple calls the type of engineers, mechanical engineers involved, not at the end where they're handed CAD files, go build this.
01:02:59 ◼ ► Having people like that intimately part of the development process from idea forward started right then.
01:03:08 ◼ ► Because it seemed to me like they instantly recognized where we screwed up here wasn't in the ambition of the iMac.
01:03:19 ◼ ► So the chapter ends with Johnny Ive apologizing to one of the product designers because he effectively understands I gave you something that couldn't be built.
01:03:31 ◼ ► And so the ending anecdote is that years later, the same product designer, Ben and Chris Novak is in Japan.
01:03:36 ◼ ► I think he's working with Toyo and he says, hey, Johnny, like, I don't think what you're looking for can be built here.
01:03:46 ◼ ► And so what I'm trying to give you is a sense that Johnny Ive isn't just like the Johnny Ive that we know from the get-go.
01:04:00 ◼ ► And so I've read biographies of Johnny Ive where it's just like from the earliest days of junior high school, he likes minimalist designs.
01:04:14 ◼ ► Let me take one final break here and thank our third and final sponsor of this episode of the show.
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01:06:55 ◼ ► And I've been writing about this recently because of the tariffs and I sort of became obsessed and still am with this idea of how many iPhones can fit on one airplane being shipped over from India or China.
01:07:08 ◼ ► But that whole mental exercise on the cusp of the tariffs of, hey, if Apple is rushing six full Boeing 747 freight planes from India, how many iPhones is that?
01:07:28 ◼ ► And I forget how many it was, but it turns out it's 12 days of supply in the United States.
01:07:37 ◼ ► It's like I've always known it, but when you actually get down to working out some of the numbers, it really shows how other than this one path through China, the iPhone as we know it could not exist.
01:08:07 ◼ ► Well, while you do the calculator, let me give you sort of two of the crazy numbers that I think about.
01:08:10 ◼ ► One of them is that when Apple became worth $3 trillion the first time, I did the math on how much value Tim Cook had added to the company.
01:08:48 ◼ ► Well, anytime you use an Apple figure, you have to draw some sort of analogy because the numbers are so large, they just
01:09:03 ◼ ► And I was like, this is going to be uncomfortable because I'm going to uncover this mistake.
01:09:22 ◼ ► But then you can work it out in your head where it's like you get to, what, $1,000 of those is a trillion.
01:10:01 ◼ ► So to make that many every day by 24 hours, you get to about 23,000 iPhones an hour, every hour.
01:10:17 ◼ ► So you remember I said I had these internal documents, and one of them describes what a Foxconn big line is.
01:10:25 ◼ ► And so they're capable of making, I'm just citing my own book here, page 337, a big line at Foxconn is capable of making 590 units per hour.
01:10:44 ◼ ► They don't, you know, they're a proprietary company that doesn't like talking about how Tim Cook ties his shoes, let alone what they consider competitive information like that.
01:10:55 ◼ ► Which is so frustrating as a reporter, but I have to say, taking a year off and doing nothing but research into it means that every time you talk to somebody, you're basically getting new details.
01:11:04 ◼ ► Because if they haven't talked to a reporter before, but they have moved on from Apple, they're happy to tell you their story.
01:11:09 ◼ ► The brilliant thing about it is just that you're just getting nothing but novel information all the time.
01:11:15 ◼ ► But I guess where I've landed on this is just sort of, I guess I've always kind of known it, but now I see how almost certainly true it is.
01:11:25 ◼ ► That there's really by no other path does the iPhone as we know it, could it possibly exist.
01:11:40 ◼ ► And I think certainly in my audience, certainly probably in your social circle, most of the people you know own, not just own a iPhone-like phone, but probably own an iPhone.
01:11:51 ◼ ► They were all purchased for $700 to $1,000 lately, maybe $1,100, $1,200, $500, $600, up to $1,100, $1,200, $1,300.
01:12:06 ◼ ► There's no other way that that product could exist than making them in China because you have to reach that level of pricing to create that kind of demand.
01:12:17 ◼ ► If they all cost $3,000 or $4,000, and I think it would be just as a little thought exercise, if you went back in time to go back to when Steve Jobs debuted the iMac, August 1998, and me and you get in a time machine and we take an iPhone or a couple of iPhones with us and start showing even people from Apple like Steve Jobs,
01:12:53 ◼ ► But we'd say this is also a cell phone, so you get really high speed, better than today, you know, 1998 Wi-Fi.
01:13:10 ◼ ► Look at the screen, look at the size, here's a CPU benchmark, here's how fast the chip is.
01:13:45 ◼ ► I think a reasonable person in 1998 would think, even factoring just a little bit in your head of inflation
01:13:52 ◼ ► and thinking about how much computers cost in 1998, they would think this is at least a $5,000 or $6,000, $7,000 device.
01:14:01 ◼ ► But I would actually flip that on its head a little bit, which is to say that the significant thing about iPhone pricing over the last 10, 15 years, isn't that it?
01:14:43 ◼ ► Yeah, well, I think that's best exemplified by the MacBook Airs, which have started at $9.99 forever.
01:14:50 ◼ ► And again, in an industry where if the computer doesn't change, if the way it looks and the basic specs of the screen don't change, then every couple years it gets a little cheaper.
01:15:05 ◼ ► But with Apple, they kind of hold, they pick the price as part of the brand and try to keep putting more value into it to let it hold that price.
01:15:21 ◼ ► And again, with the iPhone, like you've said, the average selling price of an iPhone has gone up, not down.
01:15:39 ◼ ► But the average Android device is around $300, basically one-third of an iPhone selling price.
01:15:43 ◼ ► And in my counterfactual world where Apple had never gone to China and therefore never grew the capability to build out the scale of building this many iPhones every year, year after year,
01:16:21 ◼ ► I think that that world ends up looking a lot more like the old PC market where it's not that Apple would be in trouble or the iPhone would go away,
01:16:29 ◼ ► but it would be relegated to a 4% or 5% niche in the United States and other wealthy countries.
01:16:45 ◼ ► They may pale in comparison to the $4,000 or $5,000 Apple iPhone, but they'd be making some kind of phone that copied the touchscreen interface as best they could for those prices.
01:17:03 ◼ ► They are more expensive than their flagship brethren on the Android side, but not by much.
01:17:14 ◼ ► My sort of counterfactual fantasy is whether it is if they invested everything into Mexico, sort of NAFTA on steroids.
01:17:21 ◼ ► And the significance of that, the reason why I go there with a thought experiment is that when you have goods being made in Mexico, you tend to have a lot of intermediary trade across the border with America.
01:17:30 ◼ ► And so we don't sort of have a following of our industry if 25% of everything built in Mexico has some sort of American origin.
01:17:43 ◼ ► So like within the political dynamic of America, if a factory closes in Ohio, it doesn't really matter if it goes to Mexico or it goes to China.
01:18:05 ◼ ► And I think it's the prologue of the book, which is when Xi Jinping enters office and within 36 hours, CTTP, let's just think of that as state-sponsored CNN in China, really attacks Apple.
01:18:18 ◼ ► I mean, I've talked to multiple people on the ground and they just didn't understand why they were being attacked, why they were being seen as this exploitative power.
01:18:25 ◼ ► And so they sort of issue this sort of banal press release that more or less says, oh, there seems to be this conclusion here.
01:18:38 ◼ ► And then they're attacked by what's called the state-sponsored New York Times of China, the People's Daily, who sort of riffs on that line and complains about their incomparable arrogance.
01:18:46 ◼ ► And this leads to Tim Cook having to issue a letter in Mandarin, basically apologizing, I mean, effectively kowtowing, if not actively kowtowing.
01:18:54 ◼ ► I have an anecdote from one person, so it's in parentheses, just to say that Tim Cook didn't just issue the letter.
01:19:01 ◼ ► And the person said, if you know anything about China, you don't just issue apologies, they make you bow.
01:19:06 ◼ ► So that is the moment when they realized, oh, we are not like the person with the power in this relationship, right?
01:19:13 ◼ ► There's a bit of a show trial, in a sense, of Apple and Tim Cook, where Beijing is going, we hold the cards, if I'm quoting Trump versus Zelensky.
01:19:21 ◼ ► And that, to me, really is the time that instead of putting out a massive share buyback program, Apple could have said, story to shareholders, we're investing in the resiliency of our supply chain.
01:19:31 ◼ ► But to be sympathetic to why they didn't make that decision, you have to understand just how difficult it was to keep up with the pace of building all of these products at immense scale.
01:19:40 ◼ ► And their own realization that nobody else had the capability outside of China to do this.
01:20:04 ◼ ► I mean, you'll know, having read the book, I don't think, aside from the conclusion where I questioned Tim Cook's legacy,
01:20:13 ◼ ► I think they were outplayed by a belligerent regime in China, famous for its long-term thinking.
01:20:28 ◼ ► But I don't have sort of unethical characters who are just after greed or something like that.
01:20:38 ◼ ► So Xi Jinping comes – it's sort of like the American system where there's an election in November and then the president actually takes power in January.
01:20:59 ◼ ► One thing I didn't worry about, like when I said up front, that the book is so thoroughly jam-packed with original reporting and content.
01:21:12 ◼ ► If you think that we've talked about any – all the good stuff in this book, we haven't even touched some of it.
01:21:29 ◼ ► And by the way, so if you've read the book, I had John Ford on stage with me last night.
01:21:40 ◼ ► And he's this, like, 275-pound guy who goes to Portland State on a football scholarship.
01:21:54 ◼ ► And to make a long story short, he becomes, like, head of the Denver, Colorado Apple store circa 2006, 2007, working for Apple for several years.
01:22:03 ◼ ► But this is after when he's already been sort of in social auditing compliance, living in China, running his own business as the CEO.
01:22:10 ◼ ► And he just puts up his hand in a meeting where he's told that they're going to build a store in China.
01:22:25 ◼ ► But they begin to realize through talking to him that, oh, this guy could actually go out there and lead the Apple store.
01:22:36 ◼ ► And it's because Apple's $70 billion retail business in China goes back to him experiencing a catch-22 in early 2008, where to build the Apple store, you need a license.
01:22:50 ◼ ► And so it's not clear what he's supposed to do other than stuff a red envelope full of cash to some Chinese cadre.
01:23:04 ◼ ► And that's literally the legal basis for the biggest, most successful business in China today.
01:23:50 ◼ ► But they recognize the mother of all opportunities here because it just becomes, the iPhone, the most conspicuous product that you can buy.
01:23:56 ◼ ► I mean, to the degree that there's a case of someone selling their kidney through black market surgery just so they can buy an iPhone and an iPad.
01:24:11 ◼ ► And so if you are a yellow cow and you want to go to a city like Chongqing, population 32 million, and sell iPhones by the thousands, you can't just buy as many as you want.
01:24:24 ◼ ► So, I mean, I've got scenes described by people working at Apple, by people working at the American Embassy in Beijing, where you've got 6,000, 7,000 people snake lining outside this store.
01:24:45 ◼ ► So the yellow cows play this like instrumental role, essentially playing like a gig economy distributor role to get the iPhone to like every nook and cranny of China.
01:24:59 ◼ ► And so they start doing illegal, nefarious things like going over to America using fake IDs, buying an iPhone at the T-Mobile store where they only pay one month of a 24-month contract.
01:25:36 ◼ ► And so they would give them a brand new phone with a receipt with the Apple seal and everything.
01:25:41 ◼ ► And then the yellow cows basically are able to make more money per iPhone than Apple, right?
01:25:56 ◼ ► And this is really the instrumental narrative that drives home the point that Apple doesn't understand what it's doing in China.
01:26:05 ◼ ► But there's all sorts of distribution issues, cultural issues, political issues that they're not familiar with.
01:26:10 ◼ ► I think I saw some of the tail end of that scam because I used to go to a conference or a festival, XOXO, in Portland, Oregon.
01:26:29 ◼ ► And I know one year I was out in California to have the iPhone premiere, show and dance.
01:26:36 ◼ ► And instead of flying back to Philadelphia and then flying to Portland, I just flew from San Francisco to Portland and met my wife there.
01:26:42 ◼ ► But long story short, there would be a line around the Apple store in Portland, like thousands of people.
01:26:49 ◼ ► And again, like people who did not look like they had the money to buy new iPhones and many of them Asian.
01:27:01 ◼ ► And somebody was like, yeah, I think it's some kind of thing where they buy them and send them back to China or something.
01:27:17 ◼ ► But it was so clearly not like the 2007, 2008, 2009 lines to buy a new iPhone, where it was people like me with Apple T-shirts and high-fiving each other.
01:27:30 ◼ ► And the other thing I should point out, just because this is really interesting, is am I right that you're on the right to repair side?
01:27:58 ◼ ► I'm bringing it up just because the reason everything is serialized to the motherboard goes back to the yellow cows.
01:28:06 ◼ ► And so not only are they buying the phone at less than $100 in fake IDs, they're hollowing out the components within the phone and replacing them with replica components.
01:28:13 ◼ ► And so that's why you had to serialize it, because it's a defensive gesture against this massive scam that's worth billions and billions of dollars.
01:28:21 ◼ ► I mean, iPhone sales in China go from something like a couple hundred thousand in 2009 to more than 20 million in 2012.
01:28:27 ◼ ► And so many of these phones are being purchased by the yellow cows that it's just this massive problem for Apple.
01:28:39 ◼ ► I think it's more or less because they're selling authorized components that can still be serialized.
01:28:45 ◼ ► And that's what, like, when you go to a third-party repair shop, you're still getting a display that can be verified somehow.
01:28:56 ◼ ► But, like, it got to the point where the replica models with the hollowed-up components were so good that the Genius Bar would have a real iPhone and a tampered-with iPhone in China and not know which was which.
01:29:07 ◼ ► So Apple had to introduce, like, X-ray-style microscopic machinery to be able to look at the phone nearly at the atomic level.
01:29:16 ◼ ► Because even the IMEI, which back in those days is like a sort of number that's on the phone and the SIM card,
01:29:21 ◼ ► they were, the yellow cows, using the factory connections, were typing in, were retyping in, scam IMEI numbers.
01:29:28 ◼ ► And so what would happen is that they would have access to these systems that could determine, like, this IMEI claims to be on this phone,
01:29:44 ◼ ► But just going back to the CCTV narrative, and this is, like, the big riddle that I thought I solved,
01:29:48 ◼ ► is that the reason CCTV attacks Apple over warranty differences is because Apple, in reaction to this scam,
01:29:59 ◼ ► So when they were getting new ones, someone described to me as this was like cocaine to the yellow cows.
01:30:04 ◼ ► But Apple, as Apple is losing money on this and they're taking countermeasures against it,
01:30:08 ◼ ► the yellow cows are able to basically convince their political, off the political echelons in China,
01:30:19 ◼ ► And so CCTV, which runs this Consumer Day program, literally sends out Chinese consumers to places like America,
01:30:25 ◼ ► to places like Europe, and asks people on record with hidden cameras, like, what is the warranty policy?
01:30:49 ◼ ► And that was an issue that was covered by the Atlantic, the Associated Press, Reuters, New York Times, everybody.
01:31:12 ◼ ► Like, it wasn't wrong for whoever made the decision at Apple to start using refurbished parts,
01:31:24 ◼ ► But then it was a totally different side of the company that got broadsided by the political campaign
01:31:33 ◼ ► and the Chinese news media, where they're like, we don't have a different policy over there, do we?
01:31:52 ◼ ► I would say bookshop.org, which sort of works like Amazon, but it goes through your independent bookseller.
01:31:58 ◼ ► Obviously, you could just go to your independent bookseller if you don't mind taking a walk,
01:32:05 ◼ ► for me, the key thing is that you start reading that doesn't exactly matter where you buy it.
01:32:11 ◼ ► We literally only scratched the surface of the great anecdotes and stories that are in here
01:32:16 ◼ ► and the sort of tying together of the threads, which really is impressive in the book, Patrick.