When he first joined Google nearly seven years ago to start its enterprise division, Gmail was barely out of the gate and Blogger was the search giant’s most notable acquisition. What could Google offer enterprises that they weren’t already getting from Microsoft and Oracle and IBM and scores of other established software and hardware vendors?

The answer? An alternative. Sheth pitched Google’s trio of senior executives–Eric Schmidt, Larry Page and Sergey Brin–on the idea of experimenting with standard office applications–a word processor, a spreadsheet–that operated entirely within a browser. The product evolved into Google Apps, and while Microsoft Office still dominates the enterprise desktop, it’s widely accepted that Google Apps has made some important inroads against it: 3 million businesses use it in some way, and some 30 million people use it in their businesses.

Aside from the scores of companies, governments and non-profits that have adopted it, there are millions of college students using it, attracted by the zero-dollar price tag. Microsoft has responded with its own cloud-based office offering, Office 365, but its clear that Redmond’s traditional grip on the enterprise desktop isn’t quite as tight as it once was.

Now Sheth has an even bigger target in mind. If Office isn’t so sacred, why does Windows have to be? As the Group Product Manager Chrome OS for Business, he makes an interesting argument that the Redmond-centric world of corporate desktops is quietly nursing a desire for change. Where will it come from? A combination of cloud computing, and a desktop that’s stripped down to nothing but a browser. I talked with Sheth by phone earlier this month and my first question was about his education.

NewEnterprise: You did your undergraduate degree in electrical engineering, but now you work in software. Circuit design wasn’t for you?

I realized I liked software a lot more than hardware. But I was most of the way through with electrical engineering at Stanford. So I did my masters in software.

Does having been educated first on hardware give you a different perspective on any of the work you’re doing at Google?

It is actually relevant. A lot of what I’ve done involves software and user-facing interfaces, but it also involves a lot of infrastructure. When you look at VMWare, which is where I worked before Google, it’s about what you can do with a combination of hardware and software and change the game. It’s similar with Google Apps. It’s a big set of user-facing applications, but the big thing is the cloud computing infrastructure that’s underneath. The fundamental question is about how you wire computers together in the most efficient way possible. That is really the bread and butter underneath Google Apps. And finally with Chrome OS it’s the same question: What can you do to the form factor of the hardware if you’re really only running a browser on it. The background in hardware has served me well.

So you joined Google about seven years ago with the mission of creating something–you basically had a blank sheet of paper–that Google could offer the enterprise. And your first idea got shot down. What was it?

At the time I joined Google the enterprise division was literally 25 people. We had a few engineers and salespeople, and we brought in a manager, Dave Girouard. I came in with the explicit mission of starting something else within Google that was to be aimed at businesses. And that something else was completely undefined. When I was still at VMware, a friend sent me a Gmail invite, and I started using it, and it was better than my corporate mail. I thought it could be a very interesting enterprise product. After I joined, I pitched Eric, Larry and Sergey on the idea of putting Gmail into an appliance and shipping it out to corporations. They didn’t go for it. I went back six months later, with some new insight, specifically that we could use our server architecture to make it easier for businesses and educational institutions to deploy and manage email, and that from there we could move up-market to deploy applications. We got exactly one engineer to work on that.

It was very much like running a start-up. I was the product manager and was tasked with starting this new business and we went through all the classic things that a start-up does. Building the product, building the team, selling the vision to an early set of adopters–San Jose City College was our first college customer and Northwestern and Arizona State followed after that. We started small and incubated it within Google. We did a lot of experimenting with that small team to see what was viable and eventually we were able to get more resources to make it bigger.

So how does the Google Apps experience compare to your new role in building a business around Chrome OS for businesses?

It’s very similar. In Chrome OS I’m back in start-up mode. Essentially I’m trying to build a vision. We have a small team of people that all sit together in one area, building out the business model, and we’re trying to start small and grow from there. One way to look at Google is as a closed confederation of start-ups. All these teams are empowered to build something that is visionary. But we all have a lot of leverage behind us, and so we’re able to do a lot more than we ever would have been able to do if we were a small company.

I see a potential problem there: Don’t all these start-ups within Google run the risk of creating independent silos or fiefdoms that aren’t all on the same page? We hear a lot of criticism of the silos at companies like Sony or even Microsoft. Even at Google, there’s Google Voice, which is a great product but doesn’t really fit with anything else, though I understand it eventually will. But how do you avoid this silo problem?

It’s a great question, and its something we’ve thought about a lot. There are basically two extremes. The first extreme is on one hand you have different teams doing things completely different from each other. The other extreme requires that everything be integrated extremely well together. We tried to find a happy medium. The benefit for one is that you can move quickly. But if you do the other extreme, you slow down innovation. Your project may take several times longer. One big advantage is the Google infrastructure is all there. You don’t have to think about user authentication or how to store files. That’s all done for you, so everyone is using the same infrastructure. A lot of the parts you need are there and you just build on top of them. You can never strike a perfect balance, but we think ours is pretty good.

So what’s your mission with the Chrome OS?

My mission is to bring Chrome to business and to ask how we make it something that can reshape the enterprise desktop. The thing that was really intriguing for me, is that cloud computing has done so much for businesses. You don’t need to think about deploying the hardware, you can just turn things on. You don’t need to worry about massive up-front payments for hardware, you can just pay monthly for what you use. And your applications just keep getting better. In my mind the cloud really stops at the desktop.

The desktop is tremendously hard to manage. It costs a lot to maintain, most of the cost for a business is all in the maintenance. It doesn’t get better over time, it gets slower as you use it. I think there’s a huge opportunity to bring the principles of cloud computing to the desktop. It gets better, and it’s fast and secure. That’s the vision. We think we can do that because we have a unique operating system. It’s just a browser that’s completely stateless. As a result of that, you can boot up in 5 to 10 seconds. And no matter where you go, you log in, you have your entire desktop. If the system breaks, that’s not a problem, you just jump on to another system. If you lose it, it’s not a problem because its stateless.

There are people who would say its crazy to try and dislodge Windows as the operating system of choice for businesses, and yet you think you can do it. What kind of results have you seen so far?

If you just have a browser and take out everything else, life gets a lot simpler. And this is why I think that the desktop OS is ready for a radical change much like the enterprise applications were a few years ago. One thing we’ve found is that very significant portions of the population are using only a browser right now. Those trends show that this area is ripe for a change. If you look down the line in three years, the majority of those business users will use only a browser. We created this pilot device called the Cr48, which is a notebook with Chrome OS installed on it. We received 50,000 applications from businesses interested in trying it, and we now have thousands deployed in the field. We have companies like Intercontinental Hotel Group, Virgin American and Groupon using them for different things. We’ve even heard from the US Army Intelligence Office. We heard from a lot of companies we didn’t expect interest from.

I think you’ll see some early adopters, groups of users within companies, this year. Some companies’ pilot programs want to do large roll-outs to call centers and to customer service reps and some want to roll them out to mobile sales people. Many will find that it makes sense to them because it brings the cost down. No one wants to pay to have to fix a system that’s broken because two applications are in conflict with each other. No one wants to pay to go patch an operating system. That kind of thing is going to become a lot easier with Chrome OS.

Consider this quote from Apple’s SVP of Worldwide Product Marketing Phil Schiller. “At this year’s conference we are going to unveil the future of iOS and Mac OS. If you are an iOS or Mac OS X software developer, this is the event that you do not want to miss.”

But if you’re a consumer hoping to get a peek at the next iteration of the iPhone, well…you may not want to get your hopes up too much–even if Apple has used WWDC to unveil updates to the device in years past. I’m hearing explicitly that this year it’s a software event (Over at The Loop, Jim Dalrymple’s hearing the same thing) Said one source, “If you go looking for iPhone 5, you’re probably going to be disappointed.”

Which makes you wonder what Apple’s planning for iPhone 5. I’m just guessing here, but I think postponing the unveiling and release of the device could be an indication that its next iteration will run on 4G LTE networks. Remember, AT&T is expected to launch its LTE network by the middle of the year and Verizon’s is already up and running. And what was it China Mobile Chairman Wang Jianzhou said earlier this month? “[Steve] Jobs has expressed his interest in an LTE iPhone and is willing to start the development at an early date” …

All the security attention paid in recent years to securing the Windows desktop and the applications running on it have paid off a little, Cisco found, making it harder for computer scammers to successfully carry off their intended crimes on that platform. The trouble is they’re now starting to focus more attention on mobile devices, including Apple’s iPhone and iPad, and devices running Google’s Android operating system, Cisco said.

Meanwhile, the overall global volume of spam, which often contains troublemaking links that are used to deliver attacks, decreased for the first time ever in 2010. Even so, spam still increased in some developed countries where broadband connections are multiplying. In the United Kingdom, spam volume nearly doubled, while the volume in France went up 115 percent. The U.S. saw a slight decline–11.1 trillion messages down from 11.3 trillion in 2009. Spam in Brazil, China and Turkey also declined. Some of the decline can be attributed to last year’s arrest by FBI agents in Milwaukee of a Russian accused of being the “king of spam,” and to the shutdown of a few botnets used by scammers to send spam.

One thing about Cisco’s report that’s likely to draw some attention is its finding that the raw number of vulnerabilities on Apple products appear to be growing. Apple users are usually pretty sensitive about this topic, and any comparison of the Mac to Windows on the security front tends to make them grind their teeth and pound out annoyed comments on tech blogs. I know because I’ve done the same teeth-grinding and have in the past criticized other reports for similar findings.

Here Cisco is addressing vulnerabilities that Apple has itself documented and patched in software updates. One thing that’s not clear to me–though it sure looks like it–is whether Cisco is combining vulnerabilities found on both iOS (iPhone and iPad) and OS X (the Mac). The data it’s using is from its IntelliShield service, which tracks vulnerabilities and security incidents, and shows that over five years Apple’s vulnerabilities rose, from less than 200 in 2006 to more than 350 in 2010. That rate was higher than Microsoft and Hewlett-Packard and Cisco itself, the report found, though it goes on to say that Apple has worked harder than most other vendors to protect its users. Security is one of the reasons Apple imposes such strict rules on what’s available in the App store, though people still jailbreak their phones.

Another trend Cisco found is something called “money muling.” Tom Gillis, VP and general manager of Cisco’s Security business unit, describes money muling as using unsuspecting people who are attracted by “work at home” spam messages and Web ads to participate in money laundering by moving small amounts of money into bank accounts, just a few thousand dollars at a time. He says the operations around this are becoming increasingly elaborate, and criminals will devote a lot of effort to developing it this year.

I talked with Gillis about the report and other security trends that Cisco found. Here are a few highlights from our conversation:

NewEnterprise: So you’re seeing fewer attacks on Windows and more on mobile devices. Is that simply because there are more of them?

Tom Gillis: It’s the simple fact that there’s this new class of mobile device coming into the enterprise that used to be a phone and now it’s a computer, and it can access enterprise information. So what we’re seeing is that the raw number, but not the severity, is down on Windows. Part of this is that Windows 7 was a very good release on Microsoft’s part from a security standpoint. And we’ve got these new devices coming into the enterprise, and so we’re seeing a shift in focus of attacks on these mobile devices. They’re vulnerable to attack and they’re relevant in the enterprise. Two years ago this would have been too small a population to be meaningful.

What kind of attacks are you seeing?

It varies. In some cases there’s a little “phone home” code in a free gaming app. Pretty gentle stuff so far. But as people start using smartphones to access sensitive information we need to start thinking about security considerations on these devices. There’s a larger theme here that the whole nature of attacks is changing dramatically. The fact that spam volumes dropped at all is a big tell. For 10 years this has only gone up. We’re not forecasting a steady decline in spam, but the fact that it slowed down at all is an indicator of the shift in the way that attackers are using email. The attacks are more targeted and personal, for one thing.

Can’t some of this decrease be attributed to some of the arrests that happened last year?

It can. There’s been a handful of arrests. And they went after not only the botnet operators but other parts of the spam value chain. There are firms and entities that build botnets of compromised machines that relay the spam, and then there are other firms and entities that rent time on those botnets that do the merchandising. The biggest category is selling fake pharmaceuticals. Some of these fake pharma operations were shut down and the people associated with them arrested. It’s not an easy thing to do, because they’re global, they move around, and so to make an arrest in this space is a huge accomplishment.

So what is the thinking now about securing the mobile device?

We think there are two ways to make mobile devices work in the enterprise. The flood of devices into the enterprise is huge, and everyone wants to use them to check their email and access corporate directories and other fundamental things. There needs to be some kind of software on the end point–the phone or device. It will have to be light. You can’t have some kind of antivirus suite running on the phone. It would be a little piece of software that’s on all the time that knows when you’re behind the corporate firewall and when you’re not, and manages your connection accordingly. We bought a company called ScanSafe that has 40 data centers around the world. When you’re outside the firewall it connects to you the nearest data center and enforces your corporate policies, but all you as the user know is that it just works. This notion of being on or off the corporate network goes away. And we can do all kinds of scanning for security, independent of the device that’s being used.

This year we also saw the Stuxnet attacks, which we now know for certain were carried out against the Iranian nuclear program. Clearly this is a new kind of attack that can be mounted against industrial control systems via computer networks. Is Cisco researching this?

Massively. Often these types of attacks are targeted against Cisco’s biggest enterprise customers. Who buys Cisco’s infrastructure? The biggest banks in the world, the defense contractors. If the goal of an attacker is to disrupt an economy, their targets will be our customers, and they’re demanding a response from us. I like to call it global threat correlation, but it comes down to taking huge samples of network traffic and picking out good traffic from the bad. Cisco has a good advantage here because our equipment is so widely deployed around the world. As we start measuring traffic we can develop reputation data on every publicly routable IP address on the Internet. As we start putting telemetry info into that equipment–and the customer can choose to enable it or not, and it’s turned off by default. But people turn it on because it helps them against the unknown kind of attacks that are popping up. If a Web server says its a Web server, but you just saw it sending spam three minutes ago, there’s a pretty good chance it’s part of a botnet. Once you know that you know that, you can start to mount a pretty good defense. We’re putting a lot of energy into developing that, and it’s proven to be pretty robust.

What will he uncrate this year–aside from a new iPhone? New Mac Pros? New LED Cinema displays? Safari 5 with a new Bing search option? Mac OS 10.7? The next iteration of Apple TV? Join us here later this morning and find out. Our live coverage begins at 10 am PT.

Liveblog

9:38 am: San Francisco’s Moscone Center this morning is as packed as I’ve ever seen it. The attendee line for Apple CEO Steve Jobs’s keynote address began forming early this morning, and by the time I arrived at 8 am, it was already stretching from Moscone well toward the Fifth and Mission garage. No surprise. I’m told this is one of the biggest WWDCs ever, an event that sold out in record time.

10:05 am: Off to a late start because of a connectivity issue here. Jobs takes the stage to a standing ovation. “It’s great to be here.” From the audience: “We love you Steve!”

“We’ve got a packed conference for you this week,” says Jobs. We sold out in eight days.

A few updates to start. First: the iPad. We’ve sold over two million iPads…we’re selling one every three seconds…we’re now selling it in 10 countries.

10:05 am: Now a quick video reel of recent iPad launches abroad. Lots of giddy faces.

10:06 am: We’re in 10 countries today, we’re going to be in 19 by July…we’re making iPads as fast as we can.

Jobs notes that there are now 8,500 native iPad apps and they’ve been downloaded over 35 million times. That’s about 17 apps per iPad and that’s a great number, says Jobs. We’re just thrilled.

10:07 am: A quick showcase of some native iPad apps: eBay (EBAY), WebMD, Iron Man, the FT, Elements, a periodic table app by Wolfram Alpha. The Wolfram representative says his company earned more from the iPad app during first-day sales then it earned from five years of Google ads on PeriodicTable.com

10:08 am: Moving on to iBooks. Users have so far downloaded five million iBooks. That’s 2.5 books per iPad. Publishers tell Apple that as a share of total e-book sales, iBooks now account for 20 percent, and the figure is rising.

Today, we’ll see some enhancements to iBooks. Among them, the ability to make notes, a new control to bookmark the page and that shows bookmarks in the index of the books themselves, the ability to review and read PDFs [applause]. “What we’ve done,” says Jobs, “is to give PDFs a whole new bookshelf for PDFs in the iBooks apps….Those enhancements will be out just a little bit later this month.”

10:11 am: “Next, I’d like to talk a bit about the App Store,” says Jobs. “We support two platforms with the App Store. The first is HTML5, a fully open uncontrolled platform…anyone can write HTML5 apps and have them on our devices….The other platform is the App Store….Now you’ve read a lot about our process for approving apps. We get about 15,000 new apps a week, and they come in in about 30 different languages. Guess what? Ninety-five percent of them are approved within seven days. What about the five percent that aren’t? What are the reasons for that? One: The app doesn’t function as advertised by the developer. Two: The use of private APIs–we don’t want our apps to break. Three:The app crashes….So I think if you were in our shoes, you’d be rejecting apps for the same reasons.”

10:14 am: Jobs talks for a moment about eBay’s app. He refers to eBay CEO John Donahoe’s statement at D8 last week noting that the company’s iPhone app was responsible for $600 million in volume last year.

10:16 am: Jobs invites Netflix CEO Reed Hastings to the stage to talk about the Netflix iPad app. Hastings announces that Netflix (NFLX) will soon debut a new application for the iPhone.

10:17 am: The Netflix iPhone app will debut later this summer. For free.

10:18 am: And so begins a parade of app developers. Next up: Zynga. CEO Mark Pincus takes the stage to announce Farmville for the iPhone. Pincus chats a bit about how successful Zynga’s games have been and how active its users are. Now a quick demo of the game. Looks like the app is cross-platform. The demoer makes a point of noting that the farm she’s tending on her iPhone is the same as the one she has on Facebook: “Say goodbye to withering crops; we now have push notifications.”

10:21 am: Pincus: “With Farmville on the iPhone you can now farm anywhere and any time you want.” Evidently “tractoring” just got a whole lot better. [Not a Farmville player, so I'm not really sure why that's exciting.]

10:22 am: Farmville will debut on the iPhone by the end of June, says Pincus.

10:23 am: Today’s third demo will be from Activision (ATVI): Guitar Hero. The company has developed a new version of the game for the iPhone and iPad. It features rock-star customization, classic rock as well as newer indie stuff, gameplay that riffs off classic Guitar Hero. Activision’s game designers have optimized the new version for iPhone and touch play. Looks like it allows for whammy, pull-ons, pull-offs and “Star Power” as well.

Uh-oh. Demo guy gives us a bit of air guitar.

10:26 am: Guitar Hero is available now in the App Store. Price: $2.99.

10:26 am: Jobs returns to the stage. “Just last week we crossed five billion downloads….Now here’s my favorite stat…how much have we paid to developers to date: $1 billion. This is one of the greatest things we get to do, so let’s go do it again.”

10:28 am: Moving on now to the iPhone. “There have been a lot of statistics floating around. Some are okay, some are questionable. Here are some we like: A new survey from Nielsen shows RIM (RIMM) with 35 percent market share, iPhone with 28 percent. In Q1 2010, the iPhone had over three times the market share of Android.”

Another stat: The iPhone has a 58.2 percent mobile browsing share. “These stats should help put things in perspective for you.”

10:30 am: Now a bit of iPhone history. Jobs runs down a list of iPhone updates over the years. “Today, we’re going to give the biggest update since the iPhone launched….Today, we’re launching iPhone 4.”

10:31 am: The iPhone 4 has a number of new features. Jobs will cover eight of them.

“The first feature: An all-new design. Stop me if you’ve already seen this, ” he jokes. “This is without a doubt the most beautiful, precise thing we’ve ever made….The precision with which this is made is unheard of….It’s like an old Leica camera…nothing like it today….It’s just 9.3 millimeters thick. That’s 24 percent thinner than the 3GS….It’s the thinnest smartphone on the planet.”

10:33 am: There is, indeed, a front-facing camera. Camera with LED flash on the back. SIM card tray. A second microphone.

“Now, because there have been a few photos of this around, people have asked ‘what’s this?’ What are these lines on the new iPhone….Well, there are three lines, not one….Turns out, this is part of the device’s engineering….The stainless steel bands around the device are actually integrated antennas….This has never been done before.”

10:35 am: A quick feature review: Thinnest phone ever, stainless steel for strength, optical quality glass for scratch resistance, built-in antennas.

10:36 am: The second big feature: Retina Display. What’s Retina Display? We’ve dramatically increased pixel density….We’re putting four times as many pixels in any given space….This give us far more precision….This will give us really, really sharp text when we zoom in….We’re using 326 pixels per inch….No one has ever done this before….Turns out that 300 pixels is the limit of the human retina….So once you hit that number, images and text begin looking extraordinary.”

10:38 am: Jobs pulls up two frames showing the difference in appearance between text viewed with Retina Display and text without.

“And this isn’t just for text,” says Jobs. “It’s for pictures and video as well.”

10:39 am: Moving on to a demo. Jobs pulls out an iPhone 3GS and the new iPhone 4. Their respective displays appear onscreen behind him and the difference between the two is startling.

Oops–bit of a network problem. “Our networks here are always unpredictable,” says Jobs. “You know you could help me out here if you’re on Wi-Fi by getting off for a moment.”

Uh-oh. “Could not activate cellular network.”

“Yes, I know that,” quips Jobs. “Oh jeeze…well, looks like I may not be able to show you what I wanted to.”

Jobs moves on, shows off some pictures. Returns to the browser and tries again to bring up the Web page he had hoped to show. Ultimately, he gives up.

10:44 am: Details of display for the iPhone 4: 3.5 inches, 960×640, 326 pixels per inch, 800-to-1 contrast ratio, IPS technology for wider viewing angle and superb color. The iPhone display has 78 percent of the pixels we’ve got in the iPad.

10:45 am: Jobs says existing apps will look even better on the new iPhone. “But if developers do a little bit of work and put improved images into their apps, they’ll look even better. And we suggest you do that….This is going to set the standard in displays for years to come and we don’t think anyone else is close to it.”

10:47 am: Next innovation: The iPhone 4 is powered by Apple’s A4 chip. This is, of course, the same chip that powers the iPad. In other words, this new iPhone is going to scream.

10:48 am: Jobs pulls up a diagram of the innards of the iPhone 4. He notes that Apple was able to build in a larger, improved battery. Seven hours of 3G talk, 10 hours of video, 40 hours of music. 300 hours of standby [I think].

More on the A4: Up to 32 GB of storage. Quad-band HSDPA/HSUPA, 7.2 Mbps down.

10:49 am: A fourth innovation: “Remember when we added the accelerometer and that added up a whole new vista of gaming? Well, we’re taking that even farther and adding a three-axis gyro.”

It supports pitch, roll and yaw, and it’s tied to the compass and accelerometer. New CoreMotion APIs will allow some big leaps in gaming.

“Let me show you a demo. And since this demo doesn’t require the network, we should be okay.”

10:51 am: Jobs shows off onscreen movement via an iPhone Jenga game. First, without the gyroscope and then with it. When it’s activated, it enables 3-D rotation. Very impressive. Jobs plays the game for a few moments. “I did practice this a little bit,” he says, before toppling the tower.

“The gyro joins the four other sensors we have in every phone. I can’t wait to see what you all do with it.”

10:53 am: On to the fifth update: A whole new camera system.

“Everyone likes to talk about megapixels, but what we like to ask is ‘how do we take better pictures?’…What we’ve done is go from a three-megapixel camera to a five-megapixel camera, and we’ve added a backside illuminated sensor (something found in larger cameras)….These allow us to capture more photons per pixel….We’ve also added an LED flash.”

Jobs pulls up some unretouched photos taken with an iPhone 4 and they’re quite nice. Low-light photos are particularly impressive.

10:56 am: Whoa: The camera also records HD video. Full 720P at 30 frames per second.

10:56 am: The camera supports tap-to-focus video, built-in video editing, and one-click sharing via MMS, YouTube, etc.

“But we’re going even further than that,” says Jobs. “We’ve writing iMovie for iPhone.”

10:58 am: Apple’s Randy Ubillos takes the stage to demo the software. The application seems similar to the desktop version–uses projects, etc. It supports iDirect recording into its timeline. You can also import video from the camera app. Drag-and-pinch editing supported, as well as things like Ken Burns effects and themed transitions.

11:00 am: Ubillos demos titling in a movie and notes that the device uses geolocation to actually identify the locale at which a film was recorded. Five iMovie themes are included in app. Three movie export sizes up to 720P HD. And now a video reel of a short HD movie shot and edited entirely on iPhone 4. Pretty slick. Flip camera folks are probably chugging Mylanta right about now.

Jobs back on stage: “You’ll be able to buy iMovie for $4.99 from our App Store…if we approve it.”

Jobs circles back to the earlier demo that went wrong. He notes that some 500-plus Wi-Fi base stations in the room compromised the demo. “This here is a testament to how far we’ve come…some 500 base stations in the room.”

11:05 am: Bloggers are being asked to turn off their Wi-Fi and put their devices down in order for the demo to go forward. “I think bloggers have a right to blog, but if you want to see the demos, we’re not going to be able to do it,” Jobs says.”Unless someone has a better suggestion.” In reply, a number of audience members shout “Verizon!” Jobs: “We’re actually on Wi-Fi here.”

11:05 am: Moving on now to the sixth of eight new features Jobs will demo: IPhone OS4. Apple is renaming the OS, since it now runs on devices other than the iPhone. The new name is “iOS.”

The new version, iOS 4, has some 1500 new developer APIs, says Jobs. And there are over 100 new user features as well. The biggest is multitasking. “People say we weren’t first with that, and they’re right…but we wanted to do it right.”

Jobs notes Google (GOOG) co-founder Larry Page’s recent comment about multitasking running down mobile device batteries. “You know what? He’s right. And that’s why we took our time with it. We wanted to get it right.”

11:09 am: Now a demo of multitasking. Jobs opens up Pandora, selects a song to play, checks his email, fires up a browser and it finally connects to the network. He moves back to mail, swipes to bring up Pandora’s controls, turns Pandora off, begins reviewing email. There’s threading, and message-deletion has been simplified.

11:11 am: Moving on to folders and folder creation. Again, very simple. All drag and drop. Folders can be added to the dock. Jobs quickly creates a folder for all his sports apps.

Overview of iOS4: Multitasking, folders, Retina Display integration, unified mail inbox and threading, enhanced camera and photo apps, deeper enterprise support–tons of new features everywhere.

11:13 am: A few points about enterprise support–better data protection, mobile device management, SSL, VPN support, wireless app distribution.

11:13 am: Apple has added a new search engine option to iPhone–Bing. Google will stay the default. “We’re giving you the choice and you can decide now. Microsoft’s done a great job with Bing.”

11:14 am: Apple will provide developers with a golden master candidate of iOS4 today. Consumer release will follow “soon.”

Jobs: “We’re about to hit another milestone. This month we will sell our 100 millionth iOS device….There is definitely a market for your applications. No one else comes close to this.”

11:15 am: Jobs moves on, announcing that Apple is bringing iBooks to the iPhone and iPod touch as well. Same basic application, PDF support, iBook Store, etc.

Jobs: So now we’ve got iBooks on three different devices, so what can we do with them? You can download the same book to all your devices at no extra charge. You only have to buy it once…and iBooks will automatically, wirelessly at no extra charge, synch your place, your bookmarks and notes across all your devices.

11:18 am: Now a demo of iBooks on the iPhone. Jobs pulls up “Winnie the Pooh” on the video screen behind him. Same idea as iBooks for iPad. He writes himself a note, bookmarks a page. Then he returns to the book’s index page and points out that the bookmark and note now appear there. He moves on, shows off PDF support.

11:20 am: Jobs–iBooks is joining iTunes and the App Store as the third store on the iPhone. We have over 150 million accounts with credit card information. We believe this is the most in the industry.

11:21 am: Now: iAds. “Why are we doing iAds? To help our developers create low-cost ads for advertisers. With iAds, we’re trying to add emotion and interactivity to mobile ads…iAds keep you in the app, they don’t hijack users out of it.” By making sure that users know what an iAd is, they’ll know they won’t be hijacked out of an app. IAds are built right into iOS4. You don’t have to write an app to put it into your app. Apple sells and hosts the ads so all you have to do is put them in, and you’ll make money.

11:23 am: Apple has been selling iAds for just eight weeks but has already accumulated quite a list of customers: GE (GE), Chanel, AT&T (T), Liberty Mutual, State Farm, Campbell (CPB), Sears (SHLD), JC Penney (JCP), Target (TGT), Best Buy (BBY), DirectTV, TBS and…Disney (DIS) [of course].

11:25 am: Jobs pulls up an in-process Nissan ad for the company’s new electric car. “Nissan was a little hesitant to show you this…but I convinced them [laughter].”

Nissan’s iAd is essentially a 15-second video that appears along with some interactive elements. The app allows viewers to register to see additional materials. It also includes an MPG comparison chart. “This is a pretty compelling way for Nissan to get their point across….What’s more, Nissan is giving away a car through the ad.” Jobs enters to win a red Nissan Leaf.

11:29 am: Jobs–I think a lot of people are going to try to win the car. It’s a great idea…so iAds. We’re going to turn it on on July 1….So how well have we done selling iAds so far? Well, we’re pretty new at this, but I think we’re doing pretty well….We’ve sold about $60 million so far…and we’ve been selling them for just eight weeks….So we think we’re off to a great start.

Jobs again stresses that the point that iAds is to make money for developers.

11:31 am: His “eight things” overview finished, Jobs checks in with the audience? What do you think so far? [Applause]. Well, there is one more thing.

“In 2007 when we launched the iPhone, it was my privilege to make the first phone call on it to Jony Ive…and I’d like to do the same on this occasion.”

Jobs video-calls Jonathan Ive.

11:33 am: Video looks clear. Jobs again appeals to the audience to turn off Wi-Fi to prevent video freezes.

Jobs: You know this amazing. I grew up with “The Jetsons” and “Star Trek,” dreaming about stuff like this, and here it is.

Ive: I grew up the same way. And it’s real now isn’t it?

Jobs: It is real, especially if people turn their Wi-Fi off.

11:34 am: Big round of applause for the feature, which Apple is calling FaceTime video calling.

FaceTime is iPhone4-to-iPhone4 and it’s Wi-Fi-only. No set-up required.

You can use front or rear camera and you can switch between the two to show the person you’re talking to what you’re seeing. Supports portrait and landscape.

“FaceTime’s going to be Wi-Fi-only in 2010….We’ve got to work with carrier partners a little….And Apple will ship tens of millions of FaceTime devices this year, so there will be a lot of people to call.”

11:37 am: Now a FaceTime ad. Louis Armstrong soundtrack. “When you’re smiling…” Typical Apple fare. Grandparents calling grandkids. Pregnant mother showing husband live images of an ultrasound. Two people signing over the app. A cameo by Matt Damon. Big round of applause. Audience found the signing particularly moving.

Jobs: This is one of those moments that reminds us why we do what we do.

11:39 am: Jobs notes that FaceTime is based on a bunch of open standards–a bunch of alphabet-soup acronyms. “We’re going to make FaceTime an open standard…so that’s iPhone 4 and we think it’s the biggest leap forward we’ve taken so far.”

11:40 am: iPhone 4 will ship in two colors, black or white. $199 for 16GB, $299 for 32GB. AT&T is offering “an incredibly generous upgrade offer.” If your contract expires any time this calendar year you can agree to a new two-year contract and get those $199/$299 prices.

11:42 am: New iPhone lineup will go on-sale June 24. Preorders start a week from tomorrow. On June 24, iPhone 4 will launch in four countries. In July it will ship in 18 more.

11:43 am: In August, Apple will add 24 more countries. By September, the company will be shipping iPhone 4 in 88 countries.

11:43 am: Apple has designed some new accessories for the device: A new dock, some colorful new iPhone cases.

Upgrades for iOS will be offered for 3GS, 3G and iPod touch, though not all features will be supported. Upgrades will be free and available on June 21

11:45 am: Brief video overview of iPhone 4 with various Apple execs talking up the new device. “This is the biggest leap forward since the original iPhone….We’re bringing video chat to the world…and it’s going to change the way we communicate forever.”

11:46 am: Video reel stresses a number of points that Jobs has made so far: Retinal Display is the best mobile display to date…apps show more detail than you’ve seen on any device before…you can now switch between multiple applications and everything is as you’ve left it…intelligent folder-naming…simplified mail with threading…an LED flash for low-light pictures…HD video capture and video-editing with iMovie…iPhone 4 is simplicity, but behind it is outrageous technology…40 percent more talk time with new battery.

11:50 am: More from the video reel: “We developed an entirely new stainless-steel frame that functions as an antenna and the device’s primary structure…new high-impact glass used on front and back…even if FaceTime were the only feature we were delivering this would be an amazing device…with everything else, it’s going to change everything all over again.”

11:51 am: Jobs returns to the stage, pulls up a slide of a road sign showing the intersection of technology and liberal arts. He notes that this is what distinguishes Apple. “It’s the hardware and software coming together….It’s not just a new camera, it’s a new camera system and video-editing software….It’s the complete solution so that all of us don’t have to become system integrators.”

Jobs thanks the teams that have spent the past year developing the device. First name: Former IBMer Mark Papermaster. Applause too loud for me to catch second name. Other folks recognized: Bob Mansfield, Scott Forestall, Tim Cook.

11:54 am: Jobs wraps it up with a “This is our new baby. We hope you love it as much as we do.”

And that’s it. The keynote’s over.

Trip Chowdhry, an analyst with tiny Global Equities Research, contends that 7 minutes of the June 7 keynote by Apple CEO Steve Jobs has been blocked off for a presentation by Microsoft (MSFT) to talk about Visual Studio 2010, the company’s suite of development tools. Chowdhry says the new version of VS will allow developers to write native applications for the iPhone, iPad and Mac OS.

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“Avie and I worked closely together at Apple for many years and I have always admired his engineering talent and leadership, his strategic vision for how software can transform businesses and his ability to execute on that vision,” Elevation co-founder Fred Anderson said in a statement. “We are proud that he has decided to join Elevation and believe he will be a huge asset as we explore new investment opportunities.”

Indeed. Tevanian, who spent nearly a decade leading Apple’s software engineering efforts before leaving in 2006, came to the company from Steve Jobs’s Next Computer, where he helped build the NeXTSTEP operating system, an early precursor of the current Mac OS.

I can’t imagine that Apple (AAPL) is at all happy about Tevanian’s latest career choice.

By enlisting with Elevation, Tevanian joins a group of Palm-backing Apple alums that includes Palm (PALM) Chairman and CEO Jon Rubinstein, formerly Apple’s senior vice president of hardware engineering; Senior VP of Product Development Mike Bell, former SVP of product development at Apple; Senior Apple Designer Jeff Zwerner; VP of Public Relations Lynn Fox, who once headed up Mac PR for the Cupertino, Calif., company; and, of course, board member Fred Anderson, who served as Apple’s CFO from 1996 to 2004.

Image credit: Que Nerd

Kara was sorely disappointed when she realized she wouldn’t need her yoga mat for her piece on Asana, which, as it turns out, isn’t a pose that helps you channel your chi, but rather, a high-profile start-up from two former Facebookers aimed at addressing the workplace collaboration and communications space. Benchmark Capital and Andreessen Horowitz together invested $9 million in an attempt to tip the karmic balance in Asana’s favor. Kara showed no fear in a post this week addressing head-on the what-ifs raised by our spicy chairman, Rupert Murdoch. Rupe has threatened to remove content from search giant Google (GOOG) and Kara decided to fill everyone in, from the inside out. AllThingsD went a little bit Hollywood late in the week and Kara reminded us all to set our TiVos to catch our very own Katie Boehret on “The Martha Stewart Show” where she was scheduled to showcase a few cool gadgets for the holidays.

Digital Daily wasn’t quite as Zen this week, covering a few of the scintillating conflicts that always seem to plague the holiday season. It was a case of bickering brothers and Psystar style early in the week as Apple readied the deathblow against the Mac clone retailer. Apple (AAPL) claims that Psystar computers that ship with Mac OS cut too close to home and must be eliminated. Apple may be sandblasting a soda cracker just a little here as Psystar has already filed for bankruptcy. John followed up with some thoughts on foreign policy. It seems that Senators John Kerry and Orrin Hatch put on their best Hawaiian shirts, black socks and leather-man sandals this week to play the obnoxious Americans intent on bossing around the European Commission. While there was no word on whether they made a fuss about not getting ketchup with their French fries, they did encourage the EC to hurry up and approve the pending Oracle (ORCL)-Sun (JAVA) deal. Sticking with the European vacation theme, John finished out the week with news that Apple and wireless carrier O2 would begin selling iPhones at Tesco supermarkets in the U.K. We assume that, like all things sold in British grocery stores, Tesco iPhones will also come with tikka masala and malt-vinegar options.

MediaMemo was back up to full speed this week, and while we don’t blame Peter for doing his civic duty last week, we’re glad he’s back on the job. He has been closely following the decline of advertising dollars that have been blamed for everything from the death of newspapers to Lou Dobbs “going rogue.” Peter reported that Yahoo upped the ante this week with a meta-advertising campaign targeted at, yep, ad executives. That’s one way to drum up business, or so believes the team at the new Yahoo (YHOO). In another startling revelation about media consumption, the Olswang media law firm reported that iPhone consumers tend to be willing to pay for some content. Peter echoed the same, reporting some purchases of his own. In yet another story about a potential grab for media dollars, Peter reported that Hulu, the online television giant, grew in both content and viewership. Peter reminded us that viewers everywhere are holding their breath for when the juggernaut throws up that pay wall.

Katie held down the Mossberg fort this week and did so even while simultaneously appearing on TV. Quite a feat, but lady geeks have special two-places-at-once powers. Back underground at Mossberg HQ, she reviewed Clicker, a Web site aiming to be the place to find any TV program you might want to watch. The service will point you to wherever a particular episode may live in electronically viewable format and does so without cluttering results with the Web’s video jetsam. She praised the service on the whole, but warned that it’s not a magic bullet. If you are directed to a site that features a pesky proprietary media player, you will still have to make the download. She said that the user account on the site will even let you use it like an online TiVo (TIVO), alerting you when shows have posted and building you a playlist.

Please take care while nursing your Post Retail Stress Disorder this weekend, and take solace that while you may never fully use that knee again, you did get your four-dollar toaster. Tune in next week: Weekend Update will bring you the all-meat, no filler account of the week’s events at AllThingsD.

On information and belief, PSYSTAR alleges that APPLE intentionally embeds code in the Mac OS that causes the Mac OS to malfunction on any computer hardware system that is not an Apple-Labeled Computer Hardware System. Upon recognizing that a computer hardware system is not an Apple-Labeled Computer Hardware System, the Mac OS will not operate properly, if at all, and will go into what is colloquially known as ‘kernel panic.’

PSYSTAR is informed and believes, and thereon alleges, that APPLE is engaged in anticompetitive conduct that prevents the proper operation of the Mac OS on any computer hardware system that is not an Apple-Labeled Computer Hardware System–a Mac OS Capable Computer Hardware System–thereby forcing customers of the Mac OS to purchase–and only purchase–an Apple-Labeled Computer Hardware System if they wish to have the Mac OS operate sans kernel panic or an infinite loop.”

That’s an intriguing allegation. Risky though, since it’s also an admission that Psystar has circumvented the technological copyright-protection measures built into OS X, just as Apple claims in its amended complaint against the company. Apple contends Psystar has done so illegally, in violation of The Digital Millennium Copyright Act. Psystar says that’s impossible because the kernel panic-forcing code at issue here isn’t a copyright-protection measure.

Who’s right? Who knows? But if it’s Apple, then Psystar presumably is guilty of circumventing Apple’s copyright protection systems under the DMCA. And that’s a felony, because Psystar profited from the circumvention.

Sued by Apple in August for violating the terms of its shrink-wrap license, trademark and copyright on OS X, Psystar replied in kind with a countersuit charging Cupertino with restraint of trade, unfair competition, and other violations of antitrust law. Apple, Psystar argued, engages in all manner of anticompetitive conduct to “protect its valuable monopoly in the Mac OS market.”

But according to the California judge presiding over the case, Apple’s products don’t constitute a market to dominate. And that being the case, Apple (AAPL) can’t be considered a monopolist.

“The counterclaim explains that Mac OS performs the same functions as other operating systems,” Judge William Alsup wrote in his order dismissing the suit. “The counterclaim admits that market studies indicate that, although Apple computers with Mac OS enjoy strong brand recognition and loyalty, they are not wholly lacking in competition. Psystar also points to Apple’s extensive advertising campaigns. Those advertising campaigns more plausibly support an inference contrary to that asserted in the counterclaim–vigorous advertising is a sign of competition, not a lack thereof. If Mac OS simply had no reasonable substitute, Apple’s vigorous advertising would be wasted money. The advertising campaigns suggest a need to enhance brand recognition and lure consumers from a competitor…. Apple asks its customers to purchase Mac OS knowing that it is to be used only with Apple computers. It is certainly entitled to do so.”

Softbank (SFTBF), Japan’s No. 3 wireless provider, broke the news in a spartan press release that would do even Apple (AAPL), a company renowned for its minimalist gadgets, proud. If ever there was a one-button press release, this is it:

SOFTBANK MOBILE Corp. today announced it has signed an agreement with Apple® to bring the iPhone™ to Japan later this year.”

Well, there you go. Presumably, Jobs will fill us in on the details on Monday. In any event, lining up a wireless partner in Japan is an important step for Apple, which hopes to gain a 1% share of the global cellphone business by the end of 2008. Nomura Research Institute estimates that Apple can sell 2 million to 3 million iPhones annually in Japan–-about 5% of the market–if it plays its cards right.

Also announced this morning, a deal with Telefonica (TEM), which has agreed to distribute the iPhone in Spain through its Movistar subsidiary. Together the two deals bring the iPhone distributor count up to an even 70, with more countries presumably waiting in the wings.

(Image credit: AAPLinvestors)

Sounds like a compelling proposition for folks who would like the Mac OS on cheap hardware. Too bad the Mac OS X EULA specifically forbids installing the OS on non-Apple computers. Apple (AAPL) legal is, no doubt, already half-finished with a cease-and-desist letter.

Sounds like a compelling proposition for folks who would like the Mac OS on cheap hardware. Too bad the Mac OS X EULA specifically forbids installing the OS on non-Apple computers. Apple (AAPL) legal is, no doubt, already half-finished with a cease-and-desist letter.

Silver and MacDonald argued that the operating system’s evolution is hamstrung by a vast and unwieldy code base that hampers meaningful change. “This is a large part of the reason Windows Vista delivered primarily incremental improvements,” they said. “Most users do not understand the benefits of Windows Vista or do not see Vista as being better enough than Windows XP to make incurring the cost and pain of migration worthwhile.”

Ob-vious-ly. And?

“Windows as we know it must be replaced,” said the two.

OK. But replaced with what?

It should be replaced with a smaller OS, the two analysts said. A thinner, more robust, more modular OS. One that makes application development, support and, above all, the user experience easier, more pleasant. An elegant OS that encourages users to upgrade, rather than desperately cling to older versions.

You mean an OS like … like Mac OS X (AAPL)? Isn’t Microsoft already working on something like that?

Silver and MacDonald argued that the operating system’s evolution is hamstrung by a vast and unwieldy code base that hampers meaningful change. “This is a large part of the reason Windows Vista delivered primarily incremental improvements,” they said. “Most users do not understand the benefits of Windows Vista or do not see Vista as being better enough than Windows XP to make incurring the cost and pain of migration worthwhile.”

Ob-vious-ly. And?

“Windows as we know it must be replaced,” said the two.

OK. But replaced with what?

It should be replaced with a smaller OS, the two analysts said. A thinner, more robust, more modular OS. One that makes application development, support and, above all, the user experience easier, more pleasant. An elegant OS that encourages users to upgrade, rather than desperately cling to older versions.

You mean an OS like … like Mac OS X (AAPL)? Isn’t Microsoft already working on something like that?

Among the 25 issues repaired in Leopard 10.5.1: a major one that resulted in a “potential data loss issue when moving files across partitions in the Finder” as well as other problems with Time Machine, Firewall, Back to My Mac, Airport and Mail.

The release of OS X 10.5.1 follows hot on the heels of OS X 10.4.11, Apple’s 11th and likely final update to Leopard’s predecessor, Tiger, which patched 41 vulnerabilities in the OS.