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Live: iPhone OS 4.0 preview at Apple headquarters

And we begin. Steve Jobs is on stage.

He’s giving a few updates.

First, iPad. He’s showing his favorite reviews, from Mossberg at the Wall Street Journal, and Baig at USA Today. Today, Apple has sold about 450,000 iPads. He says Best Buy is out of stock, Apple stores selling them as fast as they can get them in.

Users downloaded 250,000 iBooks titles the first day, now more than 600,000 to date. Users have downloaded more than 3.5 million iPad apps.

He says people are loving the product – shows a photo of a little girl hugging one in an Apple store.

Now on to the App Store. More than 3,500 iPad apps in the store. He’s showing a bunch of apps now, including Major League Baseball, various games, Etrade and IMDB. He’s showing a bunch of news apps now, including Time magazine, our sister pub, and the New York Times and Popular Science. Jobs gives special attention to Netflix.

There are now more than 185,000 apps in the app store.

Now he’s talking about how Apple has won the JD Power award for smartphones the last three years. Now he’s calling out Net Applications’ numbers on browser use, pointing out that the iPhone has 64% of the mobile browsing market as far as use. Apple has sold 50 million iPhones and 85 million iPhones and iPod touches.

On to OS 4. Developer preview comes out today, official version ships in summer. 1,500 new APIs. Developers will have access to calendar, in-app SMS, full map overlays, full access to still and video camera, and more.

There are more than 100 new user features, including creating playlists, tap to focus on video, gift apps, spell check, Bluetooth keyboards, file & delete mail search, places in photos, 5x digital zoom and home screen wallpaper.

Apple is going to focus on seven “tentpole” features today.

The first is multitasking. (Finally!)

We weren’t the first to this party, but we’re going to be the best, Jobs says – similar to cut and paste. It’s really easy to do multitasking in a way that drains battery life. It’s also easy to do it in a way that sucks the performance from your foreground app. Apple has figured out how to do it and avoid those things. That’s what took us a little longer, he says, but I think we nailed it.

All right, a demo.

He’s launching mail, looking at a message. Touches a link in the message and goes to the browser. Now he wants to get back to mail. He double-clicks the home button, and the window rises and shows the apps that are running.

He goes to eBay, checks his auction. Now he goes to play Tap Tap Revenge. Back to the website and mail, then goes back to the game. It always takes him back to where he was in any app. (Lots of applause here.) So that is our multitasking UI, he says; and it’s really wonderful. (Still a lot of questions about exactly how this works.)

Steve Jobs sounds better than he has in a long time, by the way.

Scott Forstall is coming out to give us some more detail on Apple’s multitasking implementation. He explains that Apple is providing seven multitasking services.

First, background audio. He’s talking about Pandora as the most popular music streaming app. Until now, if you closed the app to do something else, the music stopped. No longer. Pandora founder Tim Westergren is coming up to talk about it.

Tim says the iPhone has singlehandedly changed the direction of Pandora, making it mobile and so much more useful. “It (the iPhone) was this completely transformative moment for us. … Our growth rate doubled overnight.” He says it took his developers one day to make Pandora’s iPhone app background aware. He’s demoing it, showing that he can skip songs from the lock screen outside the app, just like you can with the iPod app. He can also go to buy a song that’s playing from iTunes, even as the song is playing. (As a Pandora iPhone user, I can tell you this is great. Android and Palm have had this for a while.)

Next, Skype. You can stay in a call and use other apps. Even if you’re not running Skype in the foreground, you can receive Skype calls. David Ponsford from Skype is up to demo. He says Skype has more than half a billion users. (This is a very important feature that will appeal to a lot of business customers.) Even in another app, if someone calls a notification pops up and you can pop over to Skype to answer. While he’s on the call, he goes to OpenTable to pick a spot to eat. (I wonder what happens if another call from the main phone app comes in at the same time? He doesn’t say.)

On to background location. (This is really important for turn-by-turn direction apps and check-in apps like Loopt, Foursquare and Gowalla.) Forstall demos a GPS system working while music is playing in the background. Apple came up with a cell tower solution that allows these apps to work without having GPS on all the time – because GPS is a major power drain. Apple came up with a way to wake up location apps and tell them your location as soon as you move. Apple is adding an icon indicator to the top menu bar that shows if any app is tracking your location, and a location services menu that lets the user control what apps can access location, and let you know if any app has tried to locate you.

Background notifications are next. Apple has pushed more than 10 billion push notifications in less than a year since the feature came out. Now Apple is adding a new feature called “local notifications” that doesn’t require a link through Apple’s servers. For example, a TV app can notify you when a show is about to start.

Next, task completion: Basically, programs can finish uploading something even after you close it.

Fast app switching: Quickly move between apps without having to relaunch them.

Now he’s wrapping up the multitasking talk.

Steve Jobs is back.

He’s going to talk about folders. It’s a better way to organize apps.

He’s going to make a folder with games in it. He pushes his finger on an app icon, drags one icon on top of another and it instantly makes a folder. It automatically names the folder based on the category they came from in the app store. You can then rename it if you like. (This is very cool, very useful, and unlike anything Apple’s competitors have implemented in their OSes.) You can even put folders in the dock.

As an aside, he’s demoing how you can change the iPhone’s wallpaper. You can set the home screen or lock screen, or both to display the wallpaper. (Others have had this feature for a while.) “An incredibly great drag-and-drop UI,” he says. Yep.

Now Jobs is on to Mail.

First he’s going to talk about unified inbox. You can have multiple accounts all feeding into one inbox, and you can now use multiple exchange accounts. You can also switch quickly between inboxes if you want to keep them separate. There’s mail threading now, too. (This is important. Gmail has made this a must-have feature.) You can now choose to open inbox attachments using a third-party app. (Again, Steve Jobs has a lot of his old stamina back. He’s doing longer stretches of the presentation than he has recently.)

Now Apple is adding iBooks to the iPhone. It looks much like it does on the iPad. He’s showing the Winnie the Pooh book. (Looks good. This is trouble for Amazon.) You can buy a book once and read it on any of your devices. Current page and bookmarks will wirelessly sync. As with the iPad, Winnie the Pooh will come free with the iBooks iPhone app.

Scott Forstall is back to talk about enterprise features. There’s better encryption in email, and making APIs available to allow app developers to encrypt data in apps. Apple is also improving mobile device management. Now enterprises can easily manage iPhones like they do BlackBerrys and Windows Mobile phones.

There will also be wireless app distribution, allowing companies to wirelessly push apps to devices. Also multiple exchange accounts now supported, VPN and more.

Now on to Game Center. He’s showing Apple has more than 10x more games than PSP and Nintendo. This will allow you to find people to play games with, and compare your progress on leaderboards. It will be available “later this year,” he says. This is huge.

Steve Jobs is back. The final big feature is iAd. Mobile advertising built in to OS 4. He’s explaining what this is. “We think most of this mobile advertising really sucks,” he says, “and we thought we could make some contributions.” He says that on a mobile device “search is not where it’s at. … They’re spending all their time in apps.” (Google just got slapped.)

The average iPhone user spends 30 minutes a day using apps. An ad every three minutes would be 10 ads per device per day. Apple will soon have 100 million devices, which roughs out to 1 billion ad impressions per day, he says. “We want to change the quality of the advertising.”

The ads on the web today are not capable of delivering emotion, Jobs says, which is why most ad dollars still flow to TV. Apple wants to be more interactive than TV ads, but deliver just as much emotion. He also wants to bring ads that keep you in the app. The result is that people don’t click on ads, because they don’t want to be yanked out of apps. “We have figured out how to do interactive and video content without ever taking you out of your app,” he says, which will make people more willing to look at ads.

“Apple is going to sell and host the ads,” he says, “and give developers an industry standard 60% of the revenue.” (Now it’s all-out war with Google … and Microsoft for that matter. I wouldn’t be surprised if competitors try to raise legal concerns here.) He’s demoing a Toy Story ad Apple built in HTML5. You can navigate within the ad as if it were a standalone app, even put video in there. There’s even a game in the ad. And the ad includes free wallpaper and a map that shows nearby theaters where the movie is playing. There’s also a game that you can buy from within the ad. “Have you ever seen an ad like this?” Jobs asks. He pauses. “Anything even close?” (Nice to see him this comfortable on stage again. He’s cracking wise and everything.)

Now he’s showing a Nike ad that Apple built. You can look at the history of various shoes, design your own shoe, find stores that carry them, view video. Now showing a Target ad that does a lot of the same stuff – design your own dorm room, buy the stuff. “It’s that simple. And again, I can return to my app anytime I want. … We think this is going to be pretty exciting.”

(The 60/40 revenue split here in iAd is really interesting. Apple stands to make a LOT of money here, and a lot of enemies.)

OS 4 ships this summer for 3GS and iPod touch 3rd generation – those will be able to do everything. 3G and iPod touch 2G won’t do multitasking. “The hardware just won’t support it,” he says.

Now we’re going to have a short break for non-press to leave, and Jobs and other execs will do a Q&A.

The Q&A has begun.

Someone asks whether multitasking will hurt AT&T’s network because of more apps running at once. Jobs says he doesn’t think it will have much effect. “I’m not so sure it’s going to increase data usage at all. We’ll see.”

Next, wireless app distribution. Does it open an avenue to distribute apps other than through an app store? No. The wireless distribution program is open only to enterprises that are pushing to their own phones.

On iPad: Will the popularity in the U.S. negatively impact the European launch? No, Jobs says. Still on track for late April.

Will Apple’s social gaming network supplant third-party social gaming networks? There’s no money or competitive advantage to be gained from having your own network, Jobs says. What about those who have already built up networks? Some of those are the ones who asked us to build this, Jobs says. (The model is similar to Xbox Live.)

Will iAds have an approval process much like the app store has? “I’m sure there are some ads we’d rather not run,” Jobs says. “I’m not sure it’s going to be anything other than a light touch.” iPhone OS will be on the iPad this fall as well.

Any change in Apple’s policy on not including Flash? No.

Will there be special developer tools for iAds? No. Ad agencies are excited about it, he says. He says Apple’s agencies are excited about adding technical people to create these ads. “I think this could be a whole new avenue for the advertising industry.”

A question about real-time updates and Twitter: will they work better? I think the answer comes down to yes, it will be better, but not perfect.

A question about widgets. Why don’t the iPhone and iPad have them. “We just shipped it on Saturday,” Jobs says. “And we rested on Sunday,” he adds with a smirk. (Hmm. Given that Sunday was Easter, that was an interesting turn of phrase.)

Question about the ad opportunity. This summer, Apple will ship its 100 millionth unit into the iPhone/iPod touch ecosystem. Average app use is 10 minutes a day, which is where he gets the 1 billion impressions. (The flaw I see in this number is that it assumes all 100 million units are in use every day, which they’re not – and that those apps have the user’s visual attention at all times, which they don’t – Pandora is a great example.)

We do not have any plans to become a world-wide ad agency. We don’t know much about this advertising stuff. “We tried to buy a company called AdMob, and Google came in and snatched them from us because they didn’t want us to have them,” Jobs says. So Apple bought Quattro instead. (Wow. Amazing that he acknowledged this.)

How did Apple decide whether to make OS 4 available to legacy devices? (It won’t work on 1st-Gen iPhones, multitasking on the 3G.) There wasn’t a real decision to make, Jobs says, because certain things just wouldn’t work on older devices. But all apps continue to run on everything.

A question on distracted driving. Should Apple do more to deal with it? Jobs says Apple has done more than most to connect iPods and iPhones to cars.

Will iAds move the revenue needle for Apple? This is not a get-rich-quick scheme for Apple, Jobs says. We’re giving the majority of revenue to developers. (That doesn’t really answer the question.)

On app control: Why not give others more control. “There’s a porn store for Android,” Jobs says. “You can download them, your kids can download them, your kids’ friends can download them. That’s not a place we want to go.” (Another knock on Google. Interesting.)

Did anything surprise Jobs about the iPad’s reception? “We think when people look back some years from now, they will see this as a major event in the history of personal computational devices.” He says with a product launch you always have butterflies in your stomach, but “People are getting it very quickly.” The feedback is off the charts.

Jobs: “If our competitors ever release a competitive product to the iPad, they will be hoping they can get 3,500 apps in the first year. We have 3,500 apps after the first few days.”

Is anything going to be done to improve discoverability in the App store? Jobs says Apple can constantly incrementally improve it, since it’s programmed on the server side. He says Apple is constantly interested in making it better. He says different sites and publications are featuring apps of the week and other ways to find stuff in there. Forstall adds that Game Center will also add to discoverability because you can see what your friends are playing, or invite friends to play a game they don’t already own.

Questions on multitasking and iAd: Users don’t have to close apps. On iAd: App developers can pick another ad network, too. “On multitasking: If you see a task manager, they blew it. Users shouldn’t have to ever think about that stuff.”

And that’s the end.