Tim Cook Speaks on Apple, iPhone, Apple TV

Apple's Chief Operating Officer, Tim Cook, spoke at a Goldman Sachs Technology Investment Symposium today. The audio portion is available in Quicktime from Apple.com.

Cook fields questions about Apple, iPhone and more.

Today the cell phone industry, a lot of people pay $0 for the cell phone. Guess why? That's what its worth! If we offer something that has tremendous value that is sort of this thing that people didn't have in their consciousness, it was not imaginable... I think there are a bunch of people that will pay $499 or $599 and our target is clearly to hit 10 million and I would guess some of those people are paying $0 because its worth $0 and willing to pay a bit more because its worth more.

Regarding the Apple TV and why it doesn't have DVR functionality:

It's not what it is. Our view is it's the DVD player of the 21st century, and so, we're not trying to be a DVR, be a set top box. We're all about taking the content already on your Mac or PC and watch it on your TV.

A transcript of relevant portions follows:

Q: How do you keep innovating at a fast enough pace?

A: I've been with Apple now since early 1998, and after every major product that we announce, we get this question. Can you keep it up? Will in end? Now if you think about the stretch of products that have been over this period of time. We started with the iMac. Think about how the iMac has evolved. Think about the iPod and the iPod mini. Many people asked the question after the iPod mini, and wham, the iPod nano comes in. Think about OS X and each of the major revisions of the operating system, and so what I would say is our corporate culture is a very simple culture. We hire people who want to make the best products in the world and provide an atmosphere to challenge each other to make the best products. And that's deeply embedded in the DNA of the company. .... I can tell you this is why people come to work at Apple.

Q: Some of Apple's most senior executives have been at Apple for sometime. And some have been leaving or considering leaving. While you have legions of creative people at the company, they have not been tested in the same way that some of the more experienced people have been. Can you talk about how you can keep it going... keep the trend going.

A: Apple is an amazing company, and I didn't fully understand until I got there, how amazing it was. And the feeling of not getting weighed down by bureaucracy, and politics and all the ancillary things that any businesses are. So this atmosphere is a very very unique kind of atmosphere and frankly, we don't have an issue attracting people to work there, and we have so many things going on and innovation is so deeply embedded in this place. While you may see 5-6 or 10 people being most visible, the company is full of off-the-charts smart people. We've had some executive departures, but as a grown-up company does, we planned good succession, and I think you can see from our results, the products have kept coming.

Q: The iPhone. Almost from the second Steve stepped off the stage, the press, and others, basically have come up with reasons why Apple can't succeed in the phone market. Could you talk about why you think Apple will be successful.

A: The iPhone is revolutionary project. Steve mentioned this at Macworld, Revolutionary products only come along so often. And Apple has the Macintosh in 1984 -- reinvented the personal computer industry. The iPod in 2001 which reinvented the whole music industry. And we think the iPhone is that class of product, in the cell phone industry. Step back and look at the [iPhone] and think of what it is. A very small, thin, lightweight device. A revolutionary cellphone. It has visual voicemail. It's the best iPod Apple's ever done and it's a really cool internet device that has desktop class email/browsing/maps and searching. All in one product. And so, I think people are going to be amazed and delighted of it, and we'll have to see. Obviously there are people that would prefer us not to be successful in this. I think this is a revolutionary product, we'll see what the customers think - that's most important.

Q: 10 million units is the goal. 1% of overall market. Given the functionality and price point, How do you look at the available market for the 1st generation of iPhone.

A: The traditional way that all of us were taught in business school to look at a market was you look at the products you are selling, you look at the price bands that are in the market, you think of the price band that you product is in and assume you can get a percentage of it, and that's how you get this addressable market. That kind of analysis doesn't make really great products. The iPod would not have been brought to market if we had looked it that way. How many $399 music players were being sold at that time? Today the cell phone industry, a lot of people pay $0 for the cell phone. Guess why? That's what its worth! If we offer something that has tremendous value that is sort of this thing that people didn't have in their consciousness, it was not imaginable... I think there are a bunch of people that will pay $499 or $599 and our target is clearly to hit 10 million and I would guess some of those people are paying $0 because its worth $0 and willing to pay a bit more because its worth more.

Q: Why no 3g?

A: Our thinking was first and foremost that we wanted GSM. Because GSM is a world standard and that was one of the factors in selecting Cingular. Second, the product has wifi capabilities, so many people -- like in this room, I'm sure there's wifi in this room, and there are hotspots everwhere -- they're going to use wifi. And in between these spots we're going to use EGDE which is 2.5G because its widely deployed and we're confident it will give the user a great experience.

Q: Do you expect iPhone to cannabilize iPod? If so, when?

A: It's too early to tell, but I would make this point - we've sold 90 million iPods, it still amazes me saying it. These are being sold for a wide variety of usages. There's a wide variety of form factors, wide variety of capacities and wide variety of price points. So there's a lot of people that desire the iPod. We'll see what happens.

Q: Plus/minuses using one exclusive carrier?

A: Our thinking of selecting Cingular was 1) we looked at the carriers in the U.S. and felt that Cingular was the highest quality and that was very important to us from a customer experience point of view. 2) they are the most popular - they have 61 million subscribers. 3) Our goal was to use GSM, which is what their network is based on. 4) The CEO of Cingular made this point during the keynote. The deal we struck allows Apple to do what they are good at and allows Cingular to do what they are good at. And so its really a very great partnership.

Q: When the iPhone comes to the market, will there really be a need for all 3 iPod families? And is there room for innovation on the iPod side?

A: We sold a lot of every family and people buy them for different purposes, so we'll see what people do in the future. But, every one of these lines is popular. In terms of innovation, it goes back to the earlier question. I can't stress this enough, the thing separates Apple from others is that we have this very simple culture. Our company revolves around product and we focus on making the very best. And some of you only see the ones that stick out, however, think about some of the more detailed things that were done. We had this MagSafe adapter. [explanation of MagSafe]. I only say this to say that this concept of innovation is deeply embedded. It's not just a layer of the organization. It is the organization. So is there innovation left on iPod? We don't predict, but we've been asked that question after the 1st iPod, 2nd iPod and on and on, and you can look at our track record.

Q: The number of songs sold on the iTunes is growing as are iPod sales, but our numbers per active iPod are flattening out a a bit. Besides how many total sales, what do you use as a measure the success of the iTunes store.

A: To do the kind of calculation you are trying to get, you have to make a lot of assumptions. How many people have multiple iPods, how many iPod accounts or what percentage have an account. How many of the last quarter were active in the last quarter. And so, I don't even know the answer to some of those. This is what I know. In 2005, we had over 600 million downloads. In 2006, we had 1.2 billion - so roughly double year-over-year. And about a year ago we were around the 3 million songs/day. Now we're at 5 million. Any way you look at it, it's a remarkable success.

Q: You just added Paramount and Liongate, but it seems the update from the studios have been a bit slower. Can you talk about the dynamics of that? And steps to increase the number of movies available?

A: When we announced the iTunes music store we initially had 200,000 songs in the library. Today we have over 4 million. For TV shows, we had 5. Today we have 350. We downloaded over 2 billion songs. We've downloaded over 15 million TV shows. Movies we started 75. Today we have over 400 and we are already above the 1.3 million mark. You know, the thing takes time. We're confident we'll have more studios sign up.

Q: Steve has been vocal about the Digital Rights Management. If the music was to move over to MP3, would that lower the value of your installed base and how would you react to that?

A: We would welcome it. Because we believe its the best thing for the consumers. And it refocuses the issue on what it should be focused on. And frankly, the DRM really hasn't worked. There's not a DRM system for CD which is the preponderance of the music that's on the iPod. And so, we would applaud it. Why? We're confident with our ability to innovate.

Q: There are constantly comments about the DRM. That Apple favors closed systems to force other people out and create barriers to entry. How do you respond?

A: Apple takes responsibility for the customer experience. This is why we can innovate in hardware and add easy to use software and these two things can work seemlessly together to provide the user with an awesome experience. In consumer devices, that's sometimes [ ??? ] -- that we''re control the user experience. Having said that, I think we partner with people very very well. We've partnered with Cingular in the iPhone space. We've partnered with Intel in the Macintosh space. In the iPod space, we have 3000 products in the iPod ecosystem. In the Mac space we have 12,000 applications written by 3rd party developers. We find ways to leverage others when its good for the customer and when we feel we have to own the whole experience in order to provide the customer an experience that's good for them, we do that as well.

Q: Can you talk about your philosophy regarding Mac pricing vs market share? Could you be more aggressive in pricing to take marketshare?

A: We believe in giving people great value. Many companies put a computer out and its not what the customer really wants, so they have to add this and that (wireless, video camera). The customer winds up having to jump through many hoops before they finally get something that they think they want and it, unfortunately, doesn't really work that well, then. We don't do that. We focus on what the customer wants and provide all that. That's why, as an example, our peripheral sales on the Mac are not relating to units right now. We realized that people really want a video camera built into the system. So in every Mac that we ship other than the Mac Pro, there's a camera built in, because that's what the customer wanted. That takes down our peripheral revenue, but we give the customer what they want. We're only shipping portables with the Core 2 duo. Many companies take a different path on that. We did that. It's very simple and a very key message to the customer. I think if you compare these things. You can never compare a Mac to a PC, but if you try, you'll find the Mac is very competitive. In addition it has things you can't get anywhere else. (iLife, Mac OS, and many others). I think we've made the right tradeoff to date and you can see that in growing a multiple of the market (3x, 4x).

Q: Why no DVR functionality in the Apple TV?

A: It's not what it is. Our view is it's the DVD player of the 21st century, and so, we're not trying to be a DVR, be a set top box. We're all about taking the content already on your Mac or PC and watch it on your TV.

Related Roundup: Apple TV
Buyer's Guide: Apple TV (Buy Now)

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