For this week’s cover story on Apple (AAPL) and its future, I spent some time with Tim Cook, who said far more than was ever going to make it into the story. Or even the outtakes from the story. So for even more Tim Cook, here’s the transcript of the entire interview, edited only for clarity.
To set the scene: We met late on a Thursday morning, two days after Cook stood onstage at Apple’s Town Hall auditorium in Cupertino, Calif. We sat in a not-huge conference room adjacent to Cook’s office. Cook entered, wearing a navy polo shirt and dark trousers.
Here’s something about Cook that may tell you something: Some executives, when you go to interview them, kind of walk into the room, say “Hi,” and look to you to get things going. Not Cook. He strides in with a warm smile and firm handshake and immediately starts asking questions: What did you think of Tuesday’s event? Tell me what you think about the new phones—have you had a chance to use them?
That’s why this interview starts somewhat abruptly: We had already been kibitzing a bit before we actually “began” the interview. Anyway, enough of my ramblings. Here’s the conversation:
You’ve said that iOS 7 is not change for change’s sake. Tell me more about that.
Some people see innovation as change, but we have never really seen it like that. It’s making things better. iOS 7 is a great example of that. It’s significantly better than 6 or any of those that came before it, and obviously significantly better than the other OS out there.
Brand X. What do these new products represent for Apple at this point? What do they say about the company?
We’re a product company, and so the products show the values of a company. They speak to innovation. They speak to caring about every detail. They’re a reminder of how incredibly important experience is, so when you begin to use 7 or you begin to use the fingerprint sensor here … every detail has been thought through. The experience is an “Aha” moment.
You know, the first time that you buy something with your finger, it’s pretty profound. It’s one thing to use it as security. This is really cool, and a lot of people will love it, because they open their phone multiple times a day. But the buying is even a more startling experience, in a way.
I think these products scream Apple. You’ve got really forward-looking technology [in the iPhone 5S]. You have color [with the iPhone 5C], and when you feel it, it’s not just that it’s color. When you hold this, it’s just perfect in your hand. It feels like it was made for your hand. It wasn’t an afterthought, and every detail has been thought through, from the buttons to the way that the plastic is to the edge here (shows off the plastic-enclosure’s edge). In other phones, you would see the plastic coming up here.
And somebody thought through the wallpaper. Wouldn’t it be great if it was like you were putting on your shirt and your pants, and they actually matched or made some sense with each other? You know? Technology companies don’t think of those things, or, usual technology companies don’t think of those things. Nobody worries about buttons and finishes. Nobody really worries about the experience, and we do. We’re really proud that we do.
Why not just sell the old iPhone 5, as you’ve done in the past? Why create a new phone with the 5C?
The business became huge. The market became huge. The customers’ desires grew. You know, people want different things. We wanted to make the phone more accessible. For us it’s all about products, and so we don’t look at things and say, “I will never sell a phone below that.” We don’t look at it like that. We say, “Let’s think about a great product that we’re doing.” If that great product can be sold for less, then we sell it for less.
You can look at iPod in this way and see it started out with a product at that time we were calling iPod. It later became called the Classic, right? But we began to fill this out. It wasn’t a price-point-driven thing. It wasn’t, “We need to come up with something for $99. Let’s figure out how to do that.” It was about a great product and a great experience. And [one iPod model] might be different than the other one, because it might serve a different customer. It might serve a different desire. It might provide a different experience, but it’s still a great product at heart.
We were able to do that over time, and the result—not the objective, but the result—was that we span price points from $49 to $400. With iPhone, we just entered the business in 2007—not that long ago. It became clear to us that we could come up with a great product that appealed to a different consumer and had the benefit of costing less, so we could make it more accessible, and therefore grow the number of people that we could serve. That’s the reason.
I know there is a lot of focus on “Is the price low enough?” I think a couple of things about that: One, it’s a really great product, and that’s the most important thing to us. The next is we’ve had amazing success with iPhone 4, amazing success, in a lot of the markets that people are focused on, but also in a lot of markets that might surprise people that we’re having success with iPhone 4. IPhone 4 is still a great product.
Well, we’re not selling iPhone 4, but we’re now selling the iPhone 4S, and the 4S is free in many places. In the subsidized markets, it’s an even more attractive price than the 5C. And so now the great thing is we’ve grown our capability to do two phones, and when you’ve done one before, that’s a big change. And the side effect of that is we now have three different form factors that we’re selling: the 4S, the 5C, and the 5S, and there are a lot of people that we can serve and that can have an iPhone experience.
All three of those are fantastic experiences. You know, they’re all different—but they’re all fantastic. So they’re all experiences that we’re really proud of, and we’re proud to have our logo on the back. So that’s the reason.
We never had an objective to sell a low-cost phone. Our primary objective is to sell a great phone and provide a great experience, and we figured out a way to do it at a lower cost. Therefore, we can pass that on. And we figured out a way to sell 4S at substantially less than we were selling it for before, and we’re passing it on. So we think there will be a lot more people in our tent, and we can really serve a lot more people. And that feels good.
What’s your take on the the state of the mobile market today, as it compares to even a year ago?
For smartphones, I think it’s even more a two-operating-system world today than it was before. Maybe that changes. Maybe it doesn’t, but that is the state of things today. I think that Android is more fragmented than ever and, as a result, when you look at things like customer satisfaction and usage, you see the gap between Android and iOS being huge.
There is a huge difference between market share of units and usage share. And it shouldn’t surprise anybody that it’s like that. Anybody that’s used both should not be surprised that that is the natural result. And that’s really important to us because we have never been about selling the most. We’re about selling the best and having the best experience and having the happiest customers.
Happy generally means using more. You know, you find something you like. You do it more. And so I think that has become even more the case over the last year.
I think that, you know, the market has grown even more. It’s even clearer—if it was not clear to everybody—that everybody in the world is going to have a smartphone. There are a lot of people that maybe worry that the market is so big now it can’t get any bigger, but it’s going to get a lot bigger. So there is a lot of runway in this market.
The tablet market in some ways is the smartphone market, just with a lot more players in it. The way I think about the tablet market is that everyone that’s making a PC feels like they must make a tablet, because they’re doing it from a defensive point of view. Everyone that’s making a smartphone sees it as an incremental kind of thing, so they want to make one.
Then you’ve got something akin to sort of the white-box-PC kind of builder that has entered, and so the number of people making tablets has exploded in the last year. That doesn’t mean there is a lot of great stuff out there by any means, but in terms of the number of people playing, it’s materially larger than it was.
But the results are much like a smartphone in some ways, in that usage is very skewed. It’s even more skewed, frankly, on iPad vs. everyone else. Customer satisfaction is as skewed as it is, and so you have that kind of variable to the smartphone. I think the fragmentation is at least as much, if not more, on a tablet.
I think if I bought [an Android tablet] and used it, and I thought that was a tablet experience, I’m not sure I would ever buy another tablet. The responsiveness isn’t there. The basic touch is really off. The app experience is a stretched-out smartphone kind of experience. It’s not an optimized experience. However, that said, I have always said that the tablet market was going to surpass the PC market. I was saying that well before it was viewed to be sane to say that. It’s clear that we’re 24 months away from that.
So that probably has accelerated even more than I would have thought over the last year. And so to do well in the PC market, you have even more differentiation. There has to be a different reason for buying a PC.
Of course, we think about that a lot with the Mac and believe that we’re doing that with the Mac. But if you’re a PC player, it’s not a great world to be in right now.
Has Android’s rise in market share surprised you in the time that it’s happened?
I don’t think of Android as one thing. Most people do. I mean, from a consumer point of view, if you look at what Amazon (AMZN) does with Android, forget the name Android for a minute. If you’re coming down from a different planet and you were going to name it, you wouldn’t name it the same thing as what another company does. If you compared that to what Samsung (005930:KS) does, I’m not sure you would name that the same thing either.
I think that the importance of that is overplayed. The truth is that there are more people using iOS 6 than there is any version of Android. And in days from now, iOS 7 will be the most popular mobile operating system. And so what does it really mean at the end of the day to show these share numbers and combine all of these disparate things as if they’re one thing? I’m not so sure it has a great meaning to it at the end of the day.
So your question, does it surprise me? I don’t look at it in the same way as you might. I think the way a consumer looks at this is different. Does a consumer that’s buying a Kindle think about it being an Android? Probably not. And so I think that’s a bit different than where Microsoft (MSFT) and Windows was.
I do think it’s different. I think Microsoft kept things the same, and the level of fragmentation wasn’t as much. Yes, they had issues with upgrades. You know, we really beat them in upgrades in OS X a lot. But there weren’t so many derivative works out there with Windows. So I think it is a bit different.
Also, does it matter? Does a unit of market share matter if it’s not being used? For us, it matters that people use our products. We really want to enrich people’s lives, and you can’t enrich somebody’s life if the product is in the drawer. You know?
And so I find the usage compelling, or lack thereof in different products’ case. It’s not that I don’t care about market share. I don’t want to give you that impression. It’s not that simple, is my message. Some people just like to say, “It’s X vs. Y,” but X and Y aren’t equivalent if we’re intellectually honest. The way these things, the market share, a unit here, is it equal to a unit here, no matter how you measure it?
What’s your take on Android’s many versions? The “fragmentation” issue.
It’s a growing problem.
From a functional level?
Yes. And it’s just not growing in the—it’s not like a baby that becomes an infant. It’s not like that. It’s an exponential. It’s a compounding problem. And think about all these people that they’re leaving behind from a customer point of view. People do hold on. Most people hold on to their phones a couple of years. They enter a contract and honor that contract and then upgrade after that two-year period. So in essence, by the time they buy the phone, many of these operating systems are old. They’re not the latest ones by the time people buy. And so by the time they exit, they’re using an operating system that’s three or four years old. That would be like me right now having in my pocket iOS 3. I can’t imagine it.
It’s not because it was bad. It’s just because the world has changed and there is so much more. And so anyway, I think it is a growing issue. It will show up in developers. It will show up for people that no longer have access to certain apps. It will show up in security issues, because if you’re not moving your customer base to the latest version, then you have to go back and plug holes in all of this old stuff, and people don’t really do that to a great degree. So they are more susceptible to issues.
It just shows up in—I mean, name it. And that issue grows, and because the population is growing, it becomes bigger and bigger and bigger. So we’ll see.
I’m not really thinking about it very much, though. I’m thinking about this and opportunity for us and, you know, the time in front of us. Things that these products and the next ones and the other things we’re working on, and other things that we can do for customers.
Let me ask you about something else: In the past year, the company’s stock went through a pretty amazing period.
Reaching record highs and then coming back down from there. What was that like?
I have never attached myself to the stock, and so I don’t feel euphoric on the up, and I don’t slit my wrists when it goes down. I have ridden the roller coaster too many times for that.
I have been through a lot larger swings than what we’ve been through. So one way to look at this is—I only know this because an investor sent me a note on this just today actually: In ’11, assuming he’s right—I should check these numbers, but I think this is right—we were up 26 percent in a year. That’s a decent year. This is before you factor in dividends and so forth. In ’12 we were up 31 percent.
Now that one you halted on a little bit. And the reason you did is because you’re thinking of the high point. But if you checked in the market at the beginning of the year and didn’t look again until the end of the year, it was up 31 percent last year.
Not too shabby.
Probably not too shabby, and probably a lot of people were pretty happy with that. To put that in some context, 31 percent is probably 100 … it must be 120 bucks or so. And so that is 120 bucks on 900 million shares. You can do the math. It’s over $100 billion of market cap in a year. How many companies grew their market cap $100 billion last year? Did anyone? I’m not sure. I haven’t looked. I’m not going to do this, because it’s not something that I focus on.
This calendar year, we’re down. I think they said we’re down 10 percent. Again, I would need to run these numbers to make sure they’re right, but I think they’re about right. We started at somewhere around 525 to 530. At the end of the year, we’re at 4-whatever it is right now. So am I happy about that? No, I’m not.
Does it mean that there is something fundamentally wrong or whatever? No. Just like in 2008, I think we went down 50 percent or so. We got down to $75 at the beginning of 2009, if I remember correctly. And so you have to bring yourself back to, “Are you doing the right things?” And so that’s what I focus on, instead of letting somebody else or a thing like the market define how I should feel. I think it makes you feel full of yourself or suicidal. And you should probably not feel either of those things. So that’s how I view it. I don’t let it get me down.
When you entered the smartphone market, three of the biggest players were Nokia (NOK), Motorola, and BlackBerry (BBRY). We know where BlackBerry is today, and Motorola obviously is now part of Google (GOOG), and now we’ve heard about what’s happening to Nokia. Do the fates of those companies teach you anything?
I think they do several things. I think they’re a reminder to everyone in business that you have to keep innovating and that to not innovate is to die. That’s something that’s deeply embedded in our company.
I think that they also show, from a strategy point of view, that everybody is trying to adopt Apple’s strategy.
That was my next question.
Right? It wasn’t that long ago that people thought it was an absolutely ludicrous strategy to try to do hardware and software, and at that point in time nobody was even thinking about services. They thought it was crazy, and so as you know, the Windows/Intel model of everybody does their specialty [led to the] innovation that produced. And it clearly produced some innovation at the processor level, although that ran its course. And it produced some innovation at the OS level, but that ran its course. But there was no innovation for the product that the customer was getting. It was a shoebox, basically.
But everybody thought that was the right thing for so long, well beyond when it was right—well beyond that. When Apple entered the smartphone business, most people were still beating that drum. Clearly Microsoft wasn’t thinking about buying Nokia then, and I doubt Google was thinking about buying Motorola.
So now all of a sudden you have the three folks that have operating system expertise, forgetting about BlackBerry for a moment. They all have hardware entities, or Microsoft is about to have one. It took them a longer time. Google has bought one. You can argue how well it’s done, but they concluded they needed to do that.
We were never looking for a validation. We’re not looking for external validation of our strategy, but I think it does suggest that there’s a lot of copying, kind of, on the strategy, and that people have recognized that importance.
Now, we’re well beyond just the surface level of design of hardware and software. We’re deep in the guts. This week you saw the A7. You saw our new M chip. Well, these are only possible because many years ago we elected to start building our own silicon team, and now we have many, many people designing silicon.
And you saw us go to 64-bit. Well, why are we able to do that first? It’s because we’re at that level of being vertical. Does anybody—do these other three companies have silicon expertise? You can answer that. Maybe they have something that I’m not aware of, but in terms of the depth of it …
So it will be interesting in the next round, the next wave, to see what happens there. What do people do? When we looked at it, we concluded we needed to do our own stuff because we were dreaming of products that couldn’t be done with silicon that you could go buy. So we designed our own and built an incredible team.
You look at innovation like the iPhone’s camera and the detail that went into the camera. Most people hear the word camera, and they think of hardware. And hardware is really important to it, you know? With the stuff we did with the flash on this. But it’s software, and it’s the silicon—I mean, it’s everything.
So the way I think about Apple is that the magic of this place really comes up at its best when hardware, software, and services come together. And it’s sort of the intersection of those things is where things get incredibly magical. So facilitating that to happen and getting the collaboration level for that to happen is the magic here.
And one of my proudest moments is when other people see that. They don’t know that they’re seeing that, and that’s also the beauty. They don’t have to do it. But look at these (gesturing to iPhones). These are perfect examples where the hardware and the software and the service begin to blend. In some ways you don’t tell one from the other.
And we don’t want the consumer to have to focus on what they are. But I think we’re executing better than the company’s ever done in that area. Well, you talked to a couple of the guys yesterday [Craig Federighi and Jonathan Ive, Apple’s software and design chiefs, respectively]. I don’t know how that went, but I would be shocked if it didn’t go really well. I mean, they complete each other’s sentences because they really like each other! And it’s just not “like” in the friendship sense, but there’s an enormous respect and trust, and that’s sort of at the base of what makes this place operate. We don’t have tons of people, and so we can’t double- and triple-check things. We trust each other and respect each other, and everybody pushes everybody else, and that sort of combination of the collaboration and the friction and getting that the right mix produces products like this.
I went well off-track with that answer.
I’m glad you did. While these phones represent the high end of the industry, there’s another part of the industry that’s racing toward the bottom. Chinese manufacturers, Indian manufacturers, $100 phones, $150 phones. What do you think about that? What does that mean for Apple?
I think it’s important that we grow, but I don’t measure our success in unit market share. So if there are a lot of $69 tablets sold that you’re just pounding on to get something to work and get some responsiveness, and it’s thick and fat and just a terrible experience, I don’t really weigh that unit of share like I do a different unit of share. I don’t weigh them to be equivalent.
So I think in most markets in consumer electronics, there’s always a large junk part of the market. We’re not in the junk business. We don’t want to make something for that. What we want to do is make a really great product and provide a great experience. And I’m sure we’ll get enough customers that want to buy that. We want to please them.
That other business, it’s not something—we don’t spend our time obsessed of how to make a product for that because that’s just not who we are and what we’re focused on.
I think, fortunately, these markets we’re in—the smartphone market, the tablet market—these are huge markets, and yes, the market might bifurcate. It has to some degree, as you just pointed out. There’s a segment of the market that really wants a product that does a lot for them. And I want to compete like crazy for those customers and really convince those customers that the iPhone is the best experience for them.
The tablet market is the same case. It sort of bifurcates. You’ve got the players down here that would say—you know, your kid is tugging at you saying, “Daddy, I got to have a tablet.” And you just want to shut them up and buy something cheap. That’s not a market I’m crazy about. I’d like to convince you that the iPad is a better experience and that your kid’s going to learn a lot from using it. And the experience they’re going to have talking to their grandmother across FaceTime is unbelievable, and it’s going to change your life by doing that. I’m not trying to say “Pick me” to shut up your kid.
So on this market, the market that cares about those things, I want us to just over-index like crazy on those. I want us to convince everyone to buy like that.
I’m not going to lose sleep over that other market, because it’s just not who we are. Fortunately, both of these markets are so big, and there’s so many people that care and want a great experience from their phone or their tablet, that Apple can have a really good business. A really good business. And you can see that.
You’ve had so much success with the iPhone and iPad before that low-end market really developed. But here it is.
It happens in every market that I’ve seen. Every single market. It happens in cars. It happens in all consumer electronics, from cameras to PCs to tablets to phones to—in the old world—VCRs and DVDs. I can’t think of a single consumer electronics market it doesn’t happen in.
And so for companies that want to chase that, that’s fine. I’m not criticizing it, actually. I call it junk. I don’t do that in a mean way. It’s just my label for it, right? But it’s just not who we are. I refuse to be driven by a blind ambition of unit share.
Toyota (TM) makes a very nice car at many levels for a lot of people in the world.
But that’s different than a BMW (BMW:GR).
It is. It is, and the fortunate thing, though, is that we can provide a substantial number of customers a really great experience with really high-quality products. You said BMW, and I only speak up there because BMW’s share of the car market is a lot less than Apple’s share of the tablet market.
So we’ve found a way to make our products such that the experience is jaw-dropping. The quality and precision are just unbelievable, really. But we can do this for a lot of people. A whole lot of people.
But it doesn’t surprise me, I don’t get perplexed that a “very low-end” market, or “junk” market—or whatever label you want to put to it—develops, because I know it will happen.
By the way, whatever category Apple will do in the future it will happen there, too. I’ll say it even before we talk about which ones or whatever. It will happen. This is the way of the world. I think people forget that. Or maybe it’s just fun to write about or something. I don’t know.
The past six, seven years has seen the iPhone, the iPad, the iPad mini. Do you feel a pressure to keep up with a pace of innovation that creates new markets or categories every couple of years?
Well, some people define or have sort of redefined innovation. And to them innovation only equals a new category. And I don’t view it that way. I don’t view it that way at all. I mean, if you look at these products, there are many innovative things in these products, from the fingerprint sensor to the flash to the processing power. IOS is filled with innovation. Seven’s innovation overflows the cup.
And so I think I probably look at it a bit differently. I don’t know whether that’s true with most people or not, but that’s how I look at it. That doesn’t mean that we don’t focus on the category. Obviously, we are. Of course we are. But that doesn’t mean the other things are not.
Last question: What is Apple’s mission?
To make the very best products in the world that really deeply enrich people’s lives. That’s what we’re about. And now it’s not to make the most. It’s not to have the highest market cap, but that’s the result of doing the first one well. That’s what we’re about. And hopefully you can see that in our products and, more importantly, feel that in the experience you have using them. That’s what we’re about.
And everybody here knows that. That’s the beauty of this place. We don’t have to put posters on the wall to remind people of that. Everybody knows it.