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Apple talks innovation, iPhone, 3G, Cingular

updated 11:05 pm EST, Wed February 28, 2007

COO talks Apple, iPhone

Apple COO Tim Cook was part of a analyst Q&A session in front a "standing room only" crowd at the Goldman Sachs Technology Investment Symposium earlier this week. Cook talked about continued innovation at Apple, the iPhone as Apple's next revolutionary product, using the standard GSM network vs. the faster 3G, its goal of 10 million unit sales, the selection of Cingular as the exclusive carrier in the U.S., and gauging demand as well as supply for the launch.

Q: How do you keep innovating at a fast enough pace to differentiate yourself from other companies?

A: I've been with Apple since 1998 and after every major product we get the same question. Our corporate culture is a very simple. We hire people who want to make the best product 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 that this is why people come to work at Apple.

Q: Some of the senior company execs and most creative people have been around for a long time and either have been or are considering leaving. How do you keep things going?

A: This atmosphere is very, very unique kind of atmosphere. We don't have issue attracting talent. We have so many things going on and innovation is so deeply embedded in the company. It is full of off-the-charts smart people. We've had some exec departures and have planned for succession.

Q: Since its introduction at Macworld Expo, people have questioned the success of the iPhone. Could you talk a little about why Apple will be successful.

A: The iPhone is a revolutionary product. Steve mentioned this at Macworld, revolutionary products only come along so often: the Mac in 1984 re-invented the computer industry. The iPod in 2001 re-invented the music industry. And we think the iPhone is that class of product for the cell phone industry.

It's a revolutionary cell phone with visual voicemail. It's the best iPod that Apple has ever done and its this "really cool" internet device with desktop-class email, browsing, maps, and searching -- all in one product. I think people are going to be amazed and delighted over it. We'll have to see. Obviously, there are people who would prefer us not be successful in this, but I think it's a revolutionary product. And we'll see what the customers think. That's the most important thing.

Q: Your stated goal for calendar 2008 is to ship 10 million units, which is about 1 percent of the overall market. Given the functionality and price point of the product, it eliminates the low end of the market. How do you look at the available market for the first generation of iPhone and what kind of marketshare do you think you can take?

A: The traditional way of look at a market you look at products you are selling, you think about the price bands that are currently market, you look at price band your product is in, and you assume you can get a percentage of it. And that's how you get to the addressable market. That kind of analysis doesn't make really great products. The iPod would not have been brought to market if we would have looked at it that way. How many $399 music players were being sold at that time?

Today in the cell phone industry, a lot of people pay zero for the cell phone. Guess what? That's what it's worth! And so, if we offer something that has tremendous value and is sort of this thing that people people didn't have in their consciousness -- it was unimaginable, I think a whole bunch of people will pay $499 and $599. Our target is clearly to hit 10 million and I would guess that some of those people -- there are some of those in the audience -- who are paying zero because it's worth zero, will pay more a bit more because its worth it.

Q: Can you go through some of the thinking of not putting 3G in the phone, given that it is leading edge technology in every other aspect.

A: Our thinking was first and foremost that we wanted GSM because GSM was the world standard and that was one of the factors in the selection of Cingular. Secondly, the product as we announced it has wireless capabilities. Many people, like in this room, have access to WiFi, including this room, home, where you have coffee. Between this spots we are going to use 2.5G because it's widely deployed. We're confident that it will give the user a great experience.

Q: Do you expect iPhone to cannibalize iPod? If so, when might that kick in?

A: You know it's still too early to tell. But I would make this point. We've sold 90 million iPods. 90 million. It still amazes me saying it. And these are being sold for a wide of usages: there's a wide variety of form-factors, wide variety of capacities and a wide variety of price points. You know that there are a lot people that desire the iPod.

Q: Can you talk -- this has been an area of controversy -- a little about the pluses and minuses of using one exclusive carrier in U.S.

A: Our thinking in using 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. The second was that they were the most popular: they have 61 million subscribers. Third was that our goal was to use GSM and that's what their network is based on. Fourth -- I think that the CEO of Cingular at the keynote -- the deal that we struck allows Apple to do the things that Apple is really good at and allows Cingular to do the things that Cingular is most good at. So I think it's a really great partnership.

Q: This is a brand new product category for Apple; and sometimes in the past you've had a little bit of a tough time meeting it, given the initial demand for some products. Can you talk a little bit about some of the things that Apple is doing to meet day one demand and how that is coming along at this point?

A: Sometimes this issue is a good issue. But in order to talk about day one, demand, and whether we have enough product, you have to know demand and you have to know supply. Let me be very frank, I don't know either of them today. Clearly, the customer response is significant on iPhone. A lot people anecdotally are telling me that they want one and are trying to get the allocation before all the rest. On the supply side we did 21 million last quarter. We have a reasonable amount of operational expertise on ramping and are doing fairly well there. But what will the first day be like? I don't know because it's too soon to tell what the demand and supply will be like.




by MacNN Staff

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Comments

  1. Recto Bold

    Joined: Dec 1969

    0

    A waste of space....

    I honestly don't know why you bothered posting this. It's such a load of flannel from Tim Cook - There's very little of any real interest here that we didn't already know (or could have worked out) already. I'm still irritated by the lack of foresight from Apple in not putting 3G on the iPhone but if they manage it in Europe at the first revision as expected then I think they'll do well here.

  1. russellb

    Joined: Dec 1969

    0

    3G

    Here in AU Telstra have just launched their NextG 3.5G network.

    I would simply not even look at a phone without it .. even if it was an Apple Iphone.

    No 3G = No sales escpecially 1 year down the track here in AU.

    BUT I really think 1 yr down the track they will have put in 3G

  1. MagnusDredd

    Joined: Dec 1969

    0

    3G and the iPhone

    3G support in the US is very, very limited. GSM/EDGE on the other hand is actually available in most cities here.

    No offense intended to non-US cell users, but this phone will debut in the US. The first revision of the phone has to work where it's being sold. It's easier to work the bugs out when you have fewer variables to deal with. 3G simply introduces more complexity in an already complex and completely unproven product that is very important for Apple to have work without a hitch.

    The lack of 3G in the rev 1 iPhone actually makes sense. When Apple has worked out the kinks and has a proven product, they'll then add more features.

    I'm sure that Apple is aware that almost every first world nation except the US has decent or better 3G support. I'm sure that they're also aware that consumers in those countries won't buy a cell phone that doesn't have 3G.

    So while the early adopters in the US will have to deal with whatever issues there are with stability, GSM connectivity, EDGE connectivity, interface quirks, bluetooth, etc. Those issues should all be handled by the time it reaches you and the only thing left for end-user testing will be 3G connectivity.

  1. vasic

    Joined: Dec 1969

    0

    1st, 2nd 3rd worlds...

    Well, I think I can safely correct magnusdredd about the deployment of 3G when I say that ALL of 1st world (i.e. developed nations), as well as MOST of 2nd world (developing nations) have wide deployment of 3G. 3 Weeks ago, I returned from Serbia (remember the place the US bombed to oblivion in '99?). Well, they already have 3G service since last year (2MB bandwidth, at GPRS prices). The offerings range from popular TV content, downloadable music (domestic and foreign production), as well as video-conferencing (with supported handsets); deployment is nationwide (every city has coverage), so one has to wonder what is it that's slowing down US mobile communications when even poorest nations in Europe can leap ahead?

  1. mjcamille

    Joined: Dec 1969

    0

    Neglect

    I think Apple was smart to tie the iPhone to the GSM standard. It's a world standard and that's why I want to do business with a cell phone provider which uses it. As an Apple customer, however, what I resent is the company's locking me out of the picture because I am unfortunate enough to live in an area that has GSM but which Cingular does NOT reach. My provider is Unicel, which does reach rural areas where Cingular does not. Why could not Apple have allowed the iPhone to work with Unicel in such cases? Why lock the phone to a provider that can't or won't reach me?

  1. howiej

    Joined: Dec 1969

    0

    GSM=Bad Move

    Although GSM is a world standard, Cingular and T-Mobile have definite voice clarity ssues and of course coverage issues in the US. CDMA (Sprint and Verizon) just sound much better overall than either Cingular or T-Mob. I am a total Mac fan, and have been fighting with my treo 700P forever, but I will not jump ship to Cingular (i deal with them on a daily basis for work) jus to have an iPhone. Apple will hopefully realize that the biggest pain in the butt in the US Cellular market is the binding contracts that offer little help to consumers. I do believe that Apple can make a much better product that Palm has done, and hopefully they will support the bugs and glitches better han Palm has done (They haven't!) , but I really think they would do much better by allowing people to choose the network they want. In other words, BAD Move Apple, hope you wake up soon.

  1. digitalscrap

    Joined: Dec 1969

    0

    No 3G - no sense...

    Cook's answer still doesn't make any sense - a 3G phone would automatically drop down to EDGE or GPRS when not in the presence of a 3G network, so saying that they chose to go with EDGE because 3G is not widely deployed isn't a valid reason. He should admit that it was a cost savings measure - as that's all it is.

    People who live in major cities and have been enjoying HSDPA on their current devices are NOT going to go back to EDGE just to have a "cool" phone. Seems really shortsighted as I would think that people in these 3G lit urban areas would be the main adopters of something like the iPhone.

    Oh well, looks like I'll be waiting for the iPhone 2.0.

  1. hokizpokis

    Joined: Dec 1969

    0

    tech is so wonderful

    i bet that since the iPhone is in fact a 'modernized newton' handheld that just for kicks can also act as a phone or computer, calendar, stop watch, e-mail device as well as many, many other 'widgets' and so on... this is the strenth of the iPhone and why it will be a blockbuster item for 2007...

    Personally I could care less what 'system' the phone works on, (cause phones are indeed a waste when you've got the internet..skype, blah, blah) and until such technologies are relized that can compete with a free service, we all will be buying our cell air time at outragous rates (not to mension taxes) that allow for profits to trickle in to the real players in the market, any shifting of the cash flows away from the biggy carriers will signal an adopting of more iPhones with newer technologies being added as time goes on. Apple already has a world class support team and stores to sell them at as well as a 'online software update system' so have no fear that this little marvel will grow into a monster ...The success of this product will hurt other players in the phone market, so don't expect them to just roll over and play dead... time to get on the aapl bandwagon if you got the $$...

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