Apple COO talks about iPhone, 3G, and the Cingular partnership

Posted:
in iPod + iTunes + AppleTV edited January 2014
Speaking at the Goldman Sachs Technology Investment Symposium this week, Apple's second in command Tim Cook talked at length about the upcoming iPhone, revealing some of the methodology that went into the product's development as well as the executive decisions that lead to the company's partnership with Cingular.



The 45 minute Q&A session was recorded and made available as a streaming QuickTime download from Apple's website. However, the portion of Mr. Cook's speech relating to iPhone has been transcribed by AppleInsider, below, for reader appreciation.



Q: Almost from the second Steve stepped off the stage at Macworld there are people in the press and other people basically coming up with reasons why Apple can't succeed in the phone market. Can you talk a little bit about why you think Apple will be a success?



A: Well, I think the iPhone is a revolutionary product. And Steve mentioned this at Macworld. And I think this is a very, very good point. Revolutionary products only come along so often. You know, Apple had the Macintosh in 1984 that reinvented the personal computer industry. The iPod in 2001 which reinvented the whole music industry. And we think the iPhone is that class product for the cell phone industry.



Step back and look at the [iPhone] and think about what it is. It's a very small, thin, lightweight device. It's a revolutionary cell phone. It has visual voicemail, which if you're not familiar with that, essentially looks like e-mail. So you can select precisely the voicemail that you want to hear, not the order they happen to come in. It's the best iPod Apple has ever done. And it's this 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 over it. So we'll have to see. Obviously there are people who would prefer us not to be successful in this. But I think this is a revolutionary product. And we'll see what customers think because that is 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. But given the functionality and price-point of the product, it eliminates most of the low end of the market. How do you look at the available market for the first-generation of iPhone and what kind of market share do you think you could take in that market?



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 curving the market. You think about the price band that your product is in. You assume that you can get a percentage of it. And that is kinda 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 had looked at it that way. How many $399 music players were being sold at that time? And so, today in the cell phone industry, a lot of people pay zero for the cell phone. Guess why? That's what's it worth! And so, 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 -- then I think there are a whole bunch of people who will pay $499 or $599. And our target is clearly to get 10 million. And I would guess some of those people, and there are probably some in the audience, that are today paying zero because it's worth zero or going to pay a bit more because it's worth it.



Q: Could you go through some of the thinking of not putting 3G in the phone given that it is pretty much leading edge technology in every other aspect?



A: Our thinking first and foremost was that we wanted GSM. Because GSM is the world standard and that was one of the factors in selecting Cingular. Secondly, the product, as we announced, has Wi-Fi capabilities. And so many people, like in this room I'm sure there is Wi-Fi in this room as there are hot spots everywhere -- at your home, where you have coffee, your place of work, etc., etc. -- they're going to use Wi-Fi. And between these spots we are going to use EDGE because it is widely deployed. And we are confident it will give the user a great experience.



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



A: You know, it's 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 variety of usages. There's a wide variety of form factors. A wide variety of capacities. And a wide variety of price points. And so, you know, there a lot of people who desire the iPod, so we'll just see what happens.



Q: Can you talk a bit about -- this has been an area of controversy -- some of the plus and minuses of using only one carrier, an exclusive carrier, in the US.



A: Sure. Our thinking on selecting Cingular was 1) We looked at the carriers in the US and felt that Cingular was the highest quality. And that was very important to us from a customer experience point of view. 2) They were the most popular. They had 61 million subscribers. 3) Our goal was to use GSM -- our decision was to use GSM -- and that's what their network was based on. 4) The deal that we struck allows Apple to do the things that Apple is really good at, and it allows Cingular to do the things that Cingular is really good at. And so I think it is a really great partnership.



Q: This is a new product category for Apple. Some of the times in the past you've had a little bit of tough time ramping up given the initial demand for some products. Can you talk a little about what you're doing to make sure you can meet day one demand?



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. And let me be very frank: I don't know either of them today. Clearly, the customer response is significant on iPhone. A lot of people anecdotally are telling me [inaudible]. And on the supply side, as many of you know, we did 21 million iPods last quarter. So we have a reasonable amount of operational expertise on ramping and doing fairly well there. But what the first day is going to be like, I don't know because it's too soon to tell what the demand and supply will look like.
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Comments

  • Reply 1 of 156
    Blah Blah Blah!



    GSM is great! Cingular is great! EDGE is great!



    Nothing new here!









    First post again!

  • Reply 2 of 156
    It sucks he was so nonchalant about leaving 3G out of the iPhone. The only people that seem to be okay with it are him and Steve Jobs.



    I don't give a shit about wi-fi. At home, school, or work I have a goddamn computer with a broadband connection. It's when I'm not at those place is when I need the iPhone's internet.



    Fucking EDGE network...
  • Reply 3 of 156
    cosmonutcosmonut Posts: 4,872member
    The Segway was supposed to be a revolutionary product too. We'll see if the iPhone stays a niche product like the Segway has.
  • Reply 4 of 156
    Don't forget the Pippen.
  • Reply 5 of 156
    jeffdmjeffdm Posts: 12,946member
    He's not totally off base though. I don't think they can afford to belittle their launch partner before the launch. Maybe they can proceed to backstabbing a couple years from now.



    One thing I do take issue with is that I really don't think that the phone that you get for $0 means that it is worth $0, that's because it's been subsidized by the subscription to the tune of up to $200. The best phone I've ever used, in terms of signal strength, battery life and call quality was totally plan-subsidized. It doesn't play music or much of anythign fancy, it's just a solid device without superfluous features.
  • Reply 6 of 156
    Quote:
    Originally Posted by Guybrush Threepwood View Post


    It sucks he was so nonchalant about leaving 3G out of the iPhone. The only people that seem to be okay with it are him and Steve Jobs.



    I don't give a shit about wi-fi. At home, school, or work I have a goddamn computer with a broadband connection. It's when I'm not at those place is when I need the iPhone's internet.



    Fucking EDGE network...



    I so agree with you. But, the thing is, there WILL be a 3G iPhone. This is not the last version or the only version, and I imagine it was a long time coming. I don't want a version 1.0 anyway.
  • Reply 7 of 156
    imacfpimacfp Posts: 750member
    Quote:
    Originally Posted by Guybrush Threepwood View Post


    It sucks he was so nonchalant about leaving 3G out of the iPhone. The only people that seem to be okay with it are him and Steve Jobs.



    I don't give a shit about wi-fi. At home, school, or work I have a goddamn computer with a broadband connection. It's when I'm not at those place is when I need the iPhone's internet.



    Fucking EDGE network...



    What else can he be? They went with Cingular because Verizon said no and Cingular was willing to do it Apple's way. I think T-Mobile was considered too but they felt there weren't right. I'm sure they have plans on allowing 3G once Cingular can do it. They've said as much. I wish he'd something new too, but everything he says is caculated for effect and to stay with the party line.
  • Reply 8 of 156
    Quote:
    Originally Posted by JeffDM View Post


    He's not totally off base though. I don't think they can afford to belittle their launch partner before the launch.



    Obviously, he's going to back Cingular at this stage, but the article title should have read 'Apple COO tows company line on 3G & Cingular' or 'Apple COO says nothing new to Goldman Sachs' or 'Apple COO says something dumb about supply & demand'.

    \
  • Reply 9 of 156
    rickagrickag Posts: 1,626member
    Where's all this negativity coming from? It's not even on the market yet.
  • Reply 10 of 156
    Quote:
    Originally Posted by samurai1999 View Post


    Blah Blah Blah!



    GSM is great! Cingular is great! EDGE is great!



    Nothing new here!



    Haha...I was thinking the same thing after reading this article!
  • Reply 11 of 156
    3G doesn't really make a difference to me. I don't use the internet or email much. Half the time I want to use it I'm in an area that has Wi-Fi. I don't have a laptop though and I'm on the go a lot. I mean A LOT. Hell even when driving down the street I could probably get a wi-fi connection because in my house my iMac picks up 3 (sometimes 4) unprotected connections that I could use. And then there are starbucks at every corner so I could probably get a connection anywher!



    Besides I don't want to pay a hefty monthly fee for a data plan anyways. Just as long as my iPhone can do IM/texting over Wi-Fi I'll be happy...though texting is a stretch.
  • Reply 12 of 156
    Quote:
    Originally Posted by samurai1999 View Post


    Obviously, he's going to back Cingular at this stage, but the article title should have read 'Apple COO tows company line on 3G & Cingular' or 'Apple COO says nothing new to Goldman Sachs' or 'Apple COO says something dumb about supply & demand'.

    \



    Something dumb? It's spot on. When releasing a product unlike any other, you can't try and shoehorn it into price points for existing products. The result is that you cut down your product so much to meet those price points that you're never successful. Your price point needs to depend on your products value.
  • Reply 13 of 156
    boogabooga Posts: 1,077member
    Quote:
    Originally Posted by Guybrush Threepwood View Post


    It sucks he was so nonchalant about leaving 3G out of the iPhone. The only people that seem to be okay with it are him and Steve Jobs.



    I don't give a shit about wi-fi. At home, school, or work I have a goddamn computer with a broadband connection. It's when I'm not at those place is when I need the iPhone's internet.



    Fucking EDGE network...



    I'm okay with it. I don't want to lug around a laptop everywhere just for doing a little surfing or email. And everyplace has free wi-fi these days. The only thing that sucks for me is that our wi-fi at work uses two-factor authentication, and I doubt the iPhone supports the RSA fobs.



    But generally, a few hundred Kbps is more than enough for me to fill up the little screen with surfed goodness for those areas without wi-fi.
  • Reply 14 of 156
    tbagginstbaggins Posts: 2,306member
    Quote:
    Originally Posted by Tim Cook


    A: Sure. Our thinking on selecting Cingular was 1) We looked at the carriers in the US and felt that Cingular was the highest quality.



    Translation: Verizon turned us down.



    Timmy, no need to spin. No one's buyin' into it.





    .
  • Reply 15 of 156
    Apple went with GSM because they wanted one product that would work in most of their world markets. CDMA just doesn't exist in Europe.



    They went with Cingular becuause Cingular has way more customers than T-Mobile, and Cingular agreed to their demands. They incorporated the needed backend network upgrades for visual voicemail. And, more importantly, they allowed Apple to be in 100% control of the software, something that NEVER happens in the cell phone industry. Ask Palm how often their products have been crippled or delayed because of carrier demands.



    Cingular's 3G network is only available in a very limited number of cities. And even then it's not exacly accessible everywhere within that city. So you end up paying $60 a month for service that defaults down to 2G EDGE speeds anyway. And it eats the ever-living crap out of your battery, too.



    In a year or two, when 3G GSM is everywhere, the kinks are worked out, and the price comes down a little, it'll make more sense for Apple to release a 3G iPhone. Right now, it doesn't make a whole lot of sense.



    And let me ask this: How many phones on the market are GSM, have a touch screen, have WiFi, and are 3G? What do they cost? How do they stack up to iPhone?



    Treo 750: 3G, No WiFi, $399 2yr contract

    Blackjack: 3G, no touch screen, no WiFi, $199 2yr contract

    Blackberry 8800: 2G, no touch screen, no WiFi, $299 2yr contract

    8525: has everything, $399 2yr contract



    So the 8525 is the only thing on Cingular right now that could be considered close. And with 3G, and $100 cheaper, that's a big plus. But then consider that the 8525 has 512MB of memory, as opposed to iPhone's 4 or 8 GB.



    Personally, I think having more internal storage, especially on a device that will end up being an iPod replacement for a lot of people, is more important than 3G.



    And there's no way to put a number on the interface/ease of use factor.



    iPhone may not have ALL the features that everyone wants, but it has a feature set that will appeal to a lot of people. And the overall user experience will drive more people into this market than ever before.
  • Reply 16 of 156
    tbagginstbaggins Posts: 2,306member
    Quote:
    Originally Posted by mrjoec123 View Post


    Apple went with GSM because they wanted one product that would work in most of their world markets. CDMA just doesn't exist in Europe.



    They went with Cingular becuause Cingular has way more customers than T-Mobile, and Cingular agreed to their demands. They incorporated the needed backend network upgrades for visual voicemail. And, more importantly, they allowed Apple to be in 100% control of the software, something that NEVER happens in the cell phone industry. Ask Palm how often their products have been crippled or delayed because of carrier demands.



    Cingular's 3G network is only available in a very limited number of cities. And even then it's not exacly accessible everywhere within that city. So you end up paying $60 a month for service that defaults down to 2G EDGE speeds anyway. And it eats the ever-living crap out of your battery, too.



    In a year or two, when 3G GSM is everywhere, the kinks are worked out, and the price comes down a little, it'll make more sense for Apple to release a 3G iPhone. Right now, it doesn't make a whole lot of sense.



    And let me ask this: How many phones on the market are GSM, have a touch screen, have WiFi, and are 3G? What do they cost? How do they stack up to iPhone?



    Treo 750: 3G, No WiFi, $399 2yr contract

    Blackjack: 3G, no touch screen, no WiFi, $199 2yr contract

    Blackberry 8800: 2G, no touch screen, no WiFi, $299 2yr contract

    8525: has everything, $399 2yr contract



    So the 8525 is the only thing on Cingular right now that could be considered close. And with 3G, and $100 cheaper, that's a big plus. But then consider that the 8525 has 512MB of memory, as opposed to iPhone's 4 or 8 GB.



    Personally, I think having more internal storage, especially on a device that will end up being an iPod replacement for a lot of people, is more important than 3G.



    And there's no way to put a number on the interface/ease of use factor.



    iPhone may not have ALL the features that everyone wants, but it has a feature set that will appeal to a lot of people. And the overall user experience will drive more people into this market than ever before.





  • Reply 17 of 156
    othelloothello Posts: 1,053member
    Quote:
    Originally Posted by Booga View Post


    And everyplace has free wi-fi these days.



    NOT true.
  • Reply 18 of 156
    Quote:
    Originally Posted by gregmightdothat View Post


    Something dumb? It's spot on. When releasing a product unlike any other, you can't try and shoehorn it into price points for existing products. The result is that you cut down your product so much to meet those price points that you're never successful. Your price point needs to depend on your products value.



    The dumb bit was the last question and the waffly answer - it doesn't say anything - except supply & demand are unknowns

    - a bit like Rumsfeld's 'known knowns, known unknowns & unknown unknowns' speech from yesteryear!



    (not that I'm comparing him to Rumsfeld BTW! - I'm not that cruel!)
  • Reply 19 of 156
    Verizon would never have allowed Apple to use WiFi. They especially would not have allowed Apple to auto-detect WiFi and default to that instead of their EVDO network.



    Ultimately, if Apple had worked out a deal with Verizon instead of Cingular, the product would have been crippled. And the entire European and several other world markets would have been shut out completely.



    Verizon wants to be quick to tell the world that they "turned down" iPhone. But more likely, the two companies simply didn't see a mutually beneficial deal in the cards. Verizon wasn't going to get to control Apple's software and features. Jobs wasn't going to get to make the iPhone his way. So they parted ways.
  • Reply 20 of 156
    Quote:
    Originally Posted by Booga View Post


    I'm okay with it. I don't want to lug around a laptop everywhere just for doing a little surfing or email. And everyplace has free wi-fi these days. The only thing that sucks for me is that our wi-fi at work uses two-factor authentication, and I doubt the iPhone supports the RSA fobs.



    But generally, a few hundred Kbps is more than enough for me to fill up the little screen with surfed goodness for those areas without wi-fi.



    I also have to agree with this. I was very glad to see 3G NOT included as long as there was WiFi. I don't want to pay the outrageous fees for the 3G data plans, when a lot of WiFi is free, so why should I pay for the 3G hardware.
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