Tim Cook at D10: In his own words

[Tim Cook kicked off this year’s D: All Things Digital conference on Tuesday. The Apple CEO was interviewed by conference hosts Walt Mossberg and Kara Swisher, in a lively, engaging conversation. Here’s an edited roundup of the highlights.]

Working at Apple

It’s an absolute, incredible time to be with Apple. I’m loving every minute of it.

For years Apple’s been focused on innovation. Never have I seen the things I can’t talk about today…the juices are flowing. And we have some incredible things coming out. And of course the company, what we’re doing today, the company’s very healthy.

Steve [Jobs] was a genius and a visionary. And you know, I’ve never viewed my role as to replace him. I think he’s an irreplaceable person. Steve was an original. I don’t think there’s another one of those being made. I’ve never really felt the weight of trying to be Steve. It’s just not who I am. It’s not my goal in life. I am who I am, and I’m focused on that and being a great CEO of Apple.

And it’s incredible every day to work with what I consider to be the smartest, most innovative people on earth. So I spend my day working with those people on many different things. Some things you wanted to talk about that we didn’t talk about, maybe. And many things that go with running a company of Apple’s size in all the geographies we’re in. And I love every minute of it. It’s an incredible place to be. It’s my oxygen.

So that’s how strongly I feel about it.

The iPad

The iPad has been unbelievable, really. I’ve never seen a product in technology that consumers loved, pretty instantly, and business loved, and education loved, and people of all ages loved. I think we’re in the first inning on it.

Will the tablet displace the PC market? Today there are a lot more believers in that. I’d bet there are a lot of people in the audience who use their iPad a lot more than their computer. I know I do that. And I love the Mac, but I find myself spending more and more time on my iPad. As time goes on, I think it will get more and more like that.

In my view, the tablet and the PC are different. And you can do things with the tablet, if you’re not encumbered by the legacy of the PC. If you view it as different. If you take the view that says this is another PC, all of a sudden you’re pulling along all of the baggage of the PC market…

I love convergence, convergence is great, but products are about tradeoffs. You have to make tough decisions, you have to choose, and the more you look at a tablet as a PC, the more the baggage of the past affects the products.

I said a few months ago, this flippant thing, you could converge a toaster and a refrigerator. Sure, you could do that. But I just think you wind up not building the best product, in this particular case, when you converge those.

Trying to do all those things that the OS of the PC does, and perhaps should do, it’s trying to converge laptops and tablets and therefore you’ve got a clamshell kind of thing and you’re lugging this thing with you, and so the industrial design is not optimized for tablet. People want tablets to be incredibly thin.

But if you look at it as a notebook, you’re not going to come out of the design of the product and have it be a kick-ass product where someone says wow, this is what I wanted. I’m not big on that, as you can probably tell.

The Mac

The Mac has had string of incredible quarters outgrowing the market every quarter for six years. The Mac has always been about making the best product, not the most. We’re never going to make the most personal computers. I don’t see that. But we are going to continue to make the best.

I don’t see the tablet replacing the need to replace all PCs or Macs. I don’t mean to imply that at all. What I see is that the tablet for some people takes over what their PC was for them. And it will extend the purchasing cycle for others.

Apple’s international growth

[The] iPod introduced Apple to a whole bunch of people that didn’t know Apple, and the Mac benefited from that, and many people began to buy the Mac. But as it turns out, looking back, it introduced Apple to people in the developed world. U.S., UK, France, Germany, Australia…

But when iPhone came along in 2007, all of a sudden the world changed for Apple, and many people were introduced to Apple in China, and the Middle East, and Eastern Europe, and Russia, and Latin America. And so the world opened… and now with iPad, iPad is doing well in a number of those markets.

It’s incredible that … the world has met Apple. But we’re still in the first inning.

Steve Jobs

I learned a lot from Steve. It was absolutely the saddest days of my life when he passed away. Maybe as much as you should see or predict that, I really didn’t. But at some point, late last year, somebody kind of shook me and said, it’s time to get on. So that sadness was replaced with intense determination to continue the journey. So that’s where it is today.

What did I learn from him? We could be here all night, probably all week, maybe even a month. I learned focus is key, not just in running a company but in your personal life as well. That you should do only a certain number of things great, and you should cast aside the rest.

In business, honing the key technology of the product. Steve was always focused on that. Always expecting the very best. Apple has a culture of excellence that I think is so unique.

He also taught me that the joy is in the journey, which was a revelation for me. And he taught all of us that life is fragile, and that we’re not guaranteed tomorrow, so give it everything you’ve got.

Another thing Steve taught us all was not to focus on the past. Be future focused. If you’ve done something great or terrible in the past, forget it and go on and create the next thing.

When I say I’m not going to witness or permit change, I’m talking about the most important thing of Apple, the culture of Apple. I think it’s so special and so unique, and is not something people could replicate. If they could, I think everyone would be like this.

Steve told me, when he called me to his home to talk about being the CEO and subsequently the discussions we had, he told me, ‘you know, I witnessed what happened at Disney when Walt passed away.’ He said that people would go to meetings… and all sit around and talk about, ‘what would Walt have done? How would he view this?’

And he looked at me with those intense eyes that only he had, and he told me to never do that, to never ask what he would do. Just do what’s right. And so I’m doing that.

And so does that mean that something will be different? Of course! But he was the best person at the world at doing this. He would flip on something so fast that you would forget that he was the person taking the 180 polar position the day before.

It was an art. He would never know that he thought the opposite. I saw it daily! And this is a gift, because things do change. And it takes courage to change, and courage to say, I’m now wrong. Maybe I was right before, maybe not, maybe I was never right.

[When I was recruited by Steve], it was a very interesting meeting. Steve had hired an executive-search firm to find somebody to run operations and I’d turned down meeting and they kept calling and I eventually said I’d talk. I had no time, so I flew out Friday on a red eye for a Saturday morning meeting with Steve. and the honest to god truth, five minutes into the conversation I wanted to join Apple. I was shocked at this. It wasn’t how I went into the conversation.

He painted a story, a strategy, that he was talking Apple deep into consumer at a time when I knew that other people were doing the exact opposite. And I never thought following the herd was a good strategy. You’re destined to be average at best. So I saw brilliance in that. And he told me about what would later be the iMac, and I saw brilliance in that. And I saw someone who was unaffected by money. That’s always impressed me. So those three things, I thought, I’m going to throw caution to the wind and do this. I went back and resigned immediately.

Now did I see everything, the iPhone and iPad and iPod? No. What I saw was, Apple was the only technology company I knew of where if a customer got angry with the company, they would yell and yell loudly but they would continue to buy. And Compaq, if people got angry at Compaq, they would just buy from Dell. And Dell, if they got angry at Dell, they would just buy from IBM. But an Apple customer was a unique breed. And there was this emotion that you just don’t see in technology in general.

You could see it and feel it from Apple customers. And when I looked at the balance sheet of the company, I thought I could add something and participate in turning around a great American company.

Making changes

To whom much is given, much is expected. I do believe this. It’s embedded in me. And yes, so, Apple has started a matching gift program. Employees love it. It allows us to reach thousands of charities and plant seeds everywhere and allows us to do so without the bureaucracy where people sit in a committee meeting…

I think we can do even more, and so we’re looking at some things, and we’ll talk about them when we’re ready. Maybe that’s a change, but Steve knew about the matching gift thing, and he was alive then, and he was for it. Do I feel really strongly about it? Yes, I do. I think it’s impossible to say what he would have done or not.

The dividend thing. Some people have talked about this. I think we will do the right thing… the company has been successful, cash has built up, and when we think about the things we want to do, we’re going to continue to invest in R&D and build up stores and things I’m not going to talk about, but we’ve got some money left over. And we should share it.

China and transparency

We’re going to double down on secrecy on products. I’m serious. However, there’s going to be other things where we’re going to be the most transparent company on the world. Like social change. Supplier responsibility. What we’re doing for the environment. We think that transparency is important in these areas, and if we are, other people will copy us.

In the past, we did an annual report and that was our method of transparency. Did we do more than others? I think most people would say yes. Our actions were clearly much more. But our communication was once per year. Now we’re putting out monthly reports. We want everyone to know what we’re doing, and we hope people copy us.

We decided over a decade ago that there were things we could do better than anyone else, and those things we could do ourselves. And other things, other people could do those better than we can… manufacturing was one of those. The operational expertise and engineering and supply chain management, Apple does all of that. But manufacturing, we said, you know, other people can do that as well as we can.

We went through a lot of effort in taking overtime down. It’s hard, it’s complex. Some people want to work a lot. Some people want to work a whole lot because they want to move and work for a year or two and bring back as much money as they can to their village.

We took a position to say we want to bring this down. We’re measuring working hours for 700,000 people. I don’t know who else is doing this. And we’re reporting it. It’s almost like the labor report that the U.S. puts out.

Made in the USA

[Will there be an Apple product ever made in the U.S.?]

I want there to be. This isn’t well known, but the engine for the iPhone and the iPad are built in the U.S., not just for the U.S. but the world. The glass for your iPhone is made in a plant in Kentucky, not just for the U.S. but other markets outside the U.S. so I think there are things that can be done in the U.S., not just for the U.S., but exported for the world

People focus on the final assembly, because that’s the part where people look at it and say that’s an iPhone, they don’t think of all the parts underneath that add significant value. So on assembly, could it be done in the U.S.? I hope so some day. The tool and die maker skill in the U.S. began to go down in the ’60s and ’70s. How many tool and die makers do you know now? We couldn’t fill a room. In China you’d need several cities.

So there has to be a fundamental change in the education system, to bring back some of this. But there are things that we can do. The semiconductor industry is fantastic in the U.S.. The Corning deal with glass in Kentucky, this is fantastic. So we will do as many of these as we can do.

And we will use the whole of our influence that we can do it.

If you look at developers, you know, if you think back at D1 all the way to 5 or 6, how many people knew what a mobile app was. There were a few, but it wasn’t coming out of people’s mouths. Now it’s in the mainstream. And in the U.S. there are hundreds of thousands of people developing apps. This whole segment of the economy didn’t exist just a few years ago.

From an app point of view, if you looked at innovation on the PC, you’d be hard pressed to find companies innovating. The list is small. But if you said, let’s have a meeting of mobile app developers from the U.S., you’d need several football stadiums.

Patents

From our point of view, it’s important that Apple not be the developer for the world. We can’t take all of our energy and all of our care and finish the painting and have someone else put their name on it. The worst thing in the world that can happen to you if you’re an engineer and you’ve given your life for something is for someone to rip it off and put their name on it.

When you look at [cases in which Apple is being sued for violating patents], the vast majority of those are on standards-essental patents, and this is an area where the patent system is broken today. Standards-essential patents bring the responsibility for the holder to license it at a reasonable rate.

So when someone comes to you and tries to get some obscene level of money from you for this, they’re in essence telling you they’re not going to license because they want to use the court system to do that. In my view, use it in a way it wasn’t intended.

Apple has not sued anyone over standards essential patents that we own, because we view that it’s fundamentally wrong to do that. The intention was some payment be made. And we can always argue about the payment, and there has to be a forum for resolving those disputes.

The problem is, if you add up what they say the patents are worth, nobody could be in the phone business. So it’s kind of gotten crazy. Some of this is maddening, it’s a waste, it’s a time suck. However, does it stop innovation? It’s not going to stop us from innovating, no. But it’s overhead that I wish didn’t exist, and if we can find a way to settle this, then…

iPhone

I wouldn’t say we dominate [the phone market]. I’d say we have the best phone. Starting at the OS level, you have two OSes that make up the vast majority, iOS and Android. And you have Windows Mobile now beginning to ship and we’ll see how they do. And you have RIM, that is… uh… still serving some large number of enterprise customers. But the momentum right now are in the first two.

Will that change? I think anything can change. The smartphone revolution is still in the early stages. When you back up and look at this, this market’s a billion-unit market three years from now. And a few years after that, I’m not sure you’ll see any phones in the world that aren’t smartphones.

So the opportunity is huge, and there will clearly be changes along the way.

Our north star is to make the best product. Our objective isn’t to make this design for this kind of price point, or for this arbitrary schedule, or line up other things or have X number of phones, it’s to build the best.

And so that doesn’t preclude, there’s not a policy or a commandment, Thou Shalt Have One or whatever. We have an overriding belief of making the best. And so if we find we can do more, great. Do we have to? I think one of our advantages is that we’re not fragmented. If you look at when we introduce a new OS, iOS 5, it’s amazing the percentage of our installed base that’s on the latest OS. That’s not true on Android. We have one App Store. It’s simple and straightforward and all the apps are there. We have one phone with one screen size and one resolution, and so it’s pretty simple if you’re a developer.

Apple TV

It’s very uncharacteristic of us: We’ve stayed in the Apple TV product business, and we’re not a hobby kind of company, as you know. Our tendency is to do very few things, put all of our wood behind a few arrows, and if something creeps in and isn’t a big success we get it out of the way and move on.

Apple TV, you can see what we’ve done, and we’ve stuck in this. Now, it’s not a fifth leg of the stool. It’s not of the same market size of a phone business or the Mac business or the music business or the tablet business. It’s not like that.

But last year we sold 2.8 million Apple TVs. This year, in the first six months, we’ve sold 2.7.

And that was helped by 1080p and movies in the cloud. And so this is an area of intense interest for us. Many of us, the TV that we do watch is almost exclusively on it. That’s what my TV watching is. All of my movies, everything, is coming through Apple TV.

So the customer satisfaction with that product is incredible. It’s off the charts. So we’re going to keep pulling this string and see where it takes us. I think many people would say, this is an area in their life that they’re not really pleased with.

The whole TV experience. So it’s an interesting area. We’ll have to see what we do. Right now, our contribution is Apple TV.

Here’s the way we’d look at it. Not just at this, but other areas. We’d look and ask, can we control the key technology? Can we make a significant contribution far beyond what others have done in this area? Can we make a product that we all want? We think we’re reasonable proxies for others. So those are things we’d ask about any new product category.

This is sort of how we think. How we think about it, how we look at it.

I love the product, but I think Apple TV is more something that you keep pulling the string to see where it goes.

Facebook and Ping

I think the [Apple-Facebook] relationship is very solid. We have great respect for them. I think we can do more with them. And so, just stay tuned on this one. They have their own way of doing things. But people can say that about us as well.

But just because you have different views doesn’t mean you can’t work together. We want to provide customers simple, elegant ways to do the things they want to do. And Facebook has hundreds of millions of customers. And anyone with iPhone or iPad wants to have the best experience with Facebook on any device. So stay tuned.

Apple doesn’t have to own a social network. But does Apple need to be social? Yes. But the ways that we express that today are integrating Twitter into iOS, and you’ll see us integrate Twitter into Mac OS with Mountain Lion. Some people think of iMessage as social. You’ll see more things along that in the future. Game Center is a social activity. And so things like this make our devices even more useful to people. But that doesn’t mean that Apple needs to own a social network.

We tried Ping and the customer voted and said, this isn’t something I want to put a lot of energy into. Some customers love it, but there’s not a huge number that do, so will we kill it? I don’t know. I’ll look at it.

Siri

Customers love it. It’s one of the most popular features of our most popular phone. But there’s more that it can do. And we have a lot of people working on this. And I think you’ll be really pleased with some of the things that you’ll see in the coming months, where the breadth that you’re talking about… we’ve got some cool ideas about what Siri can do. And so we have a lot going on on this.

I think Siri’s proven that people want to relate to the phone in a different way. For a lot of years, there wasn’t a lot of invention in the input. Touch came along, and that was cool… And voice, when it understands the context… voice recognition has been around a long time, but what makes Siri cool is that she has a personality. She becomes many people’s best friend.

I think you’ll be pleased where we’re taking Siri.

This is something that people dreamed of for years, I think. and it’s here. It’s really here. Now yes, it can be broader, and so forth, but we see unbelievable potential here. And Siri as a feature, it has moved into the mainstream. People hear the word Siri and they know what you’re talking about. So I think you’re going to be really happy with where it’s going. We’re doubling down on it.

Competing with game consoles

We’re in gaming now. One of the prime reasons buy an iPod touch is gaming. I realize that’s not the big screen that you’re talking about, but gaming has evolved a bit. You have more people playing games on portable devices than on the big screen TV now, so where we might go in the future, you know, we’ll see. But this is an area where customers love games, we want to do things that customers want us to do. I’m not interested in being in the console business, “traditional” gaming. But if you view gaming more broadly than that, then I feel we are a pretty big player today and the things we do in the future will only make that bigger.

[Is gaming on a television set something you’re interested in?]

I think it could be interesting.

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