This is Tim: Cook at the 2013 Goldman Sachs conference
And so the cannibalization question raises its head a lot. The truth is, we don’t really think about it that much. Because our basic belief is that if we don’t cannibalize, someone else will. And in the case of iPad in particular, I would argue that the Windows PC market is huge, and there’s a lot more to cannibalize than there is of Mac—or of iPad, as far as that goes, relative to iPad mini.
I think if a company ever begins to use cannibalization as their primary or even a major factor in their decision-making in what products to go into, it’s the beginning of the end. Because there will always be somebody else.
And so here’s the way I see us on iPad mini: When we looked at iPad, what you would find if you looked at some data, you would find that over 50 percent of the people in countries like China and Brazil that are buying an iPad don’t own an Apple product. This is a huge thing for us, to go out and show people what Apple is, to introduce them to the company.
And as you probably know, through the years, we’ve found a very clear correlation between people getting in and being introduced to Apple and buying their first Apple product, and some percentage of them buying other Apple products. We saw that with iPod, creating a halo for the Mac, we’ve seen that with iPhone, creating a halo for iPad, we’ve seen that with iPad, creating a halo for iPhone. All of these things have synergies and stuff. It’s not about just selling a point product, it’s about looking at the total, and as you can probably tell from my response on the tablet question, I think this is a huge opportunity.
It seems perfectly reasonable to me to have an iPad and an iPad mini. I would argue it probably wouldn’t be smart not to. I mean, I think this is going to be the mother of all markets. And so I think we did the right thing. Of course, our customers are voting and they’re buying; we had a difficult time last quarter with satisfying everyone, but we’re working really hard on that.
On revenues vs gross margins
I don’t want to get into projecting margins beyond what we do in conference calls and those sorts of things. But here’s kind of the way we look at it. You can always—and we’ve done this many times—you can go in and accept a lower margin on any product at any given time for a strategic reason, and that strategic reason may be it’s our entry into that area, or it may be other things, but in the background, we always know that this halo effect plays. We have confidence in our ability to execute the supply chain and work down cost curves.
In the area of tablets, we think that the market is huge, and that it makes sense to have another product there because people wanted a full iPad experience but in something smaller and lighter.
Because we’re not [just] a hardware company, we have other ways to make money and reward shareholders. This doesn’t get noticed very much for some reason, but last quarter, if you looked at our services and software revenues, it was $3.7 billion. And so I know some people look at that and say “Well, that’s 3.7 divided by 54-something,” but if you look at that versus software and services companies, that’s an incredible amount of revenue!
Because we’re not a hardware company, there are other things that we’re doing, and could do to have revenues and profits flow. We don’t look at the sales of a product as our last part of the relationship with the customer; it’s the first. Our stores do a fantastic job of helping people along their journey getting the most out of their product. We are very focused on that, and we’re focused on that because it’s great for the customer. But of course there’s also financial benefit in doing so, though our focus is on the customer.
So, being larger than a hardware company affords us the ability to not worry about so much in the very short term. We’re managing Apple for the long term. I know people care about quarters, and so forth, and we care, but the decisions we make—the profound decisions we make—are for Apple’s long-term health, not for the short-term 90-day clock.
On emerging markets
That’s a good question. Last year, we put enormous energy in expanding our ecosystem geographically. If you now look, our App Store is operating in 152 countries; our iTunes Store is operating in over 100 countries; free iBooks are in over 100 countries, paid iBooks are in over 50 countries. If you look at services like iCloud—iCloud operates in virtually every country. Messages operates in every country that we can—there are some government restrictions there. There are government restrictions in some countries around Apple’s sale of movies. But there’s only really one major country where we’re not selling movies.
And so, I really feel like we advanced significantly last year in getting our infrastructure around the world at a different level. We’ve got further to go in some places, but we really advanced the ball, and our intention is to have a great ecosystem everywhere, and have all our ecosystem everywhere, not just portions of it.