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Tim Cook on the "Law of Large Numbers"

Q: 37 million units of iPhones shipped. When do we run into the Law of Large Numbers? What are the growth opportunities coming up?

A: 37 million is a big number. It was a decent quarter. It was 37 million — more than we’d ever done before. We were pretty happy with that, but let me give you the way I look at the numbers. As I see it, that 37 million for last quarter represented 24% of the smartphone market. There’s 3 out of 4 people buying something else. 9 out of 10 phone buyers are buying something else.

Handset market is projected to go from 1.5 to 2 billion units. Take it in the context of these numbers, the truth is that this is a jaw-dropping industry with enormous opportunity. Up against those numbers, the numbers don’t seem so large anymore. What seems so large to me is the opportunity.

What we’re focusing on is the same thing we’ve always focused on. Making the world’s best products.

We think if we stay laser-focused on that, and continue to develop the ecosystem around the iPhone, that we have a pretty good opportunity to take advantage of this enormous market.

Q: The biggest opportunity is the emerging markets. Large portion of that is the prepaid market. Apple has done very well but the wholesale iPhone price point is nowhere near what we would expect in the prepaid market. How do you make it more affordable to those markets?

A: Those markets are critical. The smartphone market is projected to be 1 billion units in 2015, 3 years from now. 25% of that is projected to come from China and Brazil. Just two of those markets — 25% — obviously those are very critical markets, but there are others as well.

We’ve been very focused on China. We’ve had incredible success with iPhone — we’ve gone from a few hundred million in revenue to last year with $13 billion. We’ve been really focused on trying to understand the market there and taking those learnings to other markets. As it turns out, not very many people agree with me on this, probably.

What I see is that there is a lot of commonality in what people around the world want. Everyone in every country wants the best product as it turns out. They’re not looking for a cheap version of the best product — they’re looking for the best product.

In the emerging markets there are very big differences in go-to-market. In most of the developed market, the carrier owns most of the distribution. In emerging markets, the retailer has most of the distribution. The whole go-to-market has to be changed significantly. Last year, we covered price points in the subsidized markets from $0 on up. That doesn’t translate to zero in the prepaid market, but we’re covering more price points there.

The paramount thing is the product. It is the focus. Of course distribution, we’ve recognized the difference there and in purchasing power. Unlike many people, I don’t subscribe to the premise that prepay is prepay is prepay. We convinced China Unicom to try to postpay. It wasn’t big there but they tried it and it’s working really well. It’s great for everyone because customer gets cheaper phone and carrier locks in a customer. It’s a different way to look at the issue and it’s been successful in China.

When Apple introduced the iPod in 2001, when we launched the iTunes Music Store and launched that on Windows, the iPod created a halo for the Mac. For 23 straight quarters we’ve outgrown the market on the Mac.

The halo that was created by iPod for the Mac, was created in developed markets. It was created in the US, Western Europe, Japan, Australia, Canada. It didn’t work nearly to the same level in Eastern Europe, Middle East, Africa, China, Latin America. People were already getting music from their phones. The world changed for us when the iPhone was launched.

The iPhone introduced Apple to millions of people — our brand — to people who had never met Apple before. Now, it’s interesting to look — take China as an example — last year the Macintosh grew more than 100% in China, year-over-year. Not on a big base, but 100% is pretty good. The market grew 10%, so we outgrew the market 10x.

The iPhone is creating a halo for the Macintosh. iPhone has also created a halo for iPad. You can definitely see the synergistic effect of these products, not only in developed markets, but also in emerging markets where Apple wasn’t resonant for most of its life.

Via: Apple CEO Tim Cook Speaks at Goldman Sachs Technology Conference – Mac Rumors