Tim Cook: tablets are the "mother of all markets"

Credit: deerkoski via Flickr

Apple CEO Tim Cook has big expectations for continued growth of the iPad, saying it has more potential to cannibalize PCs than Macs.

Speaking this morning at the Goldman Sachs Technology and Internet Conference, he called the tablet market “the mother of all markets” and said the iPad ended up responding to demand for a lower-cost Mac computer.

“For years, people said ‘why don’t you have a Mac for less than $1,000?’” Cook said. “Frankly, we worked on this. But we concluded we couldn’t do a great product so we didn’t. But what we did do was we invented the iPad.”

At $329, the iPad answers that demand for a lower-cost computer that still offers a great user experience, he said.

Even though the iPad responded to some of that demand for a low cost Mac, many people worried that the new product would suck up existing Mac sales, he said.

“The truth is, we don’t really think about it that much,” he said. “If we don’t cannibalize, someone else will. In the case of the iPad in particular, the Windows PC market is huge and there’s a lot more there to cannibalize than there is of Mac.”

The iPad does appear to be making a dent in the PC market. In the final quarter last year, Apple sold 23 million iPads compared to HP’s 15 million PCs, Cook said. If you count tablets as PCs, Apple is now the largest PC vendor.

“There has been a sea change here but I think we’re in the early innings of this game,” Cook said. He cited projections of 375 million tablets to be sold four years from now.

Apple has other strategies for appealing to price-conscious consumers, particularly in emerging markets, but they don’t seem to include building cheaper products. Instead, it appears that Apple will continue to discount the price of older products in hopes of enticing those customers. With the iPhone, last year Apple discounted the price of iPhone 4 and iPhone 4S and found itself with more demand than it could handle. “It surprised us as to the level of demand we had for that,” Cook said.

While smartphone sales have just begun to slow in developing markets, Cook sees huge potential worldwide. Last year the smartphone market was around 700 million units worldwide, he said, and projects are it will double in the next four years. “There are a lot more people in the world than 1.4 billion and people love to upgrade their phones fairly regularly, so I see a market that is incredible to be in,” he said.

Cook was cagey on the subject of new sizes for the iPhone. Larger phones are proving popular but while the iPhone 5 is longer than its processor, it’s small compared to the so called “phablets” on the market now. Cook declined to comment on future plans but went on to say that while some people are focused on display size, other factors like the quality of the display are important. He made an analogy to the PC industry where for years vendors have competed on specs like processor speed or hard drive size. “The truth is, customers want a great experience,” he said.

Cook also said that Apple’s stores are a major competitive advantage for the company. “I don’t think we would have been nearly as successful with iPad if it weren’t for our stores,” he said. “The tablet ingrained in peoples’ minds was the heavy thing the Hertz guy is holding that no one wanted. But the store is a place to go and explore and discover and try it out.”

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