Tim Cook was jubilant. It was Sept. 10, a day after the introduction of the iPhone 6 and Apple Watch at the Flint Center in Cupertino, Calif., and Apple’s chief executive officer couldn’t have been happier about reactions from the audience and the media. Cook sat down for an hour-long chat with Bloomberg Businessweek’s Josh Tyrangiel and Brad Stone. The following transcript has been lightly edited.
How do you think you did at the event yesterday?
Cook: I truly look at it more like how Apple did. Anybody coming out of there yesterday knows that innovation is alive and well in Cupertino. If there were any doubts, that should be put to bed. I don’t think there should have been doubts before. Certainly we weren’t doubting ourselves. We’ve been working on these products for a long time.
With the watch, most companies—you can just tell from what’s out there in the marketplace—they just take what’s there, like a phone UI [user interface], and strap it on the wrist, and it becomes a smartwatch. And we knew that wouldn’t work. The screen is too small. It obstructs the view. And so a lot of thinking went in about how to solve that issue. And I think we have come up with a way that not only makes it usable, but it makes it brilliant.
I love operating my Apple TV from the watch. I don’t have to worry anymore about the remote falling through the cushions of the sofa.
I don’t recall seeing an Apple TV app for the watch.
There’s—I don’t think we showed this. I’ve got a little advance copy. And so it will operate your Apple TV, and you can imagine that it can control other things as well.
Lots of companies have failed to make mobile payments work in the U.S. Where does Apple Pay have an advantage?
I think we have the first mobile payment solution that can be mainstream, that people can really use. I think most of the other people that ventured into this spent all of their time on the front end thinking about how to create a business model, how to collect data, own the data, sell the data, monetize the data. They were thinking about it in those kind of terms, not in terms of why you would want to use it.
Although I have to believe that you guys considered the business model.
We only considered the business model after we had the user experience down. So we started at: What does the user want? And we think the user really doesn’t want to carry a wallet. Why do you want to do that? There’s no great joy in it. When I was young, you carried one for photos. You’d carry photos of friends or family or whatever, and you would show it off.
Well, now the truth is, you don’t carry photos in your pocket. They’re on your phone. So that part of the wallet has moved to the phone. But the credit card hasn’t. We’re all walking around with plastic. Even the solutions that are out there, you’re fumbling, you’re finding the app to open. You’re then authenticating in some way. It’s a kludge. It’s really awful.
You talked about the next chapter in Apple’s story. Describe that transition: From what to what?
The next chapter for us is about personal devices, about something that’s even more personal than what we had before. And I think the watch is a great place to start that. And it has a lot of tentacles. It has a health and fitness component that we’re really excited about. It has an intimacy in connection and communication that we’re really excited about. It has the ability to control things. I’m using Apple TV as an example, but you might use your imagination on where that can be.
Home appliances, perhaps … ?
And because you’re not searching for yet another object in your home to get to, this is an object that’s attached to you. There’s loads of things that you can do with it.
The list that we’ve come up with is really long. But frankly speaking, as we open it up for developers, it’s going to get a lot longer, because they’re going to come up with things that we haven’t even begun to think about.
And of course, we have iBeacon over on the side that a lot of people have forgotten about—a very interesting technology that we’re using in our stores. And you can imagine a future connection there that is interesting.
Is Apple working differently now than it did five years ago?
Now, more than ever, it’s so clear that the lines between the hardware and the software and the services are blurred or disappearing. Think about Apple Pay, at the engineering level of it. Apple Pay can exist because of the hardware innovation with Touch ID. Well, that also includes a lot of software innovation, because you have to input, if you will, your fingerprint. And you want the device to learn over time to make that more and more accurate, right? So there’s hardware and software involved in that.
And of course, the services associated with payment is pretty complex, and the transaction volume is very large. We can only do that because of everything we’ve learned in the iTunes world. And of course, we’re building off the assets of the company that has, you know, 800-plus million accounts
The only way you can pull this off is if everybody’s working together well. And not just working together well, but almost blending together so that you can’t tell where people are working anymore because they’re so focused on creating the great experience that they’re not taking functional views of things. They take the customers’ views.
How does that not devolve into chaos?
You have to have great leaders. I don’t think anybody would really describe it as chaotic. But we argue and debate, and we think by doing so we come up with a better solution. So you want the appropriate amount of friction there, but you don’t want it to overpower what the objective is.
And did you have to work to achieve that harmony on your executive team? I mean, it didn’t happen right away three years ago.
It didn’t happen right away, no. Yeah, it requires hard work, and it requires tough decisions.
I feel like we’re dancing around Scott Forstall’s departure from the company. Do you have any regrets about how that went down?
I have nothing bad to say about him, and I have no regrets. And I think that the team that’s here is exceptional and rare. Craig Federighi has come into the software position, in charge of OS X and iOS. From a product point of view, look at the output of that two years later. Customers see it in the product, that all of a sudden these things that were really cool on iOS you can now also do on a Mac. There’s no reason why that shouldn’t have happened. You can begin to work on something in iOS and complete it in OS X, and so it’s seamless. And so I think we would have never gotten there in the old model.
And by the way, we’ve gotten on a year cadence on OS X releases. Look at Microsoft’s cadence. I’m not sure they have one. We’ve never had a year cadence until recently, either. It’s tough to have a year cadence on a desktop operating system. This is serious stuff.
Phil [Schiller] or Eddy [Cue] mentioned that yesterday, like you actually laid down a challenge to the team to say: “What can we do that nobody else can do? How can we leverage our assets and our strengths?”
It’s reminding ourselves of why we exist. You know, at the beginning, when Steve [Jobs] came back to the company, he did that by coming up with the “Think Different” campaign. And it reminded people that they were here to make tools that empowered people to go beyond themselves and contribute more in the world and change the world. And so the things that we should be doing as Apple are things that others can’t. We’re not contributing a lot if we do things that others can, the way that I see it.
Did you get more involved than usual in product design of the Apple Watch because of your own personal interest in fitness?
I have a lot of interest in health and fitness, and so, you know, I would say I would kibitz on that as I’d kibitz on anything. But that area is one where, if you sort of back up and think about contributions that Apple can make as a company to the world at large … health is a mess. And the more people that we all know that go through problems, the more it affects you and you want to do something, right?
We’ve really added a lot of strength in that area, and we’ve got more things going on, including some things that are really research-oriented—that I wouldn’t call development. I think we all know that health care has a lot of potholes in it, right? And so at the macro level, we like to take things that are really hard and make them simple, and we like to empower people to do things they couldn’t do before. One of the big challenges in health care is getting individuals empowered to take care of themselves. I think this is something that Apple can do. And so this is our first entry into helping people live a better day.
Do you feel like you’ve hit a price point with the Apple Watch where you could help mainstream Americans to manage their health better?
I think $349 is an incredibly low price for the value that we’re delivering. Would I like to help more people that can’t afford that? Of course. That’s the humanitarian coming out, so obviously the answer to that’s yes.
I want to get back to how Apple has changed in the last years. You’ve said that you wanted to move the default of the company to open. What does that mean, exactly?
My opinion was that our default [setting] was closed on everything. I’m not talking about closed operating system. I’m talking about closed in the communication area. And so it was, “Just be quiet. Just say nothing, and only talk about things that are completed.”
My view is that that doesn’t work in things involving social responsibility. On social responsibility things, only talking about them after they occur because some are long-term journeys. So we’ve been very open and communicating loudly about our views around the environment, around human rights, around diversity, around gay rights, which is a part of human rights, around eliminating AIDS in Africa, and around education. There’s a set of things that I think we should be very open and say everything that we’re doing, and if people want to copy that, God bless them.
Did you meet any internal resistance when you published your diversity report?
There was quite a discussion about whether we should do that or not. And my view was, “Wait a minute. I’ve said I’m going to be 100 percent transparent on all these things that are not about future road maps.” You know, future [product] road maps, I’d like to find a way to be more secretive. You know? Unfortunately the rumor mill goes a little beyond me. But yes, there was a view that we shouldn’t. I didn’t agree at the end of the day, and I feel great that we published. It clearly says we’re not perfect. We’re not a perfect company, and we’ve got work to do. And that’s fine.
What specifically are you doing to rectify the gender imbalance at the company?
We promoted Denise Young Smith to run HR because she’s the best. We recruited Lisa Jackson because she was the best to run our environmental initiatives, and she’s superb. She’s off the charts. And so the number of females at the top of the company’s changed dramatically.
We just brought Sue Wagner on the board a few weeks ago. She’s unbelievable. If you run a board search and you have a condition that they must be a Fortune 500 or Fortune 100 CEO, there’s very few people on the list. And so you have to go outside of the normal spec sheet. You get a bunch of white males in their 60s when you do the Fortune 500 CEO list. I think it’s a cop-out for companies to say, “I can’t find women.” You’ve got to ask yourself at a deeper level, What skill are you looking for? What lens do you need on your board? And Sue brings an incredible amount to our board. She was a founder of BlackRock. They scaled BlackRock to a huge company in all these countries. She knows a lot about international. She understands M&A a lot because they acquired a lot of companies. And plus, she looks at things in a different way. Well, I like that, because at the end of the day, I want someone to challenge the way I think about something.
The truth is, it doesn’t require a Fortune 500 CEO to be a great board member. Somebody dreamed that up to keep the club looking the same.
There’s your deal with IBM to sell iPads to corporate customers, there’s the Beats acquisition. How does Apple treat partnerships differently than three years ago?
We’re more open to partnership now. I think, certainly, from my point of view, we’ve always been very focused. That’s the reason you could put all the products that we make on this [gesturing to conference room table] and still have much of [the table] uncovered. But we have always said: How can we get them in the hands of as many people as possible?
And the only way to do that, I would argue, is to partner well. It’s not in our DNA. It’s not in our culture. However, do we want to change the way people work in enterprises and business? We really do, and we’re passionate about that. Just like we changed the way consumers do things and the way students learn and teachers teach, we want to change the way people work. And so we started thinking, well, how could we do that?
Five years ago, would Apple have tried to all this alone—the selling to corporate America and so forth?
No, we wouldn’t have done it at all, because we would have said, we need to do it on our own or we don’t need to do it. What I think we’ve now done is we’ve introduced another alternative, a partner alternative. And I think we’ve learned from—particularly in the last several years, working with so many carriers—we’ve learned that we can partner.
When will you know whether the Apple Watch is a success?
I feel like it already is. But when do you really, really know? You know when the consumer votes. And you know it over time. You don’t really know first day and weekend. I know everybody likes to say that they do. It’s not like a movie, where you can look at the first weekend and you can draw the line for the balance.
A movie’s not a new category. It’s: Was it good or not, and what are people going to say when they talk to their friends the next day? What did the iPhone do on the first weekend? You don’t remember. Does it matter?
I remember long lines and people jubilantly walking out with them held up high.
Yes. But we only sold a couple hundred thousand or so the first weekend. In the first year, we hit our objective of 10 million. But over half of those were taken out of the countries that we meant to sell them into and exported to the countries we weren’t selling to.
We had to learn. And iPad: The first quarter, I think we sold a million units. You don’t really know in the beginning, but we’ve now been involved in several [introductions of new product categories].
We have the good fortune of having these retail stores and the great teams that make them up, and they can introduce new categories like no other place on earth. Whereas if you just put this thing out into sort of mass retail, you would get no discussion about it. There would be no help about it. In the Apple Store, you can go and explore and discover what they’re about. I think [the Apple Watch] is going to be great. I think it’s the beginning of a very long run.
Do you worry about adding distraction or adding unnecessary technology to people’s lives?
I think it takes away instead of adds, because what you’ll find out is, like … Today, to know what time it is—unless in this room and I look up there [pointing to wall clock]—I’m doing this [pulling out phone]. And once I do this to see what time it is, I’m saying, “Well, I might as well check my mail, and then I might as well check my Twitter stream to see if I’m getting bashed about something or other.”
Where on this [holding up Apple Watch], you’re not doing that. You’re not doing, “Oh, I’ve got a call,” and I see who it is. “I can do that one later.” You know? It’s also a bit more socially acceptable, I think, to do this [looking at watch] than it is to do this [pulling out phone]. You know? So I’m not saying anything bad about smartphones. They’re unbelievable. But I think this is a nice complement. If anything, if you wear it for a week, you would find yourself less distracted than more.
Are you using the watch in any surprising ways?
Well, I’m probably doing some things that I can’t talk about yet. But it did feel great [to unveil the Apple Watch]. It felt great. It was sort of like a day you’ve been waiting for, because we started on this stuff—
Three years ago, according to Jony Ive.
Yeah. We could have done big-screen iPhones much earlier. We could have done the watch much earlier, honestly. But not at the fit and finish and quality and integration that these products have. We’re willing to wait. That’s something that’s very different, I think, about us. A lot of people measure themselves on being first. We measure ourselves on being best, and we’re patient.
Do you and Ive agree on questions of timing?
Jony and I have never disagreed about it. It’s ultimately my decision, but I can’t imagine a day that he and I would have a difference of opinion, because I’m not Mr. Short-Term CEO. We don’t run this place to meet quarterly targets. That’s not what we’re doing. We make decisions for the long term.
We’ve been investing in that watch for a while, and our [operating expenditure] line’s been going [up], and people are questioning me: “What are you doing?” And of course, we don’t really answer the question totally clearly. We just say there’s things we’re working on that we’re not getting revenue for. And we’ve been working on those iPhones for a long time.
We wanted something that spoke to our brand and that met our own bar. And it takes time to do something well is the truth. And you just have to have thick skin to take the hits along the way when people are asking you—
Where’s the innovation? Yeah.
Because you know the truth. You know that somewhere down the road, the truth always trumps everything. And yesterday felt like the day it did. Yeah.
But, you know, the problem with smartwatches so far has been that people wear them for a bit and then put them on the shelf because they’re not adding enough utility. So the Apple Watch might be the breakthrough?
It’s kind of the way we are, except we kill things through the development process when we decide, “You know, it’s not doing it for me.”
Well, we’ve stopped some things, yes.
Before they see the light of day?
Oh, yes. Oh, yes. Because it just didn’t keep turning us on every day. Or we concluded that we didn’t own enough of the technology in it so that we could really get the user experience that we want. And—
I’m guessing that television might fall into that category.
Natalie Kerris, Apple public relations: And now I’m going to stop you.
He was thinking of a thoughtful answer.
Cook: I was thinking about a thoughtful evasion. [Laughs.]