tv Bloomberg West Bloomberg January 23, 2014 1:00pm-2:01pm EST
>> live from peer 3 in san francisco, welcome to the early edition of "bloomberg west" where we cover the global technologies and media companies reshaping our world. i'm emily chang. our focus is on innovation and the future of business. there's been a massive internet outage in china. perhaps the biggest in the country's history, affecting hundreds of millions of users. what we can tell so far is that dot-com addresses went down across the country, including ome of the biggest websites, nd dot-cn addresses were not affected. all of this happened tuesday,
january 21. here's a time line on what we know so far. 3:17 p.m. local time websites began to be affected. 3:3 p.m., millions of users at that point were unable to access various websites. by 4:00 in the afternoon, connections started to be restored. however, at some places in china it seemed like the internet was out for many hours. we've seen reports out for up to eight hours. our editor at large, cory johnson, with me now here on the set. part of the reason there may be such a discrepancy in the time is some of the servers in china may not have refreshed after eight hours in those second and third-tier cities. >> fundamentally, i think what happened the last 24 hours we had arguably the biggest shutdown in the history of the internet and that speaks also to the growth of the internet, when the internet was smaller in years past the shutdowns wouldn't have been such a big deal. but this is a huge deal for the chinese economy and also speaks a lot to the technology culture and what it means for the impact of technology in china, happening really today and
people reassessing what that means. in china so many people rely on the internet, unable to get business done and unable to work and has had a big impact on a lot of people and companies in chi. >> obviously we know the great firewall in china has been erect for many, many years. we know facebook and twitter are still blocked. but what we're talking about here is every single dot-com address in the country, there have been a number of -- there has been a lot of speculation why this happened. some people saying it's a massive cyberattack and what played out in the chinese media and the chinese foreign ministry basically said, we were attacked. however, other experts are saying it appears as if the chinese government was trying to block a website but instead rerouted traffic to all -- to that particular website. >> every incredible source is saying it wasn't hackers attacking china but quite the opposite, it was china trying to use its sensorship tools to
keep certain sites away and made mistakes in that process and rerouted traffic to places they didn't want the traffic to go at all and crashed the internet for the entire country. it's showing a great risk chinese businesses are facing, that the chinese government is inflicting on its own country and own economy by erecting this great chinese firewall. >> on that note i want to bring in a couple experts, jordan robertson who covers cybersecurity for us here at bloomberg news as well as mr. chang covering the collapse of china. you lived in hong kong for almost two decades and i lived there several years. what's your take on what actually happens here? >> well, i think essentially what we saw was the chinese sensors killing themselves. this is like a weapon of mass destruction. they've gotten so sophisticated, their tools are so comprehensive when someone makes a mistake it has nationwide implications. some people are saying the great 2003 blackout in north
america was caused by a chinese hacker making a mistake, they did it to us and looks like now they've done it to themselves. >> jordan, you've got two potential theories here, that it was a massive cyberattack or the chinese government did it to themselves? >> there's an amusing aspect to the question. when we talk about hacks we think of external hackers but when i saw the report, it was the hack themselves. with the government creating this censorship it has created a weapon that can easily backfire and in this case it did. you enter the u.r.l. in the wrong line of some system within the centralized sensorship apparatus and out goes the internet. it's their own fault, really. >> is it possible in the united states, is the internet so centralized somewhere someone can make one mistake and this would happen? >> not in the same way. the internet is actually very fragile so mistakes like these happen all the time. there was a famous example in 2008 where pakistan was trying to block access to youtube and
wound up sending 2/3 of the world's youtube traffic to pakistan where it was sinkholed. 2/3 of the world couldn't get access to youtube because pakistan was trying to block it. the underlying infrastructure of the internet is fragile and this incident exposes that. >> maybe more so in china because in one sense all of the traffic going into one of the most populous countries in the world is essentially being routed through one central set of rules and when those rules change as they did yesterday, this is what happens. i think what it highlighted, also, you saw it in wall street, you saw all the chinese companies that came to the u.s. to raise money and you see these stocks really selling off today. the list of stocks sold off this morning and was very aggressive initially. but a company y.y. down 5% and baidu down 5% and other companies, all down 6%. i think all this morning, with some justification, it isn't just nervous trigger fingers,
this exposes the big risk chinese technology companies have because they're operating behind this great wall. >> you wonder, what are the implications of something like this. obviously u.s. businesses had major difficulties operating in china and the chinese government has effectively shut them out. but, you know, in terms of chinese companies, this is having a huge effect on them as well, especially today. >> well, certainly, because anybody who works in china knows there will be many times during the week where you will not be able to access a site. and you know, this is really related, i think, to the problems in the central government right now. this attack or this problem occurred at the same time where we had this report by the international consortium of investigative journalists about the offshore assets of senior chinese leaders. so there are coincidences in china. it's a big country. but i think these two incidences are actually related because they occur very close in time to each other. >> when you look at the chinese
leadership, there's been a lot of discussion, are they going to be more conservative or open than their predecessors and there was hope they could be more open. certainly the events of the past year make it seem like they're almost moving backwards. is that the case? >> they're certainly moving backwards because under china's ruler that came into power in 2012 we've seen much more censorship, not just the internet but also expression. we have all these trials going on 6 anti-corruption activists and this is an important development because there was hope when ping became china's ruler and now there is no hope. >> when you look the way the internet is built in china, is there hope it can't be stopped, that the openness that's inherent in the way people communicate openly on the internet, that this is showing the limits of that and the chinese people, because they're starting to rely on it for business, for work, for commerce, as they can't -- gordon, let me ask jordan
first. we've got gordon and jordan. but you know how much the internet is built. >> there is no centralized choke point in the u.s. like there is for china. despite that fact, there's an irony in this incident that the site they were trying to block, that the chinese government was trying to block, was a site that helps chinese users get around the great firewall. this shows there's a lot of interest in these technologies and a lot of internet users in china are able to circumvent the firewall. >> i lived there three years and it was standard, everyone had a v.p.n. or virtual private network and you easily could get around the firewall and use facebook, use twitter, for example. >> this is something the government has to address because you can't control the internet in this way forever. as more people want access to these services, they'll to reconcile what their values are in relation to the internet. >> does the chinese government think they can stall out the growth of facebook which has been incredible, the growth of twitter which has been so strong as well, not anywhere near so strong but that the
chinese homegrown social networks will be the social networks of the future? >> right. >> or will the global reach around china, if you will, of both twitter and facebook, eclipse the growth of the chinese social network? >> we were talking to an expert earlier this week who says he thinks it's a little too late for facebook, even if they were let back in the country, these other social networks have grown so vast it would be impossible for facebook to take hold that kind of way. we have discussed this fact there are a lot of motivations for what the chinese government presumably is doing in terms of controlling the internet but one of them could very well be to boost up these, you know, chinese businesses, and they've certainly benefited from the chinese government shutting these other companies out, but at this -- you know, in a situation like this, you're seeing the backlash. >> gordon, let me ask you, do the chinese companies -- we see this with the problems that u.s. companies are having with the n.s.a.'s rules. do the chinese companies, the chinese entrepreneurs, have
much pull with the central government in china? will they be able to raise their voices and say hey, you screwed up and ruined our business? >> they'll be able to do that but in the balance of power, clearly the party is much more influential. we've seen, for instance, all of the big v's, all these people on the twitterlike service really be humbled the last three or four months and many being paraded on china's central television and this was the idea of trying to control expression in china so essentially, yes, entrepreneurs are influential but certainly don't have that political power yet. the one thing that's really important, though, is that most chinese people want free expression and eventually they will prevail. >> i recently spoke with the c.e.o. of baidu, one the largest search engines in china, and he said we follow the law and don't censor things willy-nilly based on our personal desire to, we're
following the law, point-blank. if we didn't follow the law, we would be shut down. jordan robertson covers security for bloomberg news and gordon chang, author. we'll continue this conversation after this quick break. also coming up, why is top talent such a top priority for tech companies? and how important are engineers in particular? we'll dig into the value of a good engineer with twitter's former head of engineering mike an ots later in the show. -- mike abbots later in the show. ♪
collapse of china" who lived and worked in china for many years and cory johnson along with jordan. you mentioned some upcoming challenges at baidu and this company benefited from the chinese government control on the internet, companies like google leaving the country because they don't want to deal with censorship issues that come with operating in china. tell us more about these potential challenges coming for baidu down the road? >> we have to remember baidu was helped because the chinese government undermined google which was the dominant search engine and today google shares have fallen by a half or so and baidu is up. the problem is people's daily, the flagship publication of the communist party has been hinting about getting into the search market. i think its plans are on hold but if it does ever go forward, baidu will be at risk because bay shing will do to baidu to what they did to google before
and that's a real risk for baidu. >> how active is the chinese central government in planning the businesses or helping to grow the businesses that are in china? and how could today's events, the events in the last 24 hours, change that? >> basically in the chinese central government, they've been very active in planning the economy full stop. clearly it has tried to make sure homegrown competitors will be able to develop sufficiently. >> planning the economy is one thing, right? every central government does that. planning the success of specific businesses with specific technology is a whole different thing. >> and they certainly do that because you see when foreign companies come into a market, they become too powerful, one way or another, they're attacked, especially we saw this with the pharmaceuticals, with tetra pack in packages and a number of other companies in the last six or seven months and that's really been to help local competitors. this is very much a part of what the chinese central government does. a lot of other governments do it as well but china is much
more effective at doing this than other governments. >> on that idea of internet freedom, we in silicon valley think -- are very idealistic about the need for internet freedom everywhere. almost everybody i talked to who is an expert on china says look, the internet in china isn't going to become more open or liberal any time soon. they're not going to reverse their policies. in fact, it looks like it's only getting worse. >> we hear a lot here in silicon valley about the need of technology to expand free expression and expand freedom. we hear it from companies like facebook and google and a pretty self-serving argument and what is a mask for what is a tremendously profitable business even if it's incremental improvements we see in china from pressures that arise from things like outages, whether it's pressure from businesses or consumers, those are incremental changes that some point in the future might lead to -- >> to gordon's point the notion of freedom will prevail has been the central theme of u.s. policy towards china over the
course of the last 80 years. so the notion it will prevail, we're about three or four generations into that and don't know the internet is making it faster. the chinese government is certainly trying to keep it from happening. >> when i lived in china and covered china, i had this conversation with so many different people and nobody is optimistic. they say that this could take decades if this ever happens. >> that's really a drag. >> it is. >> let me ask, jordan, in terms of the way the technology works, could the n.s.a.'s involvement in -- deep involvement in all aspects of internet traffic pose similar risks? or if not, why? >> any time you central control anything this risk occurs. the n.s.a., their big strategy is to attack the nodes where communication is centralized so the channels and the cables where communications flow. so they insert themselves at kind of the key points where our internet traffic goes.
so potentially if something goes wrong in one of those operations, we could see damage to the global internet. it's a pretty wonky, obscure topic but that's where the n.s.a. really lives. >> we like wonky and obscure. what you're saying essentially is the n.s.a.'s approach is to be at every intersection. >> every important intersection. >> and chinese approach is to be on every street? >> they essentially want to be in the same place. the n.s.a. would love to be inside the chinese firewall at the place this error occurred and they may well be. the n.s.a. is kind of the equivalent we have in the u.s., it's not a centralized system of control but these are the centralized systems where all internet traffic travels from. >> is it possible the n.s.a. could have made a mistake like this? in the united states or wherever they are? >> if you're thinking about something like sabotage, if the n.s.a. were inside the chinese firewall and wanted to do something like this, it's really kind of a sexy proposition that something like
this could happen. but any time you set up a system like this, this is the risk you run. >> i think we started all the conspiracy theorists talking just then. >> yeah, we're here to help. >> jordan robertson who covers security for bloomberg news and gordon chan, author. we're getting new details and will bring you anything new as we have it. coming up we'll tell you about software technology that could be the n.s.a.'s worst nightmare, speaking of the n.s.a., that is next. ♪ >> "bloomberg west" is brought to you by exxonmobil.
myth that poverty and disease cannot be eradicated. that's tonight at 9:30 p.m. eastern time and pacific here on bloomberg television. everyone is familiar with the n.s.a., of course, but what is tore and why is it a threat to the n.s.a.? tore is a free software technology that allows users to keep their online presence anonymous, making it difficult for the n.s.a. to track your activity. bloomberg news describes how it works. >> with the talk of n.s.a. and encrypted data, i you might wonder how to keep your online activity on the down low. there is a way. there's a software technology called tore, stand for the onion router, referring to the vegetable with many layers. tor is free software you can download on your p.c. or smart phone to anone mice your data. tor takes your data and bounces it around the world over several different data nodes.
those nodes only know one thing, where to send your data next. that way no person or agency can figure out where the data came from or where the data is going. currently, about four million people use tor but tor isn't for everybody. first of all, bouncing the data around the world kind of slows things down. furthermore, tor isn't compatible for things like flash so watching video and cool online graphics is difficult if not impossible. tor drives the n.s.a. crazy because it's so darn good at masking all that online data. who does the n.s.a. have to thank for this dastardly data hiding technology? it would be the u.s. navy. much of the funding behind tor came from the navy, the state department and the pentagon. that's because tor can be used for lots of people for very noble purposes and been embraced by privacy advocates, disdents, and journalists. but anonymity has its benefits to people with far more nefarious goals as well and it includes drug dealers, gun
runners and terrorists. kind of a rough crowd but if you want to keep yourself invisible online, there's absolutely nothing better than tor. >> bloomberg business week's sam grobart. it's time now for "on the markets" at 26 past the hour. i want to get straight to new york where alix is standing by. >> what you need to know, it's looking like an ugly day all across the markets. you look at the dow, off by almost 200 points, triple digit decline and s&p off by 20 points. and the nasdaq is faring -- fathering the best by all three, down less than 1%. if you look at the sectors within s apped p it's materials and energy leading the decline. we're watching area pharmaceuticals and hit three week highs diverging from the market after a report said they had been approached by three other farm companies and ariad
told bloomberg the company does not comment on rumors. we're looking at american eagle and we have a switch, the c.e.o. robert hanson is out and have a downgrade as a result. we're on the market again in 30 minutes. >> bloomberg television is brought to you by united rent always. you're building the future. we're here to help.
>> this is the early edition of "bloomberg west," i'm emily chang. catch us at our later time, 3:00 p.m. eastern and 6:00 p.m. eastern. for your bloomberg top headlines, ukraine is calling an emergency session of parliament after anti-government protests turned deadly. the parliament meets next week to try to come up with a solution. ukraine's president talked with u.s. vice president joe biden via phone today about ways to resolve the crisis peacefully. sales of previously owned homes rose in december, posting their first gain in five months. sales were up 1% according to the national association of realtors. in the meantime the labor department says first time jobless claims remained near a six-week low, rising slightly
in the last week. and justin bieber's bail has been set at $2,500 by a miami judge. i think he can afford that. this after his arrest this morning. bieber was arrested for d.u.i., drag racing, and resisting arrest as well as driving with an expired license. police say the singer was not cooperative at first and admitted to smoking pot, drinking, and taking prescription drugs. well, it's been a war for talent in silicon valley especially for engineers which has led companies as big as google to start up perks like free food, unlimited vacation time to recruit some of the top talent out there. so what makes a good engineer so valuable? mike abbott joins us with more, former head of engineering at twitter and now you're investing your focus on enterprise, infrastructure, cloud computing, and you basically were the guy that took twitter from scrappy startup, and ready for
primetime. i want to talk more about engineering in particular but first we've been covering this china story this entire show. when something like that happens, when an entire country's internet goes down, what happens on the back end? what are engineers actually doing? >> first of all, thanks for having me, emily. i think the first thing is depending on who the engineers are, they may be freaking out and saying, what is actually going on? >> right. >> i know actually when i first joined twitter the site would go down and we didn't always have a lot of visibility and asked why is it down? >> how would you find out why it's down? >> you need to provide the right instrumentation and people that collect the data to understand what's going on. what's the overall statistics on the environment? in this case, i don't have enough details to understand exactly what they have or not but typically going out and really seeing, looking at what kind of visibility can we get into the kind of current state of the system so we can root cause, what's actually gone, how do we get out of that state and furthermore, how do we do a
postmortem so it doesn't happen again. >> put it in context a bit, when you were at twitter, what did you do to get out of the farewell? >> it was bringing in a lot of great people and augmenting the team that was there and would be the first and foremost, getting folks from google and other sites ahead, seeing that type of scale and many of the engineers as well as the engineers over there focused on getting the visibility and instrumentation into the overall infrastructure to understand what was going on. >> basically getting eyes and ears out there. >> and also sharing information between teams. i know when i joined and the site was down there was only maybe a handful of engineers who understood the complexities of the system. how can we decompose that information and get it to others so we can have a collective team to root cause the issue and solve it versus heroics by a handful of folks. >> we all know engineers are in demand and that there are not
enough good engineers. what makes a good engineer? what can a good engineer do that a mediocre engineer cannot do? >> it's a great question. and it's hard to answer that question very specifically because it depends on what you're trying to build. but i think great engineers want to work with other great engineers, he or she, they want to make an impact on whatever they're working on. and they are working on an interesting problem and having a great impact and working with great people, they want to work at your company. >> do good engineers drive innovation in the sense that, you know, are they given a problem to solve or do good engineers come up with the problem to solve? do you get my point? >> i do. i think great engineers come up with solutions to address a problem. and i think in many great product companies, the problems, if you will, are outlined by the design team or maybe a product manager.
i think oftentimes, at least in today's world, it's the design team. the design team may have a vision for a particular interaction and particular product and it's up to engineering to think through, how do i come up with realizing that vision or dream? now, there has to be a path, too, for engineers to be able to provide input to that innovation. one of the things we started at twitter to drive that was basically how do we carve out time for engineers to come up with ideas, not of which actually made it into the product but had an opportunity, had the knowledge for that innovation. i think great engineers love computer science and love deep problems and want to be able to have that quiet in silence, be able to work on the problems without dealing with a lot of other -- >> speaking of the relationship between engineers, product, design, at twitter just last week, the head of product left, we don't know exactly why but he said in a blog post-it was time to leave but there's been a lot of speculation that twitter has been a very
difficult company to ship new product at, the twitter we all sort of love and know has been pretty much the same for many, many years and been difficult to make any changes for whatever reason, maybe users don't want it or maybe other forces in the company don't want it. what's your take on what happened there? >> well, i don't have a lot of the details but what i can say in most companies there's a center of gravity that exists, either in engineering, design, or product, and depending on where that center of gravity resides, there's a lot of other implications for the company. and i think with twitter the center of gravity has always been in product. certainly jack is a product person, ed is a product person, biz and jason goldman. it always sat there and it's difficult when you have a product so focused on simplicity when you have kind of this push to add new things. so we had this balance, i think a constant tension of how do we keep the service really simple, yet think thoughtfully how to
extend it in ways that are meaningful for users. >> as an investors, you're working very closely with your portfolio companies. where should the center of gravity be and is it different in a startup versus a company as big as twitter now that has to make money? >> i don't think there's one answer where it should sit. i think oftentimes in consumer companies, the -- really needs to sit probably closer to the design and product because that's really what the main consumers love. >> then you have people -- the revenue team saying but we need to make money. >> i'm a big believer if you've got a great product and great service there's a lot of different ways to extract economics from the service. and i mean, the same way at twitter we rolled out and promoted tweets. that was done in a very deliberate, slow way. a lot of that technology was done way in advance of it actually rolling out but we wanted to be really careful about with not disturbing the user experience at the expense of just generating some revenue. having that discipline is really important. i feel like on the enterprise
side, ooven times you look at early stage companies, that gravity is in engineering because they're targeting an oftentimes known, not always known, but problem in the enterprise and they're coming up with a different type of solution. and i think innovation varies between consumer enterprise. in enterprise you know the problem and the project manager in the enterprise company is representing the customer whereas on the consumer side, a lot of times you and i didn't even know we had that problem. you look at uber, like oh, wow, it's a fantastic service but i didn't necessarily know i had that problem five years ago but it was difficult to get back to new york. >> if i didn't have it, i'd be screwed. mike abbott, we're going to continue this conversation after the break and talk more about your investing focus in enterprise versus consumer companies. we'll have more with mike abbott after this quick break.
partner at kaufman and buyers and i want to talk to your area of focus which is enterprise focus. you've even said these are unsexy companies but how is investing in something more unsexy makes your job difficult or actually easier? >> as an engineer, it's more fun to look at things that are solving real problems, and regardless whether it happen to to be sexy or not. a lot of the things i look at are as a team and oftentimes it's teams of engineers with maybe one designer, maybe no designers. but does this group of folks have a vision around solving a particular problem or based on some trend and he or she wants to realize that. >> what are the trends in enterprise infrastructure? >> i've been spending time around a label called big data which i cringe when i say it, having started companies in that space. but there are a lot of things going on there where companies have invested in basically
really efficient ways to store data and have invested around companies called analytics and now we're seeing applications emerge. >> how do you use the big data? >> how will i use it and there are two trends that are interesting there, one is the verticalization of applications ephir invested in zp recently in the health care segment. and when we built an app, there was not much data a system like that could be built on and today we have more information and i'm looking to see how does that stack get rebuilt or reimagined with the amount of information we're collecting. >> last year enterprise companies sort of became the popular kids on the block and you had companies getting attention with strong i.p.o.'s but towards the end of the year consumer tech companies had a rebirth, twitter went public and has been doing very well.
what's it going to define this year in enterprise versus consumer technology? 25% in ably spend enterprise and 75% in consumer. i'm really bullish on this year. in the enterprise side one thing that's interesting is a lot of these large public companies have large cash holdings so i wouldn't be surprised if we see a lot of m & a activity but remains to be seen where and what strategy but we saw a lot of it in 2013 as well. on the consumer side i'm interested in this recent innovation of genome sequencing. i think there's applications in the consumer or more back office digital help but now we can start sequencing entire genomes for $1,000 and generating more data than we can handle but comes the same problem how do we extract knowledge from that data. >> and there have been problems running into the f.d.a. and
will it prevent innovation in that area? >> if the trend were interested in tracking and saying how do we make the right bets? >> on the consumer side what do you think of snap chat especially in the context of twitter and facebook? is it a real threat? is it a fad or here to stay, this whole idea of the impermanence of information, not everything needs to be on the internet forever. >> i think the concept of ephemeral content it here to stay and snap chat has done a phenomenal job pioneering that. and when i saw snap chat i didn't understand the service entirely and it really is a communication tool and is around having these short-lived pieces of content. it's hard to say, is this a backlash to a lot of the long-lived content we have today? but i would anticipate you see other services both in the enterprise and the consumer around this kind of ephemeral short-lived contact. not everyone wants every piece
of content to live forever. >> it is harder or easier to work at a company at snap chat where the data disappears? >> it's a different technical problem and interesting scaling challenges. i would imagine as an engineer it would be fun to work there the same way it's fun to work at twitter or facebook. but i think the product aspect is different. now you're thinking of the psychology of how long should you actually let people see it? are you capturing some of those metrics back to the service? >> interesting. >> and then you start leading into some policy and other questions. >> fascinating chat, mike abbott of kleine and perkins. thanks for stopping by. we'll be back after this break.
kirkpatrick earlier today in davos. >> the product hardware part is still an important part. value is certainly shifting to new areas, though. the services and software, these are areas we've invested tremendously and done 30 acquisitions in the last five years. we built $21 billion enterprise business in these new areas and certainly as a private company, we're absolutely intending to focus more on those areas. >> david, before you jump in here with some questions for mr. dell -- >> when are you going to let me? go ahead. >> the michael dell ad on television now is a home run deep to left field where you went back and you went back to where all these companies actually started. >> it's beautiful. >> i had goose bumps and was oh, my gosh. >> it was good. >> i appreciate that. >> going to the shape of the evolving p.c. and computer industry, what do you have in your hand and how significant is this kind of device to where
it's all going? >> i have our new eight-inch tablet. >> hold this so the camera can see it? >> is this a shameless plug or what? >> a shameless plug. here's the keyboard if you want to do that. this is the eight-inch tablet. it's also a full p.c. so it runs microsoft office and you take it with you and you come back to the office and attach it to a full monitor and take it with you. >> it's a small p.c. is this where the whole industry is going, then? >> well, you know, it's interesting, the -- i think the death of the p.c. has been talked about quite a lot. it turns out there are still a million of these devices sold every single day. >> you kidding? >> but price competition base in india is an example. this has been hugely successful. how do you differentiate here versus the person after mr. ballmer will do or apple is
doing and what's the distinction of this product versus a more high-end apple or what microsoft is doing? >> our tablet business has really taken off in 2013. it doubled from first quarter, second quarter, doubled again second to third, third to fourth, about tripled, so there's certainly product differentation, and differentation in service. and of course the real issue is how do you integrate this securely in a company's operations, make it work. it's not just about the product, it's about software and services, understanding how it works within a company to really make people more productive. >> michael dell in davos with tom keene and david kirkpatrick. we'll have more "bloomberg west" after this quick break. ♪
>> welcome back to "bloomberg west," i'm emily chang. coming up on the late edition of the show at 3:00 p.m. eastern and 6:00 p.m. eastern, how can internet outages in china affect the i.p.o. market. we'll talk about risks it could pose to companies like alibaba preparing to go pacific at 3:00 p.m. pacific and 6:00 p.m. eastern. bloomberg tv is on the markets. olivia stern is watching the markets for us in new york. how do they look? >> stocks are moving a little lower at this hour. we did get some weak manufacturing data coming out of china overnight and perhaps is spooking investors and sparking a sell-off.
they're weighing towards earnings data and one stock we're watching is mcdonald's, the fast food change posted a fourth quarter profit that is a little change from last year and missing analysts by 1%. shares are little changed at the home. alix, what stood out for me is that same-store sales missed estimates despite all the new promotions and products for mcdonald's. what stands out for you? >> that's the real issue. yes, they beat out earnings and were late on revenues but the real issues were on the same store sales. u.s. continues to be a weak spot and where they get a 1/3 of their revenue. overall globally it was same store sales were down .1% and looking for positive increase and remains an issue and boils down to not having the right innovation and product, not being able to woo those new customers. >> how important are these new products? we did stories on the mighty wings and mcwraps and stories on the fact mcdonald's were coming out with pumpkin
flavored lattes. how is important are new products? >> they went from making $1.5 million a store to $2.7 million a store in the last five years and that is due to those new products. they're trying to get new people in, they want to make more money and currently their core base is working men. but at the core of it, where they make most of their revenue are the same old-same olds, burgers and chicken. it's hard to find this data. we did get some proprietary data and chicken and burgers represent sales and if you look at the breakfast menu, they get a bulk of their revenue and 18% are higher margins because eggs are cheaper to buy and not a lot of labor. you look at value meals, that's a huge driver for mcdonald's. you don't make a lot of money on your value meals and $1 to $2 and if people aren't trading up to buy more expensive burgers like the angus burger
which they took off their menu. >> i want to bring it back to the mighty wings because i don't eat chicken but the mighty wings people were promoting heavily and people were excited they were timing the mighty wings for the beginning of football season but doesn't seem to have panned out for mcdonald's as a winner. why not and why is it hard to come up with a new product that works? >> 20% of their wings were stuck and left over with 10 million pounds of wings. from s&p capital they say they won't throw them out but maybe promote them. mcdonald's winds up buying really big chickens because they utilize a lot of the parts and the wings happen to be very large and why they wound up charging so much money, $1 a ng which was too expensive for most people. the issue how they're struggling with finding the right product, it's not just finding what you want to eat but they have to make it profitable. it can't be very labor intensive. that's a big issue. and import costs are a big issue as well.
mcdonald's isn't very flexible because they're so heavily franchised and often difficult in implementation. >> my sources tell us they're facing stiff competition for burger king. >> and wendy's and dunkin' donuts. >> for a new rib sandwich. alix steele will be back with more. "money moves" up next. . ♪ >> welcome to "money moves." i am deirdre bolton. we show you what investors and entrepreneurs are doing, as well as what is going on in hedge funds, private equity, real estate, and more. today, privacy and security, two subjects addressed in a later -- latest nsa report. we will bring you the details. on