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tv   Bloomberg Technology  Bloomberg  November 4, 2016 1:00am-2:01am EDT

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♪ it is 1:00 p.m. in hong kong. following corporation , down 3.6% after net income came in at $1.6 billion. the company has raised its full-year net forecast to ¥3 billion. the plan to pay a dividend of $.50 in the second half. tumbling, nikkei says the u.s. unit is planning to file for chapter 11. the company has been seeking a buyer since may. sources say companies are in the
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running. anda has bought dick clark productions. it marks the first foray into tv. it is the latest addition to building a growing entertainment that includes legendary entertainment and amc. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. let's get a check of the markets. under way anding hong kong and china, anxiety over next week's u.s. presidential election. indices unchanged, although markets are in the red.
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♪ brad: i am brad stone in for emily chang. this is "bloomberg technology." coming up gopro nosedives over , 20% after a disappointing third-quarter snapshot. we will break down the numbers. plus, escalating cyber threats with the u.s. election just days away. we will catch up with crowd strike's ceo. and, fox hits a homerun run with the most-watched world series game in 25 years, but the nfl suddenly appears to have a ratings problem. brad: first, to our lead. gopro shares plummeting as much as 25% in extended trading. it has become the latest hardware maker to fade in the holiday season. they lowered the forecast,
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missing analyst estimates. gopro also missed the estimates for third-quarter sales, down 40% year-over-year. net loss is $104 million. down more than 650% from the same quarter last year. the ceo told investors on the earnings call that production issues were to blame for the weak results. >> as a consequence of our compromise production ramp, we were unable to restock channels that have been cleared of legacy products in the third quarter. furthermore, we anticipate difficulty catching up to match forecasted demand during the fourth quarter. brad: joining us now, from bloomberg intelligence and bloomberg technology reporter selina wang. gopro stock plummeting like a drone of that hit a power line. after thinking that it would scale to the skies. what is ailing gopro? jitendra: they are blaming production issues for not being able to meet targets. this is really a bad execution story. there was no refresh, there was quite a lot of time.
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they finally fixed the ease of use issues people had. you take that and marry that with production issues. it just raises a lot of concerns. brad: getting into the drone business was supposed to provide a next act for gopro. when you look at this balance sheet and the way that wall street has reacted to the third-quarter results, are there any bright spots for gopro? selina: he was very coy about it. he did say in the fourth quarter it would be a small amount of revenue compared to the camera. the biggest thing they have going for them is their brand at this point. they have been in this business for 10 years. they have excellent features, better sensors, better technology. the price point is similar. it you are looking at it from a tech standpoint dgi wins out. , there are other startups getting into this as well. the brand is the only bright
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spot for gopro because more people in the u.s. know about gopro. brad: dgi, the shenzhen-based drone maker has been in the business for a number of years. was gopro surprised by dgi's competitive response to the drone plans? it introduced its own drone after gopro made the announcement. jitendra: it was kind of expected. what is interesting is like the supply chain issues across the drone industry seems to be pretty much similar. dgi is having some shipping issues. what gopro is saying is their expectations are more than 20%. we do not know what that really means. even in looking at the execution that they have shown so far, we are concerned about, like, are they able to pull off the opportunity that they have in drones. brad: when you say supply chain issues, what does that mean? can you order one of these new drones for the holiday season? jitendra: you can order it and
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they will take your money but , you can't get it. brad: will it get here for christmas? jitendra: they are saying december. we were really hoping they could leverage the massive brand they have in terms of up selling to the 10 million plus customers. the interest was pretty high. if these guys were not able to meet the demand or not able to resolve these production issues, that is raising a lot of execution risks for the company. brad: selena, you wrote a story that highlighted problems and other hardware maker, fitbit. we have drawn some connections between these two companies and their poor performance. are they related? is there a secular problem among all these hardware companies as we head into the holiday season? selina: there is a fascinating correlation between the companies, they are both young
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companies who have recently ipo'd. they really haven't been up to their expectations. i think taking a step back and looking at these companies, though their products have little overlap, they are both in markets that aren't quite proven yet. i think that the question investors are asking is can turn a fad into a long-term sustainable company. gopro makes these tiny, rugged cameras, and now they are trying to do drones. the question, does everybody need a tiny little camera in addition to their smartphone? you heard analysts ask on the call what the grand vision for the company is. you talked about making it a media company, increasing the addressable market. he said we see ourselves at the epicenter of social and capturing images and sharing that. but there are so many companies at the epicenter of that. you look at snap. they are now calling themselves the camera company, and they will probably make it even easier to upload to the web and share it. brad: what is the next move for gopro?
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earlier this year, they hired a designer from apple and stock bounced on the day they made that hire. have we seen the results and what is their next act? selina: i do think they solved a lot of the core problems with the product and the software. just a year ago, it was hard to operate the camera. they had all these buttons, consumers complained about how difficult it was to use, you had to stitch together different editing software. it took a very long time for all of that to work together and share it. now i have made some acquisitions, really invested in their hardware and software. it is much easier to do. their next move is making that even easier, even more shareable, trying to expand their sales in drones. this whole media content strategy is, i think, way down the line. nick'swhat should
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next move be? jitendra: focus on the execution. it is not acceptable, especially when you had such a big gap in terms of your product cycle. taking the right steps that they have done with respect to ease-of-use, they have the opportunity but they have to , move quickly or they will lose it. brad: bloomberg technology reporter selina wang in new york and jitendra of bloomberg intelligence. thank you both. still to come, the cyber firm that first pointed the finger at russia for the dnc hack is back. strike --ke -- krell krell this is bloomberg. ♪
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brad: one stock we are watching, symantec shares are lower after forecasting earnings
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for the current quarter that miss some analysts estimates. symantec is the biggest maker of cyber security software and it has struggled as the pc market declines and hackers develop more sophisticated techniques. on the other hand rival fireeye , shares are surging, saying their losses will not be as bad as predicted in august. the company has forecast a loss of $1.50 per share and without that their loss will not be more than $1.16 per share. cyber security has been a top talking point on the campaign trail, thanks to an extraordinary series of events from hillary clinton's use of a private e-mail server to ones like this one -- mr. trump: russia, if you are listening, i hope you're able to find the 30,000 emails that are missing. i think you will be probably rewarded mightily by our press. brad: we also have the dnc hack this year and countless claims by donald trump that this
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election is rigged. crowd strike was the cyber security firm that first identified the russian involvement in the dnc hack. their ceo joins us for more on the unprecedented role in cyber threats in this election. thank you for joining us. i don't know what is more anxiety last night in the 10th inning of the world series, or now for this next week leading up to the election. what do you expect? do you think there will be smooth sailing over the next six days as we head towards next tuesday? >> if the past is any indication, it seems like there is some new leak or new event that happens almost on a daily basis, particularly in the cyber security world. emails found on some of these servers or new emails that are linked. i think it will be an interesting run-up to the election. brad: david sanger had a piece in the new york times outlining the possibilities of next week. one of your colleagues said he thought the ultimate intent of hackers was not to change the
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results, that is obviously far-fetched, but to discredit the election and throw a question mark over the results. george: i think when you look at what has transpired in some of the work we have done and some of the government work naming russia as one of the actors, i think this is one of the same things as the past. cyber is a new medium. in the past, whether it was in the 1950's, 1960's, 1970's, it was a similar methodology of trying to introduce chaos where you can. this is just another way to do that through cyber. if you look at the election and what has been done so far, .eople are asking questions what does it all mean? are the elections going to be hacked? it is a talking point that helps to destabilize what is going on. brad: has russia done this in the past?
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there were allegations that maybe they got involved in the ukrainian election with similar tactics and whether that can give us a guidepost for the next week? george: they are a very capable adversary, certainly very good on the cyber side, which is what we see all the time in investigating these sorts of activities. their method of operation hasn't necessarily changed. the medium has changed. they are more focused on cyber because they don't have to leave the comfort of their chair. when you look at the message, whether it is a piece of malware or a phishing attack, it is all available on the internet. they are taking advantage of all that data. brad: if it's simple enough to say that they are trying to support the candidacy of donald trump? or are they basically to throw the u.s. election system itself into chaos? george: like most governments, they collect lots of information. if you look at all the e-mails, classified or not classified, things like collecting what is happening behind the scenes and understanding where the wind is blowing is very important to them. that collection mechanism is not
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necessarily unique. it is what you do with it. what has been unique in this case is the fact that it ended up on the internet and people are free to look at it. does that influence the election one way or another? we will see. brad: every american voter who turns out next tuesday and goes to an electronic voting machine is going to wonder, is this voting machine safe? is that unequivocally a yes right now or is there still some question in your mind? george: the question is, is the voting process safe? there are electronic voting systems which are susceptible to attack. in general, it is so manual that statistically the voting system is not necessarily going to be impacted by hacking to change the election. brad: how about voter rolls? a there some possibility that voter turns out and is not registered to vote or they turn up at the wrong place because of some tinkering from outside the country?
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george: that is always a possibility. if you look at how easy it is to break into these systems and the lack of security that exists in the environment today. it is very easy to get in. could they manipulate those sort of rolls. ? absolutely. will it happen or make a meaningful difference? don't know. brad: in the political process or business world, many have been slightly traumatized by this election cycle. not only hillary clinton's e-mails made public, but companies like salesforce whose internal communications were made public as part of the colin powell hack. what have the lessons been of this election cycle? do you think that we have learned something that future candidates are companies today can take a lesson from? george: you need to take a look at whether it is a candidate or company. they all face similar threats. most organizations have been compromised in some fashion. it is important to understand if there has been a compromise in the environment. number two is that the technologies that are put in
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place to try to defend against these attacks are inadequate. it is very easy to get in. technologies can't keep up. then, having the ability to find them very quickly before the data is stolen will be very important going forward. it is easy to get in with a spear fish and all the data is being dumped because it is not encrypted. there are many lessons learned. brad: a spear fish is basically user error. it is somebody clicking on a link. george: they clicked on a link and either gave out a username and password or downloaded some malware that wasn't captured by their legacy antivirus technology. brad: do you think all these traumas, going back to the sony, have undermined our use of the email? our future venture capitalists and ceos thinking twice before clicking to hit the send button? george: i'm guessing there are
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going to be a lot of venture capitalists who invest in e-mail security companies that focus on locking down the e-mail service. -- e-mail servers. brad: next question. the department of homeland security, what is different about the precautions they are taking for next tuesday or even how they are spending the day, than it was four years ago? george: if you look at the election and are interested on how it has been influenced by cyber attacks in the past there's certainly a heightened , visibility into what is next. just think about the denial of service attack that took place a couple of weeks ago. something like that, could it take out social media, systems design to collect information? think about the impact on social media if it was down during the election day. brad: you think we will see a denial of service attack next week? george: i hope not. i hope not. brad: thank you, george kurtz. crowd strike ceo. investors concern over facebook send shares plummeting. where other revenues revenue
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growth? this is bloomberg. ♪
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brad: facebook shares plummeting over 5.5% on thursday. executives suggest that the company probably won't be able to keep up its explosive pace of growth much longer. in the earnings call, the cfo told investors that the company won't keep increasing the
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percentage of as that facebook users cnn news feed -- that users see in their news feed. michael wolff spoke about it. >> i think that they are hitting the upper limits of how many ads they can show you. i think also, a lot of their growth this year has come from political advertising which of , course won't be here next year. and so, they now are in a position where they can't get more revenue out of the internet. historically, a lot of their revenue growth has been taking away money out of smaller websites. so going forward, yes they will , grow fast, but it is not likely to be anything unless they invent new parts of their business. i think that is likely to come from their messaging, facebook messenger and also whatsapp, which are massive. >> why are people so preoccupied about the advertising revenue? they have been making bolt on acquisitions, acquiring anything
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that moves that is of interest to them, so why shouldn't growth come from there in the future? >> that's the only place they are getting revenue. the other deals that they have done, whatsapp is really not delivering any revenue. the average revenue per user is zero. the vr business is also not -- there is revenue way off in the future. they are basically google, they are an advertising-based company and they are going to grow to the extent to which money moves to the internet and to the extent to which they can capture it. >> is this the picture for the whole industry? it will be harder for the ad supported content companies, the likes of google, facebook, apple, amazon, microsoft. they will benefit. >> each of those companies is in a different position. so in the case of both facebook and google, they are controlling over half of all digital advertising. when you look at others, there is always an upstart, someone
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who comes out of nowhere. there is a hit from nowhere. here we have snapchat, which is capturing a lot of time and attention, especially from millennials. they are coming onboard this holiday season and they will have a lot of new advertising products. amazon is really in the e-commerce business and they are nowhere close to this. and apple competes with facebook primarily now on its messaging product. >> down around 6% in the last two days. is this repricing a good thing for facebook, maybe putting it more in line with what it should be valued at? or what do you make of the 29luation, trading at 20 times? >> facebook is a control company. mark zuckerberg controls the company. he is going to be less worried about what the near-term stock price is versus his ability to grow long-term. the main reason he will be
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worried about the stock price is their ability to give options to their employees and have increasing growth to the earnings of their employees versus what happens for shareholders. brad: that was activate ceo michael wolf. in this edition of out of this world, a company is looking for a new supplier to launch its in-flight wi-fi satellite into orbit. that is because it bought two launches from spacex, but after a september 1 explosion destroyed the rocket and the satellite it was holding, inmarsat's order was delayed. all of those companies are planning launches sooner than spacex. they will relaunch the project with spacex at a later date. coming up, the chicago cubs break a 108 year curse with an
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historic world series win. why this was a winning night for fox, next. and, if you like bloomberg news, check us out on the radio. you can now listen on our bloomberg radio app. this is bloomberg. ♪
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>> it is 1:30 p.m. in hong kong. sheh korea's president says is willing to be questioned by prosecutors over her role in the peddling scandal. she apologized and said she would take responsibility for any wrongdoing found by investigators. fallenroval rating has to 5%. the race for the white house is getting tighter five days out. hillary clinton holds a slim lead over donald trump. a new york times-cbs poll has clinton ahead 45% to 42% among
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likely voters, tighter than her nine point the last month. pollhington post-abc news shows a closer race, with only the margin of error separating the candidates. the crackdown may put off big spending visitors to my cal. mainland tourists may hesitate before visiting casinos, but it was too early to gauge the impact. chinese authorities detained 18 crown resort staff last month, in the toughest crackdown on gambling in more than a year. crown resorts owns 27%. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. let's get a check of how markets have been trading in the asia-pacific. pretty much risk off is the order of the day for the final trading day of the week. quite a lot of we is coming
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through asia. up .8%, a market that underperformed the region yesterday. the nikkei playing catch-up due to the fact that japanese equity markets were closed thursday or it we are seeing weakness come through, down 1.5%, also weakness in australia, while new zealand is still at that four-month low. alsoeaker oil price playing havoc with a lot of stocks in the region, particularly hong kong and the hang seng is off by .1%, weakness coming through southeast asia. we have seen a resurgence in sterling, the pound on track for , the% gain over the week biggest gain we have seen in eight months. little weakness coming through into that movement, and also some movement coming through in
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some of the safe havens, money coming out of gold, down around .2% in the asian session. we are live from london at the top of the hour. ♪ brad: this is "bloomberg technology." i am brad stone, in for emily chang. the chicago cubs had an epic win in game seven of the world toies, marking and iend their 108 year drought. the team wasn't the only one who hit a home run. fox sports says chicago's game 8-7 win over the cleveland indians was the most-watched world series game in 25 years. it gave u.s. major league baseball a much-needed ratings boost. it turns out baseball isn't the only major sport that has been needing a pick me up. for more on this, i want to bring in longtime media exec patrick keane as well as sarah
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frier from bloomberg. patrick, i am a little depressed today given that my cleveland indians were defeated in an epic game, but it is great for chicago and it is great for major league baseball. why was this ratings turn out such a big win for the league? >> yeah, it was an absolutely huge one for the league. if you look at this, this was the highest rating in 25 years for major league baseball. let me repeat, 25 years. so to have 40 million viewers nationally watching the game is pretty extraordinary. i know we will get into it in a little bit, but this is just bad news for 280 park avenue. i think it is another example of the national football league, and that is their headquarters, being really hit by get yet another league that is starting to grow share. brad: let's talk about that. it is the cover of this week's "business week." a great piece by felix gillette talking about the problem. do you think it is a fair juxtaposition? game seven of the world series versus the week to week performance of the nfl in an
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election season? patrick: i think it is in some regards because your average world series game often is not going to see anywhere near the ratings of even an average primetime nfl game. that is just how dominant the national football league has been in terms of broadcast ratings over the past many, many years. and this has gone back even to the first time they had a 2006, thursday night game. this drop in ratings, to me, it has just been an absolute shock. brad: patrick, in the story, felix runs through all the things that might be ailing the nfl. bad officiating, too many games, no stars. is there one thing that you highlight that you think it's ailing the nfl? patrick: i don't know if it is necessarily too many games. they have had that 2006 package for 10 years now. they have had monday night games, sunday night games for six years now, even a london game. i think the quality of the product on the field has been a challenge. i am hearing from the millennials i know that they are turning off nfl games for the first time in their lives. i think the quality of the
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product on the field is a real issue. i think one of the nfl's best products, it's red zone channel where you're able to watch at , the same time several games in scoring positions at once. i think it has become while still a great product, very cannibalistic to existing ratings during in game shows. frier culprit might , one be the internet, right? the nfl is streaming games on yahoo!, twitter. could that be eating into the core audience? >> absolutely. these are companies that are almost betting on nfl needing another way to find audience. twitter this year had a deal with the nfl to stream 10 thursday night football games. that has been the cornerstone of their media strategy for the future of twitter. they want to do that with baseball and hockey and basketball as well. and so, absolutely i think that , these are new channels for the nfl to explore that we really don't have great ways to measure yet. brad: i want to play a quick
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clip from an analyst who actually kind of blames nielsen and its inability to track some of these new channels. have a listen. >> mobile is not reliable. and several other measurement services are not reliable, and advertisers don't believe them. their numbers. nielsen has been the industry standard for 50 years and nobody , believes nielsen. brad: can't nielsen do a better job monitoring these online and mobile channels? sara: absolutely. felix mentioned in his story that they are already working to refine their ratings. they absolutely need to do more with the social networks, with the online streaming sites to , try to get a better sense of how many people are watching when they are watching and what the engagement is like. twitter, for example their first , thursday night nfl football game, they told everyone that 2.3 million people watched it.
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but we really don't know what that means. did they watch it for the whole time, turn it on for a second, retweet a tweet? i don't know what that 2.3 million means, and i think nielsen would be one of the places to tell us. brad: patrick, are we shooting the messenger by blaming nielsen? patrick: nielsen has been in this business for 50 years. i will take a slight bit of a devil's advocate to the twitter being a cannibalistic experience for the nfl. i don't think it necessarily is. i think what is an issue is there are so many sources to find scores, so many sources to get instant results and instant highlights. it could be somewhat of an issue, but i don't think you will ever see the nfl surrendering a sunday night game or a monday night game. there is a reason they are giving thursday night game access and i see it as purely , additive not cannibalistic at , all. brad: patrick, last quick
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question. does the nfl learn anything from last night from this amazing world series? patrick: you would hope so. i think that the nfl still is an incredibly powerful sport but i , worry that, over time, it could go the way of some other sports. those were, if you look at boxing, horse racing, baseball. i just hope that the nfl doesn't fall to the same fate as boxing in the world, but i think that is a big challenge for the league. brad: ok, and hopefully the cleveland indians will get them next year. thank you both. coming up, the post may ceo joins us to discuss a $141 million fund-raising round. we are talking about his on-demand service, next. this is bloomberg. ♪
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brad: turning now to the on demand delivery space. one company making its mark, the postmate. the san francisco delivery service recently closed a $141 million funding round. the influx of cash comes despite a slowdown in funding. joining us now is postmate's ceo bastian lehmann. congratulations on the funding. we were talking about this for a long time. how difficult was it, did you bleed a little bit to raise this money? bastian: i wouldn't say we bled, but the funding environment definitely cooled down. on top of that, we are operating in a space that is a little bit underappreciated right now. i think the on-demand space in aneral had a little bit of bearish outlook this year. brad: that valuation was the same as your previous valuation. usually a sign of investor caution when the valuation does
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not go out. what should we take from that? bastian: we would have loved it to be a little higher. i also think it is fair to look at last year. you probably have a year where the prices were a little bit inflated, so the market corrects itself. is one of the largest rounds this year, particularly in our space. brad: let me put you on the hot seat. you have been in your coverage of postmates a little skeptical of not only the delivery service but the food startups like , munchery and doordash. did the postmates funding round and the $600 million valuation surprise you? >> it is a super competitive space. certainly investor sentiment has turned against it somewhat. postmates close competitor door -- had raised a round with a share price lower than a previous round. we have seen already sort of
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signs of trouble in the space. there is still a lot of investment going in. delivery just raised a bunch of money and uber's delivery services -- we do not have exact numbers. they are investing very heavily. i saw some of them in mexico city recently. food space, there is a lot of investment being made. but we have seen an increase in skepticism. brad: i read a little bit about how you had to structure the round, or anything you had to offer investors to get to that $600 million valuation. is there anything you can tell us about getting to the finish line? bastian: i read a lot about it, too. i think -- when we look at the term sheet and when we look at the offer we had from founders fund we believe it is a very , fair deal. as far as i can tell, there is nothing unusual in the structure of this round.
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brett: in eric's piece, talk about uber and say they do kind of a death star thing, they weaponize their balance sheet. what did you mean by that? how are they using their capital advantage? bastian: i think they brought something to the valley we have not seen before. that is that you would fight the war with excellent products and with innovation, but i think it has been unusual that you would use your balance sheet. brad: isn't that a time-honored amazon tactic or retail tactic? >> yeah, but in the way it has been done, it is unique. eric: i know that one of the most interesting things you said in my conversation with you is that many of the smaller players, you can imagine teaming up. what with that world look like? how would that happen? when they say medium or
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smaller players i think it is , important to look at the total companies. postmates fought hard, and we are proud of that. there is a sentiment that we are here because and amazon or and over has not thrown it everything at is that they have. that is baloney. we are here because we deserve to be here because we have grown extremely fast. if you want to think beyond the next couple of years and create a truly large company, you have two ways to do that. one way is to go ahead and compete with amazon and uber. you can try that as a startup. there are ways to success. but another alternative is that you can find ways to create a large company by teaming up with other players in that space international players or players , on a national scale. brett: you talk about uber using its balance sheet, but amazon, with amazon restaurants, it
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basically makes deliveries free for prime members. tony have to be losing a of money on that. now that they are focused on the restaurant space, what is that mean for postmates? bastian: we have not seen the efforts from amazon. and as far as i am concerned, we have not seen effort from uber in that space. despite all this, i think uber and amazon are interested in the space because it is very lucrative. this brings up a little bit back to a situation that often perplexes me, when people thinks believe it is impossible to make money in that space. it is a space that is interesting to a lot of players. we hold a large share in that market. we have a product that is virtually free if you sign up for our subscription service. getpay $9.99 a month and unlimited free deliveries over $25. a very attractive product, our customers love it. so we were very well prepared for the competition ahead. especially given the fact that we cocreated the space.
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if you think back in 2011, was one of the first companies to bring on demand delivery to the minds of customers. we are not stepping aside because the competition heats up a little bit. eric: one of the things that i think most people think about is that you can get anything. any type of food you want or maybe someday anything you want. at the same time, to make the business model work, you have acknowledged that you have to have some restaurants that are cheaper and then the everything set of restaurants that are going to be much more expensive. am i getting that right? how do you think about those categories? bastian: the truth is that we are executing against the same plan when we started the company. we wrote it down in details and actually openly talked about it. we launched a premium product first that a lot of people who can afford it to get access to goods they wanted in a short period of time. that product financed other products. the latest iteration of that is our plus product which integrates merchants. we receive a kickback from these
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merchants. on top of that, we have a subscription service. so it is not like tesla, but it is like tesla's plan to start in a premium segment and bring the price down significantly. we have done that. brad: we have about 10 seconds left. is your first international market going to be london? bastian: we're still thinking about it. i have tried it before, i do not want to be off with the predictions. brad: congratulations on the funding. bastion lehman from postmates. founder and ceo, and bloomberg's eric. tomorrow on bloomberg television and radio, join us for full coverage and analysis of the latest u.s. jobs report. janus capital's bill gross joins tom keene at 8:30 a.m. in new york. coming up, chinese internet giant baidu just joined an form a new alliance with a major telecommunications company. more on that next.
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this is bloomberg. ♪
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brad: chinese wireless carrier unicom and baidu are teaming up. with of the blessing of the chinese government, the two will partner with artificial intelligence and other plans for ownership reform of state owned enterprises. joining us now, a bloomberg reporter from tokyo, and gordon chang, author, reporter. he lived and worked in china for almost two decades. gordon, i'll get to you in a minute. peter, you have covered these two companies for a long time. what does this alliance mean to you? peter: it is an important step for both companies at this point. the chinese government has been looking for ways to improve the efficiency of the state-owned enterprises throughout the economy. the oil companies, railroad companies, and the telecom companies.
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the telecom sector is really dominated by these three companies. with china unicom in particular, they want to increase the efficiency of some of these operations. they are hoping that baidu can bring some of the private sector innovation and efficiency to the state-owned company. brad: gordon, that is going to be an unusual idea for a lot of our viewers. why does the chinese government have anything to do with the partnership of these two companies? why would they have any interest in seeing a china unicom and baidu get together on these areas? gordon: the premiere of china a year ago announced his internet plus strategy. the idea was that the internet was going to revitalize chinese industry, including state-owned enterprises. therefore, they are looking at these dodgy telecom companies like unicom, china telecom, and they were thinking of merging the two of them together, but then they realized that would not do any good. they thought, why don't we spice one of them up with baidu. for baidu, this makes sense in
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the sense that you put the search function on the 3g handsets of unicom. if you are talking about mixed ownership, they are buying into a company with very low growth potential. brad: what does it do for baidu? they are ready have some of these distribution agreements with a large mobile carriers in china. gordon: i don't think it does very much. baidu as a partnership with china telecom from last may. and so you have baidu able to put its products onto the telecom services. so i don't know what this does for baidu. i know what this does for unicom, because when they announced on october 22 that they were thinking of this mixed ownership scheme, participating in it, china unicom stock really soared in hong kong. but for baidu, it doesn't do then any good at all. i think it just ways them down. baidu is a company in trouble. they had a really bad quarter,
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the first quarterly drop in revenue since 2005. nonetheless, i don't see how this would help. brad: peter, our colleague wrote an interesting gadfly column today. he described it almost as a romance and talked about the possible offspring of unicom and baidu. what did you think of that analysis? is this a merger or union? peter: i think it is the beginning of a potential romance tim'sick with particular analogy here. the two companies are trying each other out. this is a relatively low investment form of cooperation at this point. as mentioned before, baidu is a struggling. baidu has fallen behind the other leading internet players in china, alibaba and tencent in particular. they tried a number of strategies including this online to off-line strategy. they have been investing in artificial intelligence.
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this is an experiment. perhaps it goes someplace, perhaps it doesn't. brad: gordon, i will let you have the last word. if this is a manifestation of the reform effort, what may come next? will we see similar partnerships with other companies? gordon: we have seen them combine large state enterprises back into formal monopolies. we are starting to see combinations here. this is not going to help. the japanese tried doing this in the 1980's and everyone liked it at the time, this convoy system. but ultimately, it didn't work out. i don't think it is going to work out for china either. because what plagued the japanese is going to plague the chinese as well. brad: ok, we will have to leave it there. thank you for joining us. that does it for this edition of "bloomberg technology." remember, all episodes of "bloomberg technology" are now live streaming on twitter. weekdays at 6:00 p.m. in new york, 3:00 p.m. in
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san francisco. that is all for now. this is bloomberg. ♪
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