tv Bloomberg West BLOOMBERG October 20, 2014 6:00pm-7:01pm EDT
♪>> live from pier three in san francisco, welcome to "bloomberg west," where we cover innovation, technology and the future of business. i'm emily chang. first a check of your headlines. the world health organization says nigeria is a model on how to stop the ebola virus. no reported cases for six weeks. they say an aggressive government response and effective contact tracing helped stop ebola. new concerns about china's economy. a conference board report says
china's economic growth will slow dramatically in less than a decade. here's jim on china. >> when i wake up in the morning we keep an eye on china because i think it is the engine for global growth, whether or not you believe in the numbers or not. i think it is the largest credit bubble going "on the markets" the globe right now and one of the large knells history. >> the chinese government has signaled it will tolerate slower economic growth this year by refusing broad stimulus action. facebook may be looking to increase its influence in chin. zucker berk just joined the board. they plan to expand their presence in china despite being blocked there since 2009. and microsoft is launching new features for its azure cloud service. cablation -- an
with -- collaboration with ell, also announced papes with cordera and cloud. now, to arlene. it has been a big day for apple. the company eats new big data system am pay is live. now fourth quarter earnings are blowing past estimates. revenue in the quarter, $42.1 billion, a 12% game. the company reported net income up 8.5 billion. the company sewed -- sold 3 .3 million iphones in the new quarter. thain includes about a week of the new iphone six and six-plus but sales are down again. joining me our editor at large cory johnson and in new york, anon in boston. it seems to be a tale of two products. the iphone blowing it out of the water, the ipod
disappointing. what's your takeaway? >> the ipods were meant to be weaker than expected. there was a new product coming. the product has been getting stale, tablet use has been growing. there's a screen with a larger screen, a pad that can do a lot. lopefully the product repressure and i padre fresh helps reinvigorate that trade -- pretend. -- trend. >> corey? >> there are a lot of reasons for that. it's grows -- growing at a pace we've never seen great big companies pace. >> and ahead of the holiday quarter. >> they would have every excuse to say we only had the new iphone for only one of the 12 weeks of the quarter. we were selling old products and it was old because the consumers knew it so we saw a
slowdown of sales. and they probably did that you hat shows you how large that strength was. >> should we be worried about the ipad numbers? >> i've had numbers down third quarter in a row and down 13% over the year. i think it is worrisome for the country. we've seen nine months of declining sales. is this as big as the ipad business gets and we're already, because it grew so fast, are we already in replacement cycle territory, not growth territory. i find it hard to believe but everything about the ipad is hard to believe. >> let's talk about the picture for apple global little. the demand for the iphone was higher in demand in every country last year and higher
than expected, right? >> take a step back and look at it from a holistic perspective. if you look at the interconnectivity of these different platforms, the i.o.s. platform, there's a little bit of something in there for everybody. but apple is very good at promoting this interconnectively among different products so as you migrate from an i fein -- iphone to an ipad to a mac, there is seamless integration and i think apple does that better than anyone. maybe in the year 2015 we think what do we use a p.c. for, a tablet for, and a phone and by the way, what screen size do with euse? there's an apple product in there for every price point. all premium prices are elective to the competition but there's a product at every price point and there's a platform across
the board. >> let's talk about the pricing of macs. the masks ac numbers were really, really strong and my motteo goes back to the late 1990's and there's no quash in which the mac price was as low as the $1,200 that it was. that is so much closer to the competition, much more than ever before but the idea that the mac is finally being pulled along by all this other stuff i think is awesome. >> i also cover the p.c. initiative and there was a lackluster p.c.. the macs is surprised on the yum side. sure, the p.c. sales helped them and on top of it they saw some sales in china too, where, if anything, p.c. demand has been weak and all of the p.c. makers have been citing weakness. this is a notable update.
>> i can't live without my happentop but that's just me. what are you looking for in the coming holiday quarter? >> i think you want to see the product as a whole work together. i want to see some interconnectivity between these different products. i want to see one connecting to the other. i want to see iphone 6 and iphone six-plus sales. this is the first quarter sales of those products so that should be very, very strong and i'm really curious to see what happens to the refreshed ipad platform. >> we'll talk more about apple pay coming up. thank you very much. apple pay officially rolls out today but some big-name retailers aren't offering it. we'll tell you why. and you can watch us streaming on your phone, your tab let, bloomberg.com and amazon fire
soon be able to leave all their credit cards at home. let's go see how it works. to use apple pay you're going to need the iphone 6 or the 6 plus. you also need the newest version of apple's operating system. once you have that in place, use the touch i.d. to open the phone and then go into apple's passbook pass. this is where these cards live. i've already added two cards to this they look like the cards in your wallet but there's no name or numbers on them, which increases the security that apple is shooting for. you can toggle through and choo us the one you want or you can add another card by tapping here and taking a photo of the card. let's go shopping. i want to buy a new iphone case. scan it like a regular product. use the touch i.d. and hold
it in the general idea. shows up as a beep. there's a little vibration and the transaction is done. >> kyle stock there. for more on apple pay, i want to bring in john carlton and christina cordova, head of business development at strike. strike one of the payment systems helping to power am pay transactions. so far today how's it going? >> it's been going really well. i think one of the things that's great about am pay is that it's bring together both consumers and merchants. for a long time it was this chicken and egg problem and a lot of really big retailers on the merchant side are watching today. we're working with over 15 merchants that are now apple-pay enabled. it's fantastic. >> john, do you have a swat team behind the scenes right now? >> there are a lot of people that strike making sure it runs smoothly but if you download insta card or wish or lift,
they're running on am pay. >> i want to talk about what happens windy the scenes. tim was boasting that it doesn't cost the consumer or merchant anything but it costs the bank something. maybe you guys can take us through -- christina, i'll ping on you -- the two or three pieces of a payment component that compare what happened with a credit card now and how apple pay is different. >> sure. in terms of what the consumer experience is you download passbook, add your card to the application. verify its use, like putting in a cold they email you and you're essentially up and running. you can download an application and start paying with it right away. what actually happens in the background -- >> for all the businesses and business users we have, it's a fundamental change. the way it used to work is the consumer, i whip out my credit card. the merchant gets all the
credit card information, usually. like target or home depot or another trusted merchant. they keep that information, they send it to the bank. the bank verifies it and approves it but all my credit card data is moving upstream and downstream. >> with apple kay, when you use your card, it's going to the issuer, whatever bank is -- issued you the card. it uses a bank that represents the credit card number but isn't actually your real number. when you end up paying with a merchant that has apple pay, what's associated with that v-pam is a cryptogram, which is a one-time use. so when that transaction occurs you're not passing along your real credit card information. if anything ever gets
compromised you don't have to issue a brand-new physical card. >> there are two big changes here. one is because you have the one-time use cards, you're not sharing your credit card everywhere you're shopping. the credit card number is not stored on the phone or with the merchants. but because apple has all the existing itunes accounts on file. i set it up this morning and i was already to use the credit card i already had on itunes. for all these merchants they can use one-tap payments in their apps that before they were going to have cumber so many set you must. >> there's a decent list of merchants set up already but there -- a long list who aren't signed up. john, why wouldn't retailers sign up right away? >> i think with large companies it's always overcoming the inertia there and you'll have a little bit of an uphill struggle to bring change.
i think we'll see that happen over the time. we're not worried about the apps but the experience. whereas before it was entering all your details, it's one tap on the thumb print sensor. paying on an a.m. is 10 times easier than it was before. you've seen that all of the major apps really are supporting apple pay already. >> so far how many people are using it? >> with strike? >> it's a little bit too early to tell. we're starting to see the payments trickling in. >> it's just been a few hours and we're seeing a number of transactions across all merchants. >> other payment companies, google wallet, while they have some of the same characteristic,ist they're getting the credit card information and finding out a way to advertise to you based on your spending data. an is not doing. that is that where they're willing to take one on the
chin, use the pricey the customers say they want? >> yes, apple has been very clear. they were said when introducing this we don't know what you bought, where you bought it or how much you paid for it. >> and not so with google? >> no, but that's very much apple's positioning here. that's typical of people of late caring about their credit card security. the system is phenomenally designed. even if you look at things like the fact that the payment on the phone it happens at a center. before people were bouncing around entering other codes and as. it was harder. apple have finally taken the combination of security plus user experience do make it both a better experience and more secure. >> john carlton, co-founder of strike and christina cordova,
of directors after a very public battle with activist investor carl icahn. of n has accused andreessen conflicts of interests. cory johnson is with me now. i spoke with andreessen and we talked about the future of ebay without paypal and vice versa. i want you to listen to what he said. i asked him if this is a sign that innovation at ebay has -- >> it's a sign of change. the industry is changing. it's a sign that the technology is changing. it's a sign that there is the opportunity to do more and better if you're smaller and more nimble. >> they probably wouldn't like the education that they're following icahn's advice but they made this decision, according to an dressing.
independentsly this was the best decision for ebay to spin off polamalu. >> mark andresen is on the board of paypal and ebay but yet seen as a visionary in silicon valley. we know icahn bought shares of ebay and bought shares in it because we wanted to make more money. the voices of silicon valley don't often say there's a conflict there. listen to what he said when carl icahn talked to us about andresen and the problems of having him on this board. >> if you ask me my opinion of him, he's the kind of guy i get outraged at because he preaches byify douchery duty. he's given a duty there and he absolutely breached it with skype. he knew microsoft wanted it.
paid the equivalent of 1.8. they sold it for $8 billion. that money belongs to the shareholders. >> mark andresen said he recused himself from these decisions but you look at the numbers and you say who's fighting for ebay? ebay bought skype at $6.2. they're able to sell it to mark andresen's fund. andresen's if you believed turns around and sells it in less than two years for $8.5. though andresing says he' recrewsed himself. at some level, carl icahn says his if you disturbry responsibility was to ebay and $8.5 ure that ebay saw an billion value for this, not somebody else. >> listen to what she had to say about activist
investigators specifically. >> the activists come in because the companies are cheap, not expensive. the other side is that the industry is now changing so st, if you're a big con grom rate, you have all -- competition in every single business from all these start you must, new companies and your ability to fight a five-or six-front war at the same time is really challenging. at some point i think you want to split up to be more aggressive and nimble. >> admitting it's a tough job that companies face like ebay and h.h.p. >> it's a tough job to be a board member at. no one feels sorry for the board members. they make a lot of money but also gain a lot of insight. if you're a board member are you fighting yourself or fighting for the company that you're a full-time employer or re you serving the fiduciary
♪ >> you are watching "bloomberg west" where we focus on technology and the future of business. i'm emily chang. i.b.m. shares plunged today after the company announced it will not meet its five-year goal to double earnings by next year. revenue fell % in the third quarter. t income dropping 1 hurkt -- 00% to 18 million. i.b.m. is paying global foundries $1.5 billion to take the underperforming unit off
its hands. how much trouble is i.b.m. really in? i sat down with our editor in large cory johnson, alex, who covers i.b.m. and david kirkpatrick, who recently spoke with i.b.m.'s c.e.o. take a listen. >> if services are going down, that's probably the biggest news item besides the glitzy thing about having to pay somebody $1.5 billion just to take the chip business off their hands. this is a giant old conglomerate in an industry that is changing really rapidly are -- where players are becoming increasingly specialized. that's a lot of challenges all together. >> corey, was she left tolding -- holding the back bag here? was this something put into play long before she took the c.e.o. position? >> when a manager with a bad
reputation does business with the manager of a bad business, the the reputation of the business that survives. i.b. 346r789 is in a crummy business and they're trying to get out of it. you mentioned profits and they said they were going to bubble profits. when you look at the net income for the company, the actual prifflets from the business they've been getting worse and and for a long time here it continues to get worse and they've been trying to make that look better through share buybacks. now they have a ton of debt. they have more than $14 billion due in debt in the next few years. it's going to impede their ability to buy back shares, to pay down the debt but more importantly, by lowering free cash flow and having already promised to use their free cash
flow to buy back debt and shares, they're unable to get into the businesses and invest into the businesses they want to be in that they made that problem worse by going into the shares and borrowing money to do so are i.b.m. going to pull you? buffett says it's for the long term but when you see today, where all the gains he's had and his investment has been i raced you start to look at that question. i.b.m. has a long way to go. they really need to transform their services business. more than 50% of the business. their software business. they need to get that into this era of cloud computing and they really have to get up to speed. some are calling for more deals to buy in to get that speed but now that ginni is out from
under this e.p.s. road map, the onus is going to be on her for the steps going forward and how they can keep up in this quickly changing industry. >> ginni said our industry is facing a lot of change. i hear buzz words from her. cloud, social, mobile. do you think i.b.m. is making the right choices? >> they've bought a few little companies here and there that are clearly good decisions but you just did your interview with mark at dream force. the fact that 1000,000 people came to the dream force i think is indicative that we crossed the chasm quicker than old companies like i.b.m. thought we would. that's a big problem for them. their infrastructure is expensive. that's why they're paying people to take off their hands
this chip business and they have a lot of costs to maintain their hardware businesses which are not selling as much stuff. that is a really serious problem. i.b.m. is a survivor. they've done a great job for a long time surviving. i think they will survive but they may not be growing for the foreseeable future very much. >> and to that point, if you work at i.b.m. and you're suddenly told, that watson thing you've been trying to sell for the next three years, tell people not to buy one. they can rent one because now it's part of the cloud. if you've been telling customers for the last 10, 12,15 yeah, we're going to bring you a lot of expensive hardware and it's the best and you have to own it or you can rent it for a couple of days off the cloud. it puts not only the new businesses off, the old businesses are suddenly challenged. >> there with alex and our
bloomberg contributing editor, david kirkpatrick. i want to turn to facebook. an apology today for the behave that led to a restraining order against him in 199 . facebook bought what the app -- it and gave coon details multiple incidents over a seven-month period in the statements he said i thought i was irrational and behaved badly after we broke up. i'm ashumed of the way i acted. i am deeply sorry. i'm join build sarah, who broke this story. this happened 18 years ago. why is it coming out now? >> it's something that as jan koum comes to the point in his
life where he's a multimillionaire, one of the rags to riches story in silicon valley. now he's on the face of forbes. he's becoming more prominent. i think people want to know this as part of his past. he's coming out and fully apologizing for what he did and saying he's learned from it and he's a different person now. >> when did facebook learn about these allegations? >> we don't know but what -- when we came to them, they said we're going to talk to jan about this and get full story. >> obviously this is a guy on the facebook board now with mark zuckerberg. >> they're letting his words speak for the case. they're not taking any extra action. they're saying listen, he's being eloquent about this. coming forth and saying this was a problem and he's acknowledging that and it doesn't have bearing or they're
not explicitly saying but they're implying it doesn't have bearing on him today. >> do you think facebook will have to do manier? >> we'll see but executives have had to answer for some of their past actions. field goalle has to apologize for those emails he sent during his from tenchty days and he had to answer for a donation he made to an anti-gay marriage campaign he made in 2008. there are other incidents of the past coming back to provide a contact to an entry leader today so we'll see what happens here. i think he's being very open in this case. he sent a statement to all of thinks employees and, you know, facebook is not comment -- isn't not commenting either. that i saying we're listening
and you should to. -- too. >> he's the third largest shareholder. should we be at all concerned about how facebook vets its leadership? >> facebook isn't talking about what was vetted or how jan was vetted. it's an extremely long process. the acquisition was announced in february and didn't close until this month so it's gone through e.u. regulators, through everyone. so you'd think this kind of thing would come up but it was in 1996. it was a really long time ago. >> i don't want everyone knowing what i did in college so hey. >> sarah, who covers facebook for bloomberg news, thanks so much. >> up next, taking aim at costco and sam's club with a mobile a.m. the new york start-up looking club the wholesale business upside down.
wholesale club membership fees. we go inside in our first installment of our weeklong pecial, "new hack city." >> what happens when successful tech entrepreneurs take over a boring warehouse just outside of new york city? you get boxed. >> we wanted to build a service that no one has -- had built yet. the future oaf shopping. we're trying to get ahead of the curve. >> boxed is the e-commerce answer to wholesale clubs like costco and sam's club. buying in bulk without the membership fees. >> saving you a little bit of money. >> nearly eight in 10 orders qualify for flee shipping. the boxing are filled in warehouses in new jersey and las vegas. strategic locations to reach a large part of population in
little time. >> 88% of our packages arrive in two days or less. to the general consumers it seems like we're traditional. behind the scenes we're still very much a technology company. >> how do you find out what's in the order? >> tap on the side on a particular order. you've claimed it in our software. >> what is going on in here? >> even if you look at the robot we're trying to get better. >> embracing technology is second nature for wong, who old his previous company astro aid to zing aa in 2011. >> you came from the gaming world. what made you want to sell toilet paper? >> at first glance it's like there's no overlap at all but there is quite a bit. we learned how people like to interact with games and different experiences on their mobile device.
we brought all that knowledge into a smooth, beautiful experience on mobile. but a shopping experience instead of a gaming experience. >> with $8.5 million in funding, main from -- mainly from east coast investors. boxed has experienced rapid growth, posting an eight-figure revenue just months after launching. >> eexercise is -- e-commerce is something the east coast does well and we've been able to tap into that. >> boxed tries to take a bigger bite out of the $600 billion grocery business. >> we're trying to take a bigger bite out of it but i think we'll get there. >> shelby joins us now from new york. i would love to not have to pay my costco membership but how can a little a.m. compete with a warehouse giant like costco? am i going to get the same experience? >> that's the big question. this company is trying to do it
using technology, not just too manage inventory and improve their shipping procedures but they're using technology to target jung shoppers who might be buying toilet paper now but will need to buy diapers, food, things for their family in a couple of years and boxed is keeping things ternl. -- personal. even though they don't have storage or rhythms with customers in person they write little notes and send them in shipments. if someone buys diapers they say hey, hope the baby is doing well. they are making sure toe include that personal customer relations aspect in their company even though they don't see customers face to face and they're hoping, you know, we're saving you time and money, saving awe lot of inconvenience going to their stores and carrying heavy goods around. they're hoping that the personal interaction and also the impersonal action of buying
>> welcome back. i'm emilie clang and this is "bloomberg west." you can catch your early edition, 10k a.m. pacific. cory johnson back with us as well as sarah who covers facebook and twitter for bloomberg news. what is the advice today? >> that's a hint. the number is four. that is the number of law firms that facebook c.e.o. mark zuckerberg are suing as well as nine lawyers from those firms
for paul's claim he owned half of facebook certainly before the i.p.o. those are part of a lawsuit and facebook is suing back saying as soon as they knew the claims were fraudulent they should have dropped their involvement. >> paul siglia has a website called street facts he wanted zuckerberg to develop for and he did some work for him shortly before he developed facebook. saying ally facebook is that the law firms knew these documents were fake and they took the case anyway. >> they stayed on the case and they should have known and if they stayed on the case, facebook says it means they were in conclusion with paul ceglia to force an early
settlement or that facebook would pay to make them go away. >> what do the law firms say? >> they say that's totally not true, of course. they were acting in the best interests of their client. >> they claim they were injured but they did $100 billion i.p.o. so how injured could they have been? this ised kind of thing normally pursued by the state bar association and may yet be. but zuckerberg, apparently is so ticked off, they're going to find new stents of the law. >> how often do you see law firms being sued? >> not too often, especially not a major law firm like this one. >> you see lawyers suing lawyers a lot. but this kind of case is fairly unusual, not least of which because they'll probably spend more money in pursuing this than they would have in
settling it. quite likely to prove a point. >> what do you make of the fact that mark zuckerberg is pursuing this and filing suit? they social -- certainly couch settled this quietly. i think it is a matter of principle, but they felt like they tried to take advantage of them and they're going to let it hurt them. >> i think facebook was under a lot of pressure to settle this from their investment banks, from their investors. just make this go away. we can't take this company public until we clean up the ownership. if you just pay these guys they'll go away. you have to imagine that facebook faced a great deal of pressure before the i.p.o. to resolve these claims. >> and personally for zuckerberg way back in the day, ceglia never finished paying him for the little bit of work he did.
>> there are the facts, apparently. so dramatic. you could make a movie about it. all right, sarah, who covers facebook. and thank you all for watching this edition of "bloomberg west." headlines at the top of the hour on bloomberg radio all the time. bloomberg.com/technology. we'll see you later. ♪.