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tv   Bloomberg West  Bloomberg  January 30, 2015 11:00pm-12:01am EST

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>> live from pier three in san francisco, welcome to "bloomberg west," where we cover the future of innovation, technology, and business. u.s. stocks fell as investors reacted to weaker than expected forecast in the gdp report. it was the biggest monthly decline in the last 12 months. oil was the big gainer, spiking late in the day. stoking hopes of scarcity in the supply of oil. president obama says he will ask congress for $215 million to on a personalized medicine effort. it will take one million volunteers to research more
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personalized therapy things like cancer and genetic disorders. he announced the initiative at a white house ceremony today. >> just like we did with genetics 35 years ago. the really good news, this is how you know that the moment is right. is there bipartisan support for the idea here in washington. >> the proposal is part of the 2015 budget, which the president is expected to submit to lawmakers on monday. ibm had a rough year. an sec filing shows she filed a $3.6 million bonus in 2014. the company posted its second year of profit decline.
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the first salary increases taking the helm. spotify will be working with goldman sachs on a new round of private financing. seeking another half $1 billion. now to the lead. now apple has conquered the chinese smartphone market. next up, what? global domination? they nearly tied samson for global leadership in smart phone sales for the first time since 2011. both companies shipped 70.5 million smart phones in the fourth quarter. giving each company 19.6% of the market. apple applied several strategies to find success in the world'slargest market. from launching the cheaper iphone 5 model. opening more stores. holding the line on pricing. the iphone 6 and iphone 6 plus
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that put apple over the top. how would apple push past popular chinese makers like xiaomi and lenovo at a higher price? neill mawston joins me now via skype from milton kings, england. he is executive director. let's start in england. how would you do find these results and how surprising is this turnaround? >> the results are really good. they had a really strong quarter. they blew past pretty much everybody's expectations. it is well-known that samsung is going through a tough period at the moment. >> your results were a little different from earlier in the week.
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there is virtually no distinguishment. i have a hard time figuring out these numbers every quarter. is this just about a new phone release? or is it more view than that? >> it is essentially the public wars. those five inch smartphones that are the cross between a phone and a tablet, those wars between apple and samsung are heating up now. samsung was the clear leader. with those big screens coming out they have taken the fight right back to samsung. there is a real battle in the tablet section now. >> hans tung, do you think this is a one quarter phenomenon of a wildly successful device coming from apple but that might slide off after being out for a while? >> i give them credit with coming out for a fabless category.
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>> they made fun of it. >> exactly. apple delayed. apple has come back. samsung benefits from being a part of the android platform. there are tons of apps built for android in china and samsung benefits from that. the advantage is going away. by year end apple has come ahead. >> neill, great on these companies to sell sort of the same number of units. but when you look at profits it is not even close. apple reaping so many profits from the sector.
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>> samsung is really led on volume whereas is apple's lead on value. now we are seeing apple to start closing the gap on samsung in volume as well. it is an impressive performance. apple can thank the mobile operators for their ability to deliver those high revenues and high profits. operators like china mobile and in japan, at&t in the u.s., they subsidize a market very heavily and it gets preferential treatment on store shelves. that is a lot of the underlying factor that drives apple's success. >> i see stats that try to guess at that and say that apple might have 30% market share across all smartphones. but they have 80% of the profits from the industry if not more. >> exactly.
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broad rule of thumb, they deliver about 20% of global smartphone shipments roughly around the extent of global smartphone revenues, anywhere between 60 and 80% of global smartphone profits. apple really does consume a huge chunk of the bottom line for the mobile industry. >> hans, this comes at a time when samsung may be having an existential crisis in the smartphone business, where they are looking at their overall business, drastically reducing the number of phone they offer. >> i think it stems on samsung being stuck in the middle. apple is coming down with better branding and better ui. from the bottom up, sometimes it
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is focused on just apple at this point. the chinese guys are very aggressive. >> really quick, will we get to a point where there's not a lot of innovation to have with the smartphone and that's when the guys are going to threaten apple coming up from the bottom? >> it will be interesting to see what is happening. >> thank you. we appreciate your time as well. amazon web services is becoming such a behemoth. the company will be breaking up numbers. we are going to look at how big this businesses and all the disruptions it is causing across the world of technology. that is next on bloomberg west. ♪
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>> time for a check of world news headlines. the pilots in the air asia flight cut the power to a critical computer system just before it crashed into the java sea. they disabled the flight augmentation computer, which renders them unable to address the alerts. russia's parliament passed a law beginning of the year that bans on an advertisement paid tv channel. this new rule could cut the revenue in the country. and rapper jay-z is taking on beats and spotify. he has launched the nordic music streaming company aspiro.
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he spoke to andy chen about the service and how it stands up. >> we are offering a higher quality service across all devices. we have integrated video. it was a very important part of our future strategy. we are the only service provider that combines audio and video. >> of all the earnings and quarterly updates in the last week, perhaps amazon's business results are the most important in the world of technology. they posted fourth-quarter profit of $215 million. the shares are on fire this morning at about 14%. perhaps the biggest revelation is the rapid growth of aws. for the first time amazon says it will break out revenue from amazon web services for 2015. the cfo talked with us in a
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conference call, saying we think this is an appropriate way to look at our business. amazon has never done anything like this before. the cloud engine is powering all kinds of companies. it is also the very thing that is pressuring companies like ibm, hewlett-packard, microsoft. joining us now is ken sena, head of internet equity research. great to see you and your work. aws is a beast. >> it was nice to hear them talk about the potential to see that broken out more clearly on a call last night. they have given more clarity on how we can look at the cash flow and the investments they have been making in this business.
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>> every startup that sits here, they are being threatened by it. when you look at what is going on in ibm, where they would march into a company with consultants and software and servers to sell a company. now they are going to rent it from amazon. >> what is interesting is there is a lot of talk about the pressure on aws, even from a pricing standpoint. i think that is when you are looking at the most basic part of the infrastructure. what is exciting about amazon is i think amazon understands that as cto's leverage that infrastructure that audience tends to be captured. i think amazon is moving to create a more marketplace experience in terms of how -- not just infrastructure but where software gets delivered between buyer and seller.
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>> investors always look at amazon -- the tea leaves in the conference call, hoping they will say something about leverage. they never say it, i think because they do not think that way. there were some suggestions that amazon web services might have a better profit profile than the rest of their business? >> i don't know that that suggestion came through to me. maybe folks are making that extrapolation from the fact they are willing to break it out. i think amazon and aws specifically still does require a considerable amount of investment. they work toward the free cash
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flow. they suggest the level of spending on aws is still quite high. it is a big opportunity and we welcome more disclosure here. certainly it was welcome. >> i don't know how much of it is voluntary. the business is so big and the sec would require it. would the detail be enough if it is just revenue? or do you know that the you want to know operating profit? >> i'm not so sure you will see gross margins. you will see operating profit. i don't think they are at the threshold where they will be forced to disclose. i think that will be closer to the 10% of revenues. there will be time and the company was clear to say it is not something that they have to do. i think as you highlighted, it is how they view what they think is better for 2015. >> it is interesting -- i only read a few. you are at ever core.
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ever notice also on amazon's web services last i checked in your report suggested that investors are going to look at the separate revenue line and say some day they could spin that off and it can be another thing that adds value to stocks. >> disclosure between the two entities makes discussion around that more feasible. the company was clear to say it is not their plan at this point. i'm sure they will evaluate its to make sure it makes sense at a future date. >> when you look at the business, i know they don't cover and i wouldn't ask for your opinion on it, but does that let you understand what is going on in the world of technology and why companies are
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having trouble growing while amazon is still in the top line? >> what amazon understands very well more than your traditional tech companies is how to seed a marketplace in terms of buyers and sellers and what gives sellers that value they are looking for. a lot of times it is understanding they are getting a new customer. it is the solution that is fairly commoditized. they are very quick to drive down the pricing there. what they are trying to do is to put a buyer together with a seller. >> you can read his notes on adobe acrobat. head of internet equity research. we appreciate your help. broadband internet just got to the u.s. faster now. the fcc is changing the definition of the word broadband.
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that could have big implications for the megamerger proposed between comcast and time warner. you can always watch us streaming on your tablets on ♪
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>> broadband internet across america just got faster. at least on paper. the federal communications commission officially changed the definition of broadband. it now refers to internet data at speeds at least 25 megabits per second. that is fast enough to download a good quality movie in 24 seconds.
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why would the fcc do this? this is interesting. joining us to explain this and why this may matter for the comcast-time warner merger that has been proposed, tom giles. explain why they did this at the fcc. >> the fcc changes the definition of what it means to deliver high-speed internet access broadband. on its face this sounds like something that might be good for customers. the chairman there says he is concerned about the 20% of the population that has little to no access to high-speed internet. this is access to information, access to news broadcasts. they are concerned about the consumers. they also don't want the cable and telecom industry passing off high-speed internet access as something that is subpar. the fcc is ostensibly trying to look out for the consumer. here is where it starts to
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become an issue for comcast, and this makes me think of the famous bill clinton interview. this depends on what your definition of broadband is. by changing the definition and saying this is broadband, it is not these faster speeds, that suddenly has a dramatic impact on the size of the market. so you went from a situation where comcast has an important size. 35% to this new definition. then they have a whopping percentage of the market. once they combine with time warner they will have something to the effect of 63 or 64% of that market. if you are worried about concentration, worried about competition, going from 35 to more than double that, that means the regulators are going
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to look differently at that merger. >> i want to paraphrase this. in other words there are some super fast internet connections that are not considered high-speed by the old rule of the fcc and the fcc said these are already really fast, let's acknowledge what they are and change the definition? under the new definition technologies that comcast already controls a lot of that super high-speed stuff that is out there. >> exactly. they don't want the communications industry, whether it is cable telecom, to be telling people that you are getting fast internet access at slow speeds. it is about holding the industry accountable and looking out. the fcc would say we are looking out for the consumers, for that big swath of the population that does not have access to the internet.
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>> tom giles, u.s. technology leader. ♪
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>> i am cory johnson. $4.5 million is what it cost to run a 30 second commercial in this year's super bowl. nbc is calling that price a steal. they are the seller. how are advertisers going to compete with the second screen in this digital age. the next guest has a company that has purchased ad space. with me from santa barbara possibly on his way to the game i would assume. >> i will be watching it from home this year. >> the 4.5 million dollars while we have seen that number
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increase dramatically, we have talked about this briefly in the past. it is just a drop in the bucket compared to what you're going to spend to publicize the ad itself. >> it is a lot less expensive. in this case it will be just in the west. it is our big exposure on this has actually been digitally on the internet. an earned media impression is a set of eyes. we have had 2 billion to date. the ad doesn't even run until sunday. >> that is amazing.
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how many of those are repeat views? certainly there aren't 2 billion people looking at carl's jr. and hardy's. >> fewer people are watching. they do try to eliminate when people watch it twice. on a really good ad you get 3000 earned media impressions, with the kate upton add a few years ago. they got over 2 billion impressions. that was a popular ad. this is almost caught up. it is an exceptionally compelling ad and got a lot of views from our target demographic. we've had 6 million views on youtube alone. that's a huge number.
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>> it makes me wonder what it means to the world of advertising. when people see an ad -- advertising is very different. the super bowl is very unique, like the academy awards where it draws one big audience with very disparate demographics. the world of advertising is focused on finding the exact customer, not try to get something for everyone. do these work when trying to target the customer rather than blasting the ad out to anyone who is interested? >> it is a little like what everyone would sit and watch "leave it to beaver" because there are only three channels and you have to get up to change the channel. >> these ads were not on "leave it to beaver." >> the super bowl, you can do that.
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if people are going to watch ads because you can fast-forward through ads, my younger kids don't even watch tv. you need content that appeals to people. you need content that pulls them in. our ads are intended to appeal to young hungry guys, 18 to 34-year-old males. but to appeal to them in an aspirational way. you don't want to get just 18 to 34-year-old males. you have people who aspire to be in this larger group and women who aspire to date men that are young hungry guys. you have a lot of people watching the ads.
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it is more like a shotgun target. >> trying to get people to want to be next to that demographic. i get that. i wonder when you go after that, do you see a direct result of sales from these ads? >> absolutely. the ads like we did with kate upton. this year we did one with hannah ferguson and paris hilton. these are very, very compelling and they have a direct relationship to sales increases. we introduced the products a couple of weeks before the ads run. we do that so people in the restaurant know how to make them. they are ready for the volume of business. the ads are very compelling and very successful. >> with a big change in mcdonald's, it has gotten a lot of focus. you are a much bigger competitor with a lot of problems.
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you have done a lot of dramatic change in your menu. mcdonald's just added stuff to their menu without a lot of success. do you look at this issue as a possible battleship as big as mcdonalds to ever turn around? >> they have a lot of ad dollars and penetration and a great reputation. i do think it is important to be something to people. you can't be something to people if you try to be everything to people. mcdonald's has such a strong advertising strength. they need to focus on who they want to be and what they want to be. you have to choose what your identity is. they are smart guys, they will figure this out. >> finally andy, who do you have in the game this weekend and why?
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>> i think i like the seahawks. i think they have the better team. they won it last year. the patriots have a lot of experience too. i think the seahawks are going to prevail in the end. >> thank you very much. we appreciate it. some investors wrote off bitcoin saying it is a failed experiment after a year-long price plunge. venture capitalists and a few key players are pouring in new capital. we are going to look at one of the most important investors in the sector next. ♪
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>> bitcoin's price declines have not deterred the drapers. silicon valley icon, tim draper -- one of the biggest buyers of the us government's bitcoins
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auction last year. and he scooped up another $400,000 worth of this week. the apple doesn't fall far from the tree, tim's son adam is also betting big on bitcoin investing in 100 bit coin startups by 2017. adam draper, good to see you. >> when i talked about bitcoin with new yorkers, they don't get it. they say commodity prices falling. this thing had its moment. it was stupid to start with. the purpose is to separate one libertarian's money from the others. >> really what we did is we thintech sexy. suddenly all of the best engineers are working on financial tech, global emerging payments technology. that is a really exciting thing. in the united states we are 93% digital.
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it is not as useful. as far as -- i don't know how much cash you have. it is just digits on the screen and account. as opposed to storing gold in your basement. a lot aren't as lucky as us with our banking system. a lot of countries in africa are 10% bank and 90% mobile adoption. >> the idea is in africa where people have money but they are using phones at a very high adoption rate. suddenly there is this massive move to the world's population into digital.
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>> argentina is a really exciting place. they assume 25% inflation every year. his pitch to everyone was -- in my lifetime, three times the money in my bank account has gone to zero. that is a really scary thing that happens in the rest of the world. i feel we are going through this trend where bitcoin was speculative. anything that is volatile, wall street loves. volume has doubled in the last year of bitcoin transactions per day. most of the transactions are more useful for the day today.
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>> the investment focus is what? >> we have multiple things. what does bitcoin do better than dollars? which is stored value. we touched on micro-transactions, which is a company allowing for you to be able to tip this network of bitcoin companies, network of bitcoin people. people love being able to tip online. before bitcoin you are not capable of sending five cents. with bitcoin it is a frictionless system. >> do you feel the price adjustment has separated the people who work in this arena around the technologies that are so interesting from the
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speculators? >> yes, i am really excited because if you have been in bitcoin for the last three years you have been able to go through big rises and big falls. right now it is the true believers that are building great technology in this space. >> the more you taken itself the more interesting it is. thank you very much. time for a check of your world news headlines, kenyan marathon champion has been suspended for two years for doping. she tested positive for a band of blood boosting hormones. she won the last two consecutive boston and chicago marathons. an executive close of vladimir putin. the country is backing a startup incubator and science center run
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by vladimir putin's daughter. it is a $1.6 billion project in russia. the kremlin has never released photos of either of them as adults. and the national basketball association is hoping to score more popularity in china in a post yao-ming era it is the first us sports league to open an office in china. we are going to talk about super bowl xlix and high-tech sensors. that is next on bloomberg west. ♪
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>> this week the super bowl will look different than any other thanks to wearable technology. now to discuss the partnership is general manager jill fox. it has been almost exactly a year. you guys have your sensors on whom during this game? >> we have two sensors on every shoulder pad of every player on the field for the super bowl. >> that is amazing. >> we have been doing these projects with the nfl all season. in 17 stadiums we had our sensors running. it shows all kinds of great things.
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how the game is sort of unfolding with new statistics. >> we talked about this program a year ago. what have we learned over the course of the year? >> we have actually learned a lot. this is the first year of data collection with the nfl. what is interesting about year one is it takes time to build up the amount of data. i will give you an example of something that has been really fun. there was a game at green bay. and calvin johnson was recorded for officially 39 forward yards when in actuality he ran 1600 yards. all the other wide receivers
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only ran 1100. calvin johnson's effort was so big during that game. those are the fun fan insights. >> we had jerry rice on this show once. what is the trick to make a receiver really great? he said run every routes like you are going to get the ball. you can really see that with calvin johnson. >> one of the other fascinating statistics is green bay, the way they covered calvin johnson to stop him from getting more official yards, more than 39, is that they had two guys on him instead of just one. those guys got rest where calvin ran a lot more.
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>> it is crazy. who gets this information? are the teams using it? >> the teams are not using during this season. the goal is to have them use it going forward. what we have added for the superbowl is the ability to see this information in the stadiums. it is hard to know who everybody is. player participation all inside the stadium. >> zebra did about a billion dollars in revenue. but the market beyond the nfl, of course the great football team from the
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university of phoenix aside, where is the market for this? what does it mean in terms of marketable technology? >> what is interesting about this is that we are in the asset intelligence business. we have been using this for a dozen years. 90% of the fortune 500 uses similar technology from us. outside of sports, huge. inside a sport, interestingly enough everyone is looking for an advantage to enhance the experience for fans and what they can bring to their fans. i don't think fantasy gaming is going away at all. >> we really appreciate it. this is one number that tells us a whole lot. peter cook, what do you have? >> what i have for you is this
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number, $41,329,673,325. that is the amount of money they took and from their latest spectrum auction. big-money from taxpayers coming into this multiweek auction. it shows you just how much money they are willing to spend to get some of that very high-priced real estate in the air. >> that goes well for the next auction. >> it absolutely does. this is the appetizer for the big broadcast spectrum auction still set to come. this gives you a sense of how valuable that real estate is for wireless companies going forward. maybe more to come for taxpayers. >> thank you very much. an interesting number. you can see the headlines all the time on your phone and tablet. we will see you with more "bloomberg west" next week. ♪
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