tv Best of Bloomberg Technology Bloomberg July 28, 2019 7:00am-8:00am EDT
♪ emily: this is the best of bloomberg technology where we bring you our top interviews. for baked tax, amazon apple and facebook released second-quarter report cards. -- facebook results overshadowed by a new antitrust investigation into the social media company's businesses. facebook pays a record $5
million fine to settle privacy concerns. the proclaimed arrogance of callingvalley, a ceo the facebook pitch to lawmakers on libra by facebook uncomfortable. first our top story. facebook, tesla, amazon all reporting second-quarter earnings. amazon and alphabet reported thursday. alphabet was all about sales and regulation. our analysts weigh in. >> how google gets revenue, 85% of revenue is from the ad business. competitionen the that they will be facing, you do not want to be in a spot where you have north of 80% of your revenue coming from advertising. i think they will place a bigger emphasis on the cloud business going forward. how much success they are going
to have is hard to say. they have not been able to get out of the third slot. they are facing massive competition against microsoft of amazon who have had a lot success and put significant dollars behind that business. it will be something that will be hard to get out of that third slot but still a significant part of their business that they will focus on going forward. emily: you wonder if acquisitions will be part of the story to beef up the cloud business. acquisitions and cloud specifically would make sense. a google representative said they are opened acquisitions, they are doing a lot organically and they are excited about acquisitions. she said they are excited about acquisitions but the organic business is doing well. this is interesting given the antitrust scrutiny that google might hesitate to do more acquisitions certainly. is that what you would expect? >> any cloud business is
important strategically for this reason. look at what microsoft did with open ai, investing a billion dollars in that. it is a company but kind of a nonprofit. i think google will look at their cloud business in a similar fashion where the technology is the future that will be scaled out. obviously the cloud business is going to be important for that and in a sense a platform for those new businesses. will continue to push a lot of that cloud business to the bottom line and as we have seen today it is incredibly important to the stock price because it impacts csoi so heavily. for google i don't see it quite that way. it is more strategic to google that it may even be -- then it may be to amazon. amazon's earnings, show
wall street -- on the company. most analysts advise clients to buy into amazon expecting strong revenue growth. i got insight from a marketer from chicago after the e-commerce giant reported. >> aws is the bigger story. we saw 37% growth. the first time we saw that dip below 40%. considering how much that contributes to profit that is potentially the canary in the coal mine. it could also be a one quarter blip. i think that is more concerning to investors. >> it is interesting singling out aws considering we were talking about the google cloud business and how it is still in third place. the cloud business in general is continuing to grow and it is not a zero-sum game. what do you think the slowdowns or disappointing numbers that
have to do with it? is it because of competition or amazon specific issues? >> i don't think it is amazon specific as much as it is the competition. the microsoft cloud business is up over 60% recently. we know that business is on fire. we don't have a lot of visibility into those numbers but you do hear that under new leadership there are signs of life here. that becomes a strong third player. now amazon is competing with two giants. that can influence the top line. >> the ceo said the company spent more than what they had said they would, $800 million, on the same day delivery addition and it has been more difficult execute then expected. when i try same day delivery on amazon it often does not work out. what would you be watching their? >> the top line growth is driven by the commerce business and
what i was expecting is to see that investment start to pay off in q3 and q4. if we are already seeing an acceleration in q2 we could be looking ahead to explosive q4 growth for amazon. they have to develop a habit. they are not really feeling the impact of that one day delivery especially as it continues to roll out. those habits will get ingrained in q3 and cement themselves and q4. >> let's talk about the rest of accelerations of is going to be happening. you have cyber monday and black friday and all of this competition ratcheting up. how do you expect amazon to perform relative to the competition in the e-commerce unit in particular? i think there are a few things that advantage amazon and q4, particularly in light of the one-day shipping initiative.
i don't know if a lot of folks are thinking about this, but we get into a compressed holiday season. last year we had 32 days between thanksgiving and christmas and this year it shrinks to 27 days. that disadvantages amazon. their shareases later in the season as consumers don't have confidence of getting there products on time like they do with amazon. that compressed season will be to amazon's advantage. was an analyst for the marketer. a tech giant visits the white house, the white house host the biggest tech companies to talk about fallout from the trade war with china and the ban on while -- huawei. this is bloomberg. ♪
emily: white house officials said they would send a delegation to china read by robert lighthizer after a high-level meeting in washington between the trump administration and ceos from google, broadcom, intel and qualcomm. the meeting was geared towards easing a ban on sales from china's huawei. >> i think this is a very dangerous meeting. huawei is not an independent actor. it is an arm of the chinese intelligence agency. us doing trust that
business with them will not have negative consequences. i just read the washington post this past weekend and huawei was working with a shell company in north korea supplying them with technology that was explicitly banned through our sanctions regime. this is why we have joined in a bipartisan manner with congressman gallagher to make sure we enforce the huawei zte sanctions regime that we think is being effective. the president should not do a one-off trade for things that can significantly impact the future of our country and allied countries in terms of information technology. in the u.s. some business community including many high-level tech ceos who will say they see no evidence that huawei uses its equipment to spy on the u.s. or anyone else. what would you say to that? >> i would hope they read the panda shell corporation that was put up in north korea to allow huawei to do business with north
korean companies that we have sanctions against. operating on the up and up, number two it is well-known that among chinese companies it is part of their mandate that they must make anything available to the chinese government. i respect a lot of these companies but their role is to have the highest profit margins for corporate shareholders. the most important thing for me is our national security and this sends a bad message to our allies overseas who we are trying to convince to not allow huawei into the national security technology apparatus because as partners it makes it difficult for us to share information with them. >> you are a report in the washington post that huawei has parted with a chinese stay connected company, panda, on a project in north korea to improve wireless infrastructure. they have been partnered with this company for eight years. when the president was asked about the story he did not seem
willed and said the u.s. lead on five gmt will see what north korea does. how does this new potential revelation about huawei in north korea, they have denied any work in north korea, how does that change? >> it certainly makes me want to -- i object even harder. think other corporations and other members of congress should be worried about this. the fact that the president does not see the problem or the scope shouldou that we question his judgment when it comes to his positions on the very key important national security issue. huawei should be able to have access to our information technology market and our allies. trying to play one trade war against each other. we should not be trading access
to the 5g market for huawei for us to go back to what we had pre-trade war which is us being able to sell foreign products to china. there should be separate from the trade war because this will have long-lasting effects to national security. >> that is my next question. the leader of these u.s. companies will say the blacklisting of huawei has significantly hurt their bottom line. some of these companies provide supplies and ships to huawei smart phones, laptops and consumer products they say do not have much of a threat to national security. what would you say to those ceos? >> they are wrong. the u.s.mination in intelligence community and congress, huawei are dangerous operators. congress andht as
the nation to stop corporations from engaging with countries and other entities that could put our national security apparatus in danger. i don't know if these companies are complaining's against sanctions regimes against iran and other bad at his around the world. they do not have the right to corporate profit at the sake of national u.s. security. it is andst how hopefully we congress get our way and are able to stop the administration from getting their way. >> what would you like to see the trump administration do and what should congress do? >> the administration should continue with the sanctions regime, maybe even make it stronger. does not dodent that i think the house and the senate in a bipartisan manner should pass a new sanctions regime or continue the existing regime on huawei's zte to make sure we are enforcing good order and continuing to protect
national security interests. >> i have to ask you about iran. the president defends withdrawing from the iran nuclear deal and iran has seized a british flag oil tanker. tensions seem to be escalating. what should the u.s. do about the iran situation? we have to respond to them in a measured manner with consistent and concurrence with our allies. especially britain and our european allies. we have to recognize that without anyjcpoa plan, more as a knee-jerk reaction to anti-obama policies has created the situation. ton has said they are going comply with the jcpoa even though they will not receive the economic benefits but there are still other areas that we have to keep -- the last thing we need or can afford is a war in the middle east that is not in
our national security interest. we have a lot of other tools in the toolbox to keep iran and check and the escalate the situation through diplomatic means. >> speaking of the tensions at home, the president under fire for multiple days for what some have called racist or racially charged languages about four democratic congresswomen all women of color. 's you believe the president remarks have been racist and that he is stoking racial tensions? orecially given his response lack thereof to supporters at his rallies calling " send her back." >> it is not the first time the president has used race as a way to engage his base. stirred up his base by accusing president obama of being born in africa.
he accused a mexican-american judge born in indiana of having dual loyalties. it is not surprising that he described four american women as essentially not being american and not loving this country. these women are of color. he does not describe nancy pelosi or any other women that are white as being un-american or not loving the country. he is clearly trying to stir up a base of support that is racist and does lead racist types of theories. emily: that was congressman ruben gallego of the arizona seventh district. tesla shares fell in after hour trading after the company pulled back on profit promises. we talked to the ftc commissioner about facebook's record $5 billion fine as part of a settlement to put privacy violations behind it. this is bloomberg. ♪
♪ a worse thaned expected loss as part of its second-quarter report. cash and deliveries were the biggest challenges to growth and the company announced its longtime chief technology officer is stepping down. anugh he is staying on as advisor. i spoke with analysts. >> i think that the 5 billion on the balance sheet is a great number. i think margin is probably why the stocks fell but i think margin is -- if you go through the numbers in detail it is better than expected. of gap for guidance positive on the income is also good as well. it is kind of an overreaction in my opinion. >> if it's an overreaction it is
a big overreaction. shares are down 10%. there is a disappointment on reversed to the beginning of this year. elon musk said the company would become profitable later this year. it looks like that is not going to happen. >> they are still trying for it. it should be said that there are two things going on with tesla. they have been pushing like crazy for volume. large volumebe a car manufacturer, one of the biggest in the world long-term. the car they are selling the model three does not have great margins. they push so hard to get the price down to the magic $35,000 base price, they got there and have come up a tiny bit. the margins are supertight on those low-end cars. buy the cheaper model three they are moving away from the more expensive cars, the model s and y.
there is a pressure on profit that is a near-term problem and critics will say it is a long-term problem. this is a company that is going to have a hard time getting to profitability. >> is this a near or long-term problem? >> the model three actually had better margins quarter over credits which is what everyone wants to come look at. it is not true that they are making improved -- i am not sure what that statement is. >> max? >> the company is not profitable right now. they like being profitable. they want to be more efficient in the factory, be more efficient in their operations, that is the message we have been hearing from elon musk are the and they want to get these new cars out, the model y
which could be a huge boon for the company. >> what is the status of it will it be here next year? >> i don't have any inside information. tesla big effort that is doing right now on top of building a giga factory in china which would be huge because the chinese market is the biggest market in the world for electric vehicles. china change the tesla story as they continue work on the factory and try to get new models to the market? any productione in our numbers from china this year. what is most underestimated about anything here is the brand of china and how it has become i wildfire there and how many cars
they can sell. flow ack to the cash couple hundred million dollars. it is completely wrong and the headline needs to change. there are $5 billion on the balance sheet. oems that have heart problems in restructuring problems. manufacturers are -- >> if you talk to people who own tesla's they love tesla. they love their cars. they are not focused on the in and out of whether the company is making money and how may deliveries they are making and what production is looking like. how much does that matter? >> it is huge. making a good car is the most
important thing. more important than anything else. to been's point. one thing about the conversation that has changed over the last year is, about a year ago there the people out there saying company is doomed and they are never going to get to volume production. now the debate between the bears and the bulls is different. manufacturer,he that would be double bull case, and the bear case as this is going to be bigger than toyota. if you are elon musk that is a good shift in the conversation. you don't have as many sane this thinging about collapsing every day which was happening a year ago. emily: talk about a shift in the conversation. he has been more restrained on twitter since his settlement over how he is communicating with the public on social media. givens your of valuation some of the hiccups over the last year?
>> i think people want to invest with musk and him being more restrained or quiet is helpful. i think being cash flow positive $5 billionand having on the balance sheet is helpful for the growth managers that have not been paying attention or cannot own this to come back and buy it at a lower price a year ago when they were not where they were with all the -- emily: that was bloomberg businessweek's math and -- with at marches forward least one ftc settlement in the rearview mirror and a new antitrust investigation underway. facebook posted second-quarter results. street says
♪ >> welcome back to the best of bloomberg technology. facebook second quarter results out wednesday proving yet again, the company can grow while still sailing the heat from regulators worldwide. just hours after facebook the social media giant confirmed it is now also being investigated by the fcc on antitrust over its social media ads and mobile apps. this, as daily active users eat estimates but with his reputation continually under assault, just how? i asked marketers.
>> we have multiple parts of the government investigating facebook for multiple things. i think what of the most salient things about the settlement and the $5 billion fine is that facebook did not really admit they did anything wrong. we really haven't seen them really show a lot of introspection about why all this happened. and i think that is really telling. unfortunately, the reason it happened is because they have had the report governance and it has blood out into all areas of their business and it is causing them long-term, ongoing harm. >> we are going to talk to one of the commissioners about the details and how it will change facebook going forward. but speaking about the numbers, with all of these controversies, all of this scrutiny, how did facebook keep to seep -- seem to keep beating the odds? every quarter, i say the same
thing. they have been able to grow revenue, grow user base. despite mounting challenges. this quarter, more of the same. it's really incredible that facebook has been able to do this. quarter after quarter after quarter. to push back going on the teflon thing. users,at daily active they came in a little light on monthly active users. isyou really think all of us not going to impact their long-term reputation and ability to grow? >> the reputation is seriously impaired already. the ability to grow is a complicated question because, as deborah pointed out, they just keep raking in the dough. a brilliantly well-designed advertising platform and especially for smaller businesses, there really isn't another place to go where results can be achieved that are similar. that is a great thing for this
company. but long-term, is it going to affect us? it is absolutely going to affect them. there's no question about that. i would love to jump in. i absolutely agree with david on that part of it. i think that the teflon part of it is their ability to grow their revenue and grow their user base order after you. i do believe there is plenty of consumer sentiment issues with facebook. there's plenty in growing issues with regards to how advertisers feel about facebook. is, they are still standing, and people are still using facebook. >> earlier today, zuckerberg did give a town hall about the company. here's what he had to say. >> i believe that companies should be held accountable on privacy. this is what accountability looks like.
as part of the settlement, we have to pay a major fine and there are now very clear rules around how we need to operate on this. is going toe this help us serve our community better. >> the fcc could have sued facebook, but that didn't happen. they could have curtailed zuckerberg's professional responsibilities as well. that happened to a very small extent. to you think the settlement goes theenough to provoke introspection that you believe is needed? >> i would probably have to say no. i do not see enough introspection. i mean, if it takes a $5 billion fine to make a company finally start doing what it should have been doing all along with privacy and governance, that's a very bad sign about the culture of that company. i do see many signs of gradual
reform-and consciousness raising and changing behavior. i'm not going to deny the company is definitely in a better place and it has in in the past. but the fundamental reasons why has not beenened addressed and i think they allowed a culture to emerge which showed very little concern for some basic interest of their users to cut they were so thrilled at the amount of money they were making. >> now, this is really a family of companies. whatsapp.messenger, how do you see growth changing in the future? we know that instagram continues to be a better story. we suspect that facebook proper users, they are getting older, starting to slow growth. >> instagram remains a very
strong growth engine. , according to our forecast, instagram is still well under one third of andbook's total revenue will continue to be that way for the next few years. it's not like growth in instagram is going to suddenly balloon this company to be much bigger. the main part of revenue, the main, driving force of revenue remains that big blue app. there is still no revenue going into whatsapp. really it is all about the blue app and instagram at this point. coming up, facebook faces a new antitrust investigation after it agrees to pay a record penalty to settle years of
concluded that this book the ande the trust of its users deceive them about their ability to control their personal information. >> some terms of the deal, increased responsibility by the board to protect the user data, but little impact on facebook's lucrative ad business. the agreement with approved -- was approved with a three-to vote. it isok also announced now being investigated on antitrust concerns related to social media ads and mobile. voted in know if favor of the latest privacy settlement from washington. emitted to facebook us and to the american people that it would take certain steps with respect to privacy. in particular, it would not misrepresent the kind of sharing that was going on withapp developers and the kind of control that users had over data that they gave to facebook. a also committed to have
reasonable privacy program. that facebook broke those promises. it also broke a few others. we are here today because we look at what facebook had done. we wanted to send an important message about adherence to ftc orders and commitments to privacy. >> so, mark zuckerberg will now have to personally certify that faced with is complying with new privacy policies. how would you like to see his management of the company change? >> i think, of all of all, what we would like to see is greater focus at facebook on privacy. that includes mr. zuckerberg. he's going to have to focus more on privacy, but it isn't just about mark zuckerberg. what this order requires, beyond the $5 billion fine, is attention to privacy at every level of the company. engineers who are working on projects are going to have to think about the privacy impact of what they do. to protectose not
privacy, they are going to have to explain why. this goes all the way to the board of directors. they are going to have a new privacy committee which is going to have ultimate authority to oversee privacy of facebook. zuckerbergnot fine directly or do more to limit his personal authority? >> as i said before, this case is not just about mark zuckerberg. this case is about facebook in general. mark zuckerberg is a very important person but he is by no means the only one. we want people up and down the line of facebook to be focused on privacy. >> now, there are a lot of critics who say a $5 billion fine is not enough and secondly, that some structural changes are required and are also not enough. one of your colleagues voted against the settlement and says it imposes no meaningful changes to the company structure or financial incentives which led to these violations. instead, the order allows facebook to decide for itself
how much information it can harvest and what it can do with that information as long as it creates a paper trail. what is your response to that? >> to me, there are two really important points. the first is this: what we do at the ftc is law enforcement. what we look at in any case is what do the fax show, and what are the legal obligations? did the company break the law? we try to remediate the violations of the law. we don't come in and simply tell the company what to do. there are a lot of people in america who have real concern about how facebook and docs themselves. it is a conversation that goes on all the time across the country, and critically right now in congress, which is thinking about privacy legislation. but with facebook was doing and practices is not what the case is about. the case is about the misrepresentation that it made to users about privacy and several other things we talked
about. critically, that is what we are aiming to remedy. >> another one of your colleagues who voted against wouldays that the ftc have done better by suing facebook and sitting zuckerberg himself. why not do that? i don't think that's an accurate characterization of the state of light. the remedies that we have achieved both financial and injunctive, meaning the changes we are making to facebook, are very unlikely to have been achieved through a court process. against thetigation certainty of less against the chance of more. in this case we were facing a decision between the certainty of more and the uncertainty of getting even less. now, privacy advocates have advocated for bigger changes to how facebook tracks users and fundamental changes to the advertising revenue
business. do you really think that the changes made here are going to be enough to change facebook practices and perpetuity going forward if it is really not a $5 million fine making the bottom line? conversation is a really important one, and it is part of a conversation that is going on nationally and in congress about what ought to be allowed and what isn't allowed. but that is not what this case is about. this case is about the commitments that facebook made and its violation of those commitments and that is what we're focused on here. >> that is part of my conversation with noah phillips. as you can imagine, there was no shortage of opinions on the ftc and facebook settlement. i got insight from bloomberg an associated director of research at the electronic frontier foundation. >> i think that the challenges that the order and the
stipulations don't necessarily require facebook to prioritize privacy overall else. it simply requires that the company be truthful or not be iteptive in the ways collects consumer information. to your point, they could actually request phone numbers, the same phone numbers they used , and use them for targeting. they just couldn't do it under lely fore of so authentication. acyclic, companies can't lie about their practices, but nothing prevents them from being transparent about their practices and going ahead and doing so. >> there are other things coming down that facebook has already said it is going to do like merge the backend of whatsapp, messenger, and instagram. i know you believe this is problematic. issuesher major privacy
do you see down the road that have already been basically teed up? big one with those three merging is the issue of merging those identities for people here , your facebook number, your facebook name, and your instagram handle. facebook has promised that will be opt-in, but facebook has a history of reneging on privacy commitments such as looking at the policy alone over the past 10 years and studying the art of the bait and switch. we would like to see some kind of limitation. it is not going to be the case that in two to three years, all these identities will continue using the services. >> quickly, what do we know into the fcc investigation facebook, that facebook just announced and commissioner phillips just confirmed? >> we don't know a lot about it. i suspect that commissioner phillips may not know a lot about it either. when the ftc starts an
investigation like this, what they have is a credible reason to believe that there may be a violation of the antitrust laws that they need to look into. that is what this investigation means, that is about all we know. we also know that ftc talks to european regulators, but often they want to go their own way. as someone who worked there for many years, what happening right now? >> it's quite likely that the commissioners don't yet know. they were probably briefed on it, but they probably don't know the details and that is by design. to keep a law between investigations. accounts, onet being forced to use a different product. inre's a number of factors
regards to the antitrust investigation. is that,critical piece theftc degree are -- has multiple components. protection and competition bureaus operate independently. so, the question will be, to what degree are the overlapping and sharing information from the consumer protection investigation? ceo.en bernie, former ftc facebook's libra got little love from lawmakers. but will the crypto community welcome the new digital money? this is bloomberg.
>> to capitol hill hearings on libra last week continue to roil the crypto market. u.s. lawmakers spent today's grilling david marcus, cocreator of libra, to get insight on how it could change the digital money stakes. the ceo of ripple. they've taken a very bold, ambitious effort which is part of what makes silicon valley great. we have these incredible entrepreneurs. a little bit arrogant to take the approach of we are going to articulate a new currency. the u.s. dollar actually works pretty well. fiatn't need a new
currency. there might be some smaller markets where the argentinian peso might make sense, but i think that's a longer tale. there's a lot of turbulence, a lot of headwind. >> we talked a lot last week about the level of skepticism and ire. one lawmaker comparing it to 9/11 at the level of danger. what'sppening now -- happening now? facebook to to figure out because they announced we have this group of 28 different departments that are going to get rid of the libra association. right now, there's no charter for that organization, there's no payments that have been made. at this point, it is just kind of a continue to talk about regulation. side, theybook's need to get their team together to get this moving forward because right now it is just a white paper. it is an idea, but it's not actually something tangible.
>> you think regulators will let libra happen? >> facebook has had conversations with regulators before they announced it. some of those i know had expressed concerns. i don't think facebook really get enough to mitigate that. it's very important to both the u.s. government and governments around the world that financial regulation matters. know your customers and antiterrorist financing. these are important foundational pieces and the financial system. we need to make sure that the future constructs keep those in mind. the danger that is happening right now is that legitimate projects taking avenge of crypto to solve the real problems get caught in the crossfire. you are seeing that even the president came out and tweeted that i don't like cryptocurrency. there's lots of different shapes and sizes. it's almost the antithesis of how libra is approaching the effort. >> there are some who say that
it libra succeeded, that wouldn't be good for ripple. is there truth to that? >> facebook is a consumer company. they think about the problem they are solving as a consumer oriented problem. what ripple is doing is at the institutional level. if anything, we had one of the best weeks we have had in our history when libra was announced because it is a call to action from banks. and saidcus came out it does the end of the financial union. thatations are enforced at point. again, i just think we can't paint to this brush particularly at the u.s. government level when you have technology like that coin. -- like bitcoin. >> you work with a lot of banks, what do they think of the libra association? up, 28t of people signed members signed up. there was no money changing
hands, no hard commitment. they wanted to have a seat at the table. they have continued to participate. tell, but ily to think it was very noteworthy that there weren't any banks and financial stations. it is ambitious, to say the least. >> there have been reports that there has been skepticism among partners. that is one of the biggest concerns, quite frankly, facebook was out here taking a beating by itself for a project that they claim is, they are a cofounder with many other companies. if i'm facebook i'm going, hey, are you in or not? we could use a little support. that facebookrted and others in the association are talking to banks right now, they want them to be part of those members. i think it does at a level of
legitimacy to this whole effort. right now, i think if you are facebook, the biggest challenge is getting those people to actually say something publicly. brad, on another topic, bank of america, there have been reports that bank of america has taken out a patent for the ripple griffey transactions. can you comment on that? >> i saw that. >> can you confirm or kill the speculation? >> i can neither confirm nor kill. known to a lot of banks, and some of the largest , and we will continue working with banks around the world and i was surprised by that patent application because we have not announced anything. that does it for this edition of the best of bloomberg technology. day, 5 p.m. in new york, 2 p.m. in san francisco.
david: he calls himself a full-time nomad, born of a german father and a puerto rican mother in hempstead, new york, he took his new phd in economics with him to asia in the middle of the vietnam war, doing research in markets largely ignored by the west. mark mobius turned to investing after he correctly predicted a downturn in the hong kong stock exchange, and by 1987 he was running a successful business in taiwan. that's where he was when john templeton asked him to start the first emerging markets equity fund in history, starting at with $100 million, and growing