Transcripts For BLOOMBERG Best Of Bloomberg Technology 20170716

Fight for Net Neutrality. Competitive video gamers get their league. The first seven franchises and robert kraft is all in. We will bring you that conversation. A new hire at twitter. Ned will become the chief Financial Officer in august. He will report to jack dorsey. He will assume the role. He will continue to serve as the coo. For more reaction on the shakeup, we spoke to dick costolo who returned to the startup world as cofounder of a personal fitness platform. Dick i have a lot of confidence in the team over there. I am sure he is a great addition to the team. Emily they reported their first quarterly loss during the weve seen a new strategy unfolding. Do you expect any change in strategy with a new cfo . Dick those guys are pretty focused and have unclear on what they are working on. I expect that to continue if they are promoting the way they are. Emily what do you think of the new coo . Dick i think its probably anthony taking on more of a daytoday operating role moving fully into the coo role and they need somebody. Emily lets talk about the Trump Administration. There has been a lot of noise. I am curious about somebody who has started many companies, what is it like starting a company under the Trump Administration . Dick this feels like one of those questions we should have when we are walking along the pier. To be perfectly honest, its not that different when youre in the daytoday trenches of running a startup. Youre focused on hiring the right people on the team and getting the bugs out of the data and the performance of the data and trying to understand the dynamics of the data and the consumer stuff were building. To be perfectly frank, on a daytoday basis it does not affect what we are doing. Emily tech leaders came out vocally against trump. We have not seen the results of the policies he has promised. We do know he plans to block the startup visas given to entrepreneurs who come from foreign countries. How big of a deal is this . Dick i think thats really unfortunate. I think to be just blunt about it, its a sign he is not paying much attention to what tech leaders are talking to him about. I assure you they would be promoting that idea. It promotes job creation in the u. S. You want the best entrepreneurs in the world starting their companies and big instances here in hiring people here. To the extent you can attract them here and enable them to build those companies here and thrive here, thats a great asset to capital and nourishing of entrepreneurship we have. The more of that, the better. I think its unfortunate and its a sign not having been in any of those discussions that its pain lip service to listing to tech leaders and not really doing it. Emily we saw them take a hit the last couple of weeks. There is the email president ial scandal. What would you be bracing for . Dick i have thought for a while that the market had been underpricing risk with everything going on in the world, not just this. Of things going on in europe and the middle east. I would continue to be bracing for what i would have expected by now to be more volatility. It has been a record low volatility recently. You just sort of look at what its going on, it would be surprising that continues to be the case for an extended amount of time. Emily what about the private markets . Dick it has been the case recently that its very late stage private market valuations, companies are staying private for 10 years now. It ends up being significantly higher than when they debut in the public markets. Thats probably going to continue to be the case in the near term. You will see companies go public in 18 or 19 whose price of valuations were much higher than their public valuations. I dont see that changing anytime soon. I see lots of money in the private markets chasing very few deals, which drives up the prices. When these things see the light of day in the retail market, it probably turns out to be the case that they are not worth as much. Emily dick costolo, the former ceo of twitter. Were going to hear more from him later in the show. Uber is handing over the keys to its business in russia. The company is merging ride hailing businesses. They will invest and take more of a stake in yandex. Coming up, reddit is among the 70,000 organizations protesting the rollback of Net Neutrality. Plus, prime day has termed from a marketing scheme to a record raking event at amazon. We will take you behind the scenes. This is bloomberg. Emily tech giant to step in the fight over Net Neutrality. A host of internet giants are joining forces to protest the rollback of Net Neutrality rules. The sec will unwind Net Neutrality rules put in place by the obama administration. On one side, Internet Service providers provide less regulation. Facebook, google, net likes and other tech giants could the hurt if the government interferes with the internet. He is been pushing it since his first day in office area we are joined to discuss why the issue is so important. Alexis reddit has been fighting for the internet here in this is something that steve and i believe in deeply. That gave us the chance to start reddit in an apartment with 12,000 in the bank. Its the fourth most trafficked site a minute Net Neutrality made that possible. Emily the site goes dark can you have a message there. Other companies are telling users to take action. Google says both new and established services, they have the ability to reach users on an equal Playing Field. Alexis its been great to see more and more Companies Come and join our ranks. A lot of people remember the internet blackout that happened when they were protesting and the push to get title ii. That helped crystallize a lot of these laws. Those happen because platforms and consumers basically had their voices heard, made phone calls. Call up your senator and your representative, that still one of the best way future voice heard. We now have an audience of hundreds of millions of people across these platforms who are informed and taking action. The fcc is not beholden to voters because they are appointed by the president , our legislature is. If we can show this is an issue that is bipartisan, we can get those things crystallize around us. Emily he was appointed by President Trump. This is what he had to say about why he thinks its important. Title ii hangs over our businesses like a black cloud. Thats the kind of Regulatory Overreach we want to remove. Every american deserves better, faster, and cheaper internet. Emily he says that less regulation means more innovation, the future facebooks and googles and netflix is can it grow and develop. Alexis i only know about it from the standpoint of an entrepreneur. He is a lawyer. I know that level Playing Field guarantees innovation can thrive. At the end of the day, we want the free market to pick winners and losers, not big cable. Net neutrality is what makes the difference between those two things. Emily what if the rollback happens . What would the consequences be . Alexis it would only be the start of a conversation that i know america would need to have with their elected officials. It wont surprise many people who dealt with isps before. You can imagine internet that start to look a lot like your cable television. You get a default package and there are some websites that you like. The ones you really love cost more. A tiered internet is fundamentally broken. Its offensive and idea to most americans who want to get access to the websites they want access to and to entrepreneurs to lincoln start a business and win because they made something people want and not lose because somebody brokered a deal. Emily Tech Companies have become incredibly powerful. You look it google and facebook and netflix and they are throwing their weight around. Alexis netflix is a great example. For years, they were on our side championing Net Neutrality. Then they get to be really big. A couple of months ago, people asked what side of this are you on . At first, they said we dont need it. This is a publicly traded company who is beholden to their shareholders who because of the blowback from their customers said just kidding. We do support Net Neutrality and we know this is important and we are expecting this to manifest with our senators and representatives who are going to hear the same thing from their constituents. If you are just a casual internet viewer or a Small Business owner trying to start something, you want a level Playing Field. Emily dick costolo was on the show yesterday. He was talking about the meeting between the tech leaders in President Trump in washington. He suggested the president isnt listening. He might be holding these meetings, but not listening to what tech leaders have to say. What is your message to the administration . Alexis right now, we are focused on the congress. We think regarding Net Neutrality, this is something they legislature can do something bipartisan and what americans want. We will take a trip to d. C. Now that we have a policy team forming. We want to make relationships with senators and relationships. We havent had any meeting jet with anyone on the executive side. We want to make immediate impact. Emily west the latest on reddit . You returned to the company. Alexis ive got to give credit to steve. We came back full time a little over two years ago. He has done an amazing job eldin this company to something really formidable. There are over 240 employees now. Both the business in the product have grown significantly. We have exciting times. Emily that was the reddit cofounder. Microsoft is making highspeed internet or accessible through the united states. They announced a new campaign which will aim to eliminate the gap in highspeed Internet Access in the hardest to reach areas. It would eliminate the broadband gap over the next five years, funding projects in 12 states. By 2022, microsoft plans to provide fast internet to millions of people. Coming up, we are turning our focus to asia. The internet firewall in china could get tougher to penetrate. We are on the ground in china, we will show you which gadgets consumers are gravitating toward. This is bloomberg. Emily the Chinese Government said it would not disrupt legitimate access to the Global Internet by is in general users. Bloomberg reported that china had ordered telecom characters to bar individuals from using vpn services to circumvent firewalls. They said in a statement that trade and enterprises requiring internet abroad can turn to authorized telecommunication entities. This does not affect normal operations. This shuts down a major window to the Global Internet, which helps users bypass restrictions to china with thousands of websites that are blocked. China has played this game of cat and mouse with Virtual Private Networks for many years. For a while, people use a certain vpn and it was giving them access to facebook and twitter. The Chinese Government will crackdown. We have a more comprehensive approach with a government is going to the Major Telecom companies and asking them to block all vpn services accessing the outside internet. Thats a big step for them to try to tighten up on the censorship around their internet and try to block people from getting outside china and accessing websites they want to be blocked. Emily i play that same catamounts game having lived in china. It works and then you use another vpn. In practice, how was be different than the status quo . Peter conventional wisdom has been that china is not going to be able to keep this up here in eventually, they will have to open the internet and people will be able to get access and Chinese People will get access to sites outside the country. This is a serious tightening of that. Expats do this all the time to get access to twitter or google or gmail or google maps. Its not just expats, its people want information that is blocked on these websites, including the New York Times and bloomberg. We have a much more serious crackdown. The president has talked about how he wants to maintain control over chinas internet. Its a radical move and it looks like he is determined to keep that kind of control and that opens opportunity for chinese companies. U. S. Companies in the internet are not operating in that country. Emily one of the themes for Multinational Companies that operate in china, they have been operating in this legal gray area as well. They can use vpns, but only internally. Would this affect them . Peter this rule is based on people familiar with it. There has not been an official announcement. This will be individual use a vpn it, not the corporate use. In terms of the individuals, you will see many individuals inside china who have been using Services Like twitter or facebook, they will not be able to access those sites. They will lose thousands of users. Its not clear what kind of opportunities those companies will have beyond this. Emily what does this mean for the companies that have been blocked all this time, whether its facebook or twitter . The conversation has dan will they ever be unblocked . This seems to be a step in the opposite direction. Peter these companies have been very determined to get into china in some way. Google was in china for a while but then pulled out because they did not want to comply with the censorship there. This will put more pressure on them to find new ways around this. Im sure the people at facebook and twitter are looking for alternatives. The creativity of people inside china to get around the firewall has been Pretty Amazing over the years. This is a serious step. There may be alternative ways to get around the firewall. Emily what might it mean for a company like airbnb that has hired a chinabased ceo. Other Companies Like the ones we mentioned have tried and failed. Peter airbnb runs a different business. Its not information in any sense. They may not face the same kind of restrictions. The market has been open to western companies to come in. Chinese Technology Companies of been very strong. Airbnb is competing with a couple of powerful local players. They may compete with alibaba. Alibaba took the market. It will be a casebycase basis. Emily sticking with china, alibaba is taking a page from the amazon go cashless convenience store. They have a cafe. Stephen engle got a look at the festival that features other new Retail Strategies that integrate online with offline shopping. Stephen the festivals were the Virtual World meets the physical. 108 vendors here are selling their wares. The targets are the millennials on their smart phones, buying all kinds of stuff. The festival is in its second year. It is double the size of last year. It is an offline showcase for online shops without the brickandmortar overhead. Whether its the latest in design or Virtual Reality combat, the festival represents the new youth driven consumer economy in china. A quarter of the vendors are those born after 1990. The generation gap was evident. This 30yearold knew exactly what he was doing when he started making a portable electric guitar. This was the only way we could get so many enclosures. Weve only existed two years. Stephen how many have you sold . 2000. We are selling to the u. S. As well. We have distributors there already. We just started. Stephen they are targeting young consumers were more adept at using mobile wallets. This cafe has its flaws. You can have too many shoppers at the same time. The data cloud cab overwhelm the system. It pays off. It gets shoppers to use their alipay in the real world. That is very valuable. Emily Stephen Engle reporting from china. A new hire for softbank. Michael ronan is leaving the firm to join the 100 billion fund. He has worked on many large tech deals in recent years, including the push for control of sprint. He has been involved in putting together vision fund earlier in the year. Coming up, amazon calls prime day recordbreaking. We will show you the history around the 30 hour shopping event next. All episodes of Bloomberg Technology are streaming on twitter. Check us out weekdays at 5 00 in new york. This is bloomberg. Emily welcome back to the best of Bloomberg Technology. I am emily chang. Amazons third annual prime day was its biggest Global Shopping event, surpassing sales on black friday and cyber monday. The event grew by more than 60 in the last year, generating about 1 billion in revenue. The 30hour event saw more new members joining prime than any other day. We look at the history of prime day, and how amazon took a page from alibabas handbook. Amazon is rolling out its third annual prime day in a bigger way than before. The manufactured holiday was extended to 30 hours, with more than 100,000 new deals for prime Members Around the globe. The ecommerce giant is offering new deals every five minutes on products like the amazon echo and flatscreen tvs. Amazon services are also on offer. Four months of unlimited music, costing prime members just . 99. Amazon cannot take all the credit for coming up with this extravagant shopping event. The company run by jeff bezos took a page straight out of alibabas handbook. For years, they have capitalized on 11 11, singles day in china, turning the antivalentines day into one of the biggest shopping holidays of the year. On singles day in 2016, they racked up almost 18 billion in sales in the 24 hour event. Comparing singles day to prime day is not completely fair. Alibaba is running the show since 2009. Amazon only started in 2016. Another key difference, prime day is only available to the approximately 85 million prime customers, while alibabas is open to all Online Shoppers around the world. While it is in its early stages, it is already showing signs of being a big success. When amazon held its first prime day in july 2015, it marked a turning point for the stock price. Over the past two years, amazon shares have gained almost 120 in value. Amazon may have some catching up to do, but it continues to follow in the footsteps of alibaba, amazon maybe writing a prime Success Story of its own. Right before the official kickoff of amazon prime day, bloombergs editor at large cory johnson traveled to seattle to speak with david clark, amazons Senior Vice President of worldwide operations and asked how we should understand amazons global fulfillment space. David right now around the world, we have over 150 million square feet of fulfillment space, hundreds of thousands of employees. When a customer places an order, we decide which facility it will come from. We tried to ship it from as close as we can to the customer. But when you have a vast collection, over 50 million skus, a twoday promise in the u. S. And if you are in new york and a customer is from seattle or california, this is how you get it. From one of these cargo planes. Cory we talk about lease facilities, does that make a difference . David they are all largely custom designed with our engineering fulfillment processes for transportation in mind. It is whichever financial vehicle we choose is the best way to move forward with the asset. Cory how many airplanes have the fancy paint job . David we have 24 airplanes and headed to 40 in 2018. Cary are they all festooned with amazon . David i think there are eight that do not. Those aides were rolled up quickly and did not get the design on. The first one of role that we got in service quickly and did not put the design on it. All the airplanes since have it. Cory i wonder with the advantage of that is. David we get to stand in front of it and it looks really cool. If you have cool toys like this, you need to put your name on it. Cory i imagine it helps promote the brand. David its amazing how may people pull it to the airport. I find these pictures all the time when people are traveling and you find the amazon plane on the tarmac. It is cool for customers and employees alike to see them flying around. Cory it has to be a reminder to the other companies, fedex, ups, that you guys are here and they have options. David if you go to their places, you also see a lot of amazon boxes in those places. We have a great group of partners around the world. I expect that to continue. This is about innovating for customers and supplementing available capacity. We have great partners and we like to continue to do so. Cory how Much Movement of product . David almost all of this is package transport. Some of this is direct package transport, meaning instead of having to go through a hub, we have a large volume going from the west coast to the east coast. We can fly directly pointtopoint, take a step out of the process which allows us to make the cut off later for customers. On a twoday order, you might have 12 hours and still get your product because we can go directly from pointtopoint. Corey you realize from ohio to phoenix david maybe there is one unique particular record player stylus you need, and only one we have. It is in new york and it needs to go to San Francisco. We will put that on a plane and fly it and then go to San Francisco. We can put it on our plane from the east coast directly to the San Francisco hub and get it to you. You have much longer to order it instead of going pointtopoint. Cory from a domestic capacity, when you get to 40 planes, where will that be in terms of how much of the stuff you are moving . David we are not specifically stating what that breakdown is. Cory is that how you think about it . David we think about it in customer demand. We start everything with the customer and work backwards. What portion of customer demand is best suited to go through the path we create for faster delivery and work backwards from that. Cory when you negotiate with the carriers about how they will service you or the customer, to do you have those kinds of discussions . We could use a route that goes from point b to point c and we dont have one. David we are in Strategic Partnerships with all of our carriers. In order to make the holiday work and growth work, it is important to have a great relationship with them. We partner in almost every aspect of how operations work. Cory in terms of the Plane Business itself, it is a complicated business. I shout over the plane is a as it flies above me. I was thinking about the amazon Balance Sheets that give you advantages other Companies Might not have. David it is all about the Customer Experience side of this, about enabling faster delivery and enabling additional capacity for customers. Our approach to structuring the arrangements as you said, there are moving parts. We found a couple of great partners in atlas and atsg. We worked to come up with a great path forward that fits both the companys needs, the supplier, and provide a fantastic customer service. Cory was this a memo that started up with, hey, what if we try this . David somebody came to us and pointed out we had not realized exactly we have this much scale in air. We said this was right. It led to exactly what you said. We wrote a six page document about what would prime air product for air cargo for amazon customers look like, what would make it different, what would make it special for customers, what would make it lower prices and be a faster delivery for customers and ended up with this. Cory is there a metric on that scale . David as we continue to grow, that growth provides options and new things perhaps we could not do in the past. It could be like prime now, are onehour delivery service. We had to reach a certain scale where the Logistics Infrastructure and technology for fulfillment and delivery enabled onehour service. We needed enough volume where moving from coast to coast made utilization and Financial Sense to be able to provide that service to customers. Cory is it a change in amazons approach to local taxes propelling that is closer physically to the customer . David i think we have always have the same approach. We follow all applicable laws and continue to spread across the u. S. I dont think anything particular to taxes. This is about customers. Emily that with david clark, amazon Senior Vice President of worldwide operations with our very own cory johnson. Out of china, sprite struck a deal with alipay and wechat to receive the massive chinese apps and their money. Each have about half a billion users and dominate the payment space in china, making up about 90 of market share. Coming up, more from our conversation with former twitter ceo dick costolo. He weighs in on how Silicon Valley will fight back against grow culture. Plus, esports draws major investors. We will hear from robert kraft. This is bloomberg. Emily back to my interview with dick costolo. We discussed techs ongoing gender problem and makes amongst a string of Sexual Harassment allegations in the rising criticism of growth culture in Silicon Valley. Dick i do get it is probably, actually maybe understated and underreported. Its probably way worse than we have seen so far. I think that again, to be blunt about it, in a lot of cases the investors in some of these venture firms are simply ignoring it and paying lip service, but ignoring it and Funding Enterprises anyway. It is widely understood some of these issues were things that had been said in the background and yet new funds were raised and on and on and on. I think until the capital being committed by these lps take it seriously and invest more directly in women running these firms and maybe gender specific funds or people of color funds, you will continue to see lip service paid to this because when push comes to shove, the money is flowing in any way, even when they have heard some of these things. Emily we have seen a lot of longwinded apologies. Do you buy it . Dick it is hard for me to comment on that stuff. I am not in either of the shoes, predators. I dont know. It is weird when, you know, it is a pattern, its a pattern, its a pattern, and now it comes out. Oh, gosh. That is a bit you look askew at that a little bit. Emily reid hoffman is encouraging a decency pledge, talking about a thirdparty hr function that would oversee the relationship. Is that a realistic solution . Dick i just dont think that is sufficient. That is like saying listen, i love reid and understand what he is trying to do. But the answers seem more dramatic to me. Why arent people funding women only gp . Funds where the gps are all women. There are certainly enough for where they are all men. Instead of saying to the people who are already in these guysonly partnerships, do you promise to do x, y, z . I would like to see money flowing to smart women in the valley. A lot of them are in the venture business. Lets go enable a few of them to create their own funds and get after it. There are new funds watching all the time. People are able to get funds raised with what i would even go as far as to say are not records you look at and say i will find fund that new venture. There are plenty of super qualified women out there. I would like to see more of the lps and Institutional Investors putting their money where their mouth is. Emily you are very focused on hiring women at chorus and making sure it is 5050. What is your vision for the company . Dick it is a social fitness platform. In the real world the way people get healthy and live healthy lives is through social motivation and social accountability. Yet online, most of the platforms are oneonone. Here is a program for you. You try to keep yourself motivated in isolation. Chorus is about getting a team of people to stay motivated and doing what they are committed to do and help each other. Emily when is it coming out. Dick it is in beta right now and we are working of the user dynamics. We have three or more things we really want to do so i would say this fall. Emily dick costolo, former ceo and cofounder of chorus fitness. Facebook is taking another stab at Virtual Reality. They plan to unveil a cheaper wireless device the company is betting will popularize vr the way apple did the smartphone. People familiar set a headset will sell for as little as 200 and may not be tethered to a pc or a phone. Coming up, interest in east sports has been on the rise in the last year. Now professional sports teams are getting in on the action and investing millions. Will hear from patriots owner robert kraft and activision Ceo Bobby Kotick. If you like bloomberg news, check us out on the radio. You can listen on the Bloomberg Radio app and sirius xm. Emily razor is shooting for a gaming ipo to Fund Development of its own global phone. They are said to be developing a mobile device for hardcore gamers. They sell their products via ecommerce giant jd. Com and alibaba. In and in chains like best buy across the u. S. It is sold 1 billion in products globally in the last three years. Sticking with gaming, activision lizard announced the sale of its franchises in the Overwatch League. Among the buyers, new England Patriots owner robert kraft. I spoke with kraft and bobby kotick, activision ceo in sun valley, idaho. I started by asking kraft why he made the move to esports. Robert we love the infrastructure bobby has set up at activision blizzard. We have looked at a lot. The Overwatch League, to us, having 30 million players at this point. Just in the evolution really appeals to us and the concept of having 18 in the new england region. We know we have an infrastructure and we can do a great job with the development of that. Being part of something that can be globalized is very, very relevant to us. Emily i want to talk about the finances here. Bobby, how long do you think it will take before the Overwatch League can compete with the leagues financially . Bobby we have a 26year history of providing superior returns to our owners. We look at owners like robert kraft as an important constituents, and we need to provide a financial return as quickly as we can. Emily bob, the franchise fee is 20 million over time. How much will it cost to operate a team in addition to that . Bobby we have not really gotten into the details of the operating costs. When you look at the way we structure the league, the operating costs should be lower than what you would see another operating costs. In other traditional sports. Emily lets talk about the future of esports. Esports on Television Still has not been a great success. Bob, why do you think you can get there . Robert we are looking at what is going on with sports generally, and the millennials and z generation and how they consume product on a mobile devices. But also how they dont watch traditional Sports Products the way our generations did. You can see how much time is invested in playing these games and how they can connect with a global audience while doing it. It is unheard of to us 1015 years ago. We believe this is the future. We think the infrastructure that bobby has set up with something that the investment he made in this league is something that was very appealing to us. A great way for us to enter this business. We looked at a lot of alternatives and we felt this was the best way to do it. Emily bobby, how much will players make . Can you give us an idea of that . Bobby the whole purpose for creating the Overwatch League was in the service of celebrating our players and the commitment our players make to this game and what is now 196 countries around the world. There is no good reason a professional player should be rewarded like professional athletes. Our hope is that is what will happen and it will happen as quickly as possible. Emily what do you see is the biggest source of revenue for the future . Tv rights, tickets, sponsorships . Bobby all of those will be revenues, but the opportunity is partnering with these honors in successful owners and young entrepreneurs who built a lot of teams that are really the high potential entrepreneurs that siezed on esports as a great opportunity. The great capabilities we see in some are endemic owners, that allows us to generate revenues in broadcast rights, sponsorships, licensing, and a big part in what we are trying to do in building a localbased league is held the affinity you see it traditional sports. So the boston enthusiasts, of boston players of overwatch will have a place to go, role models that come from the professional athletes that will play our games. That is a really important part of what we are doing. Emily bloomberg has reported that tv networks are bracing for a drop in ad revenue based on nfl ratings last season. How do you respond to that . Bobby we are here to talk about esports. Robert i will do it. Anyone who looks at last year and understands the role the election had and look at the main News Networks and what they are doing this year, after the election was over, the nfl was in 2 of ratings last year. I feel very confident we will have very strong ratings this coming year. You just wait and see and remember i told you that. Emily my conversation with activision Ceo Bobby Kotick and robert kraft, chairman and ceo of the kraft group and owner of the new England Patriots. Net neutrality issues being discussed in sun valley. I think there is a lot of Energy Around making Net Neutrality work. When you zoom into verizon, they have put out a clear statement. They said look, verizon supports Net Neutrality. It is penciled in. Let Congress Passed real laws around it and it is cemented. I think it is great that is a day of action that has been organized. All those things are really positive. Emily that does it for this edition of best of Bloomberg Technology. Next week, we will bring you interviews from the Fortune Brainstorm tech conference in aspen, colorado. Do not miss our conversation with marty levine, instragram coo and the former u. S. Commerce secretary. All episodes of Bloomberg Technology are Live Streaming on twitter. Check us out weekdays. That is all for now. This is bloomberg. To bloomberg businessweek, im oliver renick. At 66, 1 billion question surrounding industrial giant monsanto. Ahead on it had bloomberg. We are here with the editorinchief of bloomberg businessweek,