Transcripts For BLOOMBERG Bloomberg West 20150117

Tesla is also facing issues in the Worlds Largest car market china. Here he is talking at the Automotive News World Congress in detroit. Things were a little weaker in china but just because i think of some communications issues. People have the misperception that there is charging in china but we have corrected all the charging issues. We have to work that correct that misperception. I spoke with ben kallo. Senior Research Analyst at robert w baird. Tesla entered china with very high expectations. I think they are learning that the market is more difficult than originally thought. Infrastructure wise and education wise run electric vehicles as well. Isnt that true of any product out there . Its their fault. I wonder, if after nine months in this market and sales are falling already, maybe this market for this luxury electric car isnt huge. So for what they have seen is lumpy sales. There have been two different heads of china. Bringing in someone else is one step in the right direction to increasing infrastructure is another. In december, they got rid of the person who ran their chinese division. They did. One thing to remember is this also happened in germany. They entered germany thinking there would be a big splash and high demand. In the first few months, they had similar infrastructure problems. There is precedent for this before. It is something they can correct over the course of the year. It is important to note, they said they could meet their targets of 50,000 model s units. Obviously, for the gen 3 to come in the future lets talk about the gen 3. The promise of this company is we are going to create an electric vehicle for the masses. They got a lot of money from the government to do this, loans that they have since paid back. Now they are saying that lowcost cars are many, many years away. They did stick by their 2017 target. There has been a slip. We did see the announcement from bolt. The car is pretty ugly and it will be the same price point as the tesla model 3. You have audi talking behind an electric now. You have the new volt. You have a lot of competition coming at that price point that will get there before tesla. It comes around the same time or later than tesla. I would say audi is probably the leader. You also have toyota that is pushing forward on the hydrogen side, but there is a big infrastructure built for that as well. Is infrastructure build good news for tesla . The more charging stations, the more they can get on the ranging side, the more cars out there, they would like to see more entrance through the market. I do not think it is just lip service. They would rather be a number three player in a major part of the market share that a number one in a niche market. Sure they would. But right now, i think what we are seeing is significant limitations. You see sales in the u. S. Falling. You see sales in china falling. Rather than imagine a future where things are different for tesla, can they look at what they are doing and say there isnt demand for the product that they make . 22,000 sales last year. This year, they will finish at 3000, may be slightly less. That is demand growth. In the commentary yesterday, he did indicate that they are seeing demand accelerate. The european numbers were in the bit better. I look at this very expensive limited car and i see, stock valuations aside, it is a neato vehicle. The beauty is in the eye of the beholder. Some people like the way the car looks and some think it looks like a honda accord. I have a honda accord, so i do not have a problem with it. [laughter] i just wonder if this is a product that has gotten a lot of hype that will not be as big a company at some people once hoped. The number one argument is demand. Tesla so far has proven otherwise. This is the second time outside germany where demand has come up front and center. This is where we see the negative stock reaction. Next up is earnings, which is early february, where they will be able to clarify with ritter detail in a better form than speaking off the cuff. When do you think the model x suv will hit the road . I do think that deliveries will begin in q3. It has been pushed out several times. A couple of years ago, when they company was due out in 2014. I remember the debut when they could not get the trunk open. A fairly amazing moment. Every Company Wants to be amazon where they never have to show a profit. But at what point does the fact that there promises for profit are further and further away . I have been talking with marketers all day in discussions this morning. There is understanding about the spending. I think the way he delivered the message on very high level tesla is profitable now in some quarters. I think what he was tried to say is that, after the buildout on technology and the investments they need to make to build their network in china and in europe and they hit the 500,000 run rate, its kind of an anchor for 2020. He is anchored to that number as a profitability going forward. Ben kallo of r. W. Baird. Mark zuckerberg is in columbia rolling out a new app. What does that tell us about facebooks plan for latin america . We will explore next. This is the best of bloomberg west. I am cory johnson. Mark zuckerberg recently paid a visit to colombia. He met with the president and rolled out the internet. Org app for the first time in latin america. Internet. Org is trying to bring Internet Access for underdeveloped countries. A couple of years ago, no one ever thought of columbia as startups. In the last few years, a lot are popping up. The government had a really big role. They started a Large Organization focusing on entrepreneurship. This is coming from the top down. There has been a lot happening and it is very exciting. Is this truly a charitable effort or a way to create more facebook users . I think it is both. 7 billion people in the world, there are a lot of people that work in countries where they dont have smart phone applications. They are trying to retail the internet experience for those countries. Internet. Org has a mission that makes facebook stand for more than just relevant ads. So it is a little bit of both. It is interesting also when you look at the growth statistics. Their growth outside of the u. S. , yes, its a much smaller business when you compare to the u. S. Or canada. They dont even breakout, for his apple, in latin america. But its going at a much faster pace. Facebooks business in north america and europe is really just starting. That the user growth, the markets are saturated. So facebook has to look elsewhere. If you look at the way mark is spending his time right now, he is visiting countries like china and mexico, china to open up new markets. What do you think is the impediment to growing in other countries like columbia . The biggest problem with all of the latin american countries is that they tend to be very bifurcated. There is the very large wealthy at the top and in the large masses. It sounds like america. But ok. But even more so. Yet. In places like brazil theres the rich and there is the poor. There is a very big gap, there is a large no class. In latin america, they do not have a middleclass or a very small one. When you look at a country like columbia, they are growing very quickly right now, too. You look at southeast asia, the gap is growing. I wonder also about the use cases. For a lot of people in this part of the world, their initial experience or their only expense will be on the phone, never on a laptop, never even on a tablet. A lot of people are avoiding the laptop. Facebook has done certain things where you start with an email or Something Like that. You go to other countries and you are signing up with your mobile phone. You are going directly in the mobile experience. I think it is a very smart way to go about it. Internet access is a problem facing the united states, too. President obama may be expanding access to rural areas. Calling to an end of state laws for cities and towns creating their own networks. I spoke with the chattanooga board ceo. The Business Impact has been twofold. We are seeing more Industries Come here, particularly those industries that are hightech or highly dependent on communications. But the other thing that has happened is that we are seeing a lot of bright young entrepreneurial folks coming into town. We are at the point where our young people stay here if they want to because they have their opportunity to work and live in chattanooga and dont have to move away. And probably a little bit cheaper than other places. What was the initial objective of the laws that prohibited publicly run broadband . I think the objectives or the laws are anticompetitive. They are framed under the rubric of saving the communities from themselves, keeping communities from doing things that might be failures and cost them economically. But the reality is, if a community is trying to bill a key mitigation system, if anything goes wrong, only that community will bear the burden of it. I think that is the absolute definition of a decision that should be made locally. In other words, if you want to have that problem, you should be able to have a problem. I visited provo, utah a year ago and they have seen with their highSpeed Internet, they have a much higher Speed Internet than we had here in San Francisco and there have been a couple of multibilliondollar businesses in their cities, but in the u. S. , most people dont know that they have slow Internet Connections compared to people like tokyo and paris and, yes, chattanooga. There is something fundamentally strange about chattanooga having faster internet than you have there. Our bigger cities should have the same speeds and capabilities that we can build in these small towns. We think, if there is a lesson to be learned, if we can do it here, it can be done anywhere. Ibm broke the record for the most patents granted in one year. What good are all these patents if ibms revenues continued to fall. We will look at what is wrong with big blue. Im cory johnson. This is the best of bloomberg west. Ibm tops the patents chart again with a record 7534 patents granted in 2014 for ibm. It is the 22nd year that ibm has been granted more patents. 22 years. But it has been the worst performance on the dow two years in a row. Patents good, company bad, it certainly begs the question does intellectual property and r d really help the bottom line . I started by asking what benefit ibm really gets from all these Patent Applications. It has been a very big focus of the company, 22 years. For the company, for them, traditionally patents are thought to signal where future innovation might come. New things where they are sticking their claim and using their big research to figure out what is next. The big question, like you said, for ibm, can they use these patents to raise these constantly falling sales for the past three years . In terms of whether or not they are actually making products that their customers want with these patents, it is a big question at ibm. I want to say, invention good, technology good, but this does beg the question, what is the real value for ibm . It is largely a numbers game. When you are talking about 7500 patents, that is a heck of a lot of patents in one year. The u. S. Patent office granted a record amount last your also can it is in line with the growth you are seeing at the Patent Office. The growth in the patents that they are securing, it doesnt serve the three Main Business models with respect to outgoing, licensing, reducing litigation costs, and providing them design freedom. All three of those are served by having a large amount of patents. They are light years ahead of the next secondplace finisher. I think there is value that is serving that can i do understand the point about the dip with respect to revenue in the last two years. Largely, they are betting across a lot of different technologies. A lot have Growth Opportunities with regards to cloud computing, cyber security. I think that will pay dividends in the next two to five years. I remember a long time ago reporting on hewlettpackard and i remember hewlettpackard telling me there was tremendous pressure from the ceo to issue patents. I wonder if we are not seeing the same thing. Talking to the researchers, they are very passionate about what they do. They are very focused on creating new technology, this idea of furthering the human good by technology. But again, when it comes to the top of the chain, to the ceo she needs to make sure that she is managing these people in a way that you are turning these new inventions, these new ideas into actual commercial products that they can sell. When you look at cloud, you look at 3000 cloud patents in this last year, that is an area they are really trying to buildout and they have been a little bit late in doing that. They ended up setting that down and buying software in 2013 to build their clouded for structure. Whether these two decades of patents have actually led to the kind of really big buck things they want to sell, they did go into the Main Software that they are selling. But you have to prove that these new ideas can sell to the customers. Right. Chris, im also wondering the example of twitter comes to mind. It went public and was criticized for a lack of patent protection. It was fewer than a dozen patents, but then they acquired hundreds of patents from ibm. I think this notion, start up companies dont need i. T. Or there is a movement afoot, is a little bit of a myth. Even twitter itself, as overtly as antipatent they might come off, their actions tell a different story. From the getgo, they have been aggressively acquiring intellectual property. A lot of Patent Applications that have been filing in the pipeline. Twitter is a Young Company coming out in 2006. The patent process itself take somewhere from three to five years, from filing to issuance. So a lot of pending applications are in the pipeline for things we will see coming forward. As far as ibm, you can expect them to be on the list again next year because they, too, have a healthy pipeline of pending Patent Applications coming through the system. You have noted, while ibm spends a lot of money on r d, in fact, the percentage of revenue, they have spent a lot less than other companies in the valley. Thats right. When you look at oracle, microsoft, some of the tech competitors, they average around 13 . Ibm is doing great things and they are obviously coming out with these new inventions. But the criticism from investors is where they are allocated and their capital may be a little too much on buybacks and share dividends and may be more that should be going over to the patent side. Ibm be a little challenged with the patent pipeline moving forward. You have seen some cases move through the Supreme Court and you see the Patent Office yet more stringent on software patents. There is the big sticker number they are coming out with. We may see more tightness in terms of that number as well. How does ibm use its patents in terms of litigation and pursuing their rights as patent holders . They are largely a defensive mechanism. As far as asserting patents, the last two years, they have not had a single case where they filed and asserted their own patents, but there has also been a defensive measure. If you Companies Want to lock horns with ibm because somewhere in the 150,000 active patents, they could dig up a few that they could assert with a counterclaim. For licensing efforts and for companies that are going into new particular areas, they are five years ahead of the game. I think the twitter example is perfect. You couldnt build a desktop or a portable computer without running afoul of one ibm patent. I think they might be said to be chasing rainbows, but you only need to find one rainbow to lead to the pot of gold. Chris carani and Bloomberg News reporter alex barinka. Spacex successfully docked its capsule at the International Space station but unsuccessfully landed part of its rocket. How big a blow is this to spacex and elon musk . We will explain. You are watching the best of bloomberg west. I am cory johnson. Spacex had a capsule arrive at the International Space station carrying groceries, belated christmas presents, and other supplies. But the attempt to land a reusable rocket was not successful. Elon musk tweeted for more, i spoke with a former commander of the space station. What is sophisticated about it is that it can hold position using a bunch of different propellers underwater. Using a gps, it can stay in one place really precisely, which is what you need when that piece of the rocketship is coming back and trying to land on it like a big broomstick imagine if you could balance a broomstick while you are out at sea. It is a specific thing to do. But the came back into port yesterday. They came close but not perfect yet. Lets talk about what happened in space. The capsule got there. The robotic arm reached out and got it. Describe that process to me and what you have seen when you have done it. We did it exactly the same thing when i was on the space station. It is really precise. The unmanned spaceship, which was launched a few days ago, flies all the way up. It gets close to the space station and then shuts everything off basically. Once its perfectly there, and i sense though, the two of us orbiting the world together, it shuts off everything. Then you reach out quickly with a great big robot arm and pull it down and attached it. Right now up on the space station, they are opening the hatches and getting to all the christmas presents and everything else. About two tons of stuff that was inside. There are always the mysteries of experiments. What do we know about the expense they are doing and how does that work on the International Space station . This particular dragon spaceship is carrying gear to support about 250 different experiments. Some of them are looking at how the gases and liquids are transported in the atmosphere. So to try to understand physics better. There are experiments studying radiation. Crew health. There are months and months worth of experiments on board as well as resupply, food, clothes, all the things you need just to live up in space. It is an amazing little ship especially with the accident we had with the competing ship, with orbital sciences. Everyone was counting on this one. It was really nice this morning for which to reach out and grab it. Lets talk about why this landing of the first stage of the rocket so important to the space industry . What is so groundbreaking should they be able to pull this off . And why have they not been in the past . Imagine every time you got on an airliner, when they landed, they had to throw away three quarters of the airliner and rebuild it again. The cost of each flight would be huge. But if you could reuse that every single time, if you could land and then all you have to do is refuel it, make sure it is serviceable, check the oil and then use it again, it decreases the costs significantly. Up until now, the part of the rocket that gets you above the air and gets you going fast, that first stage is always thrown away. Because its simpler. But now our ability and technology, our computers are far enough along that there is a safe way to bring one back and land it. And we would like to land it on land. You do not want your first test to crash into the ground. So what spacex did was they modified this great take barge. They put it safely out at sea. And they are trying to land that first stage rocket, like a big telephone pole coming back and landing on the barge. Once they have demonstrated they can do that, then they will give it a try on land. It will decrease the cost of going to space significantly and open things up. It is an important for technology. Up next, big changes proposed by president obama to make college easier for people to go to. But what about the technology that will make this even easier . That is next. Welcome to the best of bloomberg west. I am cory johnson. President obama wants to send qualified American Students to Community College for free. The plan will cost 60 billion over the next decade. The fed will pick up three quarters of the tab, if these states would pick up the rest. The plan is subject to approval by congress. This moves forward, how will it Impact Technology companies that provide online textbook rentals . I talked with the ceo of one such company. Check it out. For me, the more people who get involved in education the better. The difficulty is, if 50 of them graduate, what will we do with the 50 who are saddled with those loans, dont have a degree, and then try to go out and get a job . I dont think this answers the biggest problem but i do think it is the right kind of discussion to be having at this point. How do we get education to work the way it needs to work for American Families . If sending more people to school doesnt do it, if paying for those through federal grants and so on doesnt do it, what does approve that result . First of all, unfortunately in business, you end up having to rationalize. The difficulty is there has not been enough pressure on the schools to change the way they do business. As College Loans have increased, then the tuition can increase. We need to find a way to cap what we give, not because we want fewer people to go to school, but we want schools to be able to write size and rationalize their cost. Secondly, we have to look at the curriculum. My daughters go to a liberal arts school. They are doing well. But we also need to teach people practical learning skills. In todays world, if you can use excel or Microsoft Office or query a database, you cant get a good job at a company and begin your career. We need to look to expand the curriculum. Honestly, it is still shocking that we havent really pushed for more Online Learning. We can use fewer institutions and fewer professors who can teach more people online for a lower cost than ever before. Technology allows for it. There is a number of things that we can do. Lets take the Online Learning aspect of it. Maybe because the preponderance of Online Education has been the forprofit schools that have offered really crummy results at a very high price and left a lot of unpayable Student Loan Debt behind so the Online Education hasnt shown the Great Success that it might get otherwise. You are absolutely right. Those have been very difficult for students, for families, for the economy. They have very low graduation rates. When they graduate, they have very low employment rates. They have the lowest tuition of paper but the highest debt per student. Clearly, the forprofit institutions that have been leveraging lowcost College Loans to make money are not the right answer either. But the capability for the institutions we are talking about, there are 4000 colleges over a thousand online degree programs that people can take already. So if you create if you take just the Community Colleges, we should have them be able to take courses day and night so they dont have to quit their jobs. And they should be monitored with professors who have been trained with the right information the right way. We can combine the online effort with the Community Colleges and lower the cost, increase access, and improve the result which is what we all care about. I havent looked in the last couple of quarters, but what is the percentage of Digital Business for cheg. For chegg compared to the traditional textbook business . It has grown extra nominally. Only 20 a year ago. Next year, we expect to be over 40 . The digital part of our business, online textbooks, our tutoring business that we acquired, our study and home work product, those are growing very fast with highgrowth margins. The transformation we talked about a year ago is not only underway, but you can ask a see it succeeding. We estimated that our digital revenue, which was about 0 3 years ago, will be over 90 million this year and growing at just a huge rate. Dan rosensweig, ceo of chegg. Kate upton we thought was the secret behind burger sales at at hardees and carls jr. This company is using technology to amplify the yummy effect of these ads in some really amazing ways. Kate upton has sold burgers like she never has before. Amplify the sound of these ads in a very big way. Coming up next on the best of bloomberg west. This is the best of bloomberg west. I am cory johnson. Its not kate upton that is the secret to the big success at Cke Restaurants. The secret is that kate uptons message and all of these ads is amplified through technology. Technology is changing the way they do everything at c. K. E. Restaurants, from supporting kiosks to social media that take these ads to a whole other level. I spoke with the Cke Restaurants ceo. Its windows 8. 1 driving a dell 3030 basically touch kiosk where you can go in and order. You can order yourself. You can select what you want. You can hold the pickles or add extra bacon. And its very easy to use. The Microsoft Technology has really enabled an incredible system for us. It goes directly to the cooks. You have eliminated the middle person, middleman, middle woman who may not get your order right. Now it will go straight to the cook, right from you. People really seem to enjoy the interactive nature of it. You actually get a higher ticket. He will use credit cards and debit cards which tend to lead to higher tickets. But i think they are also just enjoying playing with the technology. It becomes addictive once you are in there. As you mentioned, the racy ads and the big juicy delicious burger brands, theyll want millenials. It has been a plus for us in the tests so far. I want to return to the racy ads because they are great marketing. But how much does this lower costs . On a percentage basis. Given the higher orders we are getting, the higher tickets, and the efficiencies that go in the restaurant, we are able to allocate labor better because you get shorter wait times. Consumers arent waiting as long for their products so you can improve service. I think over time, there will be savings in labor which right now is really in tests. We dont have people used to using it to the extent yet where you had big labor savings. Over time, there could be labor savings. Right now, you have a bigger ticket and you have some cost savings but not like what we will find down the road, i think. Lets move onto other technologies. I feel probably every business in the world is being changed in some interesting behind the scenes way with technology. Those ads have turned and opportunities for social media marketing, marketing venues because of their iconic success. Actually, they open up interesting avenues for us in the market. When we are doing technology, we are partnering with Great Companies like microsoft, who i have to say was really easy to work with. On the marketing side, one of the ways you measure in this day and age, how much your ads are being seen by people, there is something called earned media credit. It is incentivized. If you were running it now on bloomberg, that would be some earned media credits. Or if you are on youtube. With an ad that is very popular, you might get 100,000, 150,000 earned media credits. We did an ad with kate upton that got 2 billion earned media credits. 2 billion earned media credits, what does that mean . 2 billion people saw the ad and you do not have to pay for. That is exactly right. And we are outside the united states, we are in 31 countries. So there is the International Aspects that is also very helpful. Where does this ad turn itself into a technology play for you . Are there other ways to use that technology . There is a lot of things we can do. If you have the touch screens in the restaurants, you can run some of your ads in the restaurants. We post them to our facebook page. We post them on youtube. We have an iphone app that you can go to and see the ads. So it has in much easier to get your message out. If you have content they want to see. That is really the key. Its not like when everybody used to sit and watch leave it to beaver. You had to watch what you had to watch because you had to get up to change the channel. Nowadays, you have to have content that draws people in. The way we have done advertising that draws in the young, hungry guys, we have the content they look for it online, every place they can look for it. It has been a very big benefit for us. Instacart may have figured out the key to avoiding losses in local delivery. Im cory johnson and this is the best of bloomberg west. Instacart has raised 220 million. The fundraising is led by kleiner, perkins, caufield and byers, with competition from amazon and google. What makes instacart different . Grocery shopping is getting an overhaul. A whole raft of companies are entering the grocery delivery business. Rather than try the instacart app, i decided to try instacart the app is a simple part. I decided to try instacart work. You are overdressed. The app is a simple part. Behind the scenes, it is complicated and uberlike. Instacart contractors had to whole foods and costco they , stroll the aisles, the items and scan every item as they go making sure they get the right stuff. Instacart makes money by charging 4. 00 to 6. 00 per order. Sometimes charging customers more than they pay than if they were to go to the store. Special checkout lanes. They operate in 15 markets and is growing quickly. Com history is riddled with failed services. But this uberlike model may give instacart a better ending. For more, i spoke with the general manager and i asked how it differs from the famous web van. We dont have the infrastructure that web van had and smartphones are now for consumers to be able to place their order from their smartphone, ipad, their devices, and then our personal shoppers actually do the Grocery Shopping for the customers. This really is an uber opentablelike model where the consumer and the provider of the services are providing the same kind of connection. It is great for the customer to go to local stores and have a it wholesaled by whatever personal shoppers who is doing this as a job. Maybe there is Something Else they are doing on the side. One of the experiences in the stories that some items did not scan correctly or certain items werent available in the size that they requested, that is really involved that sort of person who knows what they are doing and shopping for the good sense services. Was that a lesson for the company . Yeah. We had to ensure that we are training our personal shoppers to make sure they are providing great experience for the customers but also picking the right to produce or being able to make the right decisions for our customers. To know if a pear is ripe you poke at the bottom. They ripen from the inside out. All sorts of things. You charge a price for an item based on what you charge, not based on what the store charges you for that. Does instacart take a loss ever . Or is it always equal to what the store charges . We are working with our partners to have price parity across the board and not have any differences in prices for the customers, whether it be an up charge or a down charge. But there are circumstances on occasion where there are some differences in prices right now for the customer. Would you see a situation where you take advantage of commonlyordered items and acquire those inside so you can lower that cost and delivery to the customer or is that never a part of your model . We are looking to use the new round of funding to create three different things. One is category expansion. Second is geographic expansion. And finally, technology enhancements. Category expansion, such as . Looking beyond grocery, look into other retailers and giving them the opportunity to deliver their items to their customers within an hour. Instacart general manager heather wake. That does it for this edition of the best of bloomberg west. You can catch us monday through friday. We will see you next week. When it comes to hair loss in women there is one solution that has taken these women from this, to this in as little as six weeks. It is your own hair, only better. Hair club fo