Transcripts For BLOOMBERG Bloomberg West 20150420

Talking about Migrant Workers tried to escape. When we say we are facing new slave traders, we are not exaggerating tried to imagine what happened three or four centuries ago. The same thing is happening north of the african coast. Cory up to one million refugees in libya right now are waiting to flee to europe. President Obama Meeting with the crown prince of abu dhabi at the white house. Security issues in the release are topping the agenda including negotiations to limit Irans Nuclear program. The unrest in libya, and yemen. New york fed president says he is relatively optimistic that a rebound of the u. S. Economy will want raising Interest Rates this year. He is not as confident about the inflation climate. The Unemployment Rate is still too high, and the inflation rate to low. Because the Economic Outlook is concerned about directly with normalization will occur. The timing is data dependent, so we will have to see what unfolds. Cory he says hes optimistic about the yesterday for a number of reasons. Good corporate fundamentals and growing consumer confidence. Another prominent republican moves closer to a good for the white house. John kasich started a website and said he is growing more serious about running. If he does, he will join a crowded field. Groupon selling a massive stake in the south korean ecommerce site ticket launcher. Theres like 46 percent of their shake they are selling 46 of their stake. The deal veil values to monster ibm sales the road further in the first quarter, now 13 straight quarters without any sales growth. Revenue, 19. 6 billion. Down 2 . Revenues down a Global Services systems and software. Shares not doing much after the close. Joining us right now from new york, our reporter. When i was tweeting about this people were saying it was in line with estimates. What do you say what the results that look so much smaller but are in line with estimates . They have come down quite a bit even in the last threemonth print profit was about 8 , sales about 4 . The thing that is really drinking on results here this quarter as we have seen a really large impact from foreign exchange. It is a that ibm has been talking about, but it ended up being higher than what they got it for back in february. 8 of that sale was or fx. When you start to look back underneath the covers, the big question for analysts and investors are going to be jim these new Strategic Initiatives make up for the declines in the older legacy businesses. I was listening to the call, and you heard them ask, it does not seem like this is quite adding up. Strategic businesses do not seem to be growing and off to outpace the declines in their older units. Cory for my book, he is the best in the street on this name. As far as the forex goes, when foreign currency was at theyre back at boosting result, they did not have been putting up for my numbers pro forma numbers. Alweex this is a tough business to hedge for your going to have those headwinds in detail wins with the swings of the strong dollar. Cory i have talked to some customers that say that the clock products offered by ibm are quite impressive. Some of those businesses and decline in particular are really good businesses. Are they fundamentally at odds with the rest of the ibm . If i view of his say you can routed on the cloud, honestly do not bother buying . That is the theory you have heard from some of the analysts thats what they have to offer in some of these cloud delivered businesses and services, their cannibalizing oldgrowth. That is why you have seen the co company shift is spending away from the older into this new. A lot of these customers are demanding flexibility through this cloudbased models that they can a lot and scaled overtime instead of doing it the oldfashioned way where you pay a bunch of money up front to license the Different Software and services to those of the kind of what headwinds that they are trying to traverse here as they are reinventing themselves. To turn a big ship almost 90 million in revenue, that is a big company to readjust and make sure that the new stuff is not taking advantage of the old. Cory is there a point at which they are in trouble . She inherited much of these problems, at what point do they start blaming her . Taking the temperature of investors and analysts, she has a little bit of room. It is only been six months and she took it, and she is trimmed with her stake in the ground. Youve seen some persons with some big names, but you have not seen with the sales at how these actually affects the financials of the business. It seems like she has a bit more time to figure out if these new initiatives are what is going it is going to take to move this ship. Cory behindthescenes getting emails from the pr people. The number of qualifications and the sentences that they say we have the consensus which we lowered we adjusted nongap business line, which we dont report was really good. It is amazing how quickly they protest. You have to Pay Attention to a lot of these things with a company like ibm. We have not seen a lot of the tax lowerings, but we will have to Pay Attention to it in the last hour, covering this for this company. Cory thank you. Still to come, whats up has 800 million users. We will look at cool Virtual Reality from the tribeca film festival. Cory still to come whatsapp since its site on one billion users by the end of the year. We talk about the deal that never was. First, a check of your top headline. S. As this could be valued at 1 billion despite world gas prices. They have been unloading gas assets to focus on heavier distillates and Oil Petroleum products. A strong earnings profit in the first quarter, just under 10 billion. Here is Ceo James Gorman on the earnings call. We continue to execute against the benchmarks previously established to and will remain focused on them for the duration of 2015. Cory he has been relying more and advising what we clients. The fugitive back links has been denied his claim of half of phase. Whatsapp now has 800 million users. It now has more users than any other messaging app including facebook messenger, but cash, not so much. Joining us now is the author of the facebook effect. There is a little bit of revenue from some android products, but i have to believe that there is a secret master strategy to monetize whatsapp and facebook. I would doubt that there is secret master strategy, i think theyre the confidence that they will eventually be highly monetize ball. Now that whatsapp is carrying phone messaging, they can start charging the waste guy despey guy does. Skype does. They take the view of numbers are what matter, we can make money later. Cory the notion of global domination might be, if we can take away the biggest growth platform the carriers have to always use messaging, if we can take away the eyeballs that are going away from facebook and at least control them through whatsapp they will be the better for it. That would be a counterproductive strategy because he is trying to simultaneously get all of the carriers to work with them on internet. Org. They are highly sensitive to the idea that he is taking away revenue from sms. I think it is really more one of these classic zuckerberg idea is that people want to communicate more efficiently, whatsapp lets them do that. It is increasingly a headtohead competitor for the top five social apps that facebook do not own. Cory a lot of little interesting tidbits out of the f eight conference. This notion of a dumbbell. There will be newsfeeds and all that, but there will be littler things. 300 instagram, 600 instant messenger. Cory you have these acts that had huge user base is that her insularity facebook. Can you imagine the pitching together about all of this them stitching together on all of this . They are all sort of integrated underneath from a data point of view, just the kind of thing that people to worry about. It is interesting if you count together instagram, whatsapp and facebook is a dream get 1. 7 billion users many of them overlapping. With that is even a bigger number than the 1. 4 billion that they have on their own. I think theres clearly a strategy to build a consolation of products that continue to strengthen. Another thing by the way, im about to write a piece about his paper, which is something they developed internally, another interface for facebook on the iphone that is actually better than the regular facebook app on the iphone. It becomes another way of keeping their caps on you when they are on their phone. These rural phone communication apps. To some degree they are agnostic which when they are using as long as youre using something may on. Cory might be a data played as well . People are here, people are tweeting more, messaging more certain hours or around certain events. They can better form the advertisers and engagement. They get more invaded revenues from those tabs then from the ads on whatsapp. 12 along the things that they own, this is one of the most data Centric Companies that has ever existed. If we eliminate age of big data, facebook knows how to do it than probably any other company with the possible exception of maybe google. They are observing and digesting extraordinarily complex and detailed data. They slice and dice it a million ways and they will use it to make their propertyduct better. Cory thank you. An interesting conversation. Well talk about this really cool thing with my partner emily chang, coming up. Cory virtualreality purchased by facebook, the first use cases are coming out. A virtualreality film based on the Little Prince came out of the tribeca film festival. Vr and ar are completely new art forms. It is completely different from all art forms that came before it. That includes a cinema, operas musicals, and you put in all of those things and he put inside a realtime engine and you are able to see virtualreality. Cory the storytelling part has to be very difficult because the viewer is not in a static position. In movies the viewer is there and in this weekend walk around the planet. You can turn it around 360 degrees and there was a solar system. Cory you could hear the wiring watering can. We have people who are used to telling stories and teaching movies. Interestingly so you great things for mobile you to create in a native way. For vr amdand ar they have to rethink the way to retell the story. That was my very first the are experienced vr experience. I was one of the skeptics. One of the other possibilities beyond entertainment and a 15 minute movie . We yet penrose think that theyre going to be several killer apps that are developed for this apartment. One of the things we think is something you just automotive virtualreality stories. Episodic content. That will be one of the things that drives the early uptake of the platform. There are implications when it comes to education, when it comes to gaming, when it comes to things Like Health Care and virtualized meetings. Can you imagine doing a telepresence oriented pr Conference Call, for example. One of the things it was lacking was the social experience of going to see a movie. I wanted to look at you talk to you, and i was a little bit scared, because i was in the middle of this other world. Cory look down, as he planets floating below you. Can it be made to be a more social experience . Absolutely. One of the things that we think is important is persistent universes. Videotaping ever the idea being whatever you want to be. Cory because the experience is so much more than just video or audio, it is exhausting. Maybe five minute episodes are dual, maybe a two and a half hour movie is not. The first film that exists today was about 45 seconds long. No one back then new what was going on. The are is so early and in the next three years we can see what is going to be discovered. Cory serious drama where your soul immersed freda seems like you it would be a lot, perhaps too much. Can we biologically handle that . We will see that over the next three years. The technology is so early, it is hard to imagine now, but when the technology is to something that is seamless, movies in the future were you see augmented reality experiences, i think youll find that i mentioned augmented golf will be very good. Cory that was eugene, the founder of penrose virtualreality. Some interesting contradictory statements from teslas ceo. We will show you the ridiculous Steve Ballmer video when we continue. Cory this is bloomberg west where we focus on Innovation Technology and the future of business. Lets check the top headlines. Full access to Irans Nuclear site in order to let any economic sanctions. If there are reasons to suspect any site there has to be access to that site. Peter any in iran . Through welldefined process. Cory the ayatollah says inspectors will be barred from certain military facilities. Saudi arabia is warning about a possible terror attack. The government is warning a oil company and shopping malls should be on guard. Four trtargets joined the coalition. Comcast and Time Warner Cable will meet with the department of justice to discuss their merger. Comcast could walk away from the deal. Concessions needed to win approval are too strickt. T. This is after bloomberg reported that it is leaning towards blocking the 45 million proposed deal. A group led by apple has agreed to buy a majority stake in cirque du soleil. The deal terms were not disclosed. They have resident shows in las vegas and orlando. Shares of Royal Caribbean drop the most in three years after the cruise line drop its annual profit by . 20 a share. They are blaming fuel prices and the stronger dollar means bookings are up. Two years ago, not even two years ago, tesla was struggling to turn preorders into actual sales. Reservations, good. Sales, bad. Things were so bad, elon musk again negotiating to sell the company. He was going to sell tesla to his friend larry page. Google would have paid 6 billion to tesla and agreed to spend another 5 billion on factory expansion. How close did they come to selling the whole company . Im joined by ashlee vance, a great writer of a book. The book is out may 19. An amazing story. Two aspects of the story jumped out at me we are having the conversation a month ago. You told me there was something related to what was going on with the production of cars and sales. Where does your story break . Ashlee the model did not come out until 2012. Great reviews. The motor trend car of the year. You had all these early adopters who bought the car. That what happened was wordofmouth was not that great. It had some glitches with the door handles, windshield wipers things like that. People are giving it a hard time. There were customers in line with that bought a spot in line to buy a tesla and they were not following through. Cory we have a timeline. It really tells the story. First thing that happens in the timeline is it goes on sale in the middle of the year. November, it wins car of the year. The sales were not happening. You can put the money down but it was a fully fundable deposit and the complaints happen. The cars start to catch on fire. They jack the price. He goes to every company and says we are in a crisis. Your job is to deliver cars. Ashellee some of these actives held executives held to the severity and they went to him and said we are in a crisis state. People in hr, engineering, get on the phone and your job is to call these customers and turn the preorders into sales. Cory about the wordofmouth you tell me everybody in the company was finding out wordofmouth was bad. Yet, the Conference Call investors asked specifically about that. You can see it if you talk to people that some people love their tesla and other people at issues. Early optimism in the Conference Call. He says on the Conference Call to investors he says there is Nothing Better than wordofmouth which had really been fantastic. It was not. Ashlee you had motor trend, people falling in love with tesla. It is sort of like apple, that coldultish thing. There were a group of people that paid wonder thousand dollars for a car and expected to have everything perfect and they started to grumble. Cory among the other things that we are differing from what he was telling investors, like in the Conference Call where you are required to tell the truth the revival was kind of miraculous. Even reading a story, i do not quite understand what happened. They shut down the factory. If we dont deliver these cars we are your new job is delivering cars. This revival happened in spring of 2013 where he shuts down the factory. He did not tell investors. They offered to sell the company for 6 billion in all of a sudden there is a turnaround . Ashlee if we dont pick up sales, will you buy tesla . They had this deal to do that. You put all these workers into selling cars nonstop. As i understand it and the timeline works out, in the span of about two weeks, tesla mustve sold thousands of cars. You will remember there was a surprise, even by elons standards, it was a blowout quarter. Cory the reason to me he said deliver cars instead of sale ell cars because the deliveries were not being accepted. At the same time, they started delivering cars if the customer would come to the factory. They recognized the revenue more quickly. They had to move a person to a building. Ashlee part of this high risk, high game. You can see right down to the wire, he rolls the dice and it came out and teslas favor. We could be talking about tesla as a division of google quite easily. Cory in the Conference Call, he did not tell the investors that the factory was shot. He said things were fine in terms of sales. He was putting this question out there. This is what he said about early demand we have enough reservations right now to fill up a year. We could say goodbye to every sales person and still meet our 20,000 car target. You are saying it was not true. They had to till everyell every person that needed more help. Ashlee it is a linguistic game. There is the reservations, the preorders of people standing in line and i think that number was huge. Converting that to the sales was the tricky part. Cory i cannot wait to read more of your book. I will encourage all of our viewers to rush to amazon and place preorders are go to your local bookstore. Ashlee anything it takes. Cory ashlee vance, bloomberg businessweek. Bloomberg west will be right back. Cory this is bloomberg west. A quick check ofe Bloomberg Top headlines. John malone is getting his hands on the european wireless network. His telnet unit is buying the mobilephone business for 1. 4 billion in cash. It is based in the netherlands. Raytheon investing 1. 6 billion to create a new Cyber Security company. The new firm will combine the cyber products unit. 28,000 swarming the streets of san francisco. Cyber security people for the rsa conference. One of the top three things joining us now is brightbrian white. Good to see you. The world is gathered at our doorstep. Cyber security has never been more important. What do you think the first big focus will be . Brian Security Analytics are what people are spending a lot of time. Some sort of algorithms against the. It. It will allow you to determine what is worth focusing on what is false positive. Cory how is it different from what was done in the past . Brian what is happening with cyber is there is so much information across the wire and it is internal and an enterprise that people are struggling to pull together in one place. Cory like a denial of Service Attack was by definition somebody bombarding service. Maybe they could keep it at bay but they could not understand it . Brian exactly. That is brute force. It is done by a lot of systems now the way people are getting in is they do a spearfish, they gain your credentials. They look to escalate privileges and move around internally. The hard part is determining who the individual is. Cory im sorry i keep interrupting you. Target, that happened. Somebody got credentials to get in. They do not just barge into the front door and take everything. They snuck in, looked around and got control of more systems and that is when it happened. Brian they are basically doing reconnaissance. They are trying to determine when a we going to be less detected . Is there a certain time of day where they dont have the right people on duty . There are certain things we can do to mask our behavior as we leave. Do we encrypt when we take information out . Cory what are the other big points . Brian i think people are very focused on understanding what is happening to other institutions. Are the banks seeing the same kind of threat coming across the wire . Is the Energy Sector seeing it . Every threat is actually unique and people are now trying to take that information, pull it together and enhance each others defenses. Cory let me ask you about this notion that when a company gets attacked, they should open up and share what happens to the Intelligence Community and then everyone can learn from it. Is their tension about that approach . We dont see best practices and i am wondering if people have decided we are not going to do that because that introduces new risk . Brian i was with somebody that said the expectation that you share everything and the government shares nothing. The truth there is the government might not know as much as the private sector thanks. Inks. The big thing is the Liability Protection to enable them to share. What they are trying to do is incentivize the private sector to share more. I think the reality of what is happening, if people actually help each other out. In Cyber Security, it is not a competitive advantage. You dont want your competitors to have a big breach because it would affect you one way or another. Cory good to see you, brian. The clout to a new place. I will talk to the ceo on the back of a 60 million funding round. That is coming up, next. Cory this is bloomberg west. At least one business succeeded by every business in the world payroll. One startup thinks it will grab a big chunk of the market. It is called zen zenpayroll and raised 60 million. Ceo Joshua Reeves explains the strategy. Joshua every single business in america and in the world is connected to it. Our business is getting people paid. Companies like adp and paycheck cap market caps over 60 million combined. Cory i see people already have adp and paycheck. Paycheck is kind of newer but they have been around for a long time. What are the innovations of they have missed . Joshua 6 Million Companies in the u. S. That use payroll, they serve about one million of them. It is a fragmented market. 40 of businesses today do payroll by hand. That was the shocking stat. What we have done is try to bring this philosophy of modern software where things should work seamlessly, be easytouse anyone can access it. For a Small Business owner that has been underserved and alienated for a long time. Cory given your total bias on this, described to me this fruit a process that adps software is written and paycheck as well. Joshua we have a lot of respect for companies in the space. In our case, the way that payroll is done, we use gmail as an analogy. You dont have to know how it works to send a message to someone. That is not necessary. 15000 tax codes across the u. S. , lots of paperwork and requirements. These millions and millions of Companies Across the country outside of the bay area have been doing it on their own for the last several decades and that is changing. They can use cloudbased solutions, access mobile devices. They are on the go serving their customer in whatever way they are doing their business. We can deliver value to them in a way that was not possible before. Cory technologically, what is different . Joshua number one, paperless. We do a lot of efile e payment. Cory are you using a particular Service Provider for that . Joshua most of it is homegrown. The goal is the take those 15,000 tax codes and enable a Small Business owner to take that hat off their head. The cloud is one where trust is really important. We never had a pilot. Payroll has the highest you can imagine. You sign on, give the bank numbers and routing numbers. On the mobile side, most of these businesses do not have corporate offices. Even even run paidyroll from the beach. We have gotten photos of that. Cory what is your sales process . That is one of the big hurdles for Small Businesses. It takes so much money to acquire a customer and there is not much left for profit. Joshua we spent the first year online we have been online for two years. We spent the first your building out foundation on organic growth. We did not do any paid acquisition for the first year and a half. We wanted to make sure the product added value to the customer. We have nps is never motor score net promoter score. Wordofmouth, the content that we do, solving the real problem. People are able to amplify that through facebook, social media. It has been one of the drivers of growth. We also have a Channel Program with bookkeepers where we empower them to bring our product to their customers. We see a lot of changes happening in the ecosystem but we are focusing on servicing our customers. A hugely fragmented market, 40 of businesses today doing it by hand. The other stat that was really shocking was one third of Companies Get fined for incorrectly doing the payroll taxes. You have all this complexity and that is why we started the company. Cory is the business profitable . Joshua we are growing pretty quickly. We grew by over 10 times. We are processing several billion dollars in payroll now. We always have the potential to control our destiny when it comes to things like profit. We give a two month free trial to every new customer. Over 98 convert. It is a really straightforward message. We charge 24 a month for a company. I cannot share detailed financial cory you could. Joshua i would love to in an off the air context. Cory we should do that. I really appreciate your time. That was Joshua Reeves, the ceo of zenpayroll. The bwest byte focuses on a number that deals with a whole lot. Ashlee vance, what do you have . Ashlee 248. The number of days it has been since Steve Ballmer bought the clippers and got to see his first playoff game last night. Cory i would take 248 days. The warriors also there. There is Steve Ballmer losing his marbles during the game. Maybe it is just loaning them out. This is the enthusiasm we expected, right . Ashlee i was worried he might stroke out or something during the game but this is what he is like all the time. Cory spurs losing to the clippers. Im very happy about the spurs losing as a warriors fan. Is it already paying off for Steve Ballmer . Ashlee it is still to be determined because last year the advanced to the finals of the western conference. They have to do better than that. Otherwise, they will maybe think about blowing up the team and starting again. There is a lot of pressure this year. Cory thank you very much. Still rooting for the clippers right now. I dont want to see the spurs in the playoffs. If you want to see the latest headlines, bloomberg. Com and bloomberg radio. More bloomberg west tomorrow. From our studios in new york city, this is charlie rose. Charlie Haider Alabadi became Prime Minister of iraq in september of 2014. A shia muslim, he was chosen by the president of iraq to succeed Nouri Almaliki who was accused of discriminating against sunni muslims in iraq. Alabadi has received some praise for assembling a more inclusive government and for his commitment to fight isis. He came this week to washington seeking support in that fight. I spoke with him on thursday in washington just before he left for baghdad. Mr. Prime minister, thank you for doin