been the most successful? would you believe it is amazon? we will tell you about the online. we begin with spotify, the company hoping a new partnership with led zeppelin but sits on a stairway to even greater success. at an event in new york this week the company announced a free service for smart phones and tablets meeting customers no longer need to pay to listen to content on mobile. the band thus far has avoided digital streaming. our editor at large caught up with spotify's chief content officer. here's how he described the new changes. >> the new service allows users to use with the device of their choice. a few years ago and we launched the service in europe it was a different world. there is a clear distinction -- >> there are no computers -- computers were on desks at the time. >> now the majority of our users are using on a mobile device. it was important that we keep them engaged. and now that is the most important. >> it also increases what they can access from those mobile devices. >> yes, you don't get all the benefits of premium, of course, but premium is on-demand. they're still a clear distinction between the benefits of premium and what free users get to do. but they get the experience. they get to build collections and experience play listing and all those cool features while maintaining the benefits of premium. no ads, and off-line there's a difference to radio better than radio because if you want to listen to nothing but bob marley you can listen to them all day long. there are not that limitations that bmc ahaz which imposes it on their listeners. >> i remember seeing a story that frank sinatra is contract with capital says that he was specific to medium. so when cds came around, they had to go back to sinatra and renegotiate a deal. for a longtime there is no sinatra catalogue available on cd. it was medium specific. are there a lot of contracts that you have to wrestle with as you expand your service? >> there are some. there's a short list of artists that retained the right to say no to certain types of exploitation. for acts of the statue of led zeppelin it is not uncommon for them to have those approval rights which makes it all the more gratifying for us if they had the right to say yes or no and they said you know what we want to embrace this model and introduce our catalog to a new generation of fans. >> is there going to be a time in this business where you don't need record labels? you talk about a catalog right now, but new music is a big thing. there has always been talk of labels not promoting way used to. for big bands it is. but surely you get approached by ask that want to go correct -- by acts that want to go direct. >> it is true that it is easier to make a record today than it used to be, but still the label system provides for artists and gives them capital and marketing muscle to cut through the clutter that exists. it still is an important part of the landscape. >> i can look at pandora's book and i know what their costs of being sold are. i can't look at yours yet could i would like to someday. i wonder what the progress has been about lowering your costs which of course you like to lower and the artists would like to see going the other direction. >> we think that artists deserve to profit. no business model is going to be successful unless it aligns itself with the interests of artists. as daniel mentioned today, the cofounder and ceo, we still pay out approaching 70% of all revenue to the rights holders, which includes artists. we pay directly to rights holders and copyright owners who in turn into artists. we are proud of that and we think that everyone deserves to make a dollar. >> the radio stations are in single digits. >> one of the cool things we announced last week is a whole new level of transparency in terms of how this model works. we launched a website that we call spotify for artists. it provides a real detailed window on exactly how this model works. i would encourage you to check it out, but there has been -- >> you guys have spent over $500 million this year paying for music. >> correct. and 500 before that has gone back to rights holders. we wouldn't be having this conversation if it didn't go so well. at the end of the day, we have the continued ability to do that and go back to point made earlier. we're trying to get more people. it is an efficient way to move from no pay to much higher payback to the industry. that is about getting more people onto that very efficient conveyor belt that has worked well for everybody. >> spotify's ken parks with our cory johnson. in other news, facebook's photo showing up instagram is launching its first messaging tool. it was announced at an event in new york on thursday. it will allow people to send photos and videos directly to as many as 15 friends who will then comment on them in private conversation. people you follow can send photos directly to you, photos from strangers will end up in a pending queue. is this a game changer or will you be able to peel away users from snapshot and twitter? >> this is very much a facebook story. i think of facebook as this battleship which can choose to focus its attention on any number of projects and right now facebook is squarely focused on messaging. this explosion of messaging apps, free messaging apps because that is being fueled by the fact that people do want to pay all those fees when you're texting a lot of own. facebook is in some ways playing catch-up. maybe it was to capitalize on the trend. we obviously know they tried to acquire snapchat and that is not successful. now they go through instagram to persist ahead and why not? if you look at the growth of the instagram plan arm, a lot of people are going there, they're already commenting on photos and to do something like this might improve engagement. for example if i taken i should've on trees in los angeles, someone might comment on it an hour later or three hours later. i might see to get my gratification then. some become it right away if emily chang to give me thumbs up on my photo right away i might stick around and instagram a little bit longer. >> jon, i will keep my eyes on your feed, ok? is a something they can make money on? >> if you talk to people, moneymaking with messaging is a tough thing. obviously, if it is just texts the phone company's were charging people for which led to all the creation of these free messaging apps, that business model makes sense. but free messaging apps have a challenge with things like advertising, first because it is not easy to target those ads to people who are in a conversation. it is really tacky. is different than ads that stream through a twitter feed. if you are instagram and you can improve engagement and key people in the platform a little bit longer, maybe in the posting your pictures in the course of the, in six months as his and that that on an announcement like this and see a win. >> jon erlichman on a messaging. now bing gordon is starting a new venture. we sit down for an exclusive conversation with him next. ♪ >> this is "bloomberg west," i'm emily chang. this week, the firm announced that he will become its chief product officer. product works is a new program for measuring entrepreneurs and mesh -- and overseeing technical details and product design. jon erlichman set down for an exclusive interview and asked being why he chose to do this. take a listen. >> i am concerned about the level of innovation in life. i have a high filter for cool and we are the florence of modern economy here in the valley. there is untold emotional creative and economic rewards for doing cool really well. i don't think this is a fix it, we just see that when people get something 90% right, it is not nearly as valuable as a hundred percent right. >> speaking about people specifically, it sounds like the model you're looking at are people like steve jobs. other not enough people following in the footsteps of steve jobs? >> there are a lot of people inspired by steve jobs. dave said jobs push for the last 10%. he said we thought we were done and he would go for insanely great. he would push for that last bit. you look around and you can see people like tony fidel and and hossain rahman who channel steve daley. >> you spent a lot of years on helping people build the business of zynga. you share this tidbit by founder mark pincus from a media mogul john malone. can you elaborate? >> more broadly speaking, we all look for mentors and sometimes you're lucky enough to have a mentor who will let you sit on his or her knee and tell stories and talk in detail. i think mark with malone and maybe me with david ogilvy as more of a remote mentor, more a relationship we have with books, so pincus when he worked in malone's organization could see from a distance of inside information the way malone would use math to get right to the heart of value creation in the media business. pincus has extraordinary ability to use math to see inconsistencies and possibilities in this new media ecosystem. >> product innovation is needed at young companies and large companies. zynga's new ceo used to be at microsoft and microsoft is looking for its next ceo. on these themes are you're talking about, how important is that decision of microsoft to decide its new ceo in terms of its future? >> it's probably as least as important as general motors. it looks like congratulations to them. not only is it the former head of product, but also a female. i grew up in detroit. those two backgrounds for ceo of general motors was inconceivable when i was growing up. >> talking about another company, amazon, because you have sat on its board and jeff bezos is getting a lot of attention for his future focused on drones, ebay's john donner told emily chang that is his fantasy. obvious the people are going to be dealing with critics in the short term, but what do you make of all of that? >> the best way to predict the future is to invent it. a culture of amazon is very much about invention. most invention starts out seeming foolish are impossible and circling back to steve jobs, he said to stay hungry and stay foolish. >> when i look at one particular product story, since her talking about innovation, intel spends all this money to develop a tv project only to now reportedly be looking at finding a buyer what do you make of that? >> kristin clayton's book makes it clear that it is hard for incumbents to do discontinuous innovation. i think it is never a surprise when an incumbent fails at his continuous innovation. the surprise is when they pull it off. microsoft holds off xbox and xbox live or when amazon pulls off aws or kindle. or frankly when apple pulls off the ipad. >> that was bing gordon with jon erlichman. according to new research, kleiner perkins has the biggest pipeline of potential ipos in the coming year among venture capital firms. plummeting pc sales has hewlett- packard pivoting its business strategy. but can they move things around by moving to the cloud and data service? we hear from whitman when we return next. ♪ >> this is "bloomberg west" streaming on your phone and now on apple tv. i'm emily chang. hewlett-packard is looking to reduce its dependency on pcs as sales keep falling. the company is rolling out a set of data servers and storage solutions for the enterprise. hewlett-packard's executive vice president and general manager of the enterprise group is working with ceo meg whitman on the company's turnaround. i spoke with him at a conference in barcelona and asked him how big this infrastructure business can become. >> what customers are looking for is they no longer want big silos of servers and storage. what they're looking for is a single pool of physical resources. when we announced today was a breakthrough set of innovations that frankly enables customers to more easily and more efficiently access that infrastructure, whether it the computer or storage or network bandwidth. >> how big do think this can become in terms of the percentage of hp business? >> the feedback that we have had from customers and partners here in barcelona has been overwhelming. what are partners are telling us is look, today they do much of this integration them selves. what they're looking for us to do is deliver that integration out-of-the-box for customers. we think that this could be up from anywhere from 25-30% of the business and growing. >> we know you're really excited about the moonshot server business and especially for large websites and large businesses, what about all the smaller businesses, the less cutting-edge businesses that rely on hp here? >> the reality, emily, is that customers are looking for a new platform that delivers much greater density and much lower cost. for those highest foia workloads. so small or medium-size businesses, while they may not directly deployed moonshot server, they may rely on an hp partner or service provider that has deployed that server in their cloud, delivering for small business better economics and better efficiency. >> so as infrastructure becomes 25-30% of the business, what becomes a smaller part of the business? >> the reality is the infrastructure business matures, emily. customers are looking for scale. they're looking for speed and efficiency. it is very logical where really for the last 15 years they have had these isolated brutal silos. they're going to consume more compute and storage and they're going to consume more bandwidth. this is a more efficient, better way for them to consume it. >> last quarter hp's enterprise revenue was up two percent which is great because the quarter before it fell about nine percent. since you have taken over this area, what are your biggest initiatives -- what have your biggest initiatives been? >> last quarter for some eight quarters we grew the business. we saw the growth. we delivered a better value proposition for customers. we saw growth in servers, we saw growth and networking. the reality is when i think about what we're doing in the enterprise group, what we're doing is delivering tremendous innovation is delivering better value for customers. is a simple as that. we are here in barcelona at hp discover and frankly, we are having an innovation party over here. >> some of the biggest companies like amazon, facebook, google, they are buying their computer parts and service from non- brand-name companies. they're putting things together themselves in customizing things, how do you defend against that trend? >> the reality, emily, is that many customers are going to want to do the infrastructure, but they need a partner like hp to deliver that value. a facebook or google might be able to afford engineering talents to deliver that. the majority of customers need a partner like hp to deliver that value for them and that is what we intend to do. >> so q4 networking revenues at three percent at hp does a lot of networking business in china and you have cited some week is there. -- weakness there. how exposed are you to slow in spending from the state-run enterprises in china and other chinese companies? >> when you decomposes numbers, it is up 3.3%. it is reasonably well balanced across different geographies. china has historically been a strong market for us. we saw growth in asia broadly and we saw good growth in europe as well. >> so, you are meg whitman's right-hand person. she seems to have been realistic about what we can expect and she said on the last earnings call it will be a tough year but a pivotal year. when do you think we will hear more positive statements? >> emily, we are working really hard and are pleased that she highlighted the progress and the turnaround. i wish you could feel the buzz with customers here at discover. the feedback has been tremendous about the innovations we announced today. as you know, companies come back on the backs of great innovation and our pipeline is healthy and the customer feedback has been very strong. >> hewlett-packard's executive vice resident and general manager of the enterprise group. amazon is known as an e-commerce even for its cloud-based web services, what apps? we will have more on this lucrative and was unknown part of the business. ♪ >> you're watching bloomberg west, where we focus on technology and the future of business. we know amazon is a major online retailer. you may not know that amazon has been quietly building its advertising agency -- yes, an advertising agency, over the last two years. they earned over $600 million in ad revenue last year and is expected to grow to over $836 million this year. to talk more, cory johnson sat down with the head of amazon's ad business. he began by asking what the goal of the business is. >> at amazon media group, we focus on our customers. we start with a customer and we work backwards. we focus on the consumer. we focus on delivering relevant advertising experiences for our customers that we can help them find, discover, and buy what they're looking for. we are a global platform and we have over 200 million active customer accounts around the world. >> when these ad show up, they really drive sales in a direct way. we have not seen in recent history. >> it is a core area we are focused on. it is called e-commerce sales. we take amazon's shopping functionality that many of our customers love, things like digital coupons and customer ratings and reviews, and we embed that right into the ad. we are seeing great results. our ads are performing at 20% to 30% more than standard ads. >> i am thinking back to my magazine days when direct marketing was two to three percent. what are the standard kind of returns for a good ad in e- commerce? >> they're performing 20% to 30% better. what we are also seeing is that multiscreen really matters. as you know and i know is i shop, i spend more time on my mobile phone and my tablet. what we are seeing is our advertising that is running cross screen is 18% better. it is that combination of creating a call to action in the advertising experience. >> you have customer reviews. you go to see those stars. what is the effect on an ad with those customer reviews and without? you can really compare those things. >> we are seeing 20% to 30% better on average. things like customer ratings or reviews or even pricing, including the price of t ad, we are seeing 50% better. this is both in click through and purchase intent with that price embedded in the ad. it makes it a more relevant experience for our customers and helping them find a product. >> that's amazing. what about the one click? that is a patented amazon innovation. >> we are seeing better returns, roi, 20% to 30%. the beauty of buy now functionality in digital coupons is it helps the customer move seamlessly in their shopping experience across the device. we are seeing better results. >> do you quantify that as well? >> the number i will share with you is 20% to 30%. that is the take away. >> what kind of pickup have you seen? it is not brand advertising, that is really not what you're talking about. >> we have seen interest in our advertisers. we put them into categories. one is the advertisers that we are promoting products that customers can buy on amazon. the second category is what we call non-endemic. that is connecting with the amazon customer but through a branded experience. a great platform for that is kindle and kindle fire. it's in color. the advertisers can embed video and we are seeing great results. >> i got my daughter a kindle. she just plows through books. it does have ads on it. i see a lot of the different kinds of ads. volume?selling in great >> i cannot comment on the sales, what i can comment on is customers are loving the advertising experience on the kindle fire. >> why? >> we are so focused on ensuring that it is a great experience and it is relevant. high brand bar is i am a big believer and i want to sell ads that i am proud of. brands that are relevant to customers when they are in that shopping mode or when they are in that reading mode. >> cory johnson with the vice president of global advertising sales at amazon media group. next, a twitter exec who left the company tried his hand at venture capital. he will be here in a moment. ♪ >> i am emily chang and this is "bloomberg west" on bloomberg television, streaming on your phone or tablet. twitter stock price has doubled since it went public. while investors are flocking to it, one executive decided not to stick around for the ipo. after four years as the head of platform, he left the company in late june, four months before he went public. he is now at red point ventures. i asked him how it is going transitioning from an exec at twitter to being an investor. >> in some ways, very, very different. in running platform you met with a ton of companies every day. that was very similar. the length of time thinking about the job is very different. >> how did your four years at twitter change your strategy. what did you learn there that you're applying to investing. >> investors passed on twitter how many times? twitter grew over and over. seeing the inside of that, you see the little things that are not obvious to people on the outside of the company. you see those characteristics and i hope that having seen that one time on the inside of the company i can apply that to investing. >> you're looking at competitive stuff. what is your strategy? >> it is less about a specific area. i want to learn a lot. but i want to learn about specific areas. one is called home joy. this is a pushbutton economy of being to get services on demand in a trusted way and helping making a more efficient service for you. >> uber has come out a lot when i ask other investors what they think the hot startups are, there are not a lot of other names out there. what do you think the hot ones are? >> have you seen coin? i think that is the beginning of what you can see there. >> i have to ask this question because you work with twitter for so long. mobile messaging seems to be a big battlefield right now. twitter has added photos to direct messages. facebook is messaging. instagram might be doing messaging tomorrow. how do you see this battle shaking up? >> that is a good question. i think it's in this human need of communicating. all of these services help people go to different ways. it is interesting to see these new mediums. it is too hard to predict here in silicon valley. it'll be interesting to see how it shakes out. i think they're very different services. they can be used in different ways. in the world, twitter is about information. >> what about facebook? do you think snap chat was right to turn down that offer from facebook? is it a threat to facebook? >> it is more a threat to facebook than to twitter. mark turned down one billion from yahoo. now they're making a ton of money. once you build a big audience of consumers, finding a way to make money off it is the least of your worries. >> what do you think instagram is going to announce? >> messaging is probably the core. they want to do things to help people connect and communicate. i think messaging is not too far off. >> let's talk about twitter. what do you think twitter's biggest challenges going forward? what are the need to work on? >> it's a good question. i tried to pay too much attention to it anymore. i spend my time there and i want to focus on my new job. >> you'll be watching? >> i will be cheering from the sidelines for sure. >> what will you be doing at red point? >> i think it is finding entrepreneurs to work with. one of the things that excited me about investing, i like to work with entrepreneurs and see the things they get to build. for me to go out there with the freedom to start from scratch and find great people to work with and help them grow is the most exciting part for me. >> ryan sarver is a former executive at twitter and now at red point ventures. youtube's list for the top videos of 2013 includes from funny shorts to music videos to coffeeshop pranks like this one. when we return, we will show you who won the top spot. ♪ >> welcome back. i am emily chang. from james franco and seth rogen making fun of kanye west, a marker say youtube revenue will hit 5.6 billion dollars this year. that is up 51% from last year. the end of every year, youtube goes to all the videos and offers a rewind. i spoke more about what we all watched with kate mason and asked her if there were any surprises on this year's top 10 list. >> one of the things that stood out was there are three videos that were all from brands. we are seeing that brands are coming on board in making things that don't look like commercials but look like interesting videos. >> they are investing money in it. >> absolutely. >> an nfl lip pretty clip. number seven is yolo. how you put this list together? >> we look at all of the views that videos have over the whole year and we break down the list of the top trending videos of 2013. we also have a list of the top videos in music, education, and beauty and fashion. >> did the list differ this year than other years? >> one thing we are noticing is that sharing is important. ople like to get involved. a lot of the videos real late to encourage engagement and encourage people to dissipate. >> i am amazed that kanye's video is not on this. i am very surprised. number five is baby and me. that is a new evian film. number four is the spoof on the miley cyrus' "wrecking ball" video number three is the "harlem shake." we all remember those videos. this is the original army edition. >> this is one of the most popular videos of the "harlem shake." there were 1.7 million videos uploaded around the "harlem shake." 1.7 million people decided to make our own video. >> how many people total watch these videos? >> i don't know that specifically. a lot of parodies. >> let us get the number one. i was not surprised by this. and you may have seen this video. what does fox says. tell me about this video. >> this is wonderful. both of these are from norway. >> who are the people that made this? >> this is a comedy duo from norway. most of it is not even in proper english. >> 276 million views. that does not compare at all to the most watched video of all time. >> 80% of youtube videos come from outside united states. we are seeing international videos. we all remember "gangnam style." >> that has 1.8 billion views. why do you think that is? it's a good song. >> i think one of the threads that runs is that it is shareable. you want to send it to all of your friends and talk about. it is also really unexpected and surprising. who knew that a south korean pop star would be a global phenomenon? his follow-up song is called "gentleman." >> that was kate mason take us to the year in popular viral videos. speaking of viral videos, launching a company means launching a video to promote your product. some of the videos like the one for the coin app has gone viral with 7 million views. as part of a new hollywood segment, jon erlichman went to venice, california to talk to the filmmakers behind those videos. tech.ike jones of >> this is the man to call. about five years ago, adam made a video to promote his iphone app. it turns out the video was a bigger hit than the app. >> that is true. >> adam starts doing videos for everybody. >> i did the jam box video. jawbone. airbnb. my videos are successful because i can identify technology that is going to be interesting and grow. >> compared to it commercial, how much does this cost? >> the ranges 50k to 100 k. >> his company accepts traditional payment but there are alternatives. >> i can also take stock options. it is interesting and lucrative. >> jon erlichman with adam lithacore. we have a new tech inspired karaoke machine that is making anyone's voice perfect. that is next on bloomberg west. ♪ >> this is "bloomberg west" and i am emily chang. it is been a decade since guitar hero exploded on the gaming scene. and the creators behind the popular game have taken their talents to karaoke. they're using some of the most advanced vocal technology available. this karaoke machine can turn your voice into three-part harmony and strip away the vocals of your favorite song, letting you sing alone. cory johnson spoke with cofounders. he began by asking why they wanted to create a new karaoke machine. >> it is a last frontier in music gaming. it hasn't changed that much as it came out. both of us can't sing very well so we discovered this technology doing singing live. we just knew that this was the future. >> how does it work? >> it is live vocal processing technology that the professionals use. we adapted to consumer use. the technology is very complex. even if you can't sing well, it makes you sound good. >> in terms of inventing this thing, what is the real innovation? what is the thing that's new? >> the thing that is new is that we have never used something of such high quality. there is over 350 sounds that you can use and different effects. it is very high quality. >> how does it work? we have one person sings and then it harmonizes up a fifth and down a fifth. >> it has every commendation of harmony. >> how does that work with the voice? >> when you play music, it listens to the song and knows what key it is in. it tuned your voice on the harmony voices by pitch shifting your voice up and down. it is all studio quality. when you sing by yourself, it sounds like you're singing with the choir. >> did you size the market and try to figure out how big the karaoke machine world is? >> we wanted to bring music to the masses. the main concern was bringing something very cool out there. something that people can enjoy and grab a hold of the music in home. >> i want to see this thing work. we saw a little video, you have this set up here. the barry white voice. >> this will show you the power. you turn the dial and when you talk and to hear you will sound like a very famous baritone singer. that just shows how powerful the technology is. this is called choir singers. >> that is crazy. that is just one person. >> this is a 2.1 home theater speaker. you get the studio processor and two mics. it is all for $299. >> this is an odd technological innovation. is there a channel to sell this thing into? there used to be a company called the singing machine company. it had some issues and when sneakers up. is there a world to listen to? >> there is a huge world out there. we are selling it online right now. >> those are the cofounders speaking, but not singing with cory johnson. that does it for the best of "bloomberg west." you can watch us monday through friday at 1:00 p.m. eastern. you can always catch bloomberg television streaming on your phone, tablet, or bloomberg.com. ♪ >> this week on "political capital," harry reid and chris van hollen talk about the budget deal and 2014. and also the volcker rule. and talking about paul ryan's future. we begin the show with the senate majority leader harry reid. thank you for being with us. you got an agreement. you do not need another all- night session. does this mark the end of this war that has transpired?

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