Transcripts For BLOOMBERG Bloomberg West 20140703 : comparem

Xiaomi takes aim at apple and samsung. They sold 26 million smart phones in the first half of the year, quadruple the amount from the same period last year. Xiamoi is hoping to sell 100 million phones in 2015. Shares of shutterfly soared 15 after reports that the online Photo Company is looking for a buyer. They had hired partners to find possible buyers. Shutterfly is on track to post its first annual net loss since 2006. We have a special guest joining us for the day. That is the chief creative officer from newco, also the executive producer of the web 2. 0 conference. And the cofounding editor of wired magazine. And the list goes on. But newco is the main thing you are focusing on right now. How is it going . Its going great. We are going all over the world with this new idea. What do you mean by festival of innovation . We turn the standard conference inside out. Instead of going to a ballroom and hearing founder speak at you, you go into the company itself and see it in its native environment. Bloomberg west last year was the host company. Came in and saw how the sausage is made. I enjoyed that. You have some of the Biggest Technology companies in the world in Silicon Valley signed up to do this. Youre going inside. Google, adobe, salesforce, you name it. Its interesting to see the companies that are not Tech Companies, they are also changing how business is done. You also founded a number of Media Companies and you have a thought about the future of media. First i want to get to our lead story of the day, a federal privacy watchdog gave the boost to nsa surveillance, saying its surveillance of foreign Internet Usage is not only legal, its also effective. In a new report, the privacy and Civil Liberties Oversight Board said that prism and upstream collection programs show no trace of illegitimate activity and have helped improve the countrys security. The board is concerned about the incidental collection of american data. The report urges the nsa to put in more safeguards to protect the rights of u. S. Citizens. Cory johnson is here with more. Principally, this report came out and found there were no even accidental uses intentionally uses a private information that should not have been gathered. It thought there was a lot of unintentional gathering of information, and recommended 10 different privacy controls to be added onto the controls already out there. Different things about essentially purging data when it was accidentally collected and judicial oversight. The report was supportive of the policies of the nsa that led to the Prism Program and gathering of information, suggesting they were always targeting foreign individuals and stuff, and did not really address the commercial concerns. They have this orwellian phrase, compelled assistance, referred to what is happening to Companies Like yahoo and google and hotmail and apple and others who are compelled to turn over user data and traffic information. They went deep into the internet backbone to get information when they were not getting enough from the company, and exposed a lot more data about individuals that otherwise might not have been gathered. We are still waiting for response to the report. John, what is your initial reaction . I dont think this particular report will do a lot to dissuade the concerns of industry or the general public. In january they came out with a scathing report. This report is pretty muted. The places where people in the Technology Industry look for a marker, is this good or bad, those places are livid. The eff came out with a report and said, this is not good. When eff says that, a lot of people in technology say, i dont know if i can trust this. Hang on. Lets talk to someone who knows this report intimately, he joins us from washington, d. C. What do you make of the reaction you have gotten so far from privacy advocates who are upset and unimpressed . The privacy and Civil Liberties Oversight Board which i chair did an indepth study of this program, i had briefings at all of the agencies. We did an assessment of the program. We found the program was effective and it toward terrorist plots. It provided important advice to our leaders on how to conduct foreign affairs, and the program is authorized. As you point out, the program collects a lot of information about nonus persons, and some information about americans. It is important the protections be afforded to american communications. That was one of the recommendations, that there be more limits on the fbis access to information for criminal processes, and another board member george wald and i wrote separate statements saying there should be Court Approval for foreign intelligence accessing americans information. In your report you demonstrated a lot of information is automatically shared with the cia and fbi. The report is an interesting read and i encourage people to read it. I put a link corytv on twitter. You clearly delineate how you approach the study of what was going on. It looks like you chose not to look at the commercial impact, economic impact, the thing that is so important to the company. Why did you exclude that important thing from your study about whether or not this is proper and what the impact truly is . Our mandate is to balance privacy with global securities. We met with a number of the Tech Companies and other companies who do work in this space and are sympathetic to their concerns. We thought it was important in our report to have a clear understanding of what this program does, and a clear understanding of what the program does not do. Contrary to some conceptions about the program, it is not a bulk collection program. It is a targeted program. Not every foreigner is subject to having their communications listened in on where their emails read. They have to be a nonus person, overseas. It has to be a foreign intelligence value for the interception of information. Hopefully we will have some impact of putting foreign Business Partners at ease to recognize this program, not nearly as wide ranging as a lot of people feared it would be. One of the Major Concerns cory touched on it and you did too particularly with Multinational Companies based in the United States are starting to get a lot of heat as to whether or not the internet is becoming regionalized with data being secured inside national borders, creating all sorts of issues like germany deciding not to work with verizon, or cisco, which has said this has impacted their business. Do you think this report with its relatively muted statements and the response from advocacy groups like eff is going to put the chairman of ciscos mind at ease . Im not sure, but what i think is important is that we look at the international ramifications. One of the things we focus on in the report is that president obama has started a process through a policy statement he issued in january to afford more rights to foreigners under u. S. Surveillance programs. That is one of the things we will be monitoring over the coming year at the president s west and reporting back on. We have also established in our report there are protections for foreigners under american law. Having a better understanding of the scope of the program and the protections in place and the protections that will be in place hopefully will put some foreigners more at ease. On the domestic side, we can have a debate about whether there are adequate privacy protections. Another board member and i believe there should be more privacy protections, including court supervision, which is really integral to our regulation of government access to personal information. What is your assessment of how involved the Tech Companies were in this program . Were they fighting it or were they playing ball . As was noted earlier, it is compelled production. Under the foreign Intelligence Surveillance act, the Court Authorizes the government to go to these companies and make them provide communications, whether it is access to the internet backbone, which is socalled upstream part of the program, or access to email traffic, which is the prism part of the program. It is not voluntary cooperation by the companies. They were ordered by federal court and they would have been subject to federal Court Sanctions had they not complied with that order. David medine, chairman of the privacy and Civil Liberties Oversight Board, thanks so much. Cory johnson, John Battelle. Just how do you consume media . A new study says the shift to mobile has been dramatic and it could turn the Media Business upside down. We look into the numbers next. Welcome back to bloomberg west. Im emily chang. Mobile is a new place to consume content. More than half of the time americans spend consuming Digital Media is now done through mobile apps. The report found 60 of Digital Media time was spent on smart phones and tablets rather than desktop computers, up from 50 a year ago. The kinds of challenges does is bring to traditional media . John battelle of newco with us. Over the last year in particular, what is the biggest challenge that has emerged when it comes to building a Media Company that people want to consume . First of all, there is an extraordinary complexity to the media environment now. If you are an entrepreneur creating a Media Company, you have to think not just about one or two distribution channels. You have to think about 10 or 20. Not just mobile distributional, but apple, android, 10 different flavors of android, crosssection section with so many different devices. How are you going to present on different pieces of glass, as small as a watch and large is a big tablet, and even now television . Complexity means cost. Cost and the economics of the Media Business are thin. Secondly is form. What we have really managed to do is lose the concept of form. A thing, a media object, a complete object has been lost. Is said, it is a stream. Streams are great for dipping in and out of, but streams do not create an experience and brand. You make a great metaphor in a blog you recently wrote, a good piece is like eating a good meal. Sitting down to dinner rather than snacking all day long. Explain that. When you create a meal, either you will put a lot of time in or if you are at a restaurant, a chef will put a lot of time in. The chef also spent a lot of time thinking about the ambience of the restaurant, and the experience. You want to have an experience. A meal is nutritious. You need to eat a meal with lots of different parts. Media is like that. You do not take game of thrones in twominute segments over the course of a week. I dont know where it was that we lost the experience of a publication and instead we just go in and out. You did a great monthly magazine, industrystandard. What is interesting to me is, how do people change because of the way they are consuming the new medium . The message changes. I think we should look at the dominant use case now, which is our phone. We dip in and out of that phone 500 to 1000 times a day now. There are some new applications that are popping up and are starting to create experiences for me again, the way a magazine used to. One of them is a little cap called circa. It shows the most prevalent world news stories. It has a bank of information about those stories. I go in there for a fiveminute experience, which is very different than flipping through twitter and discovering stuff and getting frustrated and not having a consistent narrative experience through my media consumption. That is what i think is a big opportunity for us to create in the Media Business. At the same time you have websites like business insider, which has been successful. I read it to mac. If youre the person running the Media Company, how do you decide whether to put your resources there or into making a meal that might not be as popular as much as some people one of the jobs of entrepreneurs is to look ahead. I look at the success of huffington post, a lot of these big page driven sites as the success of the past model of the Media Business, which was driven by display advertising. I think the future has to do with longterm engagement and experience, and you can only do that by creating a narrative and making the brand that truly engages the community. The brand discussion seems so divorced of what things actually are. People have favorite things. They have favorite publications and publications that really engage them and take them away. Is there a place for that in mobile . I think there is. We will see later in the hour how many apps we actually use on a monthly basis. The architectural underpinnings of the internet, the mobile internet are shifting. We will start having richer, more varied experiences. We are currently in some silos right now. John battelle of newco, and many more. Thank you for joining us. We will be right back. Talk about xiaomi, its rise not stopping. The chinese upstart nearly quadrupled its sales in the first half of the year. What does it mean for apple, samsung and more . Xiaomi sold more than 26 million smart phones in the first half of this year. What do these impressive numbers mean for the competition, namely apple and samsung . Cory johnson is still with me, and joining me now, mark millia. We knew the numbers were going to be big. What is your big take away . They previously said they were going to hit about 60 million this year. They seem to be on track. They will get a huge holiday bump once singles day rolls around in china, it is this big gifting day where xiaomi sells a lot of phones. They are way ahead of where they were last year, almost quadruple the number that they did in the first half of last year. They are continuing to blow these numbers out of the water and they are forecasting even bigger numbers next year, 100 million sales in the entire year of 2015. That is compared to apple, they probably sold about 84 million worldwide. How much of it is china . The vast majority. In the past, it is been around 90 or above 90 of their sales have been in china. They still have yet to launch in a lot of the big markets. They plan to go into brazil, russia, india, are some of the next launch is on the radar. Right now this is mainly a chinese story. When you take over china, you can take over the world. 1. 3 billion people and hundreds of billions of the with smartphones. This is what hugo barrow, his day job is going to see if the xiaomi brand can translate globally. I wonder if it can. It is an interesting model that really no one else is doing. It is the concept of selling the phones, highend phones at a low cost. Take out the middleman completely. Exactly. They cut special deals, as they have done in india with one of the Ecommerce Companies there to not pay the retailer a huge fee. Taking all the money directly. And then they also plan to make up some of the cost. They have their own app store. They collect money through that. They also Sell Software and stuff through their. I talked to the president yesterday and he did not compare to xiaomi, but the model is used Silicon Valley innovation, chinese manufacturing innovation, and then take it all over the world. It is kind of the same model opening up for the steeper premium phones. One of the things that xiaomi will have to figure out is they are going to have to figure out how to scale up their manufacturing. Right now they are trying to get into tablets and routers. But they cannot build enough of them. They sell out in just a few seconds. In the tablet market is still immature in china at this point. Mark million of Bloomberg News thank you. We will be back with more. Time for Bloomberg Television on the markets. Im julie hyman. Lets take a look at where stocks traded today after the big update yesterday, really flirting with the 17,000 level on the Dow Jones Industrial average. It did not quite get there today. Little changed. Remember the adp report unemployment showed companies did add more workers than estimated in june. We had the big monthly report from the government tomorrow. You are watching bloomberg west. Im emily chang. These days, battles are being waged across Silicon Valley over tech talent, housing inequality, and politics. One battle being closely watched is over the congressional seat held by democrat mike honda. Fellow democrat is fighting to dislodge him, who has held his seat in Silicon Valley more than a decade. Joining us to discuss the growing inequality debate in Silicon Valley is congressional candidate himself, and John Battelle, founder and chairman of newco. Thank you for joining a spirit you are backed by a lot of people in technology. How did you get these people to support you . They like the platform. They thought we needed to have a better strategy on how to create jobs and get people prepared for the new economy and technology economy, and that Silicon Valley needed a stronger voice in washington. What is your platform . Government reform, getting all the pac money out of politics. I only take support from individuals. Two is saying we have to have new skills for the jobs that will exist. Advanced manufacturing or technology jobs, teaching folks coding in the classroom and preparin