Transcripts For BLOOMBERG Bloomberg West 20140918

Bob casey of pennsylvania has written the sec saying the agency needs to investigate the structure of alibaba and other chinese companies. He is concerned the structure is risky for investors. Apple delaying the release of its health kit software due to a bug. The irony. It was supposed to come out today but apple says they are working to fix the bug and hopes to have it fully healed by the end of the month. Now to our lead, plenty of apple developments two days before the new iphone hits the streets. Apple will unveil its next generation of ipads in the event next month. The latest operating system is now available for download. While ios seven was an overhaul, ios eight is a refresh of the new design. The new health that was supposed to be out. There are new keyboard options, and supposedly new integration. A bigger screen iphone . What is the new ios like . Unlike ios 7, this is a lot of fun Little Things. It made it more enjoyable to use. I like the selfie timer, the siri interrogation. It makes it more interesting. How is it different for developers . Yes. It is awesome. The team is excited about the features. In a matter of days we will have a few mobile apps. There are amazing features that will bring the right to you. Linked in bought slide share. Apple is billing this as the biggest update ever. It does not look different. It is all Little Things that are really fun. Predictive texting. All of the things that make it great. We are very excited about two different areas. We just updated Hotel Tonight a couple of hours ago and he you can find it in the app store. It shows you the best deals around you. If you have an upcoming stay it will show you information about that, when to check in, how to get there. It presents that information to you in a different way and allows users in a holder for way. It is really amazing. You can share things between different apps. Lets say you find an amazing presentation to help you get better at the job you are doing today. Or you find a place tonight and you want to share it with your friends. I dont know if i want them knowing where i am staying. What was it like . It was a lot bigger. A lot of work up front for us to move to a development framework. The items on our screen adapted. Once we had done that we can adapt to these different sizes quickly. We did the upfront work and it will now save us time going forward. New sizes are great. They merchandise our hotels that we have beautiful pictures of Incredible Hotel properties. The bigger the screen, the more you can see. We are happy about developer support for making it easy. Apple or android . Presentations are going to look beautiful in most devices. That is it overall. We think about every single device, how the interaction is and how it looks and feels in every device. That is important to bring users the experience for different platforms and devices. You have to pick. It is a loaded question. What does io8 not have . What more do you want . I need to spend time with it and see. There is so much in there i will discover in the course of using it that it will take me a while. I saw them and i was like, that is great. It is really hard to say. One of the things within innovation, you never really know how users react to it. A lot of new and exciting features. It is really hard to say. What do you think about the watch . It is not something i have been saying, i really need a watch. I am excited to see what it looks like. The same way is not sold on the iphone when i first heard about it. Then i used it and it was irreplaceable. I would imagine that would be very similar with the watch. I was super excited about it. It is beautiful and i was excited to use it. Getting information timely and in a great manner, that is probably what the new iwatch is about. Should we wait to download it and get the bugs out or right away . Right away. Go for it now. From burberry to chanel, our luxury goods the key to alibabas growth . Im cory johnson. This is bloomberg west. The demand for luxury goods in china is rising. They are the biggest buyers of luxury goods globally. Making up 29 of purchases. Emily chang spoke to the owner of a site that sells luxury goods to the chinese market. We have the consumer side that helps sell goods but we also have the intelligence side that helps brands understand the consumer better. There is tremendous appetite by consumers for western luxury goods in china and a booming business for the goods. The irony is the brands are doing very little to promote themselves today. You know, i lived in china for many years. There were many luxury stores. And yet, many times, the malls were empty. Are people buying these things online more than in person . Good question. One of the primary drivers of the market is purchasing abroad. Two thirds of all luxury goods Chinese Consumers buy occur outside of china. The Online Market is growing quickly. It is primarily driven by retailers selling on products they buy in the west, products they report to buy in the west and they may have made in a factor in china, and selling it on the market in china to the Chinese Consumer who understands buying from abroad or buying from a retailer is much more likely to be more costefficient than buying from one of the brands directly. You recently did a study focusing on jewelry, what are the most popular brands in china . The brands that are making the largest impact or some of the usual suspects we would focus on in the states. Like burberry, chanel, brands more popular in china than the united states. Brands like coach. One of the ironies we found was only a quarter of these actually are directly sold online from consumers. Only one out of the top 99 are actually officially on [inaudible] how well is alibaba meeting the demand for luxury goods . What else should be doing . It is crushing it right now as it relates to the Chinese Consumer and luxury goods. It is not being sold directly from the luxury brands. What is happened is while the brands themselves have abdicated their position, alibaba resells the product. Now alibaba is looking to work more closely directly with the brand. They have a multibilliondollar business built on top of the retailers. I equate this to the early 2000s. If you look at the Music Industry or napster or the mid2000s, it is a time when these brands will step up and owning their own channels of distribution and also partnering with alibaba, or they will get slammed by the way that is this massive company. Anyone who shops in china knows you could go to any market and find counterfeit luxury goods of any kind. Sometimes, they look pretty good. How much does that hurt alibaba and ultimately the brand . It does not hurt alibaba right now because they have a multibilliondollar Market Selling both unauthorized and black market goods to the Chinese Consumer. We have anecdotal stories of Chinese Consumers coming in, showing them to the chanel sales associate. They are informed it is not a chanel bag. Alibaba is doing fine. It is the Brands Taking a hit. What we are recommending and focusing on is helping the brands understand better working with alibaba but also working on their own so they can grow the business. Interesting. We have more to come over the next few days. A special halfhour show called the alibaba story which includes interviews, and the yahoo excoo responsible for yahoos stake in alibaba. That is tomorrow. Will the new apple watch define the legacy of tim cook . We will hear his comments about them next. Welcome back. Apple is the worlds most valuable and perhaps the most scrutinized company. Ever since steve jobs stepped down, there have been questions about the company under tim cook. Many questions were addressed when he laid out much of what apple has been working on over the past three years, the apple pay, apple watch. Apple is now swamped with preorders for the new iphone but the real test could be when the watch hits iphone stores next year. How will the changes tim cook has made cement his legacy . We spoke with the executive team at apple, rare oneonone interviews here. Brad, i will start with you. Who exactly did you speak to in what sense did you get of how well the team works together . We spoke with tim cook, johnny, who ran the eye team behind the iphone 6 and apple watch. Board members like bob iger and sue wagner. You do not get that kind of access from apple usually. They were trying to make two points. They are proud of the product this week and very much in apple style, they wanted to take their victory lap. They also want to impress there is a new openness at apple. Tim cook uses the phrase, defaulting to open. They want to be transparent about product plans and want to know, this will be part of his management style. The company was very secretive and opaque under steve jobs. Would you say it is indeed a new era . There is a little bit of a change. There is a little bit they are trying to capitalize on having the new product come out. They are trying to make it as big a deal is possible. There is a little more, particularly in areas like corporate responsibility. They will give you a little bit more. This is a big moment. They have been facing a lot of criticism or questions over the past several years. They are ready to come out and say, we are ready to innovate and there is a lot to look forward to. It seems the apple watch could be the product that really defines tim cooks legacy one way or the other. What do you get behind the making of the watch, how does this happen, and he is he the one trying to push this through . With the watch, they were looking to the past. They kept bringing in watch experts to give them lectures about why clocks migrated from towers to our wrists. Johnnie was really trying to understand it. They had to go on a journey to get things like the digital crown, the zoom scroll wheel on the side of the watch. They are quite enthusiastic about it. Tim said he already feels like it is a success. There are a lot of questions. 350 and it might go way up. We do not know how pricey it will get. It is not clear what the killer app is. It is a question on the watch. You really want to upgrade your watch every year . How much money do we have . Come on. Do we want this while we are in meetings or driving . There is too much on it at this point. Yes. The battery life is part of that. Charges really nicely. We do not know. We have not road tested it yet. What about the feeling at apple . Your story talks about Nervous Energy and things are much more tranquil these days. There is a rising up of new executives taking on more responsibility. One thing we learned is someone tim cook has been relying on heavily, jeff williams, a behindthescenes guy, a lot like tim cook. Tall and softspoken. They both went to duke and had early parts of their career at ibm. He is the person tim cook tapped when he really wanted to go forward with the watch. He is the one he put in charge. There is a new bit of leaders coming up in the company. You get the sense tim cook and johnny were in sync, as johnny was with steve jobs, as far as we know. Absolutely. It is hard to tell. Apple is good at crafting their own narrative, showing journalists what they want us to see. Every indication we got, of course, we are pesky reporters. You find out he acquired steve jobss private jet. He designed the airplane and now he owns it. But look. He just hired his friend, a celebrity designer. They like to work together. This is a team that is not going anywhere. I get the sense they love working with tim and they are protective of him. We are all buzzing around, is tim cook as good as steve was, eddie and these guys, they want him to get the credit. Interesting. One thing we also learned is that tim cook has left steve jobs office as it is. Enshrined forever. The fourth floor, any of the loop that headquarters, it is something tim cook has left in place, not as some sort of shrine necessarily, but it is something he did not think should be touched. It is a not to the past as they tried to move forward. Will apple continue to stay on top, the brand . Absolutely. There are larger existential questions about growth rate and stock price, but if youre looking at the franchise, it is still healthy. Iphone 6, record orders, their beautiful products. We do not know about the watch, but the ecosystem itself is very healthy. Anything about tv . I do not want to hear that it is interesting. I feel like we did get a tidbit. He was talking about projects they killed inside apple and he said, we have killed products where we do not feel we have enough control over the ecosystem and he said, sounds like youre talking about tv. There was a long pause and it was said, the interview is over now. I said that he was looking like he was working on an interesting answer and he said, is working on interesting evasion they do not have. Enough control over the content. It has not been killed, it has not not been not killed. Basically. Thank you both for joining us. It is a great read. Coming up, Silicon Valleys most audacious investor, we talk about google, facebook, apple, and amazon. Which company will outlast the rest . That is up next. You are watching bloomberg west, where we focus on the future of business. Im emily chang. Competition in Silicon Valley is intense. Which of the four companies is the most dominant in tech . Will they be as dominant as they are today in the future . I sat down to pose these very questions on the latest edition of my new show, studio 1. 0. The book is out this week, notes on startups and how to build the future. Here is a sneak peak of what he told me. Do you have concerned that Companies Like google, facebook, apple, amazon, could ever become too powerful that they stifle innovation . I tend to think that does not happened a lot because there is always enough innovation to keep things flowing. That means someday you think google, amazon, apple, will not be as dominant as they are . I think they will be dominant for a while. They are great businesses. But i do think they will be dominant forever. Do you see any one or the other becoming more dominant . It is difficult to judge this. To think of google as the one on an incredible arc at this point. I think the core search monopoly is powerful and they are trying to extend it into other areas. They are exploring other things, self driving cars, google glass. Absolutely. As a business matter, these are attempts to extend the monopoly. I think self driving cars would change transportation may be as much as the development of the car itself. When it comes to startups, you compare compelling startups to cults. Should they be more like cults . They should not be in the sense that believing something that is wrong. But it is always a good sign if there is an intense understanding of something true that very few other people do my friend elon musks company is motivated by the idea that they will build rockets that will get human beings to mars in the next 50 years or so. Something else you say is a messed up start up be fixed. Why not . Foundations are important. If you get some of the first things wrong, it is hard to recover. I guess you do not think messed up tech out pennies larger than startups can be fixed either. Can yahoo and hp be fixed . I would argue hp and yahoo are not really Technology Companies at all. They were Technology Companies in the 70s and 80s with hp and the 90s with yahoo . Even though the companies were Technology Companies and 80s and 90s, they are bets against technology against innovation. Even though they are not Technology Companies, ken yahoo and hp be fixed . It is probably a mistake for them to radically try to reinvent themselves and become Technology Companies again. You mentioned marissa mayer. What are her chances of really turning around . She is by far the best ceo yahoo has had in a decade. She should not be evaluated on whether she invents something new. That is setting her up for failure. Existing businesses are really big. If you could improve those incrementally and make them work, that is fantastic. Your philosophy is, we wanted flying cars and instead, we got 140 characters. If facebook changed the world, why wont twitter . I do not think there is anything wrong with twitter as a company. At the same time, a company like twitter will not be enough to take our civilization to the next level. Facebook is not enough. We need many different kinds of things. Flying cars alone are not enough either. Is facebook a monopoly . Not as much as google at this point. There are still emerging competitors in the social networking space that come up every year, twitter, snapchat, all of these companies emerge on a continual basis. Do you worry facebook take it distracted . It is always a challenge. You have to do some new things, because you are not in a static world. You do not want to do too many. You want to do just the right number of things. What is the craziest sector you might enter that we would not expect . There are all these different sectors we have looked at and we are tempted to do things in. One that we have started to look at in the margins that is wildly out of fashion is the Nuclear Power industry and is it possible to build safer, cheaper, better reactors with all the new technologies. When you look at the technologies, it looks like the answer is definitely yes. What is the most audacious idea you have pondered about how humans could potentially survive in the future . We should give Nuclear Power serious considerations. It does not emit greenhouse gases. I put the date in the second half and the 21st century, a little bit further in the future. But it will happen. Will mars be first . There are a lot of things about mars that make it the natural other planet in the system. Yes. For more in my interview, tune in to studio 1. 0, coming this october. The space race is on. There are major developments involving big tech names. We will find out what it means for nasa next. Welcome back. Blue origin, the space Flight Company backed by amazon and jeff bezos, will partner with united launch alliance, to develop new rocket engines. This coming a day after nasa awarded boeing and elon musks spacex a 6. 8 billion contract. This marks the first time astronauts will be flown into outer space since nasa retired the shuttle fleet in 2011. What does it mean for the future of space travel . Im joined now by the former nasa deputy director, currently the general manager of the Airline Pilots association. Thank you for joining us. First of all, why is nasa signing the contract now . This is a path we have been on for quite a while. It is an exciting way to progress in the space program. We should have been doing this earlier, the Space Shuttle itself was an Amazing Technology when developed in the 70s. 30 or 40 years later, we spend about 34,000,000,000 dollars a year and these programs will come in significantly less and be able to allow us to compete internationally again. And not to have to spend our own tax dollars sending our money to the russians for astronauts to to the space station. A great move for nasa. The u. S. Put sanctions on the Russian Space program. The Russian Deputy Prime Minister tweeted in response that the u. S. Should consider we have been on the path for a while. We would have been here earlier if not for politics. Big government programs, with that comes big support. Support for doing things the old way was strong. It was difficult and has taken an evolution of thought for some politicians but they are seeing instead of ending money in russia, we should keep it for the united states. We started the programs in the Bush Administration and continued under obama, strengthened under the obama administration. It is bipartisan and american. It is the right way to go. We have counted on u. S. Companies to travel in airplanes for over a century now. We can do the same in spaced. A major coup for elon musks spacex. Im curious how he is perceived within the Space Community and what are his relationships with your Community Like . He is perceived very much, as i read from the other communities, the same. When youre taking on big business, it is the same. A lot of entrenched and selfinterested folks not happy with elon musk. For people who want to see people go to space and want to advance, including myself, could not be more thrilled. Now the u. S. Is getting launches that would have gone overseas, to france, russia, and china, that will be in the united states, launching satellites, and now with people. It is the kind of thing the country is known for. Out innovating the big guy. We are thrilled there is a big guy in it as well. Having boeing there with spacex will be a great competition to watch. You have been inside spacexs capsule. What Technology Sets it apart from what else is out there . Of course, utilizing the latest technology is allowing them to wait, they have to work on reusability to reduce cost. The fact that the shuttle was developed so long ago, there are just immeasurable differences. The competition is all doing the same thing. I think what elon musk and spacex have done is to be up to integrate everything themselves, to be able to really lower cost and increase the amount of time they could get it in. It is unheard of to have Something Like an anomaly and turn it around in 24 hours, think that would have taken the government and contractor weeks to do. A lot of that innovation is in operations, in technology and frankly in a culture that is really driving to do things differently. What about jeff bezos, the ceo of amazon who has many private space aspirations. Does he have nasas ear . Yes. Im equally bullish on jeff bezos. A number of visits as well. Their test site, in texas, they have got a tremendous capability. They are less flashy publicly. The announcement today will be a big step. That is what is exciting, when you get some of these more experienced Companies Working with new innovators, where you will see a lot of advancements. We have got these people on the cutting edge of Technology Interested in space again. It has always been seen as cutting edge. So i think that is what is exciting here. The friendly competition between all of them is what we believe will make everyone better and make america continue. I think we are first, but continue. All right. Exciting stuff. Thank you so much for joining us. I want to get a check on stories making headlines with Mark Crumpton in new york. What is happening . Thank you. President obama is reiterating he will not send u. S. Ground forces to combat in iraq to fight Islamic State militants. His comments at central command, day after a top general said Ground Troops may ultimately be needed. A u. S. Senate investigation found chinese hackers broke into companies responsible for transporting u. S. Military personnel and weapons. The report says there were 20 breeches from 2012 to may of 2013, giving hackers insight into military logistics. It did not say if any information had been stolen. Nike has suspended its contract with running back adrian peterson. He is accused of striking his son with a small tree branch. What it takes to get an Autonomous Vehicle approved by a states dmv, coming up. Im emily chang. This is bloomberg west. California drivers prepare to share the road and switch to self driving cars. The state has approved permits for 29 Autonomous Vehicles. Google among the first manufacturers to get approval. Insuring the cars for 5 million a piece, using specially trained test drivers. Apple sold 4 million iphones in the first 24 hours. They could wait four weeks for them to ship. Is it worth the wait . Take a look at the pros and cons. I have to confess something. When i first saw the iphone 6 plus, i thought it was bonkers. I get it. People seem to really want larger phones and apple does not want to leave any money on the table. Have you seen this thing . Here is the iphone 6. The size is due to a display that is larger than anything that has ever appeared in apple before. Such a big screen makes for an unwieldy phone. Even with apples clever reachability screen shrinking feature, it can be hard to handle if you do not have giant hands. Putting it in your pocket is another issue. 71 millimeters thick, it is then enough to fit in your pocket, kind of. If youre into that sort of thing. But do not try sitting on it unless you like the feeling of a two by four strapped to your behind. Here is the newsflash. Larger things are more cumbersome than smaller things. Those were my First Impressions and i stand by them. But there is, i discovered, a different way to think about it. That started happening when i used it like i started using my regular iphone, watching videos, replying to emails, reading things off the web. That screen is nice. With some apps, it has useful viewing modes when you turn it on its side. Emails and messages took on a sufficient layout. The keyboard has dedicated keys for copy and paste. A larger size also means a larger battery. The iphone 6 plus can do 12 hours of browsing, or 16 days of standby time. Here is another thing about the iphone 6 plus. It has the best camera apple has ever made. It can focus fast like a dslr, but it is also the first iphone with optical image stabilization. It means the lens actually moves around within the device to counter any shake you might create while holding. The result is better performance and video that is smoother. What is the verdict . It is tricky. In some ways, the issues are more philosophical than technological. If we think of it as a phone, it seems sort of large and clunky. The standard iphone 6 does many of the same things in a much smaller and more convenient package. But maybe phone is the wrong word to describe this iphone. What we actually have here is a nearly pocketable tablet, a killer camera, a great display, and, it will even make phone calls. You decide if it is worth the wait. Time now for the bwest byte, where we focus on one number that tells a whole lot. Brad stone of Bloomberg Businessweek is here with a special byte today. What have you got . 80,300, the number of apple employees at the last year. It is about twice what apple had three years ago at the beginning of the tim cook era. Theyre adding 3040 Retail Stores worldwide. Also, tim cook is bringing in a new kind of employee. The beat acquisition with dr. Dre. He is really interested in bringing in a new perspective. Part of this is obviously selling watches, understanding fashion. But tim cook wants diversity of thought. Would you think apple employees have doubled, and yet, they cannot get the iphone6 maybe it is a function of high demand and other suppliers. Apple is doing a lot more. When we think they have got two models of iphones and ipads, theyre making more products. You used to be a look at them all on one quarter of the table, and they are gradually now doing more. One of the things i have heard is that some people do not think working at apple is as cool as it once was. What sense have you gotten from people . It is a different kind of employee now. Apple is a fashion brand. It is cool and mainstream. The algorithmic engineers, chip, maybe theyre looking at google. Apple is probably attracting them as well. But it is a different stage of maturity, less pushing the boundaries of science, more pushing the boundaries of taste. All right. Thank you so much. Thank you all for watching this edition. We will see you later. The following is a paid program. The opinions and views expressed do not reflect those of bloomberg, its affiliates, or its employees. The markets are unregulated