Amazon Going High-End?: Bloomberg West (02/21)

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Feb. 21 (Bloomberg) –- Full episode of “Bloomberg West.” Guests include Ovum Consumer Services’ Mark Little, Mindbody’s Rick Stollmeyer, Broadcom’s Scott McGregor and Bloomberg’s Brad Stone, Jon Erlichman, Julie Hyman and Edmund Lee. (Source: Bloomberg)

Live from pure three in san francisco, welcome to bloomberg west." . i'm emily chang.

We are following a few big stories today.

First, social messaging apps like whatsapp have cost the carrier's 32 point $5 billion so far according to a new report from -- we will dig into that more after facebook's massive deal to buy whatsapp for $19 billion.

Aaron leavy will be joining us for exclusive interview.

He is waiting on some of the debates around san francisco's tech community.

They do have technology buses that drive employees down from san francisco to silicon valley.

He talks about the buses are efficient.

They have the right choice for them.

It is the real problem -- not enough housing in san francisco.

We will have that exclusive interview with aaron leavy.

I really story of the day, amazon reportedly in talks with j.crew, ralph lauren and other retailers to get them on the site.

Who better to talk about it in my special cohost for the hour, brad stone?

Author of the everything store.

The book about amazon and a senior writer for bloomberg businessweek.

So great to have you here on the show today.

Joining us for the full hour.

What you know about this -- what do you know about this?

They want to be the everything store.

Those lottery retailers have been very hesitant to put their items on amazon.

Ralph lauren does not want to have its $300 sweater next with $30 sweater.

I would love this.

But i wonder, does this impact their branded all the ? amazon is trying to find middle ground.

They have ads on the site.

The pitch seems to be come let's use look three retailers to advertise on amazon.

Then send the customers to those other retailers and allow them to sell their goods and service them with amazon prime.

We will see how that is executed and it fits with enough for those lottery retailers to go and do the deal.

It would be awesome if i could just throw in a pair of jeans with my amazon prime card.

Is my primary mission going to get more defensive?

The amazon cfo on the latest earnings call brought up the possibility that there would be a raise in price for amazon prime.

I don't think he would've done it if they were not consider ing that seriously.

They may suppress customers with a $20 increase.

If this happens, the cost of the shipping would be paid by the retailers.


The deal with the luxury retailers is quite separate from the fact that shipping is getting more expensive for amazon.

I really don't think the two are related.

I do think at some point we will see amazon get more sophisticated about different pricing tiers for prime.

Maybe three day delivery or single day delivery.

How do you think that would impact the business?

Prime has been a huge driver of growth.

It raised sales last year by a to two percent.

-- last year by 22%. costco has raised prices of its membership over the years and customers have stable oil.

What jeff bezos will try to do is give something to customers as he is raising prices.

We might see more content in amazon video prime or improvement in shipping, like same day or next day delivery.

We will see.

I doubt this will be a price increase alone.

You mention amazon video on demand.

Another report out today that amazon's set top box that we have heard that been working on is coming soon and that it could be based on the android operating system.

There's been talk about this for some time now.

What do you know?

We broke the story one year ago that amazon was working on a set top box.

I think they have taken a job out of the jobs playbook.

They will offer something different customers.

We don't know for sure if this thing will ever actually -- i think it is inevitable.

Sometime this year is likely.

I think they are expanding what it can do and bring in video games.

They acquired a videogame studio called double helix games.

If amazon prime pilots the seasons -- there's is one called transparent with jeffrey temblor which is getting a lot of good buzz.

It's an added value for customers to enjoy those shows.

I want to talk to you about this a little bit more.

Let's talk a little about the set top box warsa.

. what does this mean for apple and apple tv echo what does this mean for netflix?

I think it means a lot of competition.

Amazon has been very serious, especially in this town, about its top dollar to make these programs the same way that amazon -- netflix is willing to spend top dollar to do these original programs.

Amazon is clearly learning a lot from the amazon prime video offering that they have.

That is available on all sorts of devices like rogueku.

There is this discussion that they make that a stand-alone service.

You are talking about whether or not the prices for amazon prime goa.

They could say, hey, here's the standalone video offering we have.

It is hard to know how it will lay out.

If you're netflix for apple come you definitely paying attention to this.

Tom rutledge said today on the earnings call that a charter had done the deal with time warner, it would not have made a difference in the negotiations with programmers.

What do you make of that?

Scale is not a factor anymore in these delicate negotiations with programmers.

Scale actually is a factor.

It is important.

I'm not trying to contradict what tom rutledge is saying.

He was trying to make a morsel point -- a more subtle point.

The scale they get in terms of the piece they have to pay them does not change until you hit a much bigger array of customers.

Comcast already gets that.

Between 10,000,000-20 milligrams is, there is not a big difference.

Weyou still have to pay for this extra customers.

He was trying to downplay the fact that he did not get it.

There would have been some, but not much.

The other point he was making on the earnings call was the whole set top box.

They are trying to create their own cloud-based set-top box that might rival or catch up to what apple tv offers or what amazon plans to offer.

That is where the competition is now.

Who is going to own the set-top box, will they lose subscribers to an apple tv or some other kind of digital set-top box like amazon is thinking about?

Amazon has original content and with the set-top box, they have something apple tv does not have.

Netflix does not have a set top box.

Apple does not have original content.

We reported that apple has been talking with time warner cable before this whole comcast thing happened.

Do we know any updates?

Are the stock still happening now that time warner cable could eventually be part of comcast?

Talks have definitely slowed down.

There've been put on hold because of the merger.

That is not to say that comcast is saying anything to time warner cable.

Hey, you can't talk to netflix or apple tv about putting their system on your set-top box.

Now the executives that time warner thinking, ok, a lot of this could change.

What should we do not know they have slowed down.

That could be an issue for these guys in terms of wanting to get on to legitimize what they're trying to do with streaming.

Dish network reported results today.

Subscriber growth is slowing.

Can they compete in this new environment e ? we will talk a lot about those.

Do they have to come together.

The one thing they don't have is that the cable companies do have is rock band.

The ability to say, we are using -- losing video subscribers but they still need high-speed internet.

There are lots of hints from both dish and direct tv about them wanting to offer web-based television services with the cable.

That does explain why directv wanted to buy hulu and dislikes to be disruptive.

You'll see more-- dish likes to be disruptive.

We will be talking about the wireless carriers.

They appear to be paying the price as more users sign up for social messaging apps like whatsapp.

We will break down the costs.

? welcome back to bloomberg west.

Here with our special guest host, brad stone of bloomberg businessweek.

A busy week for us covering this whole facebook what's at acquisition -- whatsapp acquisition . when you download the app after it was acquired come you really fail.

Actually did have it on my phone, but none of my friends are on.

So i deleted it.

I think a lot of people in the united states are not used using it because it is more widely used by people who live abroad to communicate with people in different countries.

One of the things i want to talk about today is, where the cost of this is going.

He was shouldering it?

It may be the carriers.

Social messaging apps have already cost the carriers $32.5 billion annual will cost them $64 billion by .16. running us from london a smart little.

-- is martin little.

The messaging figures that we have produced are a function of several different drivers and variables.

A lot of which we don't tell people about.

They are confidential to us.

We talked with a lot of operators all over the world.

We have many of the k1 customers.

We work with them and our model on the subject to work out the numbers.

What happens to mobile operators that are seeing their revenues dry up as customers turn to whatsapp?

The operators are in a quandary with this particular problem.

A good example of this is kp and inn in holland who had a particularly bad experience with whatsapp in particular because their sms revenues were unprotected by being in a bundle.

It's important to include sms and free sms and a in a bundle to subscribers because the revenues are protected.

If a telco does not do that, it is easy for users to make the decision between something that is completely free and something they have to pay for.

Obviously these services are either completely free or almost free.

Aside from the carriers, is anybody else -- are these costs being passed on to anybody else?

In terms of whatsapp, it is not.

Apart from a small charge to subscribe in some countries, something around one dollar a year, the cost is taken as much by whatsapp itself.

What do you make in the difference in advertising around whatsapp and facebook?

Two different set of principles here.

They have vowed to never introduce advertising into whatsapp.


I don't think mark zuckerberg is going to make the same mistake he did with instagram where he meddled early on in the terms and conditions of instagram, which upset the users.

I think he is learned by that mistake.

I also think that he will stick to his guns on the no advertising front.

In order to maintain trust with users, i'm fairly sure that facebook and whatsapp will not be putting advertising on the application anytime soon.

But that is not the only way to potentially monetize the service.

What i think is perhaps more in zuckerberg's style is to drive sharing activity on facebook and use connections on facebook using whatsapp.


This whole idea of integrating facebook and whatsapp rather than whatsapp into facebook -- a great headline about the business it hates.

Thanks so much for giving us that update.

Janbeyonce's surprise album -- how did it stay secret for so long?

? welcome back.

I'm emily chang.

Box is reportedly on the road to its ipo.

We caught up with its colorful ceo for exclusive interview at the digital entertainment world conference.

He talked about the idea of big names using box to create content under wraps until it is released.

There was a somewhat popular release of a new album that happened by surprise recently.

One of the reasons why it was cap in secret so well -- cap in secret so well is box was the platform used for managing that content.

They were able to decide to reveal information that at a time when they wanted to and they could keep all of the security in one place in the meantime.

This allowing -- this is allowing content creators to have more security than they would have in the cloud.



Maybe not.

There are rumors that you are planning to go public.

Can you talk about that?

Two subjects that i can't talk about.

Our path is staying very independent.

You guys a very focused on business.

Dropbox, and of the company in this area.

I've heard of them.

Which is focused on the consumer.

You guys decided that was not your market.

We like them is a market, but not a business model.

I still get confused that you have these two fast-growing bay area companies.

One is box.

What is dropbox.

-- one is dropbox.

The competition between these two businesses, even if they are focused on the consumer and you are focused on business -- i go back to the ipo question.

We probably think about that race a lot less than people watching the industry think about it.

It is not a huge priority for us to be in the financial market rates.

We think it's far more poor and that we build a very robust business.

The company that you are really competing with or get labeled -- everybody likes to use the microsoft example.

Microsoft has a new ceo, satya nadella.

It looks like you have approval of him as a leader for the company.

I shared my approval.

I'm sure he cares.


Did you reach out to him?

Have you guys shared an e-mail or text?

He was one of the first executives at microsoft to reach out to us a couple of years ago.

We usually think that if somebody from microsoft reaches out that they have a knife behind their back.

In this case, every single thing that we erected on felt like it was a real, genuine interest in becoming a much more open company platform.

That's why i'm very bullish on satya because he has not been there for a long time -- is he going to bring enough change echo he was the change agent within microsoft, moving up the ranks.

You have met people from san francisco.

Do you think about the issue of your responsibility in what's becoming a touchy subject in san francisco of, less room for the middle class because of all the successful technology companies that are given all these opportunities to people who now live in san francisco and take the buses.

We have a bus because it's efficient.

Your alternative is to have 75 cars on the road.

We want people to get into work more easily.

We have wi-fi on the buses.

It means you can work.

We have an extra two hours work from people.

We are focused on how to create the most productivity from our employee base.

Buses are not the real issue.

It's not a symptom of the issue.

The issue is that you have not a lot of housing intent and cisco.

With scarce housing in san francisco, all you can do is have some shift in the population.

That is super and fortunate.

The solution is come you build more houses and you pay people more.

-- super unfortunate.

We will keep buzzing people.

Box's ceo.

We will talk about your cover story in business week today about uber.

? welcome back to "bloomberg west." breaking news about bronson noble best barnes & noble.

What can you tell us?

Basically we have a proposal to acquire a controlling interest in the company from a company called g asset management, a private investment management firm.

They want to acquire 51% of barnes & noble, and offer that would value the company at 22 dollars per share, which would be about a three percent premium.

G asset management also said that if you do not like that offer, we would also acquire 51% of the nooks segment.

Valuing that at five dollars a share alone, and this g asset management said it is confident if you separated nook for the rest of the business, they can recognize the business value.

G asset management senate made an offer back in november -- said it made an offer back in november.

We will continue to make -- look for more information on this, and at any reception from the company.

Thank you.

Obviously, the nook business has been struggling, barnes & noble could not succeed where amazon did with the kindle.

What makes the nook this is different -- business different?

The physical retail presence.

It allows customers to pick it up and try it out.

The potential acquirer says they do not see a lot of synergies with the old business, and they want to separate it.

Arts and noble shares are up on this news.

How are the shares of nook doing?

Of course, we do not know, because amazon is not a number that rings out such numbers.

All of the indicators it is doing quite well.

There are lots of self published authors out there that say they are doing really well so publishing their books on amazon.

Those books are primarily consumed on the readers.

We will continue to follow this, barnes & noble shares are up on this news.

The invasion of the taxi snatchers, lift and sidecar.

When it comes to uber, it does not seem to budge when it comes to his philosophy that this is the best way to get drivers on the road to meet demand.

Did you get any sense that he is going to waiver?

Absolutely not.

One of the things that we wanted to figure out in this cover story is if it was working.

During snowstorms, weekends, holidays, it gets more drivers on the road.

A bunch of colleagues, including my colleague in new york started taking uber and lift cars, and we found that the drivers do get out into the world with those prices go up.

I've interviewed many uber drivers as well, and they prefer uber.

When it comes to left, they say that the pink mustache thing is inconvenient to get it in and out, especially when it is raining.

These drivers use multiple services at the same time.

They may be looking at uber, left, sidecar, and going wherever the rights are -- rides are.

They took even more advantage of the regulatory ambiguity, then uber did.

Taking amateur drivers, and saying you could become a cabdriver.

We reported that list is about to raise money, over $80 million from investors to really turbocharge that business model.

Anything into something that uber has worried about, something that they are adding so much muscle behind.

I know that is their thing, but can they keep that pink mustache on every car?

It does feel a little san francisco.

They have a little conference room in the back that is covered for two ceiling, wall to wall with experimental think felt to figure out how to make that work better in the rain.

I want to talk about the ceo of uber.

This is a guy who is very specialized, but he has been in the business for a long time.

Yet it does visited for this that did not work out that she had a business before this that did not work out, so it trained him to be committed to this love love the all the way -- to this philosophy all the way.

He had appeared to peer filesharing program in the 1990's. after many years of not even taking a salary, he the battle wounds.

That makes them particularly suited to this field where does hand-to-hand combat with these other companies, and very entrenched taxi commitments -- commissions and all of the cities that do not like uber, and what it represents.

Let's talk about some of the challenges coming up.

This is a very sad story, an uber driver killed in the girl as she was crossing the street/ ./ the plaintiffs are saying that the driver was distracted by the app in his face.

This tragic situation on new year's eve in san francisco gets to all of them.

Mom of this child is she saw him looking down, and then uber said they were not driving for them, because he was not having anyone in the car, and then he also had a speeding citation before.

We need to look at how the cap industry would deal with this, maybe not differently, but it shows that uber has some work to do to show that it stands behind his customers.

Are we too optimistic about the possibilities here?

Are these bad people exceptions to the rule?

Can this work out a broader scale around the world?

It is working, and for context we need to realize that any taxi service company can get distracted, and has technology in the car.

Fundamentally uber and the other companies have identified a problem of supply and demand imbalance in the car service industry.

Because of the reregulation, cap saarc -- cabs are hard to come by in big cities.

What is next for uber?

Will they be delivering my laundry?

They have delivered christmas trees against, will they be talking about laundry?

What is next for uber is this a grumbling spansion.

70 cities they're going to china, they are expanding in europe, they have a lot of work to do in the united dates.

They are pretty focused on that, and keeping the lift and started cars -- sidecar that at bay.

Signing up for your favorite classes is getting a lot easier.

Bringing back to the -- tech to the fitness studio.

? welcome back to "bloomberg west." i'm here with our special guest, brad stone.

We're talking about fitness right now, and the health and wellness software that has raised $50 million.

The company helps gyms and health clubs manage their class schedule through their web and mobile app.

Here in the studio, talk about what you do?

Think of our system as an erp for these local businesses and behold a beauty scepters -- sectors.

We have all of these services that enable you to live a better life.

Personal trainers, nutritionists, your yoga studio, all of these businesses that we serve.

Does this put you on the road to an ipo?

The funding is going to help us accelerate article that our latest web and mobile products.

We have assembled the largest network of the help and pity practitioners in the world, over 500,000 records nurse in a hundred countries.

These folks are doing about 25 million sessions a month in our system with about $1.5 billion -- $.5 billion a month.

You'll see mind-body connect, both in the android in itunes store.

You can manage your account with them, your schedules, as well as your hair salon, and perhaps you want to engage a personal trainer, all of that could be managed in one place.

? some of these smaller businesses of been slower to be disrupted by new technology.

Do you think there is a real opportunity here?

Why is it taking so long for these small businesses to end up with technology for those who need to be convinced to work out?

It is a rapidly growing industry.

It is dominated by a lot of small mom and pop businesses.

It is taking a long time to get that flywheel spinning, but it is much more durable.

I largest client is only a fraction of our revenue.

We are able to access the local entrepreneurs all over the world.

Have you had any success with the chains look at 24 hour fitness?

What do you think is the benefit to bringing technology into the workout?

People can say quite disruptive . we wanted to be able to focus on people who could make a quick decision.

The larger the business, the more difficult it is for them to make a business operating change.

We are srttarting to see larger chains come together.

Equinox, a system for yoga and pilates, has come on board.

On the second half of your point, technology has all kinds of wonderful things to offer to mom and pop wellness industry.

Ultimately, those people that are paying for the consumer's healthcare.

Any chance of any some sort of an aggression -- integration?

There is a class right now.

We're going to be able to show people, by integrating with job own and i give fuel to see the effects of my workout.

When i went to that your class, this is what it did not only to my calorie burn for that time, but how long i slept that night.

We're going to help people manage their minds and their bodies with the same alacrity that you manager car and your motorcycle.

You will have all of the information at your fingertips.

And motivation.

Thank you for joining us.

Faster, smarter, more connected phones, the latest and greatest in mobile technology will be released next week.

We talked about this super fast the superfast technology that could be showing up on your smartphone, next.

? welcome back to "bloomberg west." coming up next week we are expecting a few big announcements, but mark zuckerberg will be on stage with the wahat'sapp ceo.

That makes it a little more interesting, i expect immigrant record to get right into those issues -- david kirkpatrick to get right into those issues.

One of the things that shocked me most about the deal was that the ceo was joining facebook's board.

This is a coveted seat at the table.

This is a sign of how disputed the competition for the cap was -- app was.

They were able to drive a pretty good deal, not just the price, but staying independent, getting the board seat.

It'll be interesting if we hear a little bit more about what caused them to sell.

They were pretty adamant about remaining independent.

You wonder what it was about the visit, what it was about mark zuckerberg himself.

Or intellectual property.

You have some really entrenched competitors, was it an aissue when expanding into asia?

Mobile world congress -- conference will be introducing a chip.

We have two rest release out today talking about reference designs and turnkey designs for new customers.

This is for smart phones, they will be like $300 and under.

For china and other markets, we did another announcement today on high-end lp.

What is called six k, it is 300 megan bits per second -- megabits per second.

Is very different approach that will make this more successful?

I think so.

I think this is really competitive stuff they we are doing chips in advanced lte, there's only one other company that can makes those type of chips.

A lot of r&d, execution, we've been working on the strategy for a couple of years, and we're starting to see the fruition of this in terms of these tips.

We did a demo with a carrier in finland, altogether doing it in a live network as opposed to a lab.

Is this a live network out in the field.

Doesn't make a difference for customers?

Absolutely, it makes it real, you have a carrier putting their network at risk to make sure this happens.

It is twice the performance you get on lte today.

Lte is much better than three g, and this is twice what lte is today.

I am having a hard time understanding what is going on in terms of the smartphones.

You go into the apple stores, and they make good products, and you're in those products.

The way that smartphones have great capabilities are going very low price, and where that leaves the current producers in the market.

We are starting to see a differentiation of the market.

There's a great desire for everyone on the planet to have a smart phone, and not everyone can afford in a hundred dollar phone.

We subsidize phones in the united states because you paint in your monthly bill rather than up front, but if you buy a lot of those high-end smartphones they cost $800. they're coming out at price points that are affordable for a broad set of the population on the planet.

You're still going to see the high-end super cool smartphones, but it will be reaching more people.

This is so different from the high-end smartphones.

The features that is so different than the low-end smartphone.

Will that difference remained?

I think we'll get defined as a reasonably large display that can browse the internet.

It will have great phone capabilities, and able to run applications.

That price point is coming way down.

What you're going to see in the hyatt is people innovating in terms of capabilities, fast processor, and sensors will be an interesting thing going forward.

We call it a smartphone, but people do not make phone calls anymore.

They brought they read, lay games -- browse the web, play games, and integrated into their life style.

It is time now for us to give you the one number that tells us a lot.

What is the byte?

Below for bitcoin on the exchange.

-- mount gox has had horrible technical problems, very bad communication with its traders.

We are seeing escape selling right now where bitcoin owners are just taking the dollars out because they do not trust that that exchange is going to be there.

There are other bitcoin exchanges around the world, but the rate is much higher.

Still lower than that thousand dollar price range earlier in the year when there was so much enthusiasm for bitcoin.

The problems at mount gox are de-stabilizing the currency.

We talked about the regulatory issues, countries like china, russia, india questioning this currency.

At what point will they say they do not want with their money into this?

There are certainly areas of society, but these people are believers.

We did the bloomberg biggest week -- businessweek cover story, that is the one thing that i took away, that they are long-term investors, and they have an almost religious belief in the power of this concern -- this currency.

I bought a few bitcoins for family for christmas -- just kidding.

The more laces that will accept them, that is when it becomes the story, away from the people that believes that it.

The jury is out.

I am only willing to bet the $10 that i have a bit coin.

Thank you for watching.

We will see you next week.


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