Twitter’s R&D Costs Soaring Ahead of IPO

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Oct. 28 (Bloomberg) –- Bloomberg’s Ari Levy discusses Twitter’s trick relationship with developers. He speaks with Deirdre Bolton on Bloomberg Television's "Money Moves." (Source: Bloomberg)

Welcome to "money moves." we focus on alternative assets.

We show you what investors and entrepreneurs are doing, as well as hedge funds, private equity, real estate, and more.

I'm deirdre bolton.

Kkr betting on demand for smart phones across the country, making an investment in the future of wireless.

Samsung kinnock its first -- samsung kicking off its high- profile deal with the nba.

Were going to speak with one of the industry kospi nears.

Those conversations coming your way straight ahead on "money moves." we will start with america's love of smartphones and what it means for kkr, investing in a wireless infrastructure.

Kkr is investing in three companies, and the idea is to give them capital so they can develop more wireless infrastructure.

Why are we seeing kkr move a little further and further away from traditional leveraged buyout roles?

Kkr is always looking beyond leveraged buyout's for opportunities that don't necessarily fit in a bio structure, but then can make them money.

They're saying opportunity to established -- harner with an established partner in the telecom industry.

One builds ethernet connection, one builds telecom towers, and one has interests in telecom sites.

To have an interesting history.

It started out as a greeting card fortune and went to tv and radio and now is in wireless.

This is a company that saw in urban areas the swelling adoption of smart phones him in next-generation video devices, tablets, etc.

In rural america, the adoption rate did not pick up as much.

Now it is picking up.

Just like in energy, when we had the shale revolution, there is a whole new supply of energy but the infrastructure has to catch up.

It is the same in telecom and rural america.

There is demand for more telecom access, but that infrastructure, fiber optics network has not been there.

It is 100 million dollars, right, between three companies?

Kkr is putting in $100 million, and they may put in more.

You made this parallel between kkr and the kind of investments it has made an energy infrastructure it is now doing in telecoms.

Exactly.

Last year it started a 250 million dollar partnership with chesapeake energy.

There is family in tulsa, oklahoma, and suddenly you discover oil under your land.

You want to sell it and make some money.

It's the same thing with cell sites.

There are cell sites in different areas of land.

Some owners just want to sell it.

These companies that the associated partners own take over these interests, and kkr is trying to get into that as well.

Thank you.

From telecom to tech, twitter's operating costs are growing faster than its revenue.

For more on what this means for the microblogging company and its investors, we bring in a person who covers twitter for us from san francisco, ari leiby.

Twitter is relying on in-house talent for this stream of products.

At one point, it was really open to all kinds of programmers.

At some point, it shut the door.

How could this change what twitter looks like now that it is a public company?

It was a super exciting ecosystem in 2009. the idea of, it will make it a better service.

There was not money flowing through the system.

The companies building on top of it did not have a way to monetize what they were doing.

Once twitter figured out how they were going to make money, it was all through advertising, and there was not enough of that money coming through to share with other partners.

They effectively had to take all of that in-house.

The same way they would on facebook, where they can make money, twitter has not offered them these opportunities.

What happens at this backfires -- if this backfires?

It is a costly bet for twitter.

They are not counting on innovation coming through these outside developers, where developers would build products and make the service more exciting and twitter would turn around and provide them some money.

Twitter is having to do this all themselves, they are having to pay developers full-time to do it all internally.

That is why you see their costs rising so much higher than revenue.

Eventually, you need that revenue to catch up or you will not have a profitable product.

We are continuing to compare twitter to facebook.

Since that was the last big tech ipo we were focused on, how does twitter's strategy differ from facebook in this regard?

Facebook was able to very successfully create a portal where game developers would come , where dating sites or job recruiters -- and use facebook as their audience.

They have been able to build businesses that way.

There have been a lot of hurdles along the way.

It has been a roller coaster for the zynga.

For twitter, there are no real success stories to speak of.

The buddies that have build success on twitter have build it on multiple platforms -- companies that have build success on twitter have build it on multiple platforms.

40% to -- 14% to 15% of the money they bring in, they have to spend it on research and r&d. ari leiby joining me from severn cisco.

Samsung signing a multiyear contract with the nba.

The women's national basketball association and nba, the reps will be using samsung tablets courtside to review key plays.

Bloomberg news managing editor is with me now.

They are launching in the u.s.. they just want to make their presence felt, right?

The timing here is key.

We are on the cusp of the big season.

We also have this tug-of-war with apple.

Apple is releasing results today.

We will see how well apple is doing in defending its turf in tablets.

Anything that ruins any discussion of apple is fantastic for samsung.

Apple is a big company, and we're going to be focused on their numbers.

Apple's earnings day, big tug- of-war with apple.

As you pointed out, they're really trying to grab share in this space.

You mention sports, and they want buzz.

Is samsung the only competitor out there?

If there's one thing you want to know, sports, that's it.

How do you balance the world series against nba, you know?

A lot of tech companies want to get some of the cool factor from being associated with sports brands.

We saw the coaches of the nfl were in motorola headgear.

Microsoft has launched a deal with them.

Sap won some cool cachet with sports teams.

If we can get these devices and the software in the hands of people who are seen by the american public as cool, they will want our products as well.

It's a pretty straightforward association here.

It does not always work.

It is a pretty good bet, right?

You can see why their marketing teams are pushing for this.

Tom giles, thank you.

Bloomberg news managing editor on the very latest with sam's son.

We have a break to take.

When we come back, securing a deal in the venture debt market.

It's a new way to finance vc.

Plus, the brains behind restaurant payment app cover.

It makes it easy for you to split the bill without the headache with your friends.

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This text has been automatically generated. It may not be 100% accurate.

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