Live , welcome to the early addition of bloomberg west.
I am emily chang.
The focus is on innovation, tech knowledge he, and the future of business.
Google selling its motorola handset is this for $2.9 billion and this has major implication for the relationship with all those who use the android operating system.
First, an exclusive story about the future of facebook.
Facebook repairs to celebrate its 10 year birthday next week.
I am joined now here in the studio.
You sat down with the zuckerberg.
He is writing down plants for 10 years from now.
Going through a lot of self reflections.
10 years since his first day with his wife.
A couple of things jumped out to me -- as surprising.
They are talking about the day as a new mobile strategy.
A lot of emphasis on the mobile network itself.
They're going forward and introducing an initiative.
They are doing more apps.
We hear about the first one today.
He really wants to be more flexible about the way people use a split's products.
They do not want to consider it a clone.
It has unique features but very much like footboard, it is a way to look at friends and articles and photographs in interesting ways.
We consider it to be a newsreader and it is really another way to consume the facebook newsfeed without all the clutter of other features on your phone.
Do you have to use your facebook login and be connected?
There was so much emphasis on real identity.
They watched as rival services like twitter and snapshot got a lot of -- use a lot of pseudonyms and not use real identities.
Instagram has been successful.
There is flexibility.
Mark was very passionate and told an author that being anonymous online was a form of duplicity.
Something he is also considering other services like this, you do not have to log in with your real identity.
Some of them will not be branded facebook.
Some of them, you could log on to anonymously.
A different strategy, showing a lot more flexibility than some of the orthodoxies of the past.
He said it is important for me because he is a really critical person.
He is generally not happy with how things are.
Everyone is their own worst critic, but you do not normally hear a ceo say that.
It is in the vein of steve jobs at apple.
Always pushing the boundaries and wanting to get better and being pretty relentless pushing his own crew.
It is one of the reasons why facebook just announced great earnings.
In the mobile shift the company faced in the last few years, mark drove the company.
If you walked into the demo and did not show mobile first, he ended the meeting.
Let's talk more about earnings.
Facebook stock is going crazy today.
I want to bring you in.
You cover facebook.
They just announced yesterday that mobile ad revenue is now 53% for the very first time.
It is the majority.
Do you feel like facebook figured it out?
They figured it out.
They misted early on.
They pivoted and it is one of the most interesting pivots we have seen in the space in the last five years.
They have now made this their primary point and it will keep getting bigger as percentage revenue.
They need to do this because the biggest trend in consumer internet today is mobile.
If you are not upfront like google was and google probably is, facebook caught up and now they are ahead here it what grade do they get?
-- . -- b. this is a company with clear use cases.
Will we use facebook in the future as a primary tool?
A primary way to get the internet, probably not there that is twitter but maybe.
They will get the provision.
The facebook of the future will be more like your caber -- cable provider.
Everyone will have it but it is not necessarily fun.
Class that is probably a sentiment that captures the feelings of facebook's younger users.
You look at the engagement process on mobile in particular.
They are the highest in the history.
Next up is into -- instagram.
There is something about the service -- people are addicted to that app.
Click someone tweeted at me yesterday saying they are connected in the family in several different countries because of facebook.
We are seeing the growth in mobile active users is slowing down.
The opportunity that remains is the rest of the world.
Does saturation were you?
Growth has to slow down.
You can only grow growth so quickly.
Only one major market and that is china.
They need to get growth in countries like indonesia and brazil.
They are a little behind the curve in russia.
The single biggest driver for facebook is probably going to be monetizing their user base.
They will probably go from here to 10% for the next couple of years.
They only generate about two dollars in average per user per day.
Google does eight dollars per quarter.
They should probably be able to increase the monetization over the next couple of years.
That is where the revenue growth will come and.
It all helps.
One country that is growing fast is snapshot.
It is processing more photos per day than facebook.
Mark zuckerberg tried to buy snapshot and they turned him down.
There has been controversy.
You asked him about evan siegel publicizing private messages from zuckerberg.
He said, that is probably not what i will -- what i would have done.
Entrepreneurs always asked me what state -- what mistakes they should try not to make.
You will mess up all the stuff and we have as well.
It seems like a non sequitur and i thought about and he was obliquely calling evan's actions in that situation a mistake.
What was also not captured in the grand strip -- transcript was a long pause where you could see he could should probably not say something right now but he could not resist.
It is important to note in facebook's early state, mark himself was a little cheeky.
He was telling his users to calm down and take a breath during the first newsfeed.
You see these guys acting road elliott slate and confronting the previous juggernaut and hoping at every turn.
We talked about how he has grown up.
His goal is to write a thank you note.
He gives himself annual challenges.
In previous years, it was to learn chinese.
Every time he would eat meat, he wanted to kill the animal himself.
I asked him what the challenge was this year and it was to write a thank you note either in e-mail or handwritten.
I asked him who has received the notes and he declined to tell me.
A great story on the covered this week.
We will continue the conversation after the break talking about google and this big deal selling the business, coming up.
? welcome back.
Google has agreed to sell to anova for just under $3 billion.
Google bought motorola mobility in 2012. take a listen.
[indiscernible] a major player in the android ecosystem.
For more on what this means for google what has amassed.
Go how much did google actually end up paying for the company?
Let me take you through it.
I will go glenn beck with you with a chalkboard.
24 point -- 24 billion back out.
2.9 billion in cash.
They sold the business for 2.4 billion.
They sold everything else with the patents.
They paid $4.2 billion for patents they are trying to use offense of late, suing people like apple.
Thus far, none of these have led to any injunctions.
It is an open question what the true value of the patents is.
Where does this leave google in terms of the handset makers out there.
They were walking a fine line in the first place given that all the others use android.
Hattie think sam sung felt to have the provider of its operating system selling phones in a major way.
To suddenly be competing head to head with sam sung getting billing agreements with the carriers.
Sam sung made some waves at the show, suggesting may be a lot of the operating stuff google wants , there was a study that said as much as 25% of phones that have android do not have the products.
Google was at risk by keeping motorola.
Whatever headaches they thought they would get in the hardware business, maybe worse.
The other problem is the headaches they took on were massive losses every quarter from motorola.
Big losses from google in that handset business.
On top of that, sam sung, and the questionable value of patents.
Google takes it on the chin here.
Christ hang on.
I want to ring in brad stone.
We know google and sam sung signed a broad licensing deal having to do with patents.
Do you think there is anything more to that deal?
? they gave sam sung greater incentive to do that.
I love cory's map.
It tells you for a $400 billion market cap name, google, they generate the cash on a quarterly basis and gave themselves a hedge or patent protection.
Two years ago, the spikes were a lot more than now.
This worked out pretty well for google.
They have patent protection he thinks it is not that big a deal.
I agree with mark that they deactivate a potential bomb in the form of destructive litigation.
They clearly had ambitions around turning more to roll into the pre-eminent manufacturer and they installed a longtime executive at the head of motorola.
They were staffing up and it did not work out.
Cory pointed out, it created a lot of conflict in the android ecosystem.
You know, in that respect, it was a misstep.
As mark points out, they got value out of it.
They keep the patents.
In the overall scheme of the incredible as this, it is probably not -- klesko into innovo, he will stay at google.
We will continue the conversation after the break.
Up next, i want to talk more about where this leaves google in the future.
David called it the ge of the 21st-century.
I want your thoughts on the analogy.
? welcome back.
Brad stone of bloomberg businessweek.
Cory johnson, larry page made it clear google is still in the hardware business when it comes to the robotics companies a bot, the cars they are making, and i just bought the thermostat company.
Google is called the ge of the 21st century yesterday.
Mark, what do you think of that come paris and?
You've got probably the leading internet company with a company that should be making bold that's. they would not be with android today if they had not made that that.
They made that several years ago and should be making these kinds of bets just like dea does -- ge but -- ge does.
It is a couple of billion dollars lost here and there.
They are making appropriate risks.
They are sizing them correctly.
This move, google should be there.
Whether in the future, maybe they'll end up doing that.
They will certainly learn a lot.
They do a lot of futuristic products.
What is who goal of the next 10 years?
It continues to be primarily a search on pinnie so powerful that it allows them to also be futurologist.
That is basically what they are.
They came upon a very powerful business and advertising, really creating an incredible revenue source they want to push the boundaries of technology.
I was astounded spending time there.
They are just kind of fulfilling their passions and trying to push the boundaries and pursuing what interests them.
There does not have to be a lot of financial discipline there.
They can experiment a lot.
It is hard.
Lest i forget about the health care company they are working on where they are trying to cure death.
Where do you think google is in the next 10 years.
I am sorry to disagree, but i think it is a confused company.
I look at the history in the industry, it does not have to be technology.
I understand some of the notions . the motorola mobility business, but i think the risk here, and it is part of their dna.
Let people explore projects that are not centered to their core mission.
The problem is the conscious -- the company is not spending -- is spending a lot of time in things that are not core to their mission.
Coming up all the markets and business is great and the economies are growing because of spending and federal stimulus.
That will not always be the case.
They will someday want those billions of dollars back.
Class we want with -- we talk about google.
Their enemies and friends to a certain extent.
How the changes affect their relationships with each other.
Class they all have extremely broad business.
Amazon, google, which of these companies is most competitive?
You have to put google and the facebook as the two that are really competing most aggressively.
Amazon was so different.
These companies will increasingly encroach on each other and draw away at dollars from each other.
They are the two companies that compete the most.
All of these are side bets.
I think they are actually very smart side bets.
The simple point is they may be distractions if you keep them at small billion-dollar distractions, that is ok.
Google selling the motorola business is an indication google is worrying a little less than apple.
Apple has shown just a fanaticism about high-end iphones.
They really did not address the lower market.
Google realizes it does not have to compete directly with apple because andrew has so much of the market.
The next 10 years will be interesting.
cory johnson, thank you.
We will be back talking about amazon next.
? welcome back.
For your bloomberg top headlines, john boehner says it is time for house republicans to deal with immigration reform.
Boehner says a piecemeal approach may fit better with house republicans.
Just hours after defending the government's handling of government protests.
He threatens to withhold amnesty for arrested protesters unless activists -- it says it may withhold aid to the ukraine.
Slowly improving in the atlantic area after two inches of snow caused massive traffic jams and force people to sleep in shelters.
People back in their cars after thousands were abandoned on the side of the icy road.
2013 was the best holiday season ever.
Jumping 99% since last year.
How do they avoid the sales slump that hurt retailers.
Bloomberg businessweek rad is here.
Cory johnson, our editor at large from new york.
At amazon, is interesting to look at sales growth.
Overall retail inching forward.
Amazon is going to be 20 plus or more.
Prime is so powerful.
It gets customers to spend more.
It will be interesting to see if they say anything about it.
Are they leaving that growth cycle, showing that profit and reconnecting the ability to make money, or are they still building fulfillment centers, and how long will their shareholders allow them -- the worry about the bottom line, cory, what will you be watching when it comes to amazon.
It has always been about tight margins.
A long-term view seems to be clear.
He wonder if there will ever be a quarter where they break up the service business and finally tell us exactly how big that businesses.
Estimates are anywhere from $2 billion to three or $4 billion.
We will see if they break that out more clearly.
Brad is right.
The profits, it is fairly amazing the path that wall street gives this company.
Colin has a great note out today where he talks about companies over $25 billion, this is the most expensive out of our earnings business.
1000 times trading earnings.
100 times earnings.
It has this insane value on wall street based on the believe this thing could go to the moon.
It is interesting.
We experience consumers.
We shop on amazon in my house as well.
Those prices we push down next to nothing do not leave anything left for profit.
. class retailers hurting.
Is there lost amazon's game or should amazon be worried as well.
Fundamentally, we are seeing that amazon for a lot of shoppers is better and more convenient.
An incredible selection.
Here is what is really interesting.
At peak seasons, this should be a law.
Physical retailer performs worse . crowded, more competition for parking, selection is heard.
At peak seasons, amazon performs better because they centralize their inventory, they can drive down the marginal cost of shipping one item to every block , and they do not have any of the complexity or crowds.
Class d thing about the other things we are hearing, working on a kindle payment system in brick-and-mortar stores.
They do not have any experience.
Class i call my book the everything story because it is a company with unlimited ambition.
The physical stores should be interesting.
Amazon has paypal and v. it wants to expand its payment network and drive down the credit card processors.
They will have problems getting those systems into the small retailers who really view amazon as the enemy -- and they should.
Class there is not a great appreciation for how much they are disliked.
Amazon is the enemy of small business in the same way more mark was.
They find themselves pushing distribution closer and closer to city -- cities.
Taking inventory risk, having product on the shelves.
When that starts going away, amazon delivering into these major cities, right now, it will be a game changer for small businesses in america.
You mentioned you thought google was confused.
Is it different with amazon?
Go no further than this wonderful book to learn that.
Really focused on where they want to go and take the business and how he wants to do it.
You get a good sense from his book they all work off of the same lay book and are rewarded every day when they go to work for doing things in that aggressive and focused amazon way.
Author of that amazing book, the everything store.
We will take a look at everything you have to look out for.
How does ups keep track of all those packages?
We will take you inside the top- secret data center of the company next.
? class welcome back.
I am emily chang.
Delivery packages to your door so quickly.
A big drop in fourth-quarter profits after a late surge in online christmas shopping caused a major delivery backup.
Announcing plans to invest in more than $100 million to avoid the problem in the future.
To deliver your packages on time, it takes more than the company's famous brown trust.
Ups relies very heavily on data and the super secure data center.
Karen -- carol massar got to check it out or only some ups insiders ever get to go.
Only a few people are authorized to get in here.
Less than 100. security now.
What really runs this place is layer upon layer of security.
A building of less than 50 in the world, the highest category to affect i.t.. why is there so much security here?
Class all the packages moving not only here in the u.s. but around the world.
Housing all the data, 18,000 servers at ups, holding 16 petabytes of information.
When i order a packet and get information at ups, it is all being processed.
15 trillion calculations.
It all happens here.
Another concept that keeps the ups machine hyundai -- humming.
Redundancy is the key word.
Everything is redundant.
If one system fails, others kick in.
It is all battery.
The batteries take over if ups's power goes down.
All of this came in handy during hurricane sandy, which took out the power in this part of new jersey, but not at ups.
As long as you have fueled generators, you're ok.
We will be back after this quick break.
? profit rose 5.3% after its smaller competitor made a $37.4 billion takeover bid that the time warner ceo richard it.
Better luck -- betty liu sat down and asked him why he does not like it.
The bottom line is their proposal significantly undervalues our company.
It is also significantly lower than the value we think we can create on our own.
You say no way.
You want to be sold at 160, the price you think is fair.
What can you live with?
When we said we would do a transaction at $160, and, to be clear, that does not stand on its own.
A collar on the charter stock.
20% up and down.
We have concerns with the way -- we believe it is appropriate protection.
And you are not budging at all.
We think we could create tremendous value by running the company on our own.
If charter wants to transact 160 of the terms we laid out on the price.
We had an exclusive interview with the ceo of liberty media.
They are behind this bid.
This is what greg said about time warner cable.
The operating performance of the company losing thousands of describer's, does not marry -- merit confidence in our judgment of their growth lance.
Our job is to make the case it is worth more.
I find it ironic they have spent as much energy as they have bashing our conduct -- company.
At the same time coveting like nobody ever has before, time warner cable.
I would suggest we focus on the go forward plan.
We think we have a robust operating plan.
Which will create more value.
Bashing might the a strong word when we heard from shareholders who say they also believe a deal could be done somewhere in between, satisfactory with shareholders.
You should assume we spent a lot of time talking to our shareholders.
The position we are taking is reflective of what we hear from our shareholders.
They all agree with you?
I have not had a single one say this is the right price.
I have not heard that either.
Somewhere in between that.
In the 140's. we have made clear we are very confident in our plan and ability to create value.
If a sale will take place, it needs to happen at a level we have articulated.
Have you considered a deal where you take over charter?
In one way, shape, or form, or another, charter has been off the block for several years.
It is not a company that has particularly interested us.
Comcast is apparently looking at working with charter communications and buying some of the time warner assets.
Taking themselves out of a joint bid with charter.
Is that any more palatable to you?
What matters to us is the value delivered to our shareholders.
Nothing else is related to the equation.
Price and currency.
If it makes it more likely to make that achieved, that is interesting.
Part of that, no.
You can catch the interview on bloomberg.com.
The viacom ceo says they're looking to develop more scripted original shows to compete with hbo and netflix.
They expanded their reach.
They want to expand further and john ehrlichman joins us with more.
Whenever we talk about it, we have to tell the back story on what it is.
That is part of the problem.
It is jointly owned by paramount, which has viacom as its parent.
When they could not reach a deal with showtime, they said to create their own platform and they did that.
It has been a slightly long road in a sense they have to be carried through players like time warner cable, but there is the same problem they all have.
How will i be different and what have i got aside from older movies that makes me relevant.
We see what stars is doing.
Net -- it is saying, maybe we get into scripted series as well.
That is the back story.
Can it be successful?
The issue is not -- it is the cost of doing this.
It is not cheap.
It benefits players creating tv -- tv shows with big budgets.
If they do this and spend the money on it, is it better spending the money on that rather than spending your time and energy getting the movies on the platform and the channel carried on more systems.
We are back after a quick break.
? welcome back.
We are gearing up for the super bowl this sunday, of course.
The former 49er coo will be joining us with a look ahead of the big game.
It is time for "on the markets." 56 past the hour.
Mark crumpton has it all in new york.
Let's get you caught up on the markets.
Consumer spending that rose at their fastest pace in three years, lifting the markets higher this thursday.
Checking the board shows the strength ahead on the nasdaq.
The s&p 500 is up over a full percent.
The dow industrials is up nearly three fourths of one percent.
15,849. in fixed income treasuries coming up off their lows for the day, an auction of the seven year note jew higher than expected demand.
Joining me now with more on the bond market, jim keegan, chief executive officer were $30 billion of assets.
It said it was going to continue producing those bond purchases, the ten-year backed off the three percent psychological level.
What does that mean for the market as a whole gecko -- as a whole?
Stopping quantitative easing and or slowing it, what actually happened is interest rates have fallen and stocks have fallen, not rise.
Exactly as it has with qe1 and qe2. we are not at all supplies by it.
They made it very clear they will be on hold for a long time.
We think at least until 2016, but you could make the case as far as 2018. we think short rates will not be moved by the fed and long rates in a low trend growth environment where people have to start questioning what trend growth and potential gdp growth is in the u.s.. it has been in decline since 1960. this recovery has been the weakest recovery in the postwar time.
The only were analogous to this would be the 1981 session.
18 quarters into it, we were up 4.5%. we are up 2.3% on average.
23% of that is on inventory.
The responses have been cyclical.
What does that mean going forward if the -- cyclical responses are not curing the problem.
What then you go -- what then?
Responses being zero interest-rate policy for five years and quantitative easing.
The structural problems, they buy time but they do not solve the problems.
The biggest bombs we have in the country are demographics.
We are seeing the tail and of the negative side of the positive demographics of the 1970's, the 1980's, and the 1990's. we are only halfway through.
Long potential for the gdp, 3.5% or perhaps lower than two percent, what are the signs for that?
You have got to look at growth converges over time to what the underlying economy and inflation rate is.
Secular trend growth has been declining for .5% using a three year trendline down to 2.4%. that is in the case of the greatest leveraging up of the u.s. economy of the postwar time.
We are now in the deleveraging
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