Facebook Delivers: Bloomberg West (10/30)

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Oct. 30 (Bloomberg) -- Full episode of "Bloomberg West." Guests include Wedbush's Michael Pachter, Techonomy's David Kirkpatrick, TuneIn's John Donham, Baidu's Robin Li and Bloomberg Contributing Editor Nicholas Thompson. (Source: Bloomberg)

Live from pier three, welcome to the late edition of "bloomberg west" where we cover the global media and technology company shaping our world.

Our focus is on the future of business.

Let's get straight to the rundown.

Facebook proves that it's mobile migration is working.

Shares soaring and after-hours trade.

Twitter executives make their pitch to potential investors in new york of day three on the ipo roadshow.

We have details from inside today's meeting.

Nsa had general keith alexander denying reports that his agency has secretly tapped yahoo and google's servers.

Hear his response in our exclusive interview.

First, to the lead.

Facebook is connecting more people and making more money in the process as it has appears to have cracked the mobile code.

They followed up a huge second quarter with an even bigger third as mobile ad spending increased, a 63% increase in profit with 420 $5 million and 820% year-over-year increase.

As for mobile, 49% of all ad revenue was from mobile.

Mobile monthly active users sorted more than 45%. shares were up but have since pulled back.

Jon erlichman has more from l.a.. with your big take away here?

There are three things.

The number of users continue to grow.

The demand for advertising and facebook is growing and facebook is making more ad space available.

Put those three together and it helps explain some of the financials we will show you starting with the number of people using facebook on mobile devices.

The number of users on mobile devices have been climbing at a very fast rate and they are now at 874 million on a monthly basis and compare that to the advertising side.

A growing amount of the ads on those devices are becoming a bigger part of the total pipe.

-- total pie.

Think of the ads that are on people's news feeds in a big way.

All plays into the revenue story on what we saw was revenue north of $2 billion during this time, a significant increase from the roughly 1.2 6 billion in the same stretch last year.

When the revenue is rolling in and you half to scale some fixed operating costs, more money can flow to the bottom line.

It's amazing to look at the operating margins which have continued to climb higher from 39% in the first quarter to 49% now.

What about the revelation that facebook is seeing a decrease in the number of younger teenagers using facebook on a daily basis he?

That may be one reason beside change in the views of the stock price.

David everson brought that light and also contrast around the fact that generally speaking, there are a lot of teens using it on a regular basis.

The big question is whether or not this matters from the business side.

All of these ads they are selling, is there a higher percentage likelihood of you clicking on an ad is a young teenager versus someone else he?

Obviously people are paying a lot of attention to that little nugget that we shared.


Jon erlichman, thank you.

For more on facebook, i want to bring in a special roundtable.

I'm joined by david kirkpatrick and wedbush managing director michael pachter.

What do you make of this revelation?

How serious is it?

We thought it was something that was happening now it's confirmed.

I just want to start with that i'm a fan of david and i loved your book.

Thank you.

We did not pay him to say that, david.

Just so you know.

Since you are the only teenager among us, you understand this better than the rest of us -- you talk to me about twitter and i will never get it right.

I think people make a big deal out of teenagers.

Let's be real.

Until you graduate from high school, everyone in your universe lives within five miles of you.

You see them every day.

It's not until you go away to work or college when you actually start to lose track of people you knew in your younger years and that is really how facebook was invented, on a college campus for people who want to get in touch with other people.

It does not make sense for people under 18 to really use it.

They use it because it is there.

It is not a basic driver of why facebook exists or why we as adults use it.

We care about teens if they go somewhere else.

They are on instagram.

They will be on facebook when the time comes to reconnect with friends you moved away from.

I forgive you.

For those of us who have been on facebook for many years, we have a lot of ink stored on there, photos, connections with people, things and our timeline, but for younger users who don't have that history, what is the motivation to join when they have all of these other options he?

It is still the most efficient communications tool ever invented by anybody.

I like michael's work, too, by the way.

I think teenagers are a minute show in the context of an incredible bunch of data today which is the big positive story -- i think teenagers are a minutia.

I think it matters whether they use it.

I don't think the decline is that significant.

It is probably only in the united states.

Globally, the real long-term growth opportunity, it's not even a factor.

They have to be careful not to seem to old hat, to infrastructural the people say, it's a boring.

Why should i use the same thing my parents use?

There's a lot of information that can says to me they are increasing the functionality steadily that even younger teens will soon be finding it very valuable and useful because of the kinds of things they can discover about the world they live in.

Let's talk about the mobile numbers.

When facebook went public over one year ago, that mo number was zero.

Is it as incredible as it sounds he?

What is actually more mind-boggling is the absolute number.

$880 million in a quarter.

Other than carriers, no one makes that much from mobile.

I think it shows management's resolve.

They know that is where their users are and they will monetize those users so they were in genius and coming up with a way to monetize them which were newsfeed ads.

People kind of like them.

I like mine.

They are relevant.

They are from brands that i trust and like.

What about instagram?

Airport came out saying the potential of instagram advertising is underappreciated.

Now that we know what they're going to look like tom a david, how big do you think that business could be?

A lot of attention directed towards instagram and if anyone could manage that in a subtle fashion, you could get tremendous ad revenue out of it in facebook is showing more and more every day that they do understand how to subtly exploit the assets they have.

They have not proven anything about ads in instagram other than demos of what they would look like recently, i don't think there's a problem there.

Images can carry ads.

It's a matter of whether or not you overdo it.

They said they will not increase the percentage of newsfeed ads in mobile or desktop because they feel they are at the level they can deal with which is about five percent of all newsfeed items.

I think it's a very smart.

They're getting high-quality ads.

They know they cannot annoy us or we will go away.

I'm sure they will handle instagram the same way.

Michael, i forgot your name, pachter and david.

The twitter ipo roadshow hit new york today.

What happened inside the room next on "bloomberg west." ? "bloomberg west this is." i'm an early chang.

-- this is "bloomberg west." they were fielding questions at the twitter ipo roadshow on everything.

A look at what happens inside the room.

Jon erlichman, what are we hearing about what happened today?

We will highlight one of the meetings in this roadshow.

At around lunchtime today, there was a gathering in the neighborhood of a couple of hundred people in the mandarin oriental hotel, midtown, with the two top executives for this roadshow, kosta low -- dick costolo and mike gupta, spent time and did a q&a with the audience.

They talked about making money through ads on twitter and where they show up in a timeline to our their cross media opportunities.

Traditional media is going to twitter.

Could twitter be going somewhere else he?

The board trying to get a good understanding on where the company could be heading on top of the financials we learned about.

We have heard about the twitter roadshow, the path to the ipo, has been the un- facebook.

Roadshow has been a lot more low-key.

How are we seeing this play out on the road?

Very much as planned.

The investors we spoke about the facebook roadshow who are on the twitter one now, comparatively, the facebook ipo roadshow was a circus inside and out.

There is this importance of talking about facebook versus twitter.

The quarter that facebook does put together may put pressure on twitter to improve their performance and the fact that you were seeing some overlap.

Mark zuckerberg was talking about stealing that away in the conference call.

Jon erlichman, thank you.

What can twitter learn from the facebook ipo?

How similar are the two companies?

I'm joined by david kirkpatrick author of "the facebook effect" and michael pachter from wedbush.

You are so peeved that he wore a hoodie to the roadshow and he made international headlines.

Costolo showed up in a suit.

Do you think this stuff matters?

Investors like to be shown respect.

If a company comes in and asks investors for their money, then i think they need to show the proper respect.

I hate to use this analogy, but it's like going to church.

You show the other people respect so you dress appropriately.

I think it's great for the office if you work at facebook.

A jacket, t-shirt, and genes would have been fine.

I think he's aware and the way jon erlichman just described it, it is the anti-facebook.

They will not make any mistakes that facebook made and that was one of them.

David, i know you're friends with mark zuckerberg.

Would you agree?

He's in internal asheville -- he is an international celebrity so the circus atmosphere was not entirely of facebook's creating.

I will say i'm really sick of hearing the facebook i the oh described as a disaster even though clearly facebook made major judgment errors, the nasdaq screwed up.

On the other hand, the stock is now considering -- considerably above the asking price.

If that is the kind of disaster they will face, i think they should have more.

Do you think it's unfair to compare twitter and facebook cap go some people say that twitter will never be close to that.

Qu twitter has a few hundred million which is actually brand- new.

Yes, i think there are fundamental differences.

It's really critical for people like all three of us to use these applications but it has significant limitations compared to facebook that are fundamental.

Faced has identity and twitter does not.

Facebook not only knows your name but it can authenticate that you are who you say you are and in addition to tell the system all kinds of stuff about you and they can watch you both inside and outside of facebook and know it's really you and target ads to you.

That's huge.

The second thing is algorithm.

Twitter is basically a firehose.

It's a great system that targets its ads to the degree it can but because they don't really know who they are, they don't do much targeting.

The facebook newsfeed, everything you see is determined by incredibly sophisticated algorithms and software that are constantly improving.

Twitter does not do that.

It's a much less efficient system and you don't have the same filtration of facebook has and it's one reason people find facebook more valuable in general.

A lot of leaders, people in media, news hounds love twitter and we will keep loving it but there are fundamental differences aside from scale.

Michael would you agree?


I agree completely.

It's like comparing google to ebay.

Twitter is a place that you go to learn about stuff you're interested in and maybe interact with people you don't know who you are very interested in, celebrities, journalists, news analysts.

Facebook is a place you go to connect with people you do know and do care about because they are your friends.

One is information and perhaps a conversation with a celebrity.

The other is interacting with people you know well and they are different purposes.

Twitter has the potential to be gigantic.

Wedbush managing director michael pachter, david kirkpatrick, thank you both for weighing in.

Up next, the future of digital music.

Tune in lets you stream your favorite radio stations anywhere in the world.

That's next on "bloomberg west." ? this is "bloomberg west." i'm emily chang.

Don't want to miss out on your favorite talk radio show when out-of-town yak know not to worry.

They have you covered.

One is standing by with more.

A streaming service that offers real radio stations including news, sports, talk, free digital radio service, they have set themselves apart from some of the other players like pandora.

It is growing with 100,000 channels they are offering compared to 70,000 the last time their ceo joined us.

Let's talk about the process of adding additional stations for your users.

That's not an easy thing.

You have to go out there and negotiate.

Take us through the process.

Cracks it's a lot of hard work.

If you think about -- it's a lot of hard work.

Google has an easy problem of just scanning the text on a page about whenever we add a new radio stream, it's much harder.

How do you know what's playing on that station, the genre of music cap g? you get in the car, you don't know which station is playing one song, but we do.

It's one of the big challenges as we add tens of thousands of stations, we know everything about that station including what's playing.

, a station does the average user like to listen to?

I would assume what you are adding is dependent on that.

I like "raking bad." i was listening to these podcasts that i found on toin-- tunein.

A lot of times people are listening to specific content.

If you're listening to the stamford-oregon game, do you care about what station it's on?

Nom, you just care about listening to the game -- no.

They're always interested in what's going on right now but that is a respect of of what station it's on so they have the directory of live stations for both.

He told us in the past that you see pandora is more like your cd collection and tunein like the stations in your car.

They have been talking about apple's move into radio and big numbers.

How have your metrics performed since the introduction of itunes radio?

Things continue to grow for us.

We are real radio.

There is a human on the other end of every broadcast.

You are listening to things like news, talk thomas sports, play- by-play.

When you listen to the actual music radio, you're often hearing things like artists and studio doing live sets and these are the things you hear everyday.

It is not the typical thing you hear on a pandora or iradio.

This is real radio.

Always good to get your perspective.

Emily, i suspect you may be listening to that stanford game.

That's just a hunch.

Yes, maybe once in a while.

Still ahead, baidu ceo admitting he was late to the game on mobile.

Part three of my interview is next.

? "bloomberg west you are watching" where we focus on technology and the future of business.

Comcast dipping in the third quarter seeing gains in both home phone customers in broadband subscribers helping to make up for a loss of 129,000 video customers.

They have been updating their mobile app to try to keep customers.

Intel may be ready to abandon a web-based tv service.

A person familiar says they are in talks with verizon to take over the webtv project.

They have previously said they plan to release the service by the end of this year.

If the battery is draining on your new iphone 5s, you are not alone.

A number i having problems due to a manufacturing defect.

They are reaching out to customers with the affected phones and will give them new ones.

Now to part three of my exclusive wide-ranging interview with baidu ceo robin lani.

They announced they would buy the app store 91 wireless.

But still, most experts say baidu what has been late to the game when it comes to mobile.

Take a listen.


[laughter] i admit.

You agree.

People started to convince me to move to mobile roughly about 10 years ago.

At that time, china already had a lot of mobile users, not internet users, but they use mobile phones a lot.

People text each other, you know that.

It is very natural for people to think of mobile search since baidu was the leader in desk top search, naturally, why would we not do something on mobile?

And i said no because at that time there were no real mobile internet available.

The telecom companies and the carriers control most of the traffic.

They invented this mechanism and they had ring tones, small games . they have very tight control on the ecosystem.

The way you make more money in the business is to have a good relationship.

They were really relationship- oriented.

Isn't to the business dealing in china all about relationships?

At least not for me.

It feels great for a person like me who is not greater relationships to still be successful in china.

It tells you something.

How do you do it if you are not good at relationships?

I created a product that's good for a lot of people.

Because you serve half a billion people you cannot afford to make good relationships face-to-face with every one of them so you have to come up with good experience, good technology, good services for them to love you.

Mobile is a huge part of growth and facebook looks like they are getting close to 50% of their revenue when it comes to ad sales.

Is that how it's going to be for baidu?

I think so, yes.

Desktop traffic is still larger but the mobile traffic is growing triple digits so it is growing much faster.

The capability is also improving very quickly.

The mobile revenue for baidu grew more than 300% over the same time last year.

At one point do you think mobile could become 50% of your business cap?

Sooner or later, it could be 2015, but not very long.

Let's talk about the competitive landscape in china.

Would you say you are more worried about companies like allie baba or companies like apple and google -- alibaba?

I'm more worried about the changing market.

Things that are true today may not be true tomorrow.

That is the biggest challenge.

I told you about the mobile thing.

People started to showing me to go to mobile.

One day when the market became ready, i was late.

This is the biggest challenge i have.

It continues to be the case because the market is still evolving very quickly.

The mobile internet market, there is android and ios.

It turns out that is not the case.

The operating system is not that important.

There are lots of apps and services that we need to work on that have been much more beneficial.

You already have android and ios . you may not have that much appetite for another operating system.

You would have that to buy a movie ticket from your phone and that's not a good experience yet.

Quick so you're following them into services with a new wealth management program and you are promising a 8% return.

Why are you doing this?

The whole financial industry is moving towards internet and it's very natural.

We have a lot of users who are interested in buying funds like that and we have a lot of managers coming to us saying, i want to work with here.

I have great products.

I need to find those users who are interested.

It's only natural for us to provide a platform like that interconnect those users with those products.

We are not a financial institution.

We are not serving any financial products.

We are just a middleman.

That was baidu ceo robin li.

Reports are already coming in that investment limit of baidu while it has been reached in less than five hours after it launched on monday.

-- baidu wallet level has been reached.

Facebook, the nsa, censorship, and more.

A recent lawsuit comparing yelped to a slave ship in the people behind the claim may surprise you.

That story is next on "bloomberg west." you can watch us streaming on your phone, tablet, and on bloomberg.com.

? is that the yoga tablet?

How did you get that?

I'm testing it out.

Actor ashton kutcher for lenovo.

He has joined them to help develop and market a new line of tablets.

He is the new product engineer.

He just played steve jobs in the movie "jobs" studied engineering at the university of iowa.

He has more than 15 million twitter followers and is an act of -- is an active tech investor.

They say they should be paid for their reviews for yelp.

The plaintiffs say "business journal commentators have compared business practices to a galley slave ship with pirates banging the drum to keep up the fast pace to fill the pockets of their shareholders with treasure." they said, this is a textbook example of a frivolous lawsuit.

It's unfortunate the court has to waste their time adjudicating and we will seek to have it dismissed.

Nicholas thompson is a bloomberg contributing editor and editor of thenewyorker.com.

Is this frivolous?

Do the reviewers have a point cap?

Yelp would not exist or not be nearly as valuable if it were not for these reviewers.

They have made them very wealthy.

They have not gotten anything.

On some faint moral level you can say there's a justification but in 1000 other ways it's frivolous and ridiculous.

They signed up knowing full well that yelp did not tape.

They did it for the reasons why we all contribute online.

We do it for prestige, because we think we are making the web a better place.

They do not get paid for wikipedia entries or by google for an betting links.

The lawsuit raises an interesting point but is also ridiculous.

Yelp, more so than other companies, really does depend on reviews for the business model.

Does that matter?

Twitter relies on your tweets.

They really do rely on their reviews in the question for that company is what's the best way to get the highest quality review?

Yelp does not pay reviewers.

Amazon in a way does pay through a quiet program called vine where products are shipped out to talk reviewers but there are ethical tangles to get involved in because then you change the incentive and you create problems.

There is a question of how to get the best reviews.

And then there's the legal question that given that yelp made the decision can the people who contribute subiaco my senses no.

-- contribute sue?

My sense says now.

There are a whole underground population of people review all day long and they get the pic from things on the list and get to keep.

Is there a conflict of interest there?


You get a vacuum cleaner and you don't have to give it back, it may well color the way you write about that product.

When you look at user reviews, you certainly think that i'm reading the reviews of people who just happen to buy the product for people who needed a vacuum cleaner not people who were sent one and wrote about it.

What amazon is doing is a little bit strange, a little bit deceptive, and it's complicated.

Should we trust these reviews?

As a customer, i read reviews all the time and they have a huge influence on what i buy it.

They do have a huge influence . should we trust them?

There are lots of reasons why we should not.

The companies are out there and they're hiring people to write sacred use and there's a lot of gaming of the system out there and amazon and yelp are working very hard to try to counter that.

The reviews that come through fine -- vine are more trustworthy than astroturf so there is a cat and mouse game that goes on between people trying to game the system.

Overall, the quality of reviews has increased immensely but it's also the case that there are lots of times where products are not in a good.

What do you think the outcome of this is going to be?

California cohort, so you can never be sure, but i'm going to guess it would be dismissed -- california court.

Nicholas thompson, thank you.

Does the nsa have direct access to these servers?

We find out how close these companies are to the government.

That's next.

? this is "bloomberg west." i'm emily chang.

Hhs secretary kathleen sibelius has apologized to the american people saying she should be held accountable.

She appeared before the house committee today to talk about the website problems.

Listen to what she had to say.

The assessment we have made is that it will take until the end of november for an optimally functioning website.

I know the only way i can restore confidence that we get it right is to get it right.

I have confidence but it is not fair to ask the american public and we are on our way to fixing it.

Like she answered questions on privacy concerns with the new health care law.

As the nsa sneaking into text servers of giants like google and yahoo?

Edward snowden links them together according to a report in "the washington post." keith alexander denies this in an exclusive interview with bloomberg saying it's illegal to tap into the company servers directly.

"street smart" trish regan said down with him today in washington.

There was this allegation last june that nsa was tapping into the servers of yahoo, google, and that is factually incorrect.

The servers and everything we do with those, those companies work with us.

They are compelled to work with us.

This is not something the courts have said, will you please work with them and turn data over?

These are from a court order.

This is not the nsa breaking in.

It will be illegal for us to do that.

We do not have access to google servers, yahoo servers.

We go to a court order.

We issue it to them through the fbi.

It's not millions but thousands of those that are done and it is almost all against terrorism and other things like that.

It has nothing to do with u.s. persons.

If we want to get the content of the u.s. persons e-mail or phone number, here is a key.

Most of the incidents that we have are finding out that a person in a foreign government is a dual u.s. person and that's a violation for us or it's a terrorist but they are also a u.s. person.

That's a violation.

We have to expunge the communication and get a court order.

We don't have all the details, but edward snowden saying that the nsa had infiltrated yahoo and google databases.

Would one assume then that if the nsa was looking at any date of the companies had they did so via a court order?

That's correct.

I don't know what his allegation is.

We do collect information on terrorists in our national intelligence priorities but we are not authorized to go into a u.s. company server and take data.

We have to go through a court process.

If you think about it, these same companies we issue court orders to, other countries around the world do the same thing to them.

Many of them with a lawful intercept program, they go to one of the service providers and ask for information.

That's the same process that we use.

This is not something that our government is different than others.

From my perspective, the one thing our country does that goes far beyond is that we have a framework, a legal framework for my that says who were -- here is how you're going to do it.

If you would compare that with all of the other intelligence agencies around the world, you would see few that have the oversight process that we have.

This is one of the things that have shocked so many americans learning that the nsa and some of these technology companies were working in cooperation via court orders.

Have you been affected out all?

Has your agencies seen less cooperation from the facebook fan to do goals of the world as a result of snowden's information -- from the facebooks and googles of the world?

They were compelled by court order then and today.

It's not an option.

They would he held in contempt of court if they don't comply.

The way it is put out is if they are just throwing data to us.

They are not.

From my perspective, they are providing us, just like they do other countries who ask for data , who come forward with the director laurent get so in their own countries.

We do the same thing.

This is one of the areas that is grossly misunderstood and it needs to be fixed.

Form where i said, we are doing the right thing.

-- from where i sit.

Nsa chief keith alexander.

And now it's time for the "b- west byte." this is how much cash facebook had at the end of the third quarter.

A lot of people criticized the facebook ipo for pricing high, $38, yet it net them $16 billion in cash.

A lot of it stayed with the company and now they seem to be humming on revenue, the cash from operations is rising.

$9.3 million.

That is how they can afford instagram.

Mark zuckerberg was asked restaurants today about the rollout of advertising tight instagram.

The big headline story ended up being young teens may not spending so much time.

They could use some of that cash to help entice them to stay but not likely.

We have heard anecdotal evidence.

Gene munster of piper jaffray did a study but now to hear affirmation that, yes, they are not seeing as much activity from teenagers is quite a revelation especially as twitter prepares to go public.

Jon erlichman, thank you.

Thank you for watching this edition of the show.

We'll see you back here tomorrow.


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