tv Bloomberg West Bloomberg May 9, 2015 4:00am-5:01am EDT
emily: from pier 3 in san francisco, welcome to "bloomberg west," where we focus on innovation, technology and the future of business. i'm emily chang. every weekend we bring you the "best of west," the top interviews with the power players in technology and media. now to our lead story. a surprise announcement from alibaba. daniel jong has been named the new c.e.o. the chinese e-commerce giant announced the news where n the
fourth quarter report where revenue was up 45%. there are lingering concerns about their ability to up international revenue. chairman jack ma just announced a hiring freeze. they are saying they are not doing enough to drak crack down fraud on the site. i spoke with the new c.e.o. who went from c.f.o. to c.o.o. and now c.e.o. i asked him what he plans to do differently. >> we changed the leadership in our fields. we believe that today is the right time for us to bring the young generation to the leadership. as you know, alibaba -- this is a long journey. we need long generation to participate in the leadership and lead the company to the next part of journey.
emily: how will you bring more talent into the leadership and management roles? >> today if you look at our key business units and all the leaders, out of 1970's. we're also trying to bring more and more 1980's, 198 5,1990 young generations to the middle class level final throy the leadership level. we believe this will be the foundation for our future growth. emily: jack ma said hepts 50% of revenue to come from outside of china. currently that number is more like 9%. what is your target for that number this year? >> globalization is one of our strategies for the future. we start and help -- to chinese consumers. on the other hand, through our ali express retail platform we
help chinese supplies to -- commerce all over the world. we want to build a global network. a global platform to serve consumers around the world. emily: if it is 9% now coming from internationals, what do you want that number to be? >> the business from international will continue to grow. now is just a starting point. emily: so what kind of countries can we expect to see alibaba popping up in? where are we going to see a greater presence from alibaba abroad, more specifically? >> today through our retail platform ali express we sell a lot of products to developing countries like brazil, like russia and in those countries the consumer product is very expensive.
so we help get supplies to those countries. on the other hand, we will participate in the growth of certain countries investment and m&a. we will try to help the young generations and the young entrepreneur in the country to do their own business. emily: how do you plan to do that? >> actually we have a strategy of globalization. today we start with the cross border. we will go further to build a global network. as i said, today is just beginning. it is a long journey for globalization. emily: we have heard about the hiring freeze, you know, capping employees at 30,000 employees today. how likely would layoffs be if layoffs are a potential next step?
>> freezing -- integrated by the market. we will adopt a zero -- policy this year for our head count policy but we will definitely continue to hire talented people to join us and replace those guys that underperform. the purpose of this zero net in head count is to improve our operating first quarter si. we did the same thing three years ago. which gave it very productive results. in five years, we will one trillion u.s. dollars -- and at that day the head count in our group should be 50,000 people. today sa good time. we adopt a policy to help
efficiency. we are prepared for future growth. emily: the chinese government has made harsh accusations against alibaba about bribes and knockoffs. what is the state of your relationship with the chinese government right now? >> like all global companies, alibaba has a transparent conversation with chinese government. we share our views and plans of business development and also address their concerns. we do everything we can to make sure all of our -- all the business are in compliance with the laws and regulations. emily: new alibaba c.e.o. daniel zhang there. we'll be back talking with dick costolo. that is next. ♪
emily: this is "bloomberg west." i'm emily chang. bloomberg television premiered season two of studio 1.0. my first guest was twitter c.e.o. dick costolo. how it prepared him for wall street. here is a bit from that interview. how do you and your team deal with that, how do you as a person do with that, when people say you should be fired? >> i was invited to something a couple years ago and my daughter said you should go. i said i don't think i will go because i got invited to it
because of what i am, not who i am. i got invited because i was the twitter c.e.o. not because i'm dick costolo. i have never paid too much attention to the ceo of the year stuff because the worst ceo of the year stuff is right around the corner. i therefore don't get worked up or frankly care too much when people say those things. in fact, i have had to make myself kerala but about them only after i started realizing oh, it could affect recruiting if people started thinking, i want to go to twitter but what if dick is not there tomorrow and everything changes? so i have to pay attention to that and say that is not the case. emily: how does not being a founder affect your ability to lead? >> jack dorsey could be here and ask him what he was thinking about when he invented twitter. you can't ask me that same question because my answer is i
didn't invent twitter. you can be a non-founder c.e.o. and have real, thoughtful opinions and even certainty about where something needs to be taken that is helpful to the company. i can tell you, when jack saw vine and loved it and knew it was right right away and we both realized we have to do this. i felt the same way when someone on my team came to talk to me about periscope. right away it was we have to make that part of the company. my daughter at the end of 2014 texted me and said i have bad news and good news. the bad news is an article said that you were one of the five -- worst five coast of 2014. -- c.e.o.s of 2014. ok, what is the good news? you are number five. i see that as a lesson to not get too carried away one way or the other on the sorts of things. emily: my interview with dick costolo from the premiere of
studio 1.0 which you can find any time online. from 2013 to sales force, microsoft is making a bid for sales force after the cloud giant was -- by another suitor. we spoke with matt from seattle-based medrona venture group. >> i don't think either of those would be enough to justify buying salesforce. i think the bet on sales force is to say can we build intelligent apps together? dats driven apps are going to be the apps of the future. they used technologies combined with microsoft data and technologies like exchange and
that delivered intelligent services to companies. cory: i'm going to back you up for a second. you said microsoft thinks salesforce needs the engineers and the imagination? >> i think that is correct. there is a softwareas a service application. there are things it has done not just engineers, microsoft hasn't fully figured out yet and that together they could build this next generation of smarter an gations. cory: that is interesting. my excel spread sheets on this deal have been burning over the last couple of o hours. i've been trying to look at ways it makes sense. salesforce, it is what it is buts the also a compilation of a bunch of recent acquisitions that have been very expensive to the company without delivering profit or free cash flow after
the cost of those acquisitions. anyone in the industry can see that they are doing a lot of acquisitions to boost revenues but they are not getting the free cash flow that would result from it otherwise. they are just spending a ton on marketing. >> i agree with your nall -- analysis. it is risky bet. that's why you know, it is a big bet if that is something they are trying to evaluate here. certainly the rumors suggest they are. if so, it is not going to be just because cloud makes you better. cloud or microsoft is coming on strong and really the data analytic that you can embed into those solutions, that would be the best. part of the reason that matters is there is a lot of usage and understanding in what salesforce delivers in its own products.
million. and zen fitz scored $500 million. are things getting a bit too bubblely here? cory johnson and i spoke with parker conrad, the c.e.o. of benefits. cory: basically a lot of businesses -- there are so many of these companies out there that there are a lot of people we need to have conversations with and get pitches to and field questions from. there are a lot of folks we need to hire. long-term the business looks very profitable but a lot of those costs are front-loaded so when you want to go very fast and very far you're going to burn a lot of gasoline. this car that we're driving at high speed and we want to get a lot of customers we have to make the mother of all pit stops to fill up on gasoline and beef
jerky. emily: i appreciate the metaphor. we have been speaking a few time overs the last year or so. a year ago it was a $100 million evaluation. is it scary to take on this responsibility? >> definitely, you know, there is a little bit of celebration. i think a lot of humility about what is in front of us. obviously investors are investing on the promise of a lot of future growth and execution in the business. we feel that you know, what the market that we're going after is absolutely enormous. it solves a really big problem for almost any business in the united states. we think that, you know, if we don't screw it up in a couple of years, a lot of guys in this round will look -- cory: what kind of growth are you talking about and what do you imagine they are going to be now that you have fumed on beef jerky? >> well you know, zenefits is
the fastest growing business in silicon valley. it is two years old this week. we started off in 2014 with about a million in revenue. we closed having grown 20 million. the plan for this year takes past $100 million in run rate revenue by the end of the year. we want to keep growing at those kind of rates into 2015 2016 2017. when you want to grow that quickly, you need to really capitalize the business well. emily: let's take a step back and talk about what you do. you tie together payroll, health insurance. all of these different kinds of h.r. things into one software. right? >> that is basically it. companies today have all of these systems related to their employees. benefits time tracking software creates an administrative nightmare. zenefits ties it all together. you get rid of the
administrative burden and the compliance headache. we make money on all of these different spoke and adjacent systems. cory: you're saying it is like a lead generation basically for those other businesses, right? >> that is one way to think about it. it is almost like a premium model. emily: how does the affordable care act affect your business? >> it does a couple of things that makes it simpler to price health insurance which makes it easier for us to do it online. it quite frankly adds to the compliance burden for a lot of small businesses. there is a lot of filings they need to make and compliance they need to deal with. what it does is makes it harder and harder for a small business to roll their own on this stuff. zenefits we can take all of that off their plate and handle it for them. emily: do you watch the show silicon valley? >> occasionally i watch the show. when i'm fundraising, sometimes it is a little too close to
home. i stop watching it then. emily: there is a scene in the show this season where the main character is talking about raising money and someone tells him don't raise that much money. you might go through a down round. he said maybe i'll raise less money at a lower evaluation and says no to a lot of people trying to write him checks. would that ever happen in real life? do you as a c.e.o. think maybe i shouldn't be raising because it is too risky? >> it depends on the stage of the company. our view of our business is all of the underlying metrics are -- every customer we acquire long-term we think is extremely profitable. all signs point towards us stepping on the gas. so for us, you know, we -- my goal is to run the company so that we never need to raise another round of financing. we want to capitalize the business in a way that lets us run the company in a way we want to run it and scale at the speed
we want to scale and go out and grab this giant opportunity we see in front of us. emily: we just heard from zenefits parker conrad there. in light of the messaging app secret sut shutting down after it raised more than $35 million, are these investments secure? how do they make sure investments will be spent responsibly? after 1-2-3 of them bought a ferrari. >> i think it is very risky all around. emily: risky or irresponsible? >> it certainly can be an irresponsible thing. i think the worry is that it changes incentives. emily: once you give these guys money, how much follow-through is there? how much are you looking at how are they spending it? did they buy a red ferrari? >> the important thing is how are they thinking about spending it before they raise it?
ideally investors will spend time with the management team. emily: do you think investors knew they were going to take that much money off the table for themselves? >> they agreed to it. whether they knew it was going to be spent on red ferraris. emily: why do investors allow that to happen? why would an investor allow that to happen? >> i think the only reason is because they really want to get into the deal and that is the bargain the founders are willing to strike. emily: secret was extremely buzzy at the time. now 16 months later it is completely shut down. what kind of diligence is done to determine whether the company is going to be successful? >> that depends on the company. a company like zenefits is different than secret. zenefits you're talking to customers and understand the market. secret, you're looking at user behavior and tension. not just the number of users.
how many users are coming back? how frequently? is it something that becomes habital behavior? emily: on the opposite end of the spectrum jour seeing zenefits raise $500 million. what is going on here? >> we should be concerned. i think these large evaluations make a ton of sense as long as the tide keeps rising. we know every up cycle is followed by a down cycle. none of us know when that shift is going to happen but when it does it is going to be a painful thing. their burn rate grows into that capital raise. if a company gets in a situation where they are going through that capital very rapidly, the market turns it is going to be difficult to raise more capital and that can be a very dangerous place. emily: you think this down cycle is definitely going to happen? >> definitely. the market is riding a high and it will not continue to go up. emily: how much longer do we
have? >> none of us know when. we all know that it will happen. emily: what do you think companies need to do in taking on this kind of risk? >> i had this conversation with one of my c.e.o.s. he raised $200,000 his first round around has done well. the conversation is be really, really thoughtful. raising the absolute maximum you can at the highest often is not the answer. emily: really? you would do like the guy on silicon valley then and take less? >> i oftentimes would. this c.e.o. actually did that. emily: so it does happen? >> it does happen. sometimes boards and coast and founders are very thoughtful and don't go for the biggest numbers. emily: up next, lending club c.e.o. talks earnings and whether he is worried about competition from big banks. ♪
compete with banks. we want to partner and sit down in the marketplace. i think the banks are increasingly realizing that they can earn higher yields by their own customers through the lending club platform. they have lower operating costs and more technology than the banks. now we are seeing larger banks with a partnership with citibank. emily: do you consider goldman sachs competition? guest: not at this point. we are good at different things. we have succeeded in the space and become the leader in marketplace lending. we grow 100% year-to-year. the results you saw yesterday
are guidance. we have a low-cost operation. we are very consumer friendly. we have a deep expertise in consumer marketing. goldman sachs is not known for that. i think they are very complementary. it is with everyone's interest to drive down the cost for consumers. emily: you have been cutting rates. how long can you maintain that? guest: we don't feel we need to lower rates. we are very competitive. we offer to borrowers. many use our loans to pay off an existing credit card balance. the interest is 17%. the average lending club loan is
5%. it is a significant value. we take advantage of the network effect and an appetite from investors to have lower interest rates. i think we are at the right place right now. we have a good balance. borrowers are getting a great deal and investors are happy with the returns. emily: you have been public for five months. what is different about being a public company? do you enjoy it? guest: it has been positive so far. it was a big marketing event. we had ipo in december. since then, we have continued to grow. we are not getting the benefit of better brand awareness and grand credibility. we see that with incoming traffic. we are seeing it with retail investors in greater number in the first quarter.
we are benefiting from the momentum of the ipo. we are seeing it in our ability to attract customers. we see it in the partnership strategy with citibank and the sam's club and others. we benefited from a public company and the transparency that goes with it. emily: up next, how technology could help political rookies on the presidential campaign trail. ♪
the best of "bloomberg west." there are six candidates for the republican presidential nomination. two of them have never held political office. carly fiorina and dr. ben carson . how can technology help them gain an edge in the race? i spoke about it with zach moffat. he is the cofounder guest:. the challenge is to create communities to be successful in november. of what they are looking to do is remove any barriers of entry to make this a simple as possible to participate. that is the goal of every one of these campaigns, to make it as easy as possible to add value to the campaign. emily: what kinds of things are you seeing in the digital trends that unfold in terms of how the presidential candidates are
managing their digital strategies? what sort of trends are you seeing solidify? guest: a much more mass adoption of digital as a platform of choice. even four years ago it was hard to get everyone to focus on twitter and the hardware and software, the bandwidth wasn't there. we were carrying massive backpacks around to allow people to participate with the campaign. social media provides a level of access to the campaign that would be impossible otherwise. you can leverage those platforms and it improves the process and improves success. emily: should campaigns be spending more on social media and digital that they do in the past? should they be allotting more of their budgets to this? guest: i would argue that they should. there is the investment in human capital. i think every dollar you spend now comes back fourfold in the
long run. i think it's difficult for campaigns. technology is very disruptive. i think that is on the set up front. on the paid media component, we are still disconnected from how people consume a content. we spill -- still spend on broadcast heavily. it is only 40% of the viewership. a lot of this has to be fixed in the cycle. emily: you managed a budget of $100 million. how would you spend it differently today? guest: the hope would be that instead of being 10% of the budget it would be 25%. i think you would spend earlier. you have to win a primary. not everybody gets that coordination that hillary clinton is going to right now that allows them to invest in the future. in the primary, you have to build things that have value to you right now. i would invest heavily in the technology side and the human
capital to build that out to be prepared not just for the primary but for the general and have those resources be successful. emily: what you think is changed in this digital arena since you have worked for mitt romney? what can they tap into? guest: there is such a greater adoption of online. i think we are seeing that from everyone else. there is greater per dissipation and people are more comfortable giving online at. they are much more conditioned through amazon or netflix. they are used to living online. we found one in three likely voters did not watch live television except for sports. if you want to communicate with them, you have to be online. i think the model has changed and presidential's are the way people see that scale. emily: you are seeing a lot of infighting between the candidates over social media. how does that play out and how does that affect their digital strategy? guest: that is somewhat
generational. i think it is a lot more -- people are inserting themselves personally into the process. you see reporters insert themselves as the story and share point of view. that is to be expected. we are still comprehending how social works. there is a lag. it's interesting that it's driving as much of the story as it is the candidates themselves. emily: he was the digital director for mitt romney and cofounder of targeted victory. up next, city planning. we learn about a high-tech hub being built in saudi arabia. ♪
bloomberg west." silicon valley may be the heart of innovation it but a new mega-city in saudi arabia is fusing urban planning and technology. we are building a high-tech city . 80 companies including ikea and pfizer are going to be in the plan. i spoke with them about it. guest: it has been in the works for nine years. by the end of next year, we will have the largest port in the red sea. it will be the largest private port in the world. we have the largest developer in terms of residential units. we wanted to be the most innovative. emily: $100 billion to complete this city. it may be larger than washington dc by the time it is done. how do you ensure that this place is going to be the future? guest: we want to make sure that
the 2 million people live there are going to be engaged. we want to give them applications that enable them to help us run it and keep the streets clean. emily: we are talking about housing and health care. how do you prioritize? guest: it's not about the technology, that is the enabler for the resident. the idea is simple. you will be able to manage things. we are going to introduce smart applications into the home to let you know how much energy you are using. we are talking to everyone in silicon valley. emily: like who? guest: i can't tell you. emily: what do you want silicon valley? guest: there is the network and the applications that will run the hardware. that is why i am saying that the
small companies are as important as the big ones. we can actually scale. we have 400,000 units that are going to be built. we can actually scale them. emily: when is this going to be completed question mark guest: by 2035, think we be 2 million people. 3000 people have moved in. by the end of year it will be 10,000. emily: what kind of demand is there to live in a place like this? are people uprooting themselves of other parts of saudi arabia? guest: safety 5% of the population is under 30. they are the biggest users of youtube and twitter in the world. they are very mobile. we are giving them the opportunity to live and work in one of the most progressive cities. emily: guest: find a place to live. emily: what are they going to do
for work? guest: we have great jobs from all over the world. there are so many companies that are invested for the first time it. they are setting up in the country and they can build a great career and have a great home. the red sea is one of the most beautiful places in the world. emily: two real estate close to home, google's plan to build a new campus in mountain view has suffered a big setback. the city council awarded linkedin 1.4 million of the 2.2 million square feet available for its own campus. is it game over for googles big plans? i spoke with brad stone. guest: the city of mountain view and other cities in silicon valley they look for economic diversity. they don't put all their eggs in the basket of one company.
they are worried about one company getting too far -- powerful. they are into student traffic congestion. it is a mess right now. matthew created this artificial limit on the amount of space to can be developed. there is a fight for that space. it's not like it was awarded to linkedin. they have to pursue other avenues to try to develop these incredible pictures you are seeing right now. emily: let's talk about the google plex. it is incredibly innovative and futuristic. guest: all of the technology companies are trying to build iconic headquarters that rethink the relationship between them and the surroundings. google hired to european architects. it is for a much directed by larry page. emily: there are no floors question mark guest: you can avoid the stairs because it slopes upward. there are these huge canopies that can control the climate. they reduce glare.
you work more in the open and it is open to nature. there are lot of ideas in this proposal. the idea is to create a flexible space to can be tailored to suit a company's needs. emily: do they have more options here? guest: it's a temporary staff -- setback. it also owns a lot of other land. it wants to build near the current google plex. i think this process will play out and google will find of -- find a way. emily: brad stone. up next, former jcpenney ceo ♪ ron johnson joins us.
"bloomberg west." he pioneered the iconic retail strategy and led jcpenney. he is taking the text or experience to your home. ron johnson has launched a spot that allows people to shop or technology products and have them delivered and set up at home for no extra cost or it can he reinvent the retail experience? i asked if it will be like the genius bar. guest: it is a great way to buy a new product. you just go on enjoy.com and schedule a time and place. we will deliver it and spend an hour getting you up and running for the same price you would use at the store. emily: this is just electronics. tell us about some of your partners. guest: we have a lot of partners
and we have -- in two weeks you'll be able to buy your new smart phone. just go to the website. then you can schedule a time and we will hand-deliver your smart phone. we have go pro cameras. we have hp computers. we even have a ride like a boosted skateboard. emily: sprint does something similar. they will bring you a phone on demand. you say you will bring it on -- in an hour. guest: you can go on at&t's website and within four hours we will hand-deliver the phone. it could be here in the studio if you wanted. emily: i could think of a few things i would like. you obviously have a deep knowledge of the retail industry. i wonder how you came up with
this idea? why you see this as an opportunity? guest: i was in retail for a lot of years. i want to rethink how we experience products. i noticed that the world is going mobile. young people like to drive with hoover. there is a lot of delivery becoming a big part of our life. we are moving toward mobility. that is where things get complicated. if you want to have a smart home, who is going to help you put it all together? we think it's time for someone to come in and help you navigate this new world. emily: how big of a threat is amazon to retail in general? it just seems like they are eating everybody's lunch in trying to do everything like same day delivery. guest: it is a great company and they are in their 20th year. they are the inventors of e-commerce as we know it. their hallmark is convenience.
they are a great place to buy and have something delivered. emily: what is their weakness? guest: when you need help. we live in a world where you want personal service. that is what stores do well. we are trying to take a digital purpose -- purchase and pair that with service. we've been in business for six months. when you change the location, you change the game. emily: you revolutionized the apple experience. why is this going to be more like that? guest: i have had a chance to learn from everything i have done. i have been in retail for 30 years. overall, my batting average is pretty good. the most important thing that is going to make this successful is people are clamoring for personal support. you want a human connection. you want to bring that to people everywhere. it's going to be wonderful. emily: what you think about the
apple watch? guest: i think it's a first -- great first generation project. people are learning how to use it. i think we will look back and that will be the first wearable that we wore. i don't have a today, but i do have one. emily: how you think about the way they are selling it? guest: they are showing people how to use it in stores. there is such demand for their products. they want to make it fair for customers to get it. if everyone goes online, it is a first, first-served approach. emily: you think it's a good call? guest: i'm a huge fan. angela and i have known each other for years. they love her and apple and she is doing a great job. emily: speaking from your apple experience, what have you learned that you will do differently at enjoy? guest: it takes a long time to
build a business. it seems like they happen overnight. it takes time. i keep telling my team, we are going to build this one visit at a time. we will learn from each one and get better and better. there is no risk. it's about building a great company that lasts. you go on our website and you see our brand, live. we handpick -- i know everyone of them personally so far. emily: you've got 127 employees and you are just launching today. how will you make money? guest: it's simple. most products are priced to go through a store. stores invested a lot of things that don't help a customer. we invest in our people. if the investment is in a person, you can deliver that for a lot lower cost. emily: ron johnson there.