tv Best of Bloomberg Technology Bloomberg October 16, 2016 9:00am-10:01am EDT
♪ emily: i am emily chang and this is "best of bloomberg technology," where we bring you the top interviews from week in tech. sampson and the production of the note 7 smartphone. we dive into the stock meltdown. plus, the biggest social media ipo since twitter. a step closer to a public offering. twitter buyers appearing to cool their interest on a potential deal.
twitter cofounder gives us his take, ahead. first, sam sent officially ended the production of the galaxy note 7 smartphone after reports that replacement phones have the same overheating battery problems of the original devices recalled. they cut their third-quarter operating profit by $2.3 billion. the fallout continues for sam son financially. a report from credits we say halting the note 7 could translate into almost $17 billion in lost sales. we caught up with bloomberg intelligence analyst john butler and greylock partner john. >> we have gone through many of the iterations of the samsung note series and it is interesting because it is a new category that was introduced many years ago that focuses on larger devices, larger screens
and more capability. what we found in the iterations of the note 3, 4, 5, skip six, so seven, we have seen the evolution toward higher and higher energy density within the battery pack. the changes from the seven -- two the 7 from the 5 is almost a 22% increase in density, here energy stuffed into a smaller area and volume. with sam son is doing is astounding. -- what samsung is doing is astounding. they are competing against the reforms but more affordability. what happens? tickets squeezed and you have this evolution of the note series and they have gotten to a point where they are hitting some of these pinpoints in design. they can be overcome but we still do not know today what the
root cause of these factory failures are. it is alarming and a safety concern. you cannot knock sense for innovating in this space. emily: they initially believed it was the battery issue that apply to the original phones but the replacement had the issue as well. john butler, talk to us about how important samsung smartphones are to the overall business. this is a huge company and how devastating a potential hit from this particular issue could be financially. john: what is hard on samsung is the fact that this is their flagship phone. the note is without a doubt the phone you see most often in their advertising. the galaxy s7 and s7 edge coming close second, but it really hurts to recall the phone a second time. i think that is where little bit of the damage comes in terms of the brand and financial damage
that you alluded to before. i would point out that the note itself is probably around 5% of sales in any given quarter, 10% of their mobilephone sales, so i think they can kind of contain the damage, particularly as we roll into next year. my suspicion is they will move up the introduction of the next note. emily: john, you invest in companies spoke on the back of the smartphone market and android market. how big a problem do you think this is? john: it is hard to say. it is a huge part of the revenue. they have a near-term problem getting through the next few weeks and months. i expect they will issue a new note. i don't have information about that. the midterm problem is trust. will people think about -- memes are brutal about samsung kitchens catching on fire, but a more fundamental problem is they have a hardware soul and software internet.
emily: they are working on the note 8, coming out in six months. how do they solve this hardware problem if the problem is related to, as you said, everything being tightly packed in there and the boundaries being denser than ever? is it a hardware problem that can be solved or did they reached the limit? >> i don't think we have reached the limit. it is really about solving these issues. it is a quality and manufacturing issue. what really happened here is the hypercompetitive market has forced samsung 10 of eight at a faster rate, so things like this --innovate and a faster rate, so they have to go back and work out those issues. this is achievable. you can have a long-lasting fun with a large screen.
being the first to push in this space and being the first to do this type of design, you take the risk of spectacular failures like this. emily: john butler, let's talk about china because note 7's were left out of the recall and now it applies to all note 7's around the world, a hypercompetitive market, the biggest smartphone market in the world. what does it mean for samsung in china? john: if you look globally, people would look at it and say, apple and google are not probably the competitors to watch it once you are in china, you have to look out for huawei. they make very good high-end phones and they think -- and they are android-based. as people look at samsung and say i need an alternative, i do not want to go down market
within the brand, where do i go? if you are in china, you may go to huawei. if you wanted to move outside the samsung family, he might consider october be the -- vivo, china is the crowded market with i think good competitors. emily: wayne, do you think redesigning could fix the problem? could they do something to take the pressure off the boundary? wayne: sure. -- off the battery? wayne: sure. the industry follows the law of smaller and smaller circuitry, so the next generation of chips out of samsung will require less power and the displays will be less power hungry, so hopefully those types of design evolutions will compensate for the need to
pack in that high density of the battery. but, again, i think it is really about this class pace in the vase -- this fast-paced innovation. apple released only when you product or year. samsung releases multiple during the course of the year. this pace of getting new designs, differentiate the forefront, those are the risks that happen when you're a market leader. emily: john, lowly, questions on twitter. what kind of fun to use? -- what kind of phone do you use? john: i use an iphone. it is hard for me to believe that smaller bones, smaller screens, anything that reduces our desire for more and more
energy. emily: to give samsung credit for trying or they bit off more than they could chew? john: i don't think they get credit in the smartphone market. it is a brutal market. samsung is an amazing company, huge. they will have to come out with something new. i see google and apple shipping on just as big. they will have to compete. emily: we will talk about that now. john lilly, you are sticking with me. thank you to both of you for weighing in. we are streaming our first show on twitter today and we ask we do so by the samsung smartphone? over 500 people took the pole. 72% said no. the timing could not be better for apple, with the release of the iphone 7, or google, which announced plans to announce their own high-end phone. who stands to benefit the most from the galaxy note 7 debacle? joining us now is john libby, mike -- lilly, mike herman. mike, our numbers show people could be affected by this. what does it mean for apple and google? mike: this is not happening in march, april or june. it is happening ahead of the holiday season, the most important quarter for every
technology project maker, consumer tech product maker, especially apple and samsung. huge news for google because their phone is coming out two weeks from now and huge news for apple because they are getting ready to go into this massive holiday season. for samsung, they will miss the boat on one of the most important quarters. emily: i was speaking with the global vice president of xiaomi and he did not seem to think it would be a huge long-term problem. take a listen. >> they will recover and get their brand back. it is really perhaps a small mistake that will cost them dearly but i don't think this is
a long-term problem. emily: look, there have been incidents of lithium ion batteries in the past. boeing had it in their planes. they recovered and we still talk about samsung today, but do you agree that this problem will also blow over? >> as every year goes by, the spread of venues through platforms like facebook and twitter and our own station being streamed through twitter, the new spreads are faster paced, more people read about it. when the boeing issue happened years ago, as many people do not care about that. samsung is a brand that grows quarter after quarter. it is really historical and i think it is one of the worst consumer tech related issues to date. as one of the earlier guest said, the note 7 represents a small percentage of the overall sales, but from a marketing perspective, it is damaging. emily: right, samsung's is on
all products. should they rebrand and ditch the note 8? john: i do not think so. i bet they will not collect the note 8 in china. emily: why china? john: sorry, they will in china because of the numerology. i think people like the note in the big screen. maybe they will call it the big galaxy. i do not know. [laughter] emily: this week, supreme court showdown between samsung and apple. whether apple should be allowed to keep all of the $399 million patent award it won after accusing samsung of copying the design of the iphone, equal to samsung's entire process from phones having been found to infringe on apple's patent. the first vc investor in snapchat. snap prepares for an ipo.
clearly some momentum here in terms of an actual offering from one of these the unicorns elliott gotkine have been further off than anyone of us expected. >>'s noticed, these are a lot of credit.hat expend the filled know is they had this suite of underwriters and are prepping underwriters, looking to go public as soon as next march. clearly some momentum here in terms of an actual offering from one of these the unicorns elliott gotkine have been
further off than anyone of us expected. emily: they spent did not go years and ubert and airbnb are still waiting. what do investors make up the back that snap is doing this now, if it happens? >> they are paying attention to the fundamentals of the company. which snap their still developing relationships for content like nfl. you are making this for a test this foray into consumer products -- this foray into consumer products, so whether they will materially add to the bottom line and where margins will be, that will be the top thing that investors will pay attention to. talking to people out in ipo land, on the west coast come on the investor side, people are fairly excited to get one of these big notable names. when you think about the momentum play, he had seen smaller tech stocks trade up a bit after ipo. with the big name like this, you have to think there is a scarcity of fact that would potentially play into a public listing. emily: are they going public because they want to or they have to?
hasn't been difficult for them to raise more money at such a high valuation given they are -- has it been difficult for them to raise my money at such a high valuation given they are in early stages? >> they have to have a lot of different funding sources. the credit line they extended, if they need the additional liquidity, so it seems like they have decided it is time to move on. looking at who is running the company, you have some former bankers, some smart folks in here, so if they are ready to go and get public and be financially reporting in front of public investors and dealing with that quarterly cycle, that is something a lot of tech companies have been hesitant to do but if they are moving in that direction, they have to stomach these decisions. emily: who is on snapchat? two other people advising evan siegal? you referenced enron con, startek banker at credits we
-- star banker, so who is their margins forward? >> drew is looking at the nitty-gritty and have been is important -- and evan is important. looking at imran khan's experience, he was the guy who basically was responsible at credit for being responsible for the largest technology listing folks appeared about. what it comes down to the actual ipo itself. without a doubt, you have to expect that khan will be there and have opinions and guidance to the company as they march through the process. emily: like the adventure partners led the funding round in snapchat in 2012, jeremy liew joined us on the set to discuss. jeremy: we were very lucky. one of my partners had a daughter who was going to school and one of the high schools with snapchat and he noticed the da -- and as a doubt, he noticed she was using the app. she said there are three apps everyone has come angry bird, snapchat and t have heard of
them, and that is how it connected and after a few conversations, he told us that at the time, he was growing so fast you cannot pay his service bills. i said, maybe we can help you with that. emily: facebook was looking to go public and nobody could imagine a world where facebook would not be the dominant network. what was the reception or the discussion at the firm?
was it a slamdunk? was their skepticism around it? jeremy: one of the things constant about technologies change, so there is always new companies and opportunities. frequently, we invest different incumbents comes up if you have an entrepreneur and vision you believe in, it is emily: emily: easier to get excited. i know you cannot share details, but giving that facebook waited eight years, uber and airbnb are still fund-raising. by would snapchat went to go public now? jeremy: i would let the company speak for itself. emily: how should they sell themselves to public investors and people beyond them? i know snapchat has a broader demographic but mostly millennials. how did they differentiate themselves?
jeremy: they can talk about how they differentiate themselves better than i can. emily: how do you think snapchat does not become the next twitter? what do you see that is different than some of the pitfalls we have seen? jeremy: for a company to be really powerful, it needs to have the combination of growth and engagement because engagement leads to long-term retention. that is something snapchat has demonstrated. incredible growth and incredible engagement. people who use it use it many times the weekend day and that leads to long-lasting. you create new habits. when you become a habit or verb, you become -- it is important to talk about. emily: that was jeremy liew, partner at lightspeed venture straight up next, plans for future electric wheat in an exclusive -- electric fleet and
emily: the ceo of the end of the of is looking to electrified the brand. last month, they unveiled plans for the first battery-powered model and the bmw x3 suv. models will have a longer range of charge and sat down for an exclusive interview with our matt miller. >> that is challenging goal and we will see the outcome, but we know there are three drivers of development and growth for electric vehicles, which is ethically -- definitely the range. the customer does not have the pinpoint in terms of infrastructure and that is where we need to be faster to invest more. they are nearly perfect in many parts of europe and other
countries. it is difficult to have the infrastructure and the third pillar we have is attractive pricing and financial support. i call it also a marathon. not a sprint. with a marathon, you know it is being decided if you win or lose later on somewhere. you need some time for this movement and development. it is clearly a one important strategic color for bmw to invest in. matt: i'm sure as a german and bmw executive, you are a planner. what numbers are you thinking about? you will develop those two electric cars soon, but over the next 10 years, all you had 10 or 15 new models? do you want to make 20% of sales electric? harald: that isn't the pinpoint point of how many models we will have, though we are now in phase
two. phase one started with the i3 andi8 and ellie welcome -- and i8 and now he looked electrified the group and we will electrify motorcycles because they are concepts of deposits in the future. it is difficult to guess how many and how much potential that it might have. we may see a range of maybe 15%, 25% in the next 10 years in terms of potential to electrified vehicles. emily: that was the interview ceo harold kruger -- harald krueger. 10 years after the first big investment, that conversation. if you like bloomberg news, check us out on the radio. you can listen on the radio app, bloomberg.com and sirius xm. this is bloomberg. ♪
♪ emily: welcome back to the "best of bloomberg technology." you and emily chang. they met with institutional investors and 10 news ago this week. the friendship began in seattle in elementary school. the rise to becoming a publicly traded company was not smooth sailing but all four of them stuck with it. i sat down with all of the box cofounders for wide-ranging conversation. >> when we got about the big
picture, roger and me and is still true today, without about the size -- and is true today, we thought about the size and it held the deeply rooted belief that we could create value for customers and shareholders as independent versus the larger organization. we take those overtures seriously but have always come down and been aligned behind building an independent company. emily: what year was this? still in: in the pat -- dylan: i think it was 2010 2011, 2011 with citrix. emily: was that tough? did someone to sell, did not want to sell? dylan: probably our parents.
[laughter] one thing not a lot talked about when considering selling out that stages it is not really become about you anymore, especially the founding team. it was probably more about the set of employees for whom it would be a life-changing kind of opportunity. you're not only making decisions for yourself in the company but for them. are you willing to take this risk and essentially have a much
larger success in terms of career, financially and all this stuff? the burden of decisions almost tips in favor of selling even though you may want to keep the company going. i think that was a lot of the struggle. we had a lot of potential to make this of the world, but there was this factor of a lot of people who are materially affected. emily: were any of you leaning toward selling? >> i think we try to be honest and look at both sides but in the end, we were 100% behind. we had a big opportunity in front of us and it would not a good idea to sell. emily: so there are multiple opportunities? >> yes and then when we got there opportunities and they were not. [laughter] in the early days, we ended up in a situation where we thought we were having a meeting with
the big company really thought they wanted to buy us, and this -- we were so relieved and we did not know what we wanted to do. we do that first big pitch and dylan was wearing multiple glasses. [laughter] >> so credible right now. >> i busted out a monocle for that meeting. [laughter] >> we pitched our heart out and never got called back. it goes to show that you never know, but you always want to try and adapt to the circumstance. in this 2010-2011 experience, it was conveniently timed around when we did our retreat, so we ended up doing one of our oxides and it was 12 hours to 14 hours straight of a teach art of pros, cons -- t-chart of pros and cons, what will we tell employees? all single factors to consider and we debated it greatly do not going with a particular position
but we debated for a long time and ultimately came to the same conclusion, which is we had so much more opportunity ahead of us and what we accomplished and that led us to wanting to stay independent. emily: tell me about going public. was that hard? >> shortly after we had turned down that acquisition offer, we had sort of as a board said, if we do this, let's go big. it was a rallying cry for the board and whole company, especially people involved in
that end we raised more money and said we will build a large independent public company. that was the moment we started thinking more seriously about that. we are planning well in advance. did all the things expected of the company to do. in the late stages, as he felt we were ready from an internal team standpoint, financial, etc., and about two weeks after we publicly filed, that is when the markets went in the little bit of a southern direction. [laughter] you changed around high gross companies, so we spent nearly [laughter] you changed around high gross companies, so we spent nearly one year publicly on file before we ultimately went public. i would say that from an overall sort of challenge of management leadership standpoint, that was
a trickier time. emily: how did you get through that? >> we try to be clear and transparent to the company and your subject of limits of almost always lead on file but we tried to communicate regularly. that was probably the best tool we had. i would just echo how difficult it was because you are in this semi-stasis are you going to go out or not? emily: some people say not nice things. >> i never saw this. [laughter] emily: how do you deal with that? >> because of the period, we were not able to respond to many. we note employees are reading this, so it was a struggle of how much we respond or address it internally versus putting so much focus on it? like barbra streisand, the fact that we don't want to overemphasize this is a big deal but you have to respond somehow. i think the key was being transparent, highly communicative all the way down with individual employees. >> it is one of those situations where now that you are a couple years out, you're glad it happened. it really tests your culture and organization and all the skills of all your managers because it is an instant sort of calling of who is in it for the long run? is focused on what we are trying
to do and you can withstand negative commentary and negative reaction and it wants to build a long-term business? we do not fault anybody who did not want to, but it is dramatically sort of focusing kind of moment, where that really tests, are you in it for the right reasons? are you in it to build a long-term business that can change how businesses operate and how the world works? it helps we had it was founding team and we were all in it and never once doubted the mission we were on. hopefully, that permeated to some extent. it was difficult. ultimately, a positive experience. >> beyond the cultural reason, that was the first time we had been anything but the darling of silicon valley. that was a challenging experience that made us stronger. from an overall business point of view, it really sort of stop this really the need to improve operating files, something we sort of knew intellectually and i think the company seeing that and being a forcing function to mature the thinking in the company was also helpful, especially looking back at the lead stage companies not get -- elite companies that getting that same reaction we did. tilly noted. emily: were you nervous? what was going through your head? >> it was incredibly exciting and nerve-racking. you do not know how the market will respond but we had the whole management team there. we toured the facility's and went on the floor. emily: it was awesome. incredible energies. you have amazon, microsoft and you are working hard to own the clouds and you are there. are you concerned? >> i say a lot of the moves you have seen recently, whether
amazon, google or whatever, have been positive to art's chatterjee policy, long-term aspects. the biggest issue five years ago was convincing people of the cloud and convince large enterprises they can move dearest important information to the cloud. now is expensive because we were only 200 employees telling general electric and walmart and procter & gamble that they should do this. emily: that was all for of box -- four of box's cofounders 10 years after their first major investment. in this edition of "out of this world," president obama is invigorating his call to send u.s. to mars by the 20 30's and return them safely to earth. he wrote that the long-term goal will be to one day remain on the red planet for an extended amount of time. he also calls attention to cooperation between the government and private space companies, without naming elon musk's company by name. he had the 2030 timeline but the initiative attracted little attention. coming up, our conversation with twitter cofounder. by heat says they hope -- why he hopes they stay independent. plus, how he is planning to take a virtual reality mainstream. this is bloomberg. ♪
emily: story we are watching, new data from idc shows that pc statements -- shipments declined. k ship 68 million machines globally in the third quarter, down from nearly 71 million this time last year. idc says the u.s. proves to be a bright spot. unit sales rose 2% for the second straight quarterly gain. rivalry firm has a more pessimistic snapshot, showing a five point 7% slide globally for one year earlier and little change in the united states. the buyer that twitter is said to be cooling off. they attracted interest from off, google, salesforce and disney. all of those suitors are unlikely to make an offer. jack dorsey penned a 408 internal memo to employees this week, rallying stuff around twitters streaming strategy writing "we can do this. people choose us for news because we had the past this. let's extract to be the first, the first place people check to see what is happening in the
first place to break what is happening." because up with biz stone -- we caught up with biz stone. biz: it has always been a thing. ever since 2008-2009. people made offers that we always declined. the first famous one was the facebook offer, which is raced on a joke. [laughter] i will tire the whole story some other time. -- i will tell you the whole story some other time. emily: mark zuckerberg made an offer -- biz: i met i made u -- i made up a number that was way too big to accept. what is it like? i do not follow the small ups and downs. i do not look at the stock on a quarterly basis. i think great leadership thinks in terms of decades and not quarters. i am just waiting. jack -- in the grand scheme of things, jack has just gone the job basically.
people say one year, that is nothing. i that is one quarter of how long we go to high school. emily: how do you think he is doing so far? biz: great. emily: why? biz: the first and he did was reset expectations. this is what the truth is. he did not care what happens. he said, this is the truth. now we are reciting. he said about what he always does, which is thinking long-term. making moves. and that translates to me into putting certain projects on trajectories and putting the right people in the right places. that may take a while. once it is all set up, you execute. and things go really well. or they don't and you redo that idea. emily: you said about six months ago that wall street thinks in corridors, jack thinks in decades. to think wall street will give him that much time? biz: no.
foster will not give him that much time. emily: then what? biz: i'm not a financial guy. i do not know then what? do they give up? i do not know. twitter is basically something we cannot and invent -- uninvent anymore. then use its up close twitter. it has changed democracy, politics, news, everything. it is not going away. the world needs twitter and it is here to stay, so you cannot give up on that. it is expected forever. [laughter] emily: i know you are so close to jack. what do you know about the potential sale? what tino but with the board and jack once? bi -- whatz: -- what do you know about what the board wants and what jack wants? biz: i know nothing.
we stopped talking shop long ago. jack will run something by me, like he does and the people, but i'm on the board and i never think to ask. i even forget there is a board of twitter. i feel like that chapter is over for him. emily: what do you think will happen? how do you see this playing out? biz; worked -- biz: what? emily: the sale, how the board will play out? biz: i do not even know they were presale. someone asked it to the convene independent company and of course, are you crazy? it has hundreds of millions of people that use it every day and it has billions, multiple, tens and billions of users every day. when you compare that to a tv network, it is crazy. emily: i recently spoke to chris, and he said twitter is an
incredible story of underachievement and potential never realized. he said he is hoping for a sale. how do you react? bi i am not hoping for the same thing. z: -- biz: i'm not hoping for the same thing. you cannot say never. there are still many years ahead of twitter as an independent company. there is much time to adapt,
but aimed at the mass market. tens and millions of console gamers. we cut up with shawn layden -- we caught up with shawn layden to discuss. shawn: we will have about 20 or 30 and tracking about 50 front end of 2016. >> there are industrial uses, i am curious, what are the potential market you are looking at? gaming is a big one, but is your horizon bigger? shawn: it has to be. our entree into vr is into gaming. god is our real house, if you will, and that is where we are attacking the market from. we have had interest from places as far as hollywood studios, music and record companies to the smithsonian. they're looking at vr as a new medium for entertainment and education. >> do you expect the killer app for the game that works the best may be different than what works for playstation? shawn: i'm sure that will be true. we have a number of games. virtual reality is a greenfield technology, place no one has really gone before, so we are trying to learn what please best and that imris of environment. you will see a lot of experimentation and the next 12 months to 18 months. >> talk to us about the cycle because you have to have exciting games to get consumers to go out and lay down $500 on hardware. gamers or programmers kind of wait for the audience to come. where are you in that cycle? to have an of games out there to bring good that consumer audience? shawn: vr for playstation's id compatible with the others, so you're halfway to the experience. rehab. embedded in that way. as far as content, we have a wide array we are coming out with now, from not only independent developers but from the names you know and trust,
like electronic arts and warner bros.. there are looking at vr but it is a new technology and we are is a new technology and we are finding out exactly what plays best and that experience. corey: as the development process goes on, how is developing virtual reality games different than a first-person shooter game that has lots of thought about the environment the player is in? shawn: we still have yet to establish the syntax and grammar. we are trying to design where the idea of narrative is not linear but all around you and the player can go and do whatever they want at any time and can see things occurring behind them, in front of them. it creates a new experience and i think our designers are looking at what special features that allows. >> my husband says i am stubborn. i have to go back to numbers. and they don't have early numbers but what kind of market size to think it is personae -- it is for sony? one number i saw his a billion market for the players this year. you are smart guys. you look at market size and potential. how big the market could it be in terms of revenues? shawn: vr allows itself to be a broader experience than straight had gaming. we launched playstation 1, 2, 3, 4, the fastest platform of all time, but honestly, the idea of virtual reality comes perpendicular into that business model. we will have to learn how big is big on that but i believe in my heart it is a broad tent and can appeal to a wide range of users. corey: why is it a broader range than gaming? shawn: it allows a different experience. as you get your hands on some of the gaming kits, we have high-powered, high intense action games. i think there is a very deep experience when you have avr, slower, more exploratory.
a lot of the detective and adventure and investigative games are doing pretty well in our customer feedback, so i think there is a broad range. once you put the headset on, it is intuitive so we can appeal to a large audience. emily: sony playstation chief shawn layden speaking to carol massar and cory johnson. our guest, david kirkpatrick review have thoughts on the future of vr because you do not think game you'll take it to the masses. if not, what will and will it get there? david: i think sony is smart to embrace vr. even noting my own feelings about sony, they are shifting because they seem kind of out of it in recent years and this
could really improve their brand image, even if gaming is not going to be a gigantic market for them. i think the social experiences that vr can create our the big opportunity lies. oculus, owned by facebook, had the big event last week. zuckerberg gave a demonstration on stage. the part that i do not think was sufficiently enough written about and talked about was the social vr experiences he demonstrated. they have two different ways that facebook and oculus are developing social vr. i think for things like travel experiences, or you can really model an entire city with photographic vr and taliban with friends, it may be more like shared experiences -- and go there with friends, it may be more like shared experiences to get involved with new
technology. i do believe this could be as big as smartphones but it is not anywhere near that or anywhere time soon and it will not get there with games alone. emily: that was david kirkpatrick. that does it for this edition of the "best of bloomberg technology." we will bring you the latest in tech throughout the week. wednesday and thursday is broadcasting live, bringing your interviews of the leaders in technology, like sean parker,