>> live from pier three in san francisco, welcome to the the early edition of "bloomberg west" where we cover the global technology and media companies reshaping our world. let's get straight to the rundown. yahoo! reveals nearly one third of its revenue comes from its search deal with microsoft. expirationas an date. at that number is out only because the fcc asked for those brown trucks. now it has a mathematical secret weapon helping get packages delivered faster. we will show you how technology changes how ups operates. which technology-driven advertising agency is the most advertisedat turning

content into sales? would you believe it is amazon? we will tell you about their other business. first, to the lead. yahoo! is more dependent on its search to with microsoft than it previously disclosed. after the fcc sent letters, yahoo! released a new letter saying that it represented 30% -- 31% of the revenue in the last quarter. signed themicrosoft agreement in 2009 to share toernet advertising revenue take on google. marissa mayer has also been working to improve yahoo! search as part of her turnaround plan. yahoo! shares are up to date more than 105% in the last year. joining us now is jon erlichman from l.a.. big numbers when it comes to this partnership. appearsome, this might to be inside baseball, but it is an important reminder of how yahoo! generates revenue. you highlighted it a very well.

this is a deal these two companies struck in 2000. basically, a partnership. google dominates search. how are we going to change that story? microsoft was hungry to give being a boost which has become more important given that we have seen the shift to smartphones. in some ways, yahoo! handed over the keys so that's the microsoft search story could take over, but the search share has not really changed. you still see, and these numbers are out all the time, as of october, google with more than two thirds of the u.s. a share. the only thing that has changed his microsoft and yahoo! flipped their order. yahoo! used to have the greater search share the microsoft overall. the nice thing for yahoo! is they have these revenue guarantees. if this deal did not live up to

expectations, microsoft would guarantee some revenue for yahoo!. these days, they look at that deal on the guaranteed revenue on an annual basis. as these filings show, it is a significant part of the yahoo! story. >> where does marissa mayer come down on this? >> she is such an important part of the story. as any ceo who walks into a company that has a previously announced partnership, it can be a tough thing. because this is such a significant part of the overall revenue. we do know that marissa mayer comes from google. she has plenty ideas on how the yahoo! search them. andxperience can improve has been working on those. but because of the comments on this partnership that she will make publicly, it is a reminder that she knows how important microsoft is as a partner, arguably as important as ali baba or anything else yahoo! is working on right now. >> jon, thank you.

staying with microsoft, its search for the next ceo is narrowing as steve all markets ready to retire. one name floated is microsoft's cloud services cheap. we caught up with him at the web internet conference in paris and asked him if he wanted the job. the process, steve ballmer is the ceo. i am actively engaged in running our engineering room. >> you don't want the chief executive role? >> i have said everything i will say about that. onnade -- for more on nadella and what microsoft could look like, cory johnson. >> this guy is important. he is the eternal candidate. a lot of people and microsoft are rooting for him. it is amazing he appeared before

our cameras today and said anything because this is a guy who has a tremendous amount of speculation about him. as much as we are hearing another name, he says it is a job. he has no plans to leave here at getting a guy like him would be difficult. satya has been a microsoft employee since 1992. he has run that cloud business. he used to run that server and told business. the cloud service might be more important because if you think about the future of computing, have the stories we do on "bloomberg west" have a consistent trend of companies that do not sell stuff microsoft used to make. people do not buy pcs and mainframes. look at the results from ibm, oracle, and a cisco. you can see the moves that the cloud is having. this guy runs the division at microsoft that will save

microsoft. listen to what he had to say about that from paris. >> there is a new growth. if you look at what happened in the last quarter, it grew over 100%. fortuneover 50% of the 500 using windows. to 1 billion up and a half. that is the kind of growth we see. it is going to a fundamental share. >> lets me put that into context. my croissant is growing at date 6% rate. his business is growing at a 100% rate. >> there are up. people who have shaped different parts of microsoft business. what makes them stand out? >> the ability to take something and build a giant a business. there are not a lot of people at microsoft -- microsoft is not create people who go to other companies and run them.

unlike other companies that are a breeding ground for future leaders. microsoft executives can make their career about changing the ribbon or the save button and they can spend years on that kind of thing. if you look at servers and told business is and how that run, they had strong consistent growth are difficult economic times and you look at this fantastic growth of the cloud business. this is a guy in microsoft who has shown he had -- that he can create and grow giant to business. microsoft hasng to think about is there are high-profile executives who are not the ceo. is that the guy who will leave if he does not get the ceo post and what about the others? >> it is a great question. now that it is out there, it is flattering but expectations might get a raise. listen to what he had to say about that. >> it is an amazing spot to be in. both innovating and taking to market and having broad impact on society at large.

>> you are in it for the long called the matter who is in charge? >> absolutely. >> 21 years at microsoft. there you have it. long time.a cory johnson, our editor at large, thank you. pc sales have hewlett-packard changing its strategy but can ceo meg whitman change things around by turning to the cloud and data service? we will hear from her number two next. ♪

>> this is "bloomberg west" on bloomberg television, streaming on your phone, tablets, and bloomberg.com. tolett-packard is looking reduce its dependency on pc's as sales are falling. for have unrolled solutions the enterprise. the executive vice president and general manager of the group is working closely with meg whitman on hp's turnaround. he joins me from barcelona where hp is hosting its annual conference. it is great to have you back

here on the show. basically what you have unveiled is a set of new products, hardware, and software to increase the workload of servers. you call it a converged secret. how big do you think this can become? >> absolutely. what customers are looking for is they no longer want silos of servers and networking. they are looking for a single pull of physical resources. aat we announced today was breakthrough set of innovations that enables customers to more easily and efficiently access that infrastructure whether it to be compute, storage, or network bandwidth. you think this can become in terms of the percentage of hp's business? know, the feedback we have had from customers and partners here in barcelona has been overwhelming and what our

partners are telling us is, look. they do much of this integration themselves and what they are looking for us to do is deliver that integration out-of-the-box for customers. we think this could be anywhere of the business and growing. >> ok. we know you are excited about the moonshot server business especially for large businesses. smaller,t those of less-cutting-edge businesses? >> the reality, emily, is that customers are looking for a new class form nuts and delivers much lower costs that should -- delivers much lower density and costs. they might rely on an hp partner or service provider that has deployed that moonshot server in smallcloud and delivering business and better economics if convergedy. >>

infrastructure becomes 25% to 35% of the business, what becomes the smaller part of the business? >> the reality is that the infrastructure business matures. customers are looking for scale area that they are looking for speed and efficiency. a very logically, really, for theyast 10 or 15 years have had these isolated, brittle silos. computel consume more and more storage. they will consume more bandwidth. this is a more efficient way to consume it. >> the last quarter, hp's enterprise group is up 2%. that is great because the quarter before that sales fell 9%. over, whatave taken have your biggest initiatives the end? >> you know, last quarter, the first time in eight quarters we grew the business. when you decompose it, the thing that is exciting is where you

saw the growth. you saw it in converged storage where we are up 47%, delivering a better value proposition. we saw growth in servers. growth and networking. the reality is that when i think about what we are doing in the enterprise group, we are delivering tremendous innovation that is delivering better value per customer. it is as simple as that. we are here in barcelona hp discover. frankly, we are having an innovation party over here. >> some of the biggest companies like amazon, facebook, google, they are buying service from non-brand-name companies. how do you defend against that trend? reality, emily, is that many customers are going to want to do the infrastructure, but they need a partner like hp to deliver that the value.

while facebook or google might be able to afford the engineering, the talent to be able to deliver that, the majority of customers need a value -- need a partner like hp to deliver that value. 4% but hpnue is up does a lot to networking business in china. how exposed are you to slow down in spending from the state-run enterprises in china and other chinese-run companies? >> when you decompose that's number in q4, the network business is up 3.3%. it is reasonably well-balanced across the different geography. china has historically been a strong market for us. we saw a growth in asia broadly and good growth in europe as well. >> so, you are meg whitman's right hand person. she seems to be realistic about what we can expect. she said on the last earnings call, it will be a tough year

but a pivotal year. when do you think we will hear more positive statements? >> you know, emily, we are working very hard. we are pleased, as she highlighted, with the progress and turnaround. i wish you could yield the buzz with customers here at discover. the feedback has been tremendous with the innovations we announced today. as you know well, companies come back on the backs of great innovation. our pipeline is helping and the customer feedback has been very strong. from hewlett-bill packard in barcelona. thank you for joining us here on "bloomberg west." have a good day. all day today we are going inside ups. bloomberg's chief national correspondent is that ups's international air hub in louisville, kentucky. are you on a plane there? >> i am. i am on a 767. it is one of the planes it ups

has. at any given time you can find it ups plane up in the air, flying around the globe. they also have a lot of technology. we will talk more about that when we continue on "bloomberg west." ♪

>> welcome back to "bloomberg west." todaymily chang. all day we are taking you inside of ups. this year, the biggest shipping company introduced o'briant, a system that crunches data to save a fraction of a mile on the daily route. ups'hub inr is that louisville, kentucky. tell us about o'briant. >> i would love to.

those fractions of a mile per ups could add up to millions of dollars. lots of savings. orion,, theyn -- have been working on this for about a decade. they have come up with an algorithm of the driving route. take a look. the algorithmon, that makes ups take. >> algorithm is not a word you expect to hear from your ups driver. with the new technology, orion is changing delivery. >> we are a technology company is ahas trucks. >> orion program 10 years in the making. its objective is to find the most fuel efficient way to get packages to your doorstep. >> with 20 million deliveries of ways to, there is more

service the customers in a nanosecond. it will actually run 200,000 different alternatives. it will say, here is the best way to deliver. >> each truck has over 200 sensors that monitor everything drivers do from turning on the vehicle to unloading boxes. all of that is fed into the mathematical equation that prioritizes variables as distance, time, traffic, and cost. >> our goal here was not that we which are manically grow efficiency by doubling or tripling. it was trying to take a look at small gains. but on our scale, small turns out to be rather significant. >> its culture of efficiencies of the story past, starting with the companies urged delivery car, a model t ford in 1913. theears later, ups built first conveyor belt system for

handling packages. >> good morning, everyone. .> this year it is orion >> how is this a game changer? >> by the end of 2013 we will only have a portion of our fleet deployed and orion will have saved one million -- 1.5 million gallons of fuel. , here is the new plan. >> when people think ups, did you not think technology. >> everybody uses google maps. i am sorry, but google maps are not accurate enough for a ups driver. >> you are better? lex absolutely. we have a world-class i.t. croup that people do not know about -- group that people do not know about that makes magic. generated a lots of buzz after revealing its plans for delivery by jerome. i asked the ceo about it and he

calls a day long-term fantasy. what about ups and drones? there are reports that they have been working on them. >> there has a lot of news out of there at a lot of focus since we heard from jeff bezos from amazon about that. i asked and here is what he had to say about whether or not drones are in the cards. avid technology hearing we had two months ago at the data center, we were out there in the vacant lot next to it using a drone to demonstrate the package delivery. we are not looking at it for practical aspects. it is an exercise to stretch the envelope and think outside of the box. >> you not see that happening in the future? >> not in the near term at all. >> longer-term? >> it is hard to say. the idea a drone will deliver one package, that is not what we see in the future. but the idea of a method of delivery and interaction with our customers, will change the

way we see and we will run away with that. drones may not be in the card anytime soon, but this is a company that spends $1 billion a year on company looking at new technology or technology to come. as ang at everything company, technology the backbone at ups a driving so much air, and as you heard, not in the cards anytime soon. we spoke more with scott davis -- we will speak more with scott davis later on here. >> thank you. carol massar at ups. tune into bloomberg all day long as we go inside of ups and find out more about how the it just package shipping company is an matching the world 20 years from now. time now for on d markets. >> we are seeing markets pull back a little bit today. they closed at a record yesterday. if you look at the major averages here of people

considering defense tapering, potentially, when will it come as well as budget talks from washington. s&p go backg the about four points or zero point 25%. we will have more. ♪

ofthis is the early addition "bloomberg west." i'm emily chang. headlines.op world leaders are remembering nelson mandela at a memorial service at a soccer stadium in south africa. president obama was among those who spoke at the service for mandela. the president made headlines by shaking the hand of event president raul castro. that was the first handshake between those leaders in 13 years. the nominate to head the irs is at his confirmation hearing. will work to he restore the public's trust in

the agency. they are struggling with budget cuts and political applications of admitting it applied closer groups. to tea party general motors named a new ceo, making her the first woman to lead a global auto company. there is an -- she is an engineer and has been for 30 years. she will take over for dan a person -- akerson. now to amazon. we all know it is a major online retailer. you may not know that amazon has been quietly building an advertising agency over the last few years. $600 million over it is expectednd to grow this year. cory johnson is back with more on this story. who knew? >> i have been learning a lot about amazon the last couple years. robust with

advertising. according to the new -- next guest, there is a new normal. vice president of global advertising sales. a conference a few months back and i was just blown away by this. i did some research. you don't give numbers out. i figure it was a standalone company, probably fourth or fifth largest u.s. advertising agency. what is the goal? >> sure. thanks for having me. at amazon media group, that is our advertising business, we focus on customers. we start with the customer and work backwards. we focus on delivering -- who is the customer? the shopper.er, we deliver relevant advertising experiences for customers that we can help them find, discover,

and by what they are looking for. we are a global platform and we have over 200 million active customer accounts around the world. >> that is the amazon shopping experience most people know. when the ads show up through your network, they really drive sales in a direct way that i don't think we have seen a lot of in recent history of e-commer ce. >> right. a core area we are focused on is e-commerce ads. shoppingmazon's features and functionalities that many of our customers love, things like digital coupons, customer ratings and reviews, functionality, and we embed that in the ad. we are seeing great results. on average, they are performing about 20%, 30% better than standard ads. >> i am thinking back to my magazine days. direct marketing, really successful, will 1.5%, two

percent. what are standard returns for a good ad in this world? 30%here performing up to better. the other thing we are seeing is multi-screen really matters. i am sure as you know and as i shop, i spent more and more time on my mobile phone, on my tablet, on amazon. >> the kindle fire, to be sure. >> what we are seeing as our advertisinthat his running cross-screen is performing 18% better. it is the combination of creating a call to action in advertising experiences. here.see some ads customer reviews. you see the stars, whatever they are. what is the effect of an ad with the customer reviews and without them? things.compare those >> right. we are seeing 20%-30% better on

average. customer ratings or reviews, even pricing, including the price in the ad, we are seeing 50% better. both an clique-through and purchase intent with that price embedded. it is making a more relevant experience for the customer in helping our customers find the product. >> 50% increase. that is amazing. what about the one-click? copyrighted, trademarked, patented, amazon innovation. one-click. >> better return, better roi. the beauty of putting buy-now functionality or digital coupons is it helps the customer moves seamlessly in their shopping experience across device. we are seeing better results. >> can you quantify that one as well? the buy-it now? >> the number i will share with

you is 20%-30%. >> do you imagine -- what kind of pickup have you seen? this focus is a certain kind of advertising. it is a vast world of brand advertising and it is really not what you are talking about. >> we are seeing interest from our advertisers. we put them into two categories. one is an demagogue or ties are's, those that are promoting products that customers can also buy on amazon. the second quarter very -- category is non-endemic. connecting with amazon customers through a branded experience. a great platform for that today is kindle and kindle fire. it is in color. advertisers can embed video and we are seeing great results. >> i got my daughter a candle -- and she has become this voracious reader. she plows through books. have the one that doesn't

ads on it and it is interesting. i see different kinds of ads. >> i can't comment on the kindle are reallycustomers loving the advertising experience on the kindle fire because we're so focused on ensuring it is a great customer experience. high brands bar and it is relevant. that, i am ar is big believer in i want to sell + am proud of and that our team is proud of. fords that are relevant customers when they are in that shopping mode or when they are in that reading mode. >> does that mean you have information about which customers will see that add even on the kindle? >> not on the kindle. is based on audience segments. we put them into two buckets, one being lifestyle, sort of the gadget fashionista moms,

geeks, and it is gathered down in market when an audience is closer to purchase. groups -- iof those come from a world where it was really about demographics. a different at level now. >> we have hundreds and hundreds of segments. >> interesting. where does this business go from your? -- here? to be clear, you are on sites not just on amazon. you are bringing that experience to other places. >> on or owned and operated sites, amazon, imdb.com, to share a few examples. we are able to connect with amazon customers out across the web. the other area we are able to connect with amazon customers connected devices. amazon shopping app on your mobile phone, imdb, also kendall -- kindle. we are starting to test video.

amazon customers love watching how-to videos about products and because customers are so enthusiastic about video and watching video, we are starting to test and learn from an advertising perspective what could be relevant. >> such a trip. it is where we have seen tpm's actually rise online. interesting stuff from amazon, as always. thank you very much. emily? >> thank you. how does a startup make 7 million views on youtube? we introduce you to the guy that can make it happen, known as the spike jones of youtube videos.

>> this is the early addition of "bloomberg west.' i'm emily chang. these days, launching a company often means launching a video to promote your product. some of these videos, like the one for the coin app, has gone viral with more than 7 million views. went to venice, california, to chat with the filmmaker behind those videos. call him the spike jonze. >> do you want to make a video that will get everybody's attention? this is the man to call. about five years ago, at a made a video to promote his iphone app. the video was a bigger hit than the app.

is that true? >> that is true. >> he starts making videos for all sorts of hot companies. square, flip or it, i did the jam box video, job own. my videos are nothing without an interesting roderick. i can identify technologies that will be interesting and grow. to a tvre it commercial. >> typically, the range is 50k to 100k on the higher end. >> his company accepts traditional forms of payment but there is an alternative. options,an offer stock which is interesting because they will be growing. lucrative, too. that means interesting. was jon erlichman. well, the creators of guitar

hero are out with the new product for karaoke lovers. the system can make anyone's vocals sound good. i once was lost ♪ >> we show you next on "bloomberg west."

>> this is "bloomberg west" on bloomberg television. i'm emily chang. "guitar hero" exploded onto the scene nearly a decade ago and are doingkers karaoke. it uses the most advanced vocal effects technology, turning your single voice into three-part harmonies and it can even strip away the vocals on your favorite song so you can sing over it. or a johnson back from new york on -- with more. i hope i will hear you singing

this. quite you know i am a karaoke fan. you, a little bit of karaoke. yes, once in a while. how often you go all the time -- how often? all the time. >> every other day or so. 350 vocal effects on this machine they invented. it works with any audio source. you plug in your iphone or tablet and make them into karaoke tunes. cofounders.s the andbrought us "guitar hero" now it is karaoke? the last frontier and music gaming. it did not change much since it came out in the 1970s. both of us can't sing well. we discovered this technology trying to do vocal harmonies and do affects alive. the technology presented itself to us. we knew it was the future.

>> how does it work? technologyve vocal that the professionals use. we made the interface very simple but the technology is very complex. it makes everybody sound good. >> in terms of inventing this thing, what is the real innovation here? >> the thing that is new about karaoke as we have never seen something of such high quality come into play. over 350 sounds that you can use, different effects. it is a very high quality. >> how does it work? we were talking about the vocals before. one person sings and it harmonizes up an octave, up a fifth, down a fifth. >> yeah. it has almost every combination of harmony. >> how does it work with the voice?

>> when you play music through it, it listens to is of the song -- it listens to the song, knows what pitch it is and. it is all studio-quality. using by yourself and it sounds like you are singing with the choir. >> i wonder, did you size the market? did you try to figure out how big the karaoke machine world is? to bring music to the masses. the main concern was bringing something really cool out there that people could really enjoy and grab a hold of music in their home. >> i want to see this thing work. we showed the video here. you are adjusting a thing here. >> he basically turned the dial. you can sound like you are this

baritone singer out there. turn the dial and talk. technologyhow the is. here's a real powerful one. it is called choir singers. >> that is crazy. it is this and the amp. >> 40 watts. you get the studio processor, two mic's, all for $299. technologicalodd innovation. is there a channel to sell this thing? there used to be the singing machine company. it had some issues. they had inventory problems. is very big world to sell this into? best buy? >> there is a huge world. right now we are selling it at singtrix.com. rhapsody," isan

that your big killer? >> you are not going to saying? come on.

back.come i am emily chang. coming up on the late edition of "bloomberg west," millions have turned to web m.d. to improve their health. now the founder is coming out with a new app. he says it is bigger and better. don't miss our interview with geoff arnold at 3 p.m. pacific, 6 p.m. eastern. maybe we will get cory to sing. :56 past the hour. we are on the markets. olivia has more. >> i'm sorry to say that cory is singing. it is time to get you caught up

on the markets. stocks are falling a little bit today. the s&p is down by a third of one percent. two stocks we want to highlight for you, the first is zulily. bans have -- banks have all initiated purchases of the stock. it recently went public. it sells clothes for moms and accessories for kids. rallying for the second day in a row, twitter. it is rallying for a second day of optimism now. we are watching shares of cardinal health. to form theming up largest drug sourcing organization. ph, you say this deal is not positive. explain why it makes sense.

>> there has been a huge shift over the last few years, looking to lower the cost of pharmaceuticals. putting these parties together, you will create the largest buyer of drugs in the u.s. from a generic basis. they can derive savings for that. some of it they will keep from a profit perspective. for you or i, cheaper drugs. thisw much do you think deal is worth to these companies? it will help cvs even more. it will add about five cents per share annually. >> i think it will be quite a bit more than that. they can drive almost a half billion of savings over time given the size of their generic purchasing efforts. let's say it is something in the area of $.20 to cardinal health. it is probably six percent -- 6%, 7%. similar accretion, but clearly something that will be beneficial to both parties. >> what we have seen is the

major wholesalers have tried to strike deals like this, starting last year with walgreens. they now have a three-pronged deal. trying to do something similar in europe. >> this is a little bit simpler. this is an attempted acquisition at this point. thateens, amerisource, triumvirate is more complicated. this is simple. straight 50-50 jv. it should be clear how the financial benefits get derived from it. we think it will be something that will be pretty additive to their growth rates in 2015 and beyond. this analyst day. what were the takeaways? like there has been a huge shift in cardinal the last few years. they are trying to solve the issues the health-care system is having. they are looking for drugs in the specialty category. they are driving savings.

they are doing a lot of preferred products and medical, moving into china. a lot of irons in the fire. george barrett, who runs it, is thoughtful as a ceo. >> a positive day for cardinal health. joiningu so much for us. on the markets again in 30. ♪ >> look up to money moves -- welcome to money moves. we show you what investors and entrepreneurs are doing as well is what is going on in hedge funds, private equity, real estate, and more. today, as cc capital is getting one step closer to its final form -- sac capital is getting one step closer to its final form. ceo. naming its next