>> live from pier 3 in san francisco, welcome to the late edition of "bloomberg west" where we cover the global technologies and media companies reshaping our world. i'm emily chang. our focus is on innovation and the future of business. let's get straight to the rundown. facebook strikes back at a princeton study that says the social network will be largely abandoned by 2017. is there any proof to it? we discuss. it is not a matter of if but when paypal will be spun off from ebay.

the former paypal coo will begin. i catch up with t-mobile ceo john legere at the macklemore and ryan lewis concert. first, to the lead. is facebook still hip? princeton students wrote a paper saying that facebook will lose 80% of its users by the end of the year 2017. facebook rejected the study saying that princeton used google search data to predict engagement trends instead of actual engagement trend. facebook struck back by applying the same methodology. as data scientists, we wanted to give a reminder that not all research is created equal and

some analysis can lead to crazy conclusions. is facebook facing waning enthusiasm? joining us is paul kedrosky from san diego. paul, i want to start with you. i wondering if you think the result would have been different if the study came out where mark and sheryl attended. >> i doubt it. the thing to keep in mind this kind of stuff is that it is a sort of quasi-study in that it is not a peer-reviewed piece of research showing up in a top publication that will give someone tenure. it is an archive that is kind of one step up from reddit in respect to academic publications. you can put stuff there and people comment on it and some of it is great in some is nonsense. it is a repository for stuff that is not peer-reviewed elsewhere. people need to keep that in mind from the outset that this is not exactly an orthodox paper. having said that, i think that facebook went through some willful misinterpretations of

the conclusion. there was an opportunity to set things straight and i think they wandered off to try to make wise instead of doing this. >> coming out princeton, a very respected institution. what is your take on the methodology and facebook's response? is there any truth in either? >> i don't want to pile on to what has already been a pretty fun and critical discussion of the princeton research. i think one thing to keep in mind when you are working with predictive modeling and using organic datastream such as the researchers did that there is a lot you have to take into account, a lot of different variables. not to necessarily rehash, but when you see ice cream sales spiking at the same time as drowning deaths and inferred that ice cream sales cause

drowning deaths you are missing part of the picture. those things happens in the warm summer months. there are a lot of variables you have to take into account that can lead you down some pretty erroneous paths and conclusions. one thing we try to do at the research center is to triangulate. use as many data sources and streams as we can to interrogate that data and hopefully in the end what we see is a more complete picture of a social trend or phenomenon that is happening. >> why do you think google searches about facebook going down? >> it could be any number of reasons. for one thing, facebook as a brand has become more widely known. people might not need to search for it to know what it is or access it. more usage of mobile devices to search for facebook on different browsers might have something to do with it.

there are a number of different possible expedition for the decline -- there are a number of different possible explanations for the decline in searches on google. >> i don't want to get research geeky, but i want to get a tiny bit. thing that has annoyed me with respect to the facebook response to this princeton thing, it it was this will for that willful misinterpretation. it was not correlation and causation. they were making a more subtle point. they were making a model saying that there is an epidemiological model that says that i am more likely to use facebook if more people around me are using it. it is an infectious disease. an epidemiological model is an appropriate view. they are criticizing what facebook does which is coming up with spurious models and saying look at us, we exist. they're saying that princeton will not have students, block, -- blah blah blah.

that is wrong. it is not as effective as it once was and to take it back to your point off the top, you can see that in teenage users of facebook. it is dropping off and becoming more of an obligation than a novelty and that is important when you think about the future of the service. i think there was a powerful point to be made and facebook willfully missed it. >> what you have to say about that? you do your own research. what trends do you see? this is not the only study that is saying facebook has trouble among teenagers. >> we're seeing growth in facebook usage. we are seeing growth over the past year. 71% of adults are users of facebook and at the same time you are seeing organic search, google search data trend downward. it suggests that you have to lean on more than one data source to really understand what is happening in the social media world.

to compare what you see with myspace and facebook, the social media world is rapidly changing and evolving. no one platform is exactly like another. i think it gets complicated really fast. >> i love hearing your predictions. what you think will happen at facebook over the next five years? we have talked about snap chat. we talked about instagram. what happens to facebook over the next 5, 10 years? do they have anything to worry about? >> i think they do. i think the risk is they become a substrate that everything else jumps around in his more nimble. you can see that in now they are fumbling a bit in trying to create a more coherent timeline. live events where they can tweak at twitter. that is the real threat. the threat is it is a slow moving archival service where

people share photos. now it is more of an obligation. a place where you go to hang out, like the mall, is the places like twitter and snap chat. these are the places that show strength of social networking and will be the biggest threat and i think facebook will look very troubled over the next five years. >> we will be watching. paul kedrosky will be sticking with us through more the shore. -- show. jesse holcombe, thank you for joining us. we'll be talking more about that coming up. ♪

>> welcome back to "bloomberg west." i am emily chang. at&t is the death star. ceo'ss the t-mobile

latest javad at&t. -- jab at at&t. t-mobile ceo was kicked out of a macklemore party a few weeks ago and he responded by hosting his own concert in l.a. that happened yesterday. i caught up with legere at the concert and asked him. >> anyone who knows me knows i am a huge macklemore fan and i will be right in the front row hopefully when he dives out and he body surfs on top of me and i throw him back. it will be a big night. >> favorite song? >> "white walls. i have the whole list. yours? >> "thrift shop." for sure. >> oh, ok. >> you don't like "thrift shop?" >> i will not take that personally. right down the street from at&t's offices.

>> it is daytime. i think three floors might be empty. times are tough. i am shocked -- did you say i shot my mouth off? how did you do that? >> i think if you -- >> what i said is -- it is a big day for us. the mother ship is a big competitor for us and so far it's been going well for the customers. >> has randy reached out to you at all? >> is that what you call him? i don't think i'm on the top five list and i don't aspire to be. i have no personal issues with at&t or with -- >> i was going to ask that because it is gotten a little more dirty lately. >> dirty? come on. look at me. look at this smile. >> is this a price war or a long-term commitment? >> not a price war for us. it is a price war if you were

carrying 55% of the margins and have been artificially using consumers to drive your profitability. i'm clear what i'm doing and this is a profitable growth business for us. i know what i am doing and i can drive it very profitably. i stand by my commitments by growth and revenue. what i cannot tell you is what it does to these guys. that is their issues. not me. >> critics say you are pulling the price lever at everyone's expense, including your own. how low can revenue per user go? >> price is an issue relative to them and the issue of course is that customers have been getting screwed. i made it clear that there was a 97% gross margin on this issue. i price profitably as to what i'm doing overall. i cannot help it if someone has artificially used a duopoly to drive profitability.

if the industry is being forced to react, that is not a price war. that is healthy competition. >> what about your own revenue per user? what more can you do? how much lower can you go? >> i'm not going lower. i am going higher. the only artificially driven declination for us with this movement to the 100% value plans where we took away -- you look at the unlimited data upgrades and more, we moved into mobile banking. we are moving. >> how did you get that idea? >> so many of our customers are the customers that have a great cash flow. they work with the company but they do not have an instrument to participate in the card economy. we give them one. >> how far are you willing to go with that? will t-mobile get a banking license?

>> we will do the things that helps customers that other guys will not do. so far it is working. it's funny. most of this conversation -- my attitude has not changed, the company's attitude has not changed, the other guys are being looked at. all the questions you're asking are coming from them. we are cool. things are going very well. >> what about the spectrum auctions. what do you want out of that? >> i've been clear that we all need spectrums. everything -- the way is growing, everyone needs more spectrum. what we just it with the 700 megahertz spectrum is good for us. is a low-band spectrum. we got it in with verizon. it was helpful for us. we are looking for options and for us, multiple past successes. one of them is to successfully move forward if the government

wants us to have a competitive environment, you're going to have to make sure the duopoly does not use their prowess to crush the little guys and have the one gigahertz spectrum be moved to them. i am open to that. also, this multiple versions of consolidations of the industry that are possible ways for us to grow. >> what about download? was he invited? >> i found that interesting. he is a smart guy. he's another of those guys that people look to see where he is investing. i was very happy to see him on a list of people investing in -- people that believe in t-mobile. >> is a t-mobile-sprint merger a thing? >> i don't know. carrying the vision is good for a nation. from the standpoint of companies consolidating to get better scale, i open to looking at options. >> what does that say?

the regulars have made it clear that they want more competition out there. >> they got it. that? not reject >> emily, it is a long game. we are the number four carrier moving quickly. we are all going to need better scale and capability. the question starts to be how do , you take the maverick and supercharge it? we need either more spectrum and capability, more investment, or we need consolidation. there are a lot of different paths to do this. i think you want to fuel what is happening in t-mobile. this is a chance to do it. >> is there a chance you could be doing your job so well that a merger happens and you do not have to? >> i am so good at my job, i'm sort of like you. can you imagine it bloomberg would decide to do something with another company and leave cory in charge? it would never happen. i am doing what i do, i do it well. but see what happens. >> what about microsoft?

>> could you picture bill gates and i sitting in the same room? no. they're a great company they have a lot of work ahead of them. i hope whoever they bring in they empower to take aggressive action, like i was a loud -- like i was allowed. >> have they approached you? >> i cannot talk about that. >> ceo john leger. we're going to talk about that. >> you want to talk about me. that was your favorite part. >> i love that analogy. once we will talk more about t-mobile. ♪ >> welcome back.

with me now to discuss my interview with t-mobile ceo john legere is paul kedrosky, back from san diego.

cory johnson is here as well. i will start with paul. let's start with the microsoft idea. he would not have to move too far to redmond, washington. what you think about his answer to my question about whether he has been approached? >> i honestly snorted whenever i heard that. i mean, i guess. it is possible. microsoft is probably working alphabetically and they have reached the l's. i don't see it ever happening. the company is in tech terms, about as conservative as they come. there is no fit for my standpoint. >> k and j come before l. >> i don't know about that argument, but what you think of

john legere's antics combined with what he has been actually doing at t-mobile? >> there's a long, proud tradition of this kind of sex pistols punk rock marketing. even if you don't play the instrument well, pay attention. this is kind of what he is doing. it can be very effective. people pay attention to you and he has made his point. buy me or i'm going to be a nuisance. free up spectrum if you want competition. those are the pitches to the two constituencies that matter, regulators and the competitors. it is effective and he gets customers because he drops prices. >> is he just making noise are we saying the company start to turn around? in terms of subscribers, use as they got more than 4 million subscribers last year. you say it is not that important.

>> the raw number of quarterly revenue for subscribers and total subscribers has ticked up over the last six quarters. he talked during the interview about at&t's supposition about 65% at the margins. for t-mobile, they have gone down to about 19% last quarter. these guys are spending a lot of money to get customers to build a network. they are taking the competition in a way that is cost and -- that is costing them profit. >> he definitely spoke much more positively about the possibility with a merger with sprint that i ever heard him speak before. the regulators sort of seem to want four competitors out there. if sprint were to go with t-mobile, could that be a more attractive option? >> i think that is what he wants.

the other pitch which is, all i need is more room to be competitive, it is a noise. it is a stop-gap proposition. the reality is he is trying to a team like customers and use that to drive some sort of -- value and use that to drive a transaction. i think that is where this is going whether or not he wanted to go. >> i kind of agree with you. i think when he says he wants more room that is exactly what he gets. by getting this hundred megahertz spectrum, they will be able to add a lot more subscribers and they have the capacity. he has got that room. they will have a lot of room to run with over the course of the year and i think will make a big difference in the term of t-mobile. >> 20 seconds, paul. >> i agree. it creates competition but where

you get the most by you for the shareholders? >> we will be watching. paul kedrosky in san diego. cory, thank you. ♪

>> you are watching "bloomberg west," where we focus on technology and the future of business. i'm emily chang. google says the service disruptions hitting gmail and other google apps will be resolved. they apologize for the glitch and say they are to make the best they are working to make the system better. they apologized for the glitch and say they are working to make the system better. it impacted gmail users for about an hour earlier today. the dell cfo has resigned. he was the highest-ranking executive to leave dell since the company went private last year. he told the ceo michael dell that he is seeking ceo opportunities elsewhere. the corporate controller will replace him.

ebay and alibaba could be looking at declining business in russia thanks to new rules on foreign package delivery. russia strengthened document checks on imports intended for personal use. dhl and ups have stopped certain shipments. ups is shipping but with delays. carl icahn says he is ready for a proxy fight with the company. icahn expects ebay to resist his proposal. i spoke with an original member of the paypal mafia, former paypal coo david sacks. i asked what he thinks of the proposal. >> it is an idea we have been talking about for years. it is pretty interesting to see wall street sort of having the same conversation. i think that is driven by the mathematical reality. when we sold paypal to ebay,

ebay transactions were 2/3 or more of volume. today ebay transactions are a , third or less of paypal's volume. it is decreasing rapidly. the non-ebay portion is growing much faster than the ebay portion. to me, this is not a question of if, but when. if the trendlines continue going the way they are, ebay transactions will eventually be at single-digit percentage. >> why would this be a good thing for paypal in your opinion? >> it is hard to specify. all the companies in silicon valley understand the benefits of focus. there is a fundamental difference between a company that is trying to solve retail and merchandising which is ebay. it is about how you get people to shop on the site. how you get them to find the goods they are looking for? and a company that is a payment system.

the types of questions that paypal trying to solve is how do you get people to keep money i the paypal system? how do you prevent fraud? things like that. it is actually two very different types of products, even though they do come together at the moment of purchase. >> you think that paypal could get more involved in things like financial services? >> i think that paypal on its own could be $100 billion plus financial powerhouse. the key things to understand about the business is that all the profit comes from transactions that are funded from a paypal balance. the credit card fund and transactions roughly break even. it is critical for people to keep money in the system. paypal has grown tremendously, more than we could've expected over the last decade. if you look at the funding mix, which is the percentage of transactions that are funded, that has not kept up.

there are a lot of different ways that paypal could improve that. you can offer check writing on paypal accounts, direct deposit. you could pay interest on accounts which is something we actually did and it is a feature that ebay recently took away. >> let's talk about that. what kind of innovation do you think has been at paypal says going under the ebay umbrella? >> it is easier to point out some of the features they have taken away. this is something that we worked on and we were paying the highest rate of the interest in the industry through our money market interest on paypal balances. i don't know what it deprecated that. it might be a regulatory reason. the last thing ebay wants is to be regulated i -- like a bank. i think there needs to be more regulatory flexibility is paypal or spun out into its own entity. >> it seems the last thing ebay wants is to spin out paypal. this is the crown jewel. where would it leave ebay?

>> ebay would essentially be more focused on its own problems if he didn't have a scratch to -- crutch to rely on. over the last 10 years if you did not have this fast growth business bringing up the average, i think ebay might have focus a lot sooner on its growth . companies like amazon or alibaba have not had the same issues. >> who should run paypal if it is spun off? >> how you structure this is sort of a secondary question. i think is critical for there to be -- i don't know the structure of the proposal, but you need to have a business relationship between the two companies. the ceo of ebay has pointed out that there are a number of

legitimate business synergies. i think all of those can be captured to the right type of business arrangement. ebay would remain a major shareholder. >> we were talking about how there are no founders, no paypal founders involved in paypal anymore. do founders come back? >> they are saying that paypal is so valuable and that is why they cannot spin it out. look at their board. there is not one person involved in the creation of it on the board. we know that the companies that do the best long-term other ones that keep their founders involved. especially when you have founders and leaders and business people of the quality of elon musk. why aren't these people on the board? >> we have seen activist investors take an interest in technology companies. how do you see this playing out?

we talked about how much of a distraction this can provide to ebay even though they do not want to do it. how ugly will be on the way there? >> there is a distraction from fighting this thing. there's is the distraction of spinning it out. i would classify the benefits of spinning it out. you can point to -- you have to figure out some of the details. given the potential value that could be unlocked i think you -- i think it would be a worthwhile exercise. >> do the founders want to go back and be on the board? >> i will give them a call and ask them. i think they all feel that paypal is an important company and product. >> is the consensus that innovation at paypal really stalled once it went over to ebay? >> i don't know anyone who thought that we did the acquisition it would somehow make us more focused or innovative. we had this incredible dependency at that point on ebay payments -- sorry, on ebay

transactions that no longer exist to nearly the same extent. i think it is possible. we didn't really feel like we had an option 12 years ago we sold it because, again, ebay was 2/3 of our payments. they had basically declared war on us. today you can capture all those business benefits through a deal and enable paypal to be a standalone company. >> former paypal coo and yammer ceo david sacks. >> that was great. who would know better? i thought that was really interesting. the founders think this thing should be spun off. interesting. >> i'm having a tough decision here. there are so many great things on the show today, but you played with drones outside. flying behind our studio -- >> there is this whole sort of fantasy that amazon has of delivering packages by drones. i think the real business users and companies going out to this are out there right now to do

everything, from examining pipelines to real estate. we talked to a guy -- >> flying over your kids' soccer game. >> they had better not be flying over my kids' soccer game. it is bad enough they're getting hit by the soccer ball. we were shown how the drones can work. check it out. >> everyone who buys one of our products buys it under the commercial use exception. if you are a regular individual you can buy one of these in -- and fly it. >> when you're trying to build a business around this -- what kind of business have you built around this? how big is your organization? >> we are about 120 employees. we sell to consumers largely, but more to more to industry. as long as you operate as a personal entity and you are not profiting, you do not have a company that has services based on aircraft, you can do it. >> that is not where the money is? >> the money is an enterprise.

agricultural survey, construction. that is where we're going. >> not in delivering packages? >> that is a good idea and something that might happen in a few years from now. >> is it a good idea or --- >> if anyone will make it happen, jeff bezos will make it happen. it is a long ways off and very dangerous. >> if you have my dog with your -- if you hit my dog with your drone i will not order from amazon anymore. >> that would be terrible. >> this thing weighs about three pounds? what is this kind of thing used for? is is what you sell? >> this is our consumer product. if you want to take a picture of your kids' soccer game, film a surfer, you can do all those action things. >> let's try this out. buteeps at me like a roomba

unlike my roomba, this is going to get some air. that does not look safe at all. it is flying up to emily in the studio right now. how many of these things have you sold? >> this is a new release product. it is not up for consumer release yet. some developers have it but we expect to sell a lot of these because they are inexpensive and a lot of fun. >> you are controlling this with joysticks. >> about $750. i think what things are moving towards is that you will operate it with your phone or tablet. i do it like this because this is how i'm used to it. i get a little bit finer control and i can point the camera exactly where i want. it is a fully autonomous aircraft and the way we want people to operate these things is to say, go to hear on a map. -- here on a map. push a button, go here. >> checking oil and gas

pipelines and things like that, not delivering coffee. it is fine coffee but they have waiters and waitresses to do a perfectly good job of that. >> delivery has a lot of sense if you have a high value package that cars can go, that is where delivery make sense. if you are delivering medical supplies in australia across great distances, one of these makes a ton of sense. if you're doing something residential we have to fly over peoples' heads, it is not a great situation. it could happen but it has regulatory hurdles. >> you have a phd which means you have been to school a lot. is this really hard to do technologically? is it hard to invent this stuff? are there going to be 50 companies offering these things? or is there really a high barrier to entry? >> i think it is really easy to make a copter that flies reasonably well. if you went to ces than you saw

a ton of copter companies. what is hard to make it really well and the autonomy. to say, go to the waypoint and take a picture. that is what we work a lot in. >> it sound like the apple computer idea where that can be a lot of computers, but the ease of use and grace in the software is hard to come by. >> think about it as a flying camera. people who buy this, what they want to do is take a picture, not fly necessarily. they want to have a really easy experience and that requires autonomy. >> what you think the most important change that you would like to see from the faa in terms of legislation or the rules to allow drones to propagate more in the u.s.? >> it makes sense that you would want to regulate aircraft that are going to operate in a manned airspace. i think they should look at ways of deregulating small business, small commercial business so you can make a business around crop survey or around construction survey. >> that was 3-d robotics.

we are cool. we are clear. >> that was a fun one. coming up, we will be talking about surfing. >> i am all for it. ♪

>> that was a clip from "chasing mavericks." the movie follows a teenager surfing the biggest wave just as the mavericks surfing competition has been going on about an hour away from us. >> if you drive fast, maybe. >> breaking news. the winner is grant "twiggy" baker. he is from cape town in south africa. he won the competition in 2006. what does this have to do with

technology?cho -- >> the thing about this -- it was a secret from the surfing world forever until a picture appeared in a surfing magazine in 1990. i remember that picture showing up and it was a huge deal. when it goes off, it is huge. with technology, they've been able to use specialized computer models to figure out when the wave is going to happen. check out the interview with the guy behind the technology. >> the technology is super important because if you do not have waves, if you don't have the right wind or conditions, you cannot have the contest. >> mavericks was a secret surf spot because it rarely went big. >> that is right. it was behind the scenes. no one knew about it. one guy surfed it by himself for 25 years and then he let the secret out and now everyone knows about it. jeff clark. >> the pictures of him riding where there are other giant waves, he shows up and they

wonder where he learned. >> in his backyard of all places. >> talk about what all goes into this. how far in advance do you announce the contest will take place? >> you have a good idea up to 10 days beforehand, but the reality is there are all sorts of tricks about what the wind will do. that is the hardest part. you don't want to announce until the last possible minute. 48 hours before hand. >> you announce one of the biggest surfing competitions the world 48 hours before. what technology be used to predict that? -- what technology do you use to predict that? you have people flying in from all over the world to compete. >> there are wave models, weather models, satellite data, mixing it into a secret sauce that helps us predict exactly when the swells will hit. we can nail it down to 30 minutes before time, exactly when the swells are going to hit. >> what is the technology

available now that is not available the past? >> there was really no satellites. it is really the computer models that are the most important part. you see it all the time on tv news, weather models. what we have is specialized models for surf protection. they tell you exactly as a storm is forming and wind starts blowing on the ocean surface, how big those ocean waves that are being generated by the winds and storm. for this contest we had sees as -- seas as high as 57 feet. that means that once every era, -- thatnce every hour, means that once every there are hour, rogue waves out in the ocean there were over 110 feet tall. >> come on. what are we going to see at the competition? how big will the waves get? >> there is the hawaiian scale. it's is really about half of what the waves are.

we're saying 17-20 feet. >> that is from the base of where the waveforms to the top of the crest? >> yes. why guys take it and cut it by half. take -- why any guys hawaiian guys take it and cut it in half. >> they say that they measure from the back of the way because that is the part you see. we're saying 35-40 feet bases. there is a lot of energy. it is not a thin little swell. it is like a bulldozer coming at you. >> and really shallow water, too. the rocks famously hurt. >> yeah. there is a spot out there that is about 20 feet by 20 feet to 10 feet deep that is a pinnacle of rock. when the swells come, they hit the pinnacle, they jump up, and they basically create this giant gnarly tube and a lot of water moving. extremely dangerous.

>> have you surfed pipeline? >> yes. >> there is a rock jutting out underwater that i found the hard way. >> pipe is a very heavy wave, but it is not as big, it is not a deep waterway. there is more water moving it mavericks. it makes it much more dangerous. >> amazing. we will be right back. ♪ >> this is "bloomberg west."

the 56th grammy awards are coming to cbs this sunday but but you will not just see rock stars there. you also see some sports stars. super bowl marketers are looking at the grammys this year. i want to bring in jon erlichman. we know that super bowl ads are $4 million for 30 seconds? do you get the same bang for your buck at the grammys? >> this is a show that can get

close to 30 million potential viewers. i don't know if it will get that high, but about $1 million. maybe a quarter of the price. you know, it is maybe an interesting bang for your buck. >> here's what i want to know -- who do you have? who's winning album of the year? >> i like daft punk. earlier i claimed i liked macklemore, but it was more like a -- >> gametime decision. i like it. >> i'm going with daft punk. >> i have to go for macklemore too because i got to take an awesome photo with him at the concert last night and i am now the biggest fan. >> i think macklemore probably wins. >> i am framing it.

>> we'll watch on sunday. maybe they will give you a shout out. have a great weekend. ♪

>> this week on "political capital", we preview president obama's state of the union address. more about conflicts in syria and iran. and the debate with chris christie. we begin the program with former senate majority leader tom daschle.