>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover the global technology and media companies that are reshaping our world. several big stories we're following this hour. tesla is out with its quarterly results. 35,000 electric cars this year. we will discuss the latest earnings in an exclusive interview with elon musk this hour. we're also covering the role that technology is playing in ukraine. the president has declared a temporary truce with opposition leaders after 36 hours of

violence. is a peaceful ending in sight? our lead story this hour, however, facebook striking a deal to buy the messaging service whatsapp for $16 billion. an additional $3 billion for employees that will invest over four years. 70% of people use it every day with one million new registered users being added daily. whatsapp allows users to send messages over the web for free. in a statement, mark zuckerberg said, whatsapp is on a path to connect one billion people.

the services that reach that milestone are incredibly valuable. jon erlichman joins me now on this news. $16 billion. wow. that has been the universal reaction. >> i think now that this news is out, the road towards this deal looks obvious. we did not know it was coming. if you think about what facebook has positioned itself to be at this premier mobile communication platform, all of that time and energy spent in bringing facebook from your pc to your phone and the lead-up to the initial public offering, the purchase of instagram, and for them to be watching what is happening in this fast growth area of messaging-based apps, which a lot of them, because of the fees, frustrating paying those texting fees and choosing to use a service like whatsapp. not to suggest that facebook wasn't trying to do some of the stuff on its own with facebook

messenger. not able to gain as much traction as they hoped for. they tried to buy snapchat. whatsapp comes into the picture. >> right. google reportedly also tried to buy whatsapp, but facebook snatched it away. the founders have been famous for hating advertising. we want to give our users something that is ad free. according to whatsapp founders, they say, here is what the change will mean for you. nothing. whatsapp will retain autonomous and operate independently.

you can continue to enjoy the service for a nominal fee. you can still count on absolutely no ads interrupting your communication. if facebook is not going to add ads, why buy it? >> we all know the position of mark zuckerberg, emily. he seemed reluctant to bring advertising to that facebook platform. his reluctance to saturate facebook with ads and make people feel like that platform is less relevant. when they acquired instagram, he said, give instagram some time, let it breathe. a lot of people looking at the growth of the facebook business, in terms of dollars and cents, would say they are doing a pretty darn good job of finding ways to generate revenue. it should come as no surprise that they would despite paying $16 billion, they would say we are not embedded in a position

where we need our new acquisition to be thinking about that. the key, and connecting with a billion people, whatsapp being on that road, seems to be the key indicator of that. >> jon erlichman, thank you so much for breaking it down. we have a special roundtable joining us to discuss the $16 billion. that is what facebook has agreed to pay whatsapp in cash and stock. gentlemen, thank you for rushing to the studio to join us on this news, which broke minutes ago. your reaction? >> i think it is a great move. for facebook, the idea is we are

looking at them, talking about a billion users, that is a potential competitor they have just eliminated. they have taken them out of the marketplace. it reduces competition. especially in newer markets where facebook has not really penetrated. this is a great move. this is the kind of aggressive move you would expect from a founder-ceo. >> david kirkpatrick, you wrote the book on facebook. is $16 billion, is whatsapp worth it?

>> i was hit upside the head when i heard the number. you cannot help but say that it's ridiculous on first hearing it, but then when i look that the data and i thought about it and you think about the fact that twitter's market cap is $20 billion and it is infinitely smaller, the number of users are way less, the statistics are astonishing. 70% of users, on daily, which is higher than facebook, which is 60%. growing a million a day, it is very powerful in the developing world. facebook has this huge goal to grow globally. zuckerberg is about bringing more people onto the internet. this service is achieving something similar. if they really have the potential to reach a billion, there are very limited list of companies in this league. facebook, google, skype. one that i would point to is we chat, which is the only similar service and it does something

extremely similar coming out of china. i cannot even think of another service in this league. >> wechat is huge in china. is $16 billion ridiculous or not? >> it is ridiculous, but it is the kind of ridiculous that makes a weird sort of sense. we were talking about the most expensive acquisition on a per user basis, 15 years ago, the hotmail acquisition by microsoft. weirdly enough, on a per user basis, you may or may not like the instagram acquisition, you may or may not like microsoft buying hotmail, but there seems to be some universal process in respect to the per user. the user numbers are so stunning that on a per user basis, this is the kind of number we have

seen for sometime in these kinds of acquisitions. >> 450 million users of whatsapp. >> that is total users for twitter, not monthly active users. that is a very different statistic. twitter does not have anywhere near 230 million monthly active users. >> on the conference call, facebook has been holding a call for the last several minutes talking about this acquisition. mark zuckerberg will continue to allow whatsapp to run independently. some people have said that kevin wanted that himself, is it possible to keep whatsapp operating completely autonomously? >> instagram is operating pretty independently, though the ads have come in. they are still experimenting.

whatsapp has to live as an independent entity. we have been talking about whatsapp, there is the other trend happening right now. messaging apps are becoming conduits for selling other apps and other e-commerce related things, especially in non-developed markets. there is a huge opportunity for facebook to take what they have found success with, which is app-related advertising. they can start to make money on that and not really offend the users of whatsapp that much. >> how does facebook take whatsapp and turn it into a bigger business? they charge a dollar a year to use the service. how does facebook turn this into

a business? >> a ton of ways. cross marketing is a very powerful thing. even if they did not have ads on the service, they could use it to cleverly drive traffic to other businesses. you are going to see all kinds of integration to the degree the users wanted. they are just starting to charge that one dollar a year in some of the markets, as i understand it. it will be able to increase their revenue as they go forward. if people use it as much as we hear they do, and i have seen it myself, i think people probably would pay more. it is a hard question to answer half an hour after we heard about the deal, but i do not think it is out of the question. >> i would turn it around. the point is to figure out exactly -- there is a punitive option going on.

it is worth this much to facebook because it was worth a lot to google and if i can hurt my largest competitor by outbidding them, there is some negative optionality. google plus is not exactly burying anyone with respect to its traffic. this is something google badly needed. we keep talking about this is if it is $16 billion straight up in cash. this is mostly facebook paper, which they are more than happy to print and use to stick something in the face of google. >> we will talk a little bit more about what it means for google and the rest of the competition. we have been listening to this conference call. we will talk more about their vision and their founding story with you after a quick break.

staying with us to talk about facebook buying whatsapp. we have an exclusive interview with tesla ceo elon musk. hear what he has to say about the company's latest earnings. ♪

>> welcome back to "bloomberg west. i am emily chang. facebook buying the messaging service whatsapp for $16 billion in cash and stock. up to $19 billion when you count the additional $3 billion they are paying the employees. we have a great group of guests to talk about it. the founders of whatsapp are former yahoo! guys. we've tried to get them on the

show many times and they do not like talking publicly. they have been pretty passionate about their hatred for advertising. put this acquisition into context for us. >> there have been two similar acquisitions in the past. one was icq, which aol bought. the acquisition did not go anywhere. the second big acquisition was skype by ebay, which was a disaster from day one. skype and microsoft, a similar acquisition. facebook and whatsapp is a good match. they are similar kind of companies, two different modalities of communication. just like instagram does not need to be part of facebook,

whatsapp is one of those perfect combinations with facebook. from that standpoint, we can talk about the money and how much money this brings, but this is additive to the facebook business. if the founders of whatsapp are against advertising, they developed a very native idea of advertising for instagram. whatsapp will come up with something similar. it will not be banner ads. i am not really that discouraged on the idea of them doing advertising.

the founders of yahoo! -- of whatsapp who come from yahoo!, i heard that yahoo! was aggressively trying to buy them as well. >> we are getting more headlines out of this conference call. mark zuckerberg first proposed this acquisition last sunday night. i want to ask you, what makes you think this is going to be more successful than some major deals that have failed in the past? >> facebook is really in this business already. it was completely baffling, ebay buying skype. people are going to want to talk to each other before they buy things. the whole reason people use ebay is because they do not have to talk to each other.

the difference here is facebook has demonstrated they will do everything in their power to make sure they do not get disrupted by someone growing faster, and make sure those platforms do not go to their largest competitors. they know exactly where their market is. people are holding smartphones in their hands to access and communicate with their friends. they will outbid anyone to get it. >> does it matter that they are buying versus building innovation? i know they tried with facebook messenger to grow that part of the business. >> it does not matter because they are pragmatists. they are not standing on principle. they are saying, we will buy it from someone else, but we refuse to be disrupted. that is something the tech industry has struggled with for a long time.

this is something they are extremely good at, we will not stand on principle, we need to own them. >> what does this mean for google, david? >> it is not good for google. they are kicking themselves. i was wrong about twitter, they do have 240 active users. yahoo! is also in this league. in terms of why, i agree with everything paul said, zuckerberg and the crew from whatsapp have been friends for years. zuckerberg has given him a lot of advice. they have been building towards this for a while. i would make a minor disagreement, facebook just launched paper a couple of weeks ago, which is a totally internal project.

it is not catching on quite as fast as some critics might suggest, but it is a very creative internally developed thing. it is not like innovation is dead at facebook. they are very pragmatic. this was going to be owned by somebody else. they had to own it themselves. >> we will continue this conversation after a quick break. we'll be back talking more about facebook buying whatsapp. elon musk will be joining us later this hour. ♪

>> we are talking about facebook agreeing to buy whatsapp. i want to get some final thoughts from our experts. >> facebook made the right move because like all companies that become big, they have challenges of innovation. this was a great move. >> paul? >> it is a rational sort of ridiculous. it is a stick in the eye to google. >> david, what does it mean for snapshot? >> i think it is probably good for snap chat. i was skeptical of $3 billion, but i am sure they will be worth more. if they can keep growing, it is good for anybody doing messaging apps. >> david, you will be interviewing mark zuckerberg next week. i cannot wait to hear what you have to ask him. thank you for joining us today.

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>> you are watching "bloomberg west." we focus on technology and the future of business. i am emily chang. yahoo! has just announced a unified marketplace, yahoo! gemini. advertisers can use the new tool. apple is bringing its itunes festival to the united states for the very first time. the free concert event will take place this march at the annual sxsw conference. it was held in london in years past. artists include coldplay, imagine dragons, and keith

urban. apple will stream all five nights of the festival live. samsung seems to be taking the first step towards its own software and services. its new version of the galaxy gear smart watch will run on tizen. it is an open source project. samsung is expected to unveil its new smart watch later this month. tesla is riding high on an increase in model as deliveries. the electric carmaker reported revenue, up year over year. betty liu joining us today from new york. what are the big numbers from the call today? >> 33,000 model s sedans, that is up 55% from last year.

the company had gross margins of 25% last quarter. they may even be able to get it up to 28% by the end of the year. >> they are planning to ship 35,000 cars this year. tesla, it has always been more of a supply problem, not a demand problem. how will they meet the excess demand? >> elon was asked a lot of questions. are they basically at a point where they are constrained? they cannot actually supply the number of cars in demand right now. i just got off of that

conference call between elon musk and his cfo. most of the questions were around this giga battery factory they are going to put into place. that factory will be the one that will be able to allow elon musk to build that third-generation cheaper, mass-market car that he has talked about. that will elevate tesla from being this niche luxury player in the car market to really be a competitive automaker. that is why you saw half the questions related to this factory. elon musk was getting kind of exasperated by all of those questions. look, next week, i will have a call and i will answer all those questions for you. >> you talk to him in a few minutes from now. let's talk about this battery factory, this gigafactory. what does it mean for tesla?

and battery production in general? >> they consume about as much as the laptop industry consumes now. tesla, if they want to get to mass production car, there is no way they would be able to meet the demand without the batteries. they have to do that cost-effectively and keep the supply going. he was talking about this end to end factory. >> i believe elon is ready to join us right now. betty, i will send it back to you. >> elon musk, the founder and ceo of tesla motors. great to talk to you again. it is a marathon run before you release your results. i was listening in on a conference call.

frustrated with how many questions you were getting over this battery factory. how come you just didn't have some of those details and did not want to disclose those details in this call? >> there was not enough time to really get into the details of that gigafactory on this call and we had a lot to talk about with the rest of the business. just talking about fourth-quarter results and expectations in the near term. the gigafactory is more of a long-term development over the next three years. it deserves its own call. we will do that call and answer questions in as much detail as we can next week. >> as i can, can you clarify a couple of points? are you going to be building this with partners? >> yes. we expect this to be done with a number of funders.

>> can you give a clue as to who they might be? panasonic? samsung? >> the likelihood that panasonic would be part of it, but that is not confirmed. i think that seems like a pretty good likelihood. a reasonable assumption. i have to be careful what i say because we are a publicly traded company. i can reiterate some things i said on the earnings call. we can pay for the gigafactory in more than three years -- from retained earnings if we allow the time. to extend beyond three years.

we would probably need to raise funds if we wanted to be done in three years. >> you would prefer debt equity? >> i would love to answer those questions, but i cannot. >> one of the things you said on the call was that your best guess is that model x demand is going to exceed model s demand. you have said you were going to go in production in 2013 and you went to 2014 and now it is 2015. what is going on? >> we needed to make sure our house was in order with the model s. going into north america in 2012, europe in late 2013, asia in 2014. before adding the complexity of a whole new product line, it was

important to get our geographic deployment done and make sure we were delivering excellent service in all geographies. with respect to the x, i am somewhat of a perfectionist when it comes to product design. i take the blame for some of that delay. being due to me personally, not being completely happy with the product. >> what bothered you? >> the hardest thing about that x is achieving great form and

great functionality. it is easy to give up on one of those two. it is hard to make an suv that is beautiful and functional at the same time. it is a harder design problem than the model s. i do not want to come out with something where the production version is worse than the prototype demonstrates to people. i am quite insistent that we go to production, the production article is superior than anything that was demonstrated before. >> is the actual car in production going to be different than the prototype you unveiled a couple of years ago? >> it will be better in a number of subtle ways. i do not know if most people would even notice it, but i think it will be better in a lot

of ways. >> is any of the delays around the model x going to affect the heart and soul of why you did tesla? >> i do not think the x is affecting the third-generation car. three years is about as fast as we could do the third-generation car because we are somewhat constrained by the creation and construction of the gigafactory. this natural rate of progression or maximum rate of technology progression, we are at that maximum rate. we are doing the x in between the s and the third-generation vehicle. it generates cash flow to fund that third-generation vehicle, but it does not slow it down. >> yesterday, your shareholders got a little bit richer on these

reports that you had met with the acquisition team at apple. is there any truth to a possible partnership with apple? >> if companies have approached us last year about such things, there is no way we could comment on that. >> did you have a conversation with apple? [laughter] >> we had conversations with apple. i cannot comment on whether those revolved around any kind of acquisition. >> are you for sale? >> i think that is very unlikely because we need to stay focused on achieving a compelling, creating a compelling mass-market electric car. i would be very concerned in any kind of acquisition scenario that we would become distracted

from that task, which has always been the driving goal of tesla. >> when you say it is very unlikely, i am not hearing -- the years i have known you, if something is not going to happen, you say no. i am not hearing that. i am hearing there is a door open. >> if there is a scenario where it seems like it would be more likely that we would be able to create the mass-market affordable electric car, it would make sense to entertain those discussions. i do not see any scenario that would improve that probability. >> if apple were to come to you and say, we want to get in the car business. we want to start making cars. what would you tell them?

given your own experience? >> what would i tell apple if they said they wanted to make cars? i would tell them i think it is a great idea. >> ok. as you know, it has been a long and tumultuous road to where you have gotten. some have said that what would make sense if some sort of partnership between your company and let's say google and apple using their software, their systems to power your cars. is that something you have thought about? >> using ios or android? >> exactly. >> we considered using android in the beginning, but at the time, he thought android was not ready for implementation into an automotive application.

it was too early in the life of android. i could see us doing some sort of protective mode or emulator that allows people to use android or ios applications. you know, that is somewhat peripheral to the fundamental goal of tesla, which is to accelerate electric car evolution. that is really the important thing. things like whether there is ios or android in the car is somewhat peripheral to that. >> before it let you go, i

tweeted out to our followers what questions they would have for you and most of the questions that came back revolved around driverless cars. tesla has partnered with this israeli company to look into driverless technology. do you want to be the first out of the gate? do you want to be breaking into that market? >> i should clarify that. tesla has built up a significant expertise in autonomous driving. i would not use the term driverless cars. the terminology that we like to use is autopilot. you expect someone to be able to pilot the plane, but the autopilot helps improve precision and improve safety and reduce pilot workload.

that is the way we view autopilot cars. i would venture to say at this point, we have probably got the strongest autonomous driving engineering team of any car company. maybe any company. we are continuing to build on that engineering expertise. we do expect to be the first company to market with significant autonomous driving functioning in vehicles. >> how far away are we from that? >> not more than a few years. >> really? how far are we away from mass adoption of that? also a few years? >> do you mean -- >> this will become a standard for the auto industry. >> i think it will take a while for most carmakers to

transition. i look for what their predictions are for their vehicles, but it is more in the 10-year time frame. >> great to talk with you. it has been a while. thank you for joining us. elon musk, founder and ceo of tesla motors. >> so much to talk about. we will talk about his comments after this quick break. thank you so much, betty liu, for conducting the interview. we will be talking about that now. let's start with your discussion about apple. he did not say never. he said very unlikely, but he did not say never. >> that is consistent with what he has told us before.

and all of the reporters at bloomberg who closely follow tesla. he has never closed the door on a possible acquisition. you have to think that at some point, there is some sort of exit strategy for elon musk. the more his company develops, the closer he gets to those goals, the more attractive tesla motors becomes and there must be some price and some package where elon musk might say, it is a good idea for me to sell the company. i imagine there will be plenty of suitors. >> you have been covering tesla for many years. what did you think about what he had to say about apple? >> that was interesting. i do not think he will sell. he is not driven by money. he has plenty of things going on with other businesses. it is his life's goal to see electric cars become mainstream. he has talked about making

electric jets next. he wants to use the technology to get to mars. >> what about google? he is very good friends with larry page. >> maybe they would have this emulator for android. that was kind of interesting. it sounds like they must've had discussions along those lines. >> he did say he does not think driverless cars are more than a few years off for tesla. >> he wants to be the pioneer, the one who does it first. i have no doubt that he has a pretty top-notch engineering team able to do that. everybody is trying to do that. google is already very much ahead in that game. one of the things i wanted to get back to was this idea of

whether he would sell the company or not. what is really going to determine how successful tesla motors is, i go back to the original idea that he had for the company. how do i mass-produce this car? how do i get the volume up? that is why the analysts had all of these questions about the battery factory. it is the one measure by which we will look at tesla motors and say, did elon musk achieve the goal that he originally started the company with? >> how far away is he from that? >> that is going to be the point. the model x is a luxury car and that is what is coming next. we still have to wait to see if they can get the mass production car out.

we still do not know the price for sure. >> thank you so much for conducting the interview with elon musk. we will be back with more of "bloomberg west" after this. ♪ >> welcome back to "bloomberg

west." i am emily chang. i want to give you an update on what is happening in the ukraine. the president has declared a temporary truce with opposition leaders after violence forced him to grant sweeping powers to the army and the police. you are looking at independence square in kiev. protesters faced off with police earlier today. it looks like potentially that may have been averted, this story is developing by the

minute. 25 people are dead, including nine police officers. many of the protesters are peaceful protesters. we know that technology has played a critical role in the protest on both sides. the government has sent mass text messages to people warning protesters if they are in a certain geographic area. protesters have used social media sites, youtube as well, to communicate and to organize. ukraine is home to a burgeoning technology sector. many u.s. companies outsource work to employees in ukraine, specifically many software focused employees. i want to get to jon erlichman with our bloomberg byte.

>> social media plays a key role in how people are learning about everything happening in kiev. 55 -- the number of employees at whatsapp, which was just acquired by facebook. per employee, that is a pretty incredible number. we talk about what mark zuckerberg has been able to do with facebook. here is an example where he said why they did this deal, how impressed he is with whatsapp's ability to grow on just 55 employees. >> speaking of international communications, so many people have told us they have dropped their text messaging plan with their carriers to communicate with their friends abroad. i believe whatsapp messaging volume is close to the entire sms volume.

we will be covering this whole story tomorrow. don't miss it. ♪

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