>> 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. i'm emily chang. every weekend we'll bring you the "best of west," the top interviews with the power players in global technology and media companies that are reshaping our world. we begin with facebook ceo mark zuckerberg who gave the keynote address at mobile world congress in barcelona this week. among the many topics were the $19 billion acquisition of whatsapp. here is what zuckerberg had to

say about the price tag. >> it is worth more than $19 billion. it is hard to make that case today because they have so little revenue compared to that number. the reality is there are very few services that reach $1 billion and they are more valuable than that. i could be wrong. the recent chance it could be the one service that could get to 1 billion people and not be that powerful. i do not think i am. >> zuckerberg talked about internet.org to get billions of people to the internet saying there are benefits to providing free access. here is what he had to say about the profitability of the project. >> we are near break even and have a bit of work to do. we are very early. that is what a lot of these partnerships are. we work with folks and it is not

tuned and you will spend more than what you are making up front. what we have seen in the rate of improvement, we are highly confident will go to a point where it is profitable. >> for more now, our editor-at-large cory johnson and i spoke to contributing editor paul kedrosky as well as messageme ceo and former facebook executive ali rosenthal. i asked her if it was worth more than $19 billion. >> it is growing at 1 million users a day. 72% daily active users. people are getting on the service talking about the things they are interested in. there are real value to that whether it's $19 billion or $25 billion, appropriately, i do not know. >> how difficult it is for an app like this to hit the mainstream and stay there. i had a guest last week who said he does not know what he will be using on his phone for five years.

if that is the case, why is it worth it? >> if you look back to when i started in 2009, the first cross-platform over the messenger to emerge, they owned. emerging markets, markets outside of the u.s. are growing like crazy. for the past four or five years, they have been building. it is not going to go away overnight. the numbers show quite the opposite. i think this platform in particular is an amazing one. the numbers speak for themselves. >> what is interesting is not how much business or how many users but what the business is. they are taking money from the carriers but they are killing the business of the carrier. what do you make of it when you look at the valuation? >> yeah, whenever you were hiding in the wilderness last week, we were going at it this in terms of the universal gravitational of purchasing

companies. weirdly enough, $42 per active user and you can look at another revenue purchase into the 1990's. microsoft buying hotmail around the same price at that time. we have seen these numbers for a company at this stage that does not generate revenue for a while. and i actually think looking at the size of their user base and comparing it to twitter, you can see a lot of opportunity to produce 500 million, depending on what dial they decide to turn. the deeper issue is -- it is stunning to see a company produce a network of this size in such short order. why can't that happen over and

er? parents join whatsapp. people saying i am out. that is what made facebook a bad neighborhood. it will be a perennial problem for many of these services. it does not mean they should not have bought it. we'll see a series of acquisitions. >> i want to go back to what paul said to you. you were a banker with goldman sachs when the hot number of -- it was not the users, it was eyeballs. those were series of metrics. this number of users to me is a silly unless it is revenues attached to users. i do not see getting there -- not to be debbie downer. this is a hard thing to get to. >> i am quite sure there was no pcf. this kind of analysis. it is a growth story. what paul mentioned to twitter as a comparable, helps you start to key in on value, but you raise a good point. on price but not value. whether or not facebook introduces ad products directly

to whatsapp, they said they won't, and i believe that. they will figure out a way. it is such potential cyber these are users and customers using the product. there has to be opportunity. >> what about making money on internet.org? we know his mission has been to connect the world. he, himself, talked about presenting the plan to his board and saying i do not see an immediate away it will be a good business for us but i have to believe it will be. >> in the mid-term to long-term, facebook ends up being the utility, the underlying network to every time somebody connects to the internet 50% or 90% of the time -- >> is that possible with the way google and apple control now? >> i do not know if it's possible. it'll be interesting to see how

internet.org works out. >> paul -- go ahead. >> i am usually skeptical about that stuff. i find it a happy rhetoric and i'm delighted he is doing it. i do not think it has material business consequences. it'll probably frustrate many investors. i am much more interested, i like to see what facebook is doing than what they say they are doing. when they talk about what they are doing, i get agitated and think this company is completely mad, what are they doing? and they make aggressive acquisitions and you say they are prepared to pursue p&g brand

management in tech. that could actually work. maybe they are doing it on purpose or by accident. the outcome is the sign. >> ali, on that note, do you think there's a problem with a buying versus building innovation? you said facebook is more like a media conglomerate than a social network. could facebook become so bloated down the line that it becomes some of these older legacy players that are having problems like yahoo!, like cisco? >> having been a part of the culture and the way facebook thinks about enabling talent and letting engineers and product managers and anybody who works innovate. the hacker culture that mark talks about is an advantage for them. they bought instagram and whatsapp. the p&g strategy paul talks about is an interesting allusion to what is going on. a lot of the success both from the past and present a going forward will have to do with the talent and the way they treat people.

it may be different from other companies out there. i think that in the terms of the buying versus building, sometimes it doesn't make sense. innovation happens when you are not watching. when you are the big player or big behemoth, that sometimes is what happens. sometimes it works. >> you have 8 million users. whatsapp has 465 million. are you guys going to change your plan? >> we are working on a spinoff based on data we have seen which does have a lot to do with what i was talking about. moving from purely communicating to communicating with content and helping people search and discover things and enable conversations. we have a product coming out in the next couple of months that will address that. we are launching something completely new. >> that was contributing editor paul kedrosky and former facebook executive and messageme ceo ali rosenthal. still to come, more from mobile

world congress. ginni rometty speaks at a critical time. we'll have a roundtable on ibm's business including the man who interviewed her next. ♪

>> i am emily chang. it is a crucial time for ibm, the world's biggest service company, after employee headcount dropped last year for the first of in a decade. ibm has been looking to rein in costs in hope of meeting profit goals. the ceo, ginni rometty, spoke about the changes. take a listen. >> any company has to go through transitions. we are 102 years old. what we started out doing, it is

not what we do today. you go through the transition to be any age, of course to go through transition. i think that applies to anybody. >> moderating that panel was our bloomberg contributing editor david kirkpatrick who joined us after the event alongside alex and i began by asking david what was the biggest take away from the interview. >> i think she has the right vision of the right changes, data, cloud, and engagement which others would call social. these changes are happening. ibm realizes -- as well as anybody -- she has a giant aircraft that she has to shift. she is not all the way it there but she is doing some smart things. people took away a favorable impression. >> ibm is cutting jobs by the thousands and the revenue has dropped for seven quarters in a

row. to what extent did she inherit the problems and issue being blamed for the problems? >> she is near 1.5 years in her role of leading the company. one could argue that some of these were inherited. she tried to move the ship, right to the ship and get rid of somebody money-losing hardware businesses and really bring ibm through the transition she talked about other companies have to go through. >> you would say she inherited some of these challenges? >> some of them, they did come along when she took over. this shift in technology began before she came in. she has had to bring her company into this new cloud era.

>> david, what is your sense on what ibm is now and what it is becoming? >> you have to realize that a lot of the revenue coming from very low-margin or in some cases money-losing hardware businesses and in the company could quite possibly shrink and be more profitable. even though the revenues have gone down, the profits have not. when you sell off, i do not know how many billions of server businesses they have sold to lenovo. the fact is that they are shrinking by choice in some respects. the key is to figure out how to grow in new, more profitable areas of service. it is a service company she said.

10% to 15% of hardware. that is a way lower number than recently. that is a big shift. >> in terms of jobs, alex, ibm committed to keeping 3100 jobs in new york state through 2016. one analyst said they could cut 13,000 jobs this year. does that jive with what you are hearing? >> it does kind of jive, to david's point, that the company has had to shift and needs to become smaller and more focused. they did that when they sold the computer business to lenovo and now they're offering the service business. it made by shifting the focus to the cloud and social and mobile areas a way from the legacy hardware business and that might mean cutting some of the jobs. we've heard from employee groups they are starting to cut positions overseas in asia and europe, and job cuts are supposed to be coming and the united states as early this week. it does sort of jive with the whole moving of the shift into the new era. >> david, some of the things we have heard about watson sounded great and sounds like it could revolutionize the number of

industries. some custom web users said it is too difficult to teach watson everything it needs to know. it takes too long. what about those kinds of concerns? >> that are up against -- think about it. they are going against google, and amazon will be in the business. these are more modern companies that have the intrinsic web dna and know really, really well how to operate super, high-volume analytical systems. i do not think -- i have not used it. i have a feeling it is a technology that will take a long time to really prove itself. i would not be surprised if it turned out to be good. they keep talking about it. using it to diagnose different medical cases. that took them a long time to input the data to make it really useful. that is a cool thing about it. the more information you put into it, the better it gets. in that way it's a lot like

google. >> alex, how well-equipped is ibm to compete with google and amazon? >> it depends on the space. we see them opening up their cloud platform and opening up watson to developers to try to build up the ecosystem of outside help to revolutionize these products. investors and analysts will tell you amazon got ahead of the cloud space and ibm might be trying to keep up. they are making a concerted effort and they are shifting $1 billion. it is a bit of a race in cloud services. as ginni said, we will see if they can expand.

>> tech reporter alex barinka and bloomberg contributing editor david kirkpatrick speaking about ibm. coming up, bloomberg sits down with blackberry ceo john chen. hear what he has to say about a potential bbm spinoff. ♪

>> welcome back to "bloomberg west." i am emily chang. continuing our conversation about mobile world congress. caroline hyde talked to blackberry ceo, john chen. he talks about the messaging service, bbm, this on the heels of the whatsapp acquisition. caroline began by asking about privacy in the wake of the nsa revelation. >> i think a lot of people might care less about security but they really care about the data privacy and personal privacy.

that point has not really been made well enough in the market. and -- and i, i am a big defender of that. when i talk about the advantage of blackberry, the security, collaboration and communication. i never really focus on one thing we do well which is privacy. >> what about the focus of messaging, $19 billion for whatsapp? does it make you reassess blackberry's potential? is this a unit you could sell on its own? >> running a public company, anything to help our shareholders, i have to take a serious look. today, i think we need to build up the base and the engagement model. we have a very good base, about

85 million. engagement time is quite good. usually about 40 minutes. that is a very big engagement time. usually, our 85 million are the professionals, the people who are on it for activity, that was a good thing. we need to build it up and introduce more of our features. today, we tell about enterprise bbm. we already do voice. then, we will have other features. i am not going to preannounce it. we have three or four different services, capabilities that we are working on. probably in the next 12 months it will be announced. it will be helpful. so we are very excited about

that. the point is, the potential to try our best, which is our enterprise focus -- it will be huge. and until we get to the point where we showcase the potential, it is too early to think about getting our $19 billion. >> you think that is where your competitive edge is -- >> other players, they point products compared to ours. nobody has a messaging, secure messaging infrastructure. we are the only ones who have it. it is important that we showcase and use it as a differentiator into the thousands and thousands of enterprise customers. >> what about wearable technology? >> everybody asks about wearable. i do not have a plan. i think we are too early for that. for us, for blackberry. i have my hands full with a number of things to do. we have to get the device

business profitable. i have to get the server this is growing again. the bbm skeleton. on qx, where the connected card is, i need to win more designs in different parts of the verticals. when you talk about m2m, not just cars, it is one that people can make money off today. and we have a big footprint on that perspective. but i think, we need to win other verticals whether retail or logistics. if we could start winning the medical and all of those applications, i think we will be much better. wearables -- it is too early for me. >> what is your favorite gadget that you have? the thing that you cannot be

without or the one you most want to buy that is not blackberry. >> i do not know. i am not a -- [laughter] i am not a gadget person. i think i am more of the serious user of technology. i think i have everything i need. >> that was john chen with caroline hyde in barcelona. samsung unveiled new wearable devices. a first for the company. plus, the next gen galaxy phone and we will show you all of it next. ♪

>> you're watching the best of "bloomberg west." samsung has unveiled its first wearable devices. it has introduced a new smartphone, the galaxy s5. look at what this new phone does. sam grobart has his hands on it. take a look. >> this is the new galaxy s5. i want to show you five things about it that are new as it was just announced today. for starters, it is a larger display. this is 5.1 inches. the old galaxy only has 4.5 inches. also, you have a fingerprint

sensor on the bottom. it is something we have seen on other phones as well. on the back there is a heart rate monitor. you put your finger here, and the phone will tell you if you are about to have a cardiac episode or something. there is a better camera and better materials along the back. this answers some of the criticisms that they were not the best. it is also water resistant. up to 30 minutes in up to one meter of water -- it will be just fine. if you drop it in a bar bathroom, it is curtains. >> sam joined cory and i for a conversation.

>> this is water resistant as well as a dust resistant standard called ip 67. it can be in one meter of water for up to 30 minutes. >> wow. >> that is a true innovation. >> that has me more interested. also, the heart rate monitor, if i get into a heated conversation with cory, i can check my pulse? >> right of the back of the phone. >> then i can check mine shortly thereafter. i'm at 67 beats a minute. they tend to follow a lot of innovations. the heart rate stuff, i am wearing one on my wrist. this is for when i run. it does not require the thing that a heart rate monitor used to. the last phone they introduced had a barometer in it. are they just going to throw themselves into the blender and see what sticks? >> this is been the criticism of their phones.

they throw every feature they can think of and they can develop into one device. the company seems to be aware of that criticism. it is not so much promoting 48 different things that you can do. they are very much focused on the notion of health and fitness. that relates to the galaxy s5 as well as some other products that they announce today in addition. >> how much cooler do you think the s5 is than the s4? will people want to run out and upgrade? >> it is not a landmark, groundbreaking device. at this point, i can't think of what it would be, even for apple or samsung or some other manufacturer. we seem on a certain level to have reached a certain plateau. these are small boxes that have

modems and radios and displays in them. you make some improvements here and there and that is great. the big stuff for the most part has happened. >> about apple, sam, what are we expecting from them this year? i know there is a possible larger iphone. you've spoken to the executives there. is that going to happen? >> they told me their entire plan for the next five years. i was going to share it with you right now. [laughter] >> just between us. >> there's been a lot of pressure and the market has shown a real desire for larger displays.

you wonder to what degree apple will move in that direction. it would seem they would want to. as far as what they are up to, who knows? >> that was "bloomberg businessweek's" sam grobart. still ahead, the changing of the guard at y combinator. we will talk to the guy who is taking the reins from founder paul graham next. ♪

>> welcome back to the best of "bloomberg west." i am emily chang. after 9 years as the head of y combinator, paul graham is stepping away come in taking over as the new president is sam altman. he has been with them since the first start of class. i talk to him about what it is life to be in charge of the organization that launched him. >> i believe this is an important institution for startups. it is really important to me. >> what is your role going forward and what is paul's role? >> paul is going to advise the startups. that is what he did when it was small.

there were only eight companies in the whole batch. i will handle running and organizing our operation and hiring partners. i will make decisions that run day-to-day. there is so much incoming at yc that it takes all of your mental cycles. paul will advise startups. >> you have invested in 630 startups. they are all in the yc network after they get funded and they never really leave. >> we are with them from the very beginning. we tend to have extremely close relationships with the startups that we fund. even five or nine years after, we still help them whenever they need it. >> why do you think paul picked you?

>> i do have the state of yc in my head. all of our partners are good. >> he thinks very highly of you in particular. he put you on a list of the five most interesting founders with steve jobs. >> when he made that list, a lot of other founders are probably better than me and have not gone through yc. >> you are being too humble. what is your strategy? why do you think you should be in charge? >> the goal for yc is there is a shift to more startups. startups are the driving force of innovation and economic growth in the future. yc can be at the nexus of new startups starting. our goal is to fund the best startups and have them be part of this yc community. one of the things people do not understand about yc is how tight the community is, our alumni. this is an incredibly powerful

force, to have this group of people who run startups. they care about helping each other. growing that community and having the best new startups and helping them, that is what we are going to do. >> you have had your champions and your haters. how do you combat that? >> the haters thing is frustrating. any time you try to do something new and different, there are a lot of people who want to be haters. the way we combat that is to just keeping funding good startups. as long as we fund the next big thing, the haters can write mean things online, and we will keep doing what we are doing. this is a very important

mission. the world is better off if these startups can happen. >> paul tweeted that total valuations was all the yc companies was $14.4 billion. >> it is now over $20 billion. >> what is it without dropbox? >> those two are the two biggest. they are a power distribution. in startup portfolios it is close. the top startup is worth more than the rest combined. the number two is worth more than the rest after that. that does not scare us. that is the model. >> that was sam altman. nine months of nsa scandals, mike rogers weighs in. ♪

>> welcome back. i am emily chang. the rsa information security conference happened this week in

san francisco. the nsa scandal is front and center. chair of the house intelligence committee mike rogers was here in town attending the conference. he told me what the industry leaders are concerned about. >> how do we rebuild confidence that our intelligence services are doing things to protect the united states and not violate privacy and not encroaching on the 1/6 of our economy that is growing in silicon valley? those are robust conversations. >> what are the chances that congress will finally come to agreement on some cyber security legislation? will you alter your proposal to get a deal? >> i am as long as it fulfills the mission. data points are not the same. things that people think the nsa and their intelligence services are doing, they are not. we want to say this is what the threat is. this is how we are meeting that threat. this is the protection that is in place.

can we do some confidence builders so that people know that the nsa is not reading their e-mail or listening to their phone calls? we should do those things. we need to understand what the threat is. we have nationstates targeting disruptive activity in the united states. public reports say iran had 400 times attacked and probed our financial institutions. the chinese and russians are trying to steal intellectual property. those are the real threats. how do we do this in a way that protects our ability to grow the economy? 1/6 of our economy. we can and should do both. we need to talk about a way that is productive. >> some say you offer too much leeway and protection to

companies and businesses. >> we are trying to encourage them to share only cyber threat information. where it gets lost is we said if you are sharing in good faith cyber threat information, we should encourage that behavior. it is no different than if you are on the subway and you see something bad happened, we want you to say hey, something bad is happening and stop that. the government is not on raven sector networks. they miss a lot of what the chinese are doing and the russians are doing. a robust sharing from those threats can go a long way to help the private sector protect itself. that is the endgame. >> is edwards snowden -- a hero or traitor? >> over 95% of what he stole had nothing to do with privacy. it had to do with defense and strategic threats. the army and navy and marines had nothing to do with anybody's privacy. it had to do with information that was damaging to our military. i would argue anybody who looks at it in a logical way, looks at the information that he stole,

it is hard to walk away and think that giving that to our enemy was anything less than treasonous. >> he may have gotten help from russia to carry this out. the technical capability of what he did was beyond his own. why do you think that? >> i look at this as a former fbi agent. there is a whole history starting in 2010. there is a large degree of suspicious behavior leading up to his decision to steal information. 95% of it had nothing to do with privacy issues or what the nsa was or was not doing to the citizens. it had to do with information that protects the united states and allows the army to protect soldiers overseas. it allowed the navy to protect itself in the south china sea. he may not have understood that information existed. we want to know how the scrape tool was developed. he may not have had any understanding of the information that existed on the network.

>> that was representative mike rogers. google acquired one city's multimillion dollar fiber-optic network for just $1. why such a bargain? we will discuss next on "bloomberg west." ♪

>> welcome back. i am emily chang. one of the world's newest businesses is google fiber. that is high-speed internet in your home that it says leaves competitors in the dust. "bloomberg west" took an in-depth look at the service. take a look.

>> google fiber is 1000 megabits. it is 100 times faster. it will append in a net service providers. it is faster than verizon fios and at&t. other competitors left in the dust -- centurylink and time warner cable. it started in kansas city in 2012. it is in utah and coming soon to austin, texas. it just announced that it will bring the service to 34 cities. how does it work? an optimal networking signal that runs into each customer's home. it will cost google up to $900 per household. it costs up to $3 billion a year. but if they build it, will customers come?

as many as 20 million broadband customers will come. google fiber will have as big a customer base as comcast. >> provo is the only city other than kansas city where the service is already online. cory johnson has been reporting from there. why did they pick provo? >> there are a lot of startups and universities here. provo, utah has fiber that they laid during the dot com bubble. this is what the mayor said. i went on a walk with the mayor in somewhat better weather. we talked about how this deal came to be. when did this effort begin? >> i came into offie 4.5 years ago, and the paper did an editorial and called our network

a millstone around our necks. that was the beginning for me. i needed to know what to do with the network the city built. we were not quite sure what we had. >> there are a lot of cities that have government paid for router networks that should be providing super high-speed internet and are not. that is were you were? >> we sold it to a company that was struggling just like we struggle with it. they were unable to make it work. >> what was the problem? >> the problem was the gap between what it cost and the revenues that comes in. that was pretty basic. >> it was not making money. how does google enter into this? >> we looked for a buyer. we looked high and low. we talked to consultants and everybody we could find.

we wanted to know who would buy this network or run it. it was in that process that we started talking to google. let's face it -- there are not a lot of people out there who will take over a project like this. we started talking to google, we were very excited about the prospects. we really hoped we could put it together. >> what has the effect been? >> the most immediate impact has been the buzz. everybody is excited. everybody says they are moving their business to provo. i want to be there. almost every conversation ends with google. the buzz is incredible. provo is a city that loves technology and startups. this is the perfect match for google. putting the speed and fiber into every home is a perfect match. our schools are excited about it. what does it mean for every home

to have fiber in the home? how do we take the next step so people can understand how to use it and have the equipment to use it? it is a very fun dialogue in the city. >> do you think it is worth it? what did you have to give up? >> we had put the fiber into the ground. we gave them the fiber. in return, they gave us more than our initial investment. that $30 hook up -- it used to cost the city $1000 to hook up. what they brought to it, it is not even close to the connection for what we are going to have going forward. the value they brought is amazing. the city took out a bond for $39 million. that was 10 years ago. we were to a point where the only thing that was still good was the fiber. half of the cost was the fiber and half was the switches. so about $20 million of that had

to be replaced. since google came along, they did it instead of us. we cannot put a number of what that is. but it is a large amount of money. they connected the two thirds of our homes which we would've not been able to do. they did that for no charge to the city. >> they'll get paid for the service? >> yes. if you want the 5 megs, which is small, that is -- if you want a gig, that is $70. if you wanted tv, that is another $50. >> i don't care what the cost to the consumer. the interesting thing is the way this lays on top of the rest of their business. as well as their own band width. they're developing a big business in the end. >> cory, in cities like austin, at&t is stonewalling google's fiber efforts.

what is the reality that google will be able to roll this out significantly in more cities? >> i think that is an open question. certainly google has the resources. in all the discussions that we have about investors demanded that google put their cash to use. they have bought all the bandwidth they're going to use anyway. some of this is unused for nonpeak times. this fits nicely with a lot of their other businesses. they have the cash to develop this business. they have a plan and they are slowly rolling it out. this could be very interesting with some of the cable companies and phone carriers. >> cory johnson, our editor-at-large, in provo, utah. that does it for the best of "bloomberg west." you can always catch us on bloomberg television, streaming on your phone, your tablet, bloomberg.com, or apple tv. ♪