>> live from pier three in san francisco, welcome to "bloomberg west" where we cover innovation, technology, and the future of business. i am cory johnson, in for emily chang. apple showing off to developers in day two of its worldwide developer conference. includes news on its new cell phone platform, home kit, and health kit. they're also featuring components going up against competitors like dropbox. most of google is shut down in china ahead of a sensitive anniversary. there is the 25th anniversary of

the crackdown of students in the andaman square. they have checked extensively and there are no technical problems on inside. ford showing off a new fusion lightweight car. the result is a midsized sedan of the fuel just an see of a small car. it is made with aluminum, magnesium, and carbon fiber. no word on when it will hit the market. to our lead story. many apple users go outside the apple ecosystem to edit files. apple is hoping to change all that and take aim at competitors. there is a photo editing feature, a new calling feature like microsoft's skype, and it features the take on dropbox.

they are trying to make it easier for developers to develop on their platform introducing the swift program language. they are making a big portion of health and home arenas. what is that mean for other companies? we are talking to john, creator of newco and a longtime apple follower. you have watched this company forever. what are your thoughts on this particular wwdc? >> i thought that apple failed to be apple. it succeeded at being the apple we all knew before expectations were inflated that apple had change the world every time they had one. >> this use to be a conference for the tiny community in the

world of computing that was david against goliath. >> everyone got super excited when they changed an sdk for their photo app. that was exciting because you could do new things. now everyone expects apple to unveil a world-changing thing every time they hit the stage. this felt more like the ones of old where they were fixing a lot of things they should have fixed, addressing opportunities that people felt they had not addressed and taking on competitors who might have been more nimble in the last 5-10 years. >> i remember when you're writing an system six was this disaster when the macintosh se was there. the notion of instagram has to exist at all suggest that microsoft did not get their photo stuff quite right. messaging issues have been a problem. >> everything that made big news were things that apple really needed to address. they can't watch a competitor like dropbox runaway.

they can't watch google come up to the side and have google drive that works better than their icloud solution. they certainly can't lose music and photo. >> they may have lost music already. >> we will see. >> streaming kind of ran away with it. this to me felt like an apple conference of old, where a lot of people got super excited, but i think people who are not techies are scratching their head and asking what is the big deal? >> you think there is something about apple? i was struck by the cloud. i remember it back to the failures of mobile me, but icloud, of .mac. there were so many cloud failures that it is hard for me to take seriously that they will fix it now. >> i think there is a big "let's wait and see" because apple has not been good at consumer software. it redefined that back in the early itunes era. you had this idea when music was

turned into software was a big deal when apple was winning. but then all the startups in the valley and around the world started to out-innovate apple. i think they are laying a foundation, but it is a wait and see. >> is a necessary thing for a company the size, now biggest tech company in the world in terms of market cap, for them to lay groundwork in a way that they did not have to before? worse is apple sticking to their original plan? >> a bit of both. they have got to lay down groundwork and continued to be the number one place for smart developers want to develop. they also have to start

recognizing that some of the things that the internet has brought us are worth embracing, that they need to open up. it is a small thing but they are allowing third-party keyboards. apple was very persnickety about controlling things like input keyboards. now there are saying maybe there are better ways to do it. >> i wonder if -- i have been seeing a lot about your company and how you address a very different world of innovation than apple historically has done. i wonder if you see connections. >> conferences tend to be vertical. this is a tech conference. it is about one vertical segment. what we realized in the conference new co. that we do is that technology is horizontal and it is affecting all businesses. all these kinds of new businesses can be new technology businesses. apple realizes its market is broadening and they need to be in all different areas and not just have this wow, tech thing that comes out. >> even when apple has been at its most screwed up, john scully was its ceo and that was not the worst. >> one could argue.

>> scully was so focused on getting pcs into businesses instead of letting it grow in education and places where they were doing well. >> now it is not pcs, but the internet probably. we are seeing innovation across industries in the internet. almost every business is an internet business even if it is not about being a startup in the internet space. apple needs to embrace that innovation and extend what they are about by being more open. >> is that is why newco is so focused on going to the companies in the different cities? >> getting inside the companies, sharing information, collaborating. that happens when people connect in small settings like inside offices instead of big ballrooms where everything is a bit overly produced. >> this may not bode well for apple, but we will see. john battelle, great to have you. chief creative officer and founder of newco.

>> malware west develop to steal millions of dollars but how did this guy stay under the radar? the future of cyber seeds next on "bloomberg west." ♪

>> welcome back to "bloomberg west." federal agents have busted a hacking network that may have cost more than $100 million in losses in the u.s. the network is known as game over bot net. the network spread malware which hackers use to control files and demand a ransom from consumers. the justice department has charged a 30 year old russian as the mastermind. he remains at large. it raises the issue, how do hackers stay under the radar for so long and what does it tell us about other hacking groups that could be hiding?

david walt joins us right now. fire eye in the cyber security business. you found the target hack, infamously. has the target changed a lot in the last year? it has. >> if you look at the last couple of years, the types of attackers out there, much like the zoos take down, we are seeing sophistication from russia. a lot of the business organizations and mafia in that market are very aggressive. high-volume, low credit card type of activities. we are seeing attacks on debit cards, much like the target examples. a lot of changes happening. >> i have had the theory for the

last year that one of the reasons we see so much hacking out of eastern europe is because during the soviet union's existence, the bloc of sending the best of computers over there, the computer has to be better. michael lewis makes the case that computer time was so limited, software writers had to be good because there was very little time on computers. why do you think we see so much out of the eastern bloc? >> i think you hit on it. the talent is amazing. if you look at what is coming out of the russian market, the specificity, they are very stealthy. this is different from the chinese market. it is noisy, easily discovered, with a letter finger prints on what they are. russians are very stealthy, typically. you see a 30-year-old hacker, very bright and talented. i think you hit on someone that is important. it is hard to arrest these

individuals because they are sometimes protected in these markets around the world. the indictments to the chinese military will probably not have an outcome or official arrest. >> we don't want to send guys over there will to arrest him showing badges. for your company, do you have to have different types of protection for your clients when you are looking at the risks of chinese hackers as opposed to eastern european? >> you really do. the russian market is focused for crime. a lot of for-dollar type of attacks. the chinese has been for espionage. >> if i were a network administrator, how do those look different? >> is a concept called advanced persistent threat.

it has evolved at the china markets because it is there for persistency over a long. of time with the idea of stealing intellectual property. we see a different type of attack are focused in on what we call spearfishing, find an individual, get a persistent threat in place, and steal information out of it. different than the russian markets. it similar result. they are having success. >> it is very expensive. i am not one to predict that the stock price tells us. it tells more than i know or even care that it has declined a bit recently. when you look at the deal, does+

technology or because it is a consulting business that will get you into places? >> it is three things. you hit on one of them. the people are amazing. the individuals are the best responders in the world. navy cyber seals if you will. those personnel are very unique and talented. >> very consulting like. >> the other pieces are technology. they advance the model into automation so they can respond and the third is intelligence. mandiant's reports that have been put out are very powerful and good at understanding the attackers and the combination was a hell of a deal for our shareholders. >> and yet the losses persist and get even bigger over time. the margin structure looks like

it is really rough. do you feel like you have got to build the company up to be a one-stop shop, semantic, mcafee, to handle all threats or are there specific areas that the business will focus? >> opportunity is massive in the cyberspace. >> i wonder how you try to figure out which problems to solve your company. we will find out why, next. ♪

>> welcome back to "bloomberg west." google services from gmail to google translate in china appear to be disrupted ahead of the 25th anniversary of the tiananmen square crackdown. gmail traffic was cut in half over the weekend. in a statement to "bloomberg west," google says "we have checked extensively. there are note technical problems on our side." joining us is shaun rein, managing marker of chinese research group. this suggest that it is google getting shut down more, but it is our shutdown as it is. >> when you see google getting shut down, it is par for the course in china and businesses and people expect it. when you are getting to an anniversary of a politically sessile time or have the government have a political spat, google is the first company whose technical services are inaccessible in china. for the last 10 days, my company

has had a lot of problems using google services. our e-mail services run on google small business and we have not been able to get access to e-mail. we have had to use other e-mail servers. >> increasingly as google is woven into the fabric of the web in things like authentication, do these sorts of heightened security efforts start to her chinese business? >> absolutely. i think the government needs to do a rethink on some of their internet policies because you're seeing lack of internet access, instability is hurting not just

foreign businesses in china but domestic chinese companies as they go abroad. we have talked about it before. you see companies like xaoimi, tencent. it has eclipsed facebook as the largest social media site in indonesia. when they can't get access to google services, it really stifles their ability to become true global players and make money for chinese shareholders. >> i'm going to play a game where i oversimplify and you can call me a moron. let me oversimplify and saying that this is the old guard thinking they can keep the world out and this is the new guard opening up to the commerce in new ways losing the battle? >> that is one of the best questions i have heard in a long time. actually, the answer is no. >> from me? >> from you. when president xi became president last year, they

thought it would be a reformer and what you are not seeing. xi is a major reformer but is in strengthening the communist party. he has had a far-reaching crackdown on corruption which is created support among the chinese people. he has reformed political security as well as military apparatus. he is firmly in charge of the country right now in a way that i don't think we have seen since mao zedong. he is very concerned about the technical side. i don't think he will liberalize that because he is very worried, perhaps rightly so, about infiltration from the americans. there is a lot of distrust in china for the americans right now which is why you have seen a crackdown on ibm, mckinsey, the

consulting firm, and other western companies that are getting too close of state secrets of state-owned enterprise. >> we are also seeing cisco -- the ceo told me that sales of certain products in china are down significantly as a result of the revelations of the nsa and the concern that nsa hardware hacking has happened with cisco products and will hurt their sales. >> if you are an american hardware company, i would be very concerned about the next several quarters in china. in the state media, a lot of people are saying, let's buy chinese brands. let's get rid of the security threat. the government has directed the state-owned banks not to use ibm servers, while you see the chinese server companies are having soaring sales. it will be a rough time and investors need to know this for a lot of american tech companies. i think european companies will

do better over the next several weeks because the chinese government likes to take away from america and get to europe or take away from europe and give to america. a balance of power issue. >> shaun rein, managing director of the china market research group. thank you very much. fidelity looking to lead uber's latest round of funding at a massive $17 billion by tuition. you can watch us from your tablet, phone, and bloomberg.com. ♪ >> time for "on the markets." i am jonathan ferro. look for the stake of accuracy stocks lower by literally nothing coming off record highs. this week it is set to get busier. a role is friday. you have a busy week ahead of you. the price right now is actually subdued. ♪

>> you are watching "bloomberg west," where we cover innovation, technology, and the future. i am cory johnson. fidelity wants to lead uber's funding round at a $17 billion valuation. that will give this app a higher valuation than companies like best buy and hertz. is that nuts? sarah joins me. i'm not a valuation guy and uber is a fascinating business, but that is a big number. >> it is huge.

you have to look at them in context. air bnp is a startup that was raised at $10 billion in valuation. there has been more venture capital financing in the first quarter this year since 2001. we are close to bubble levels with that. i think uber wants to stake its claim as the ceo put it as a record-breaking valuation company. >> you said context. i think the true context is a yield curve and where people can find a true return on their investment. that said, let me offer context of companies in the s&p 500 that have similar market caps, like alcoa, con edison, chipotle. we're talking about businesses

that have long histories of free cash flow generation and rewarding investors, even dividends, god for bid. are we in a notion were the private rounds will be bigger than a round one goes public? >> it gets into dangerous territory. can hoover be as big as those companies you just mentioned? can they be bigger? if they are getting the site wishon on the private market, they are expecting that uber can make multiples on the public market. on the flipside, we talk about all the markets, we have seen a lot of tech stocks get hit this year. it seems as though this frothy valuation in the private markets are kind of lagging the public sentiment. >> i have also said that they will not do when ipo anytime soon.

is there something going on with some of the companies that decide they do not want to be public yet? >> it is unclear, but i think that from the glamour of an ipo is not as great as the glamour of really highly valued private market valuation right now. vox is delaying their ipo. they think that right now was not the right time on the market. we have seen other private companies announce that they were raising half $1 billion valuation just a few months after raising at a $45 million valuation. it is getting frothy. >> i guess we will see over time if the fidelity money is smart money, getting in at such a high price. sarah frier, thank you very much. uber far from alone in the high-valuation club.

a new announcement by andreessen horowitz expects to increase this year. automatic payroll, health benefits, and the ceo parker joins us right now. i sort of don't care about by tuition but i am interested about when you were raising money. what did your potential investors want to know? i think what they wanted to look at was road, but more importantly it was a big valuation. we are going after a big problem. all of these companies have all these disconnected systems related to hr. as a result, there is all that paperwork and administrative hassle. what this does is it ties all of this together. it saves someone a ton of time and best of all, we do it all for free. >> free is a great model. you can sell a lot of things if you don't charge anything.

>> it is like selling candy to a seven years old. we get revenue from various providers on our system. one of the big ones is insurance companies. we act as an insurance broker for a lot of our clients and get commissions on the policies that we have. the important thing is that it does not increase their costs. >> you listing ratio for these companies? >> but we can't take over existing policies as well and service them on behalf of the client and insurance company. we do not have to write a new policy for us to make revenue. >> few things are as private as people entering into health care forms, the information you get when you see someone's payroll, their taxes, their alimony deductions, what ever. how do you deal with generating affective leads when the people who provide information don't want the information out?

>> maybe there is a misunderstanding, but we don't send your information to anyone, ever. you connect to your insurance to our system and we get paid by the insurance company. >> you're not looking at lead opportunities. >> is not like here is a list of all the clients, go after them. we are presenting things to you come alike do you want a flexible spending account? >> there were notions that when peoplesoft was acquired by oracle, when oracle changed their business from selling databases to very differentiated offerings in software from hr software from peoplesoft. it would be integrated and people would have these periods that they were describing. what went wrong?

>> i know almost nothing about what when wrong. >> is a market opportunity. >> what i understand is mostly my experience at my last company. we were about 30 employees when i left. we did not have anyone in hr or anyone like that because we were trying to conserve capital. what we found is that there is all this administrative work that floated to the top. i ended up spending a couple of hours a month setting people up in payroll and making changes here and there. it was a couple of hours a month that i deeply resented. we allow these companies to focus on people instead of paperwork. >> there is great excitement in the notion of software as a service. should there be? >> gosh. i don't know much about the public markets and what is going on there, but i think that we have a great business.

we have a product that solves a really big problem. we get a generous but fair sort of revenue stream from benefit providers like insurance companies and it is recurring and continues over time. i think it is a good model for us. but my expertise is really on our business specifically. >> i wonder if you see opportunities that are available in business because you structured it that way. in particular, in terms of acquiring new customers. >> hopefully with these customers, if you can offer a great service and you can keep them around for years, then you can spend a little more upfront to acquire them in the first place. >> in terms of customer series, is there a particular user interface that you think is useful to create over and over again?

>> there is no particular we are trying to emulate. it is mostly how -- most of the way we approach problems and build products is, what were the things i hated dealing with in my last company and how what i wanted it to work there? when you hire someone, there should be a button that says "higher." you say, i want to hire john. he starts this month. you click go and it is done. from there, we handle everything else. employment agreements, compliance, getting them on payroll and benefits. that is the way i always wanted it to work and that is the way we built it. >> do you find that insurance companies embrace innovation more delicately than others? in san francisco we are used to tech people. insurance companies have this notion of being old-fashioned and not quick to think. >> i think the heart is willing in the flesh is weak. a lot of insurance companies are

stuck in 1986. it is the age of the fax machine. nothing is online. they are very interested in making changes, and we are working with some of them to get some conductivity to their system and do things electronically instead of on paper. yeah, it is really backward in a lot of places. >> parker conrad, zenefits ceo. good luck on making the company even better. ford has been experimenting with lightweight materials to enhance performance and make cars more sustainable. maybe faster. imagine that. you can watch us on your tablet, phone, and at bloomberg.com. ♪

>> i am cory johnson. this is "bloomberg west," and yes, we are in a beautiful day in san francisco and surrounded by trains, planes, and automobiles. ford has been improving technology for 20 years. matt miller went to the world headquarters of ford to see a constant car putting lightweight to the max. ♪ >> this is the massive take-up truck ford entered in the 2013 baja the terrain is so brutal, it is a victory just to finish and this vehicle that. >> we wanted to test the durability. we did not tell what the driver was. >> this was not an ordinary truck. instead of a standard steel body, it was made of aluminum, making it 700 pounds lighter.

the company went to extreme to prove that light can also be tough. there is a lot at stake. this is a technology that will be rolled out and the all new version of its best-selling f-150. >> it helps to make it stop quicker, accelerate faster, and the customer can use that capability to carry more and tow more. >> we have taken way out of our vehicles consistently for 20 years. >> until recently, the technology was focused on track projects like fort's gt40. new government standards are pushing automakers to deliver more fuel-efficient cars to the masses. >> lightweighting is an essential part to our strategy. >> enter the fusion concept car.

>> is about 25% lighter weight. that is to car sizes smaller. >> is aluminum and carbon fiber. it is looking at how these can come together and create an optimal solution for weight. >> they cost more than steel. bringing down the cost may be difficult. >> the challenge is bringing it to mass production. we have not solved all challenges yet. this is where we see the future going. this is what we are working on now for our next generation of vehicles. >> matt miller is here with us. joining us as well is a ford executive. he is the global vice president in charge of engineering. you oversee these things. first of all, it has got to be exciting to be able to lightweight these trucks for racing purposes and speed, but also increasing their fuel efficiency and making them cheaper to operate.

you are really not only doing something better for speed nuts like myself, but for the country and world. >> absolutely. it is great for the environment. it is great for our customers in terms of fuel economy. great for cost of ownership. as you make them lighter, you can make them for better hauling of cargo. >> if it is lighter, you can stop faster. >> we are and the business of mobility. moving a vehicle takes energy. the lighter the vehicle, the less it takes to excel array. >> why is this happening now? has there been a technological advance that makes it possible? >> there was all kinds of technology becoming available in terms of materials. as we have demonstrated in the

f-150, we are going to going to watch it next year. we have created the entire body out of aluminum. the research we did on it, we can now get really structural, really tough, strong alloys. >> that was the issue. it is fine for airplane, but not safe in a potential car. >> it was two things. it was building the alloy for the strength necessary. also having the availability of automotive-grade aluminum at the scale we needed. >> building a better truck is what gives us all of these technological advances on the f-150 side. the concept car we were looking at was the result of the department of energy contest to forward the advancement of technology. >> it was the department of energy contest that we won and we have been thrilled to work with the department of energy on this along with a partner of ours. cosma is a subsidiary of magna that has been working with us. we have put multiple materials in this vehicle. the vehicle -- lightweighting is crucial for fuel economy, but it

has to perform in crashes and all the other attributes of the vehicle. we have been able to pick materials that are necessary for each one of those attributes and

be able to join those materials with really advanced technology and be able to take out roughly a hundred pounds out of the car. >> which is key as an engineer. the challenges are not just getting these space-age materials, like aluminum alloys or the carbon fiber, but being able to stick them to each other, being able to do it in a cheap way that is possible to manufacture the amount of cars -- the best selling car since the taurus -- and doing it in a cost-effective way. >> it has to be the right value for the customer. it has to provide a clear benefit to the customer. at the same time, it has to perform all the things we want it to perform. the rigidity of the body has to be right so you have the right handling experience. the crashworthiness has to be perfect. the noise vibration and attributes have to be perfect. this is a great research lab form for us to develop these technologies. >> as you engineer this stuff, at what point do you start to imagine cost and try to figure out where the cost issues will be? even as an engineer, you can't work out what it will cost in production or what it will look like when it is them. you have to make a decision early on to go down a certain path. >> we have a structured process.

we have an advanced research organization that is always doing leading-edge work on materials, sourcing, all kinds of stuff. when you take that part of the research, when it is done, when it is physical, we bring it to an organization that looks at it. how come we implement it into a vehicle? once we have a concept ready, during that phase, we try to make sure it is affordable for our vehicles and it is the right material, for the right rise, for the right car. >> these kind of projects seem to help you push price down. you are working with dow jones to make cheaper carbon fiber. you're working with samsung to make lithium-ion batteries that are light and have more energy. you can lower the price. bringing these supply partners in was good. bringing them and having them integrated in is good and having them scale is important. if you're going to build 5000 of them, you will not get the scale to lower the cost. but if we produce hundred's of thousands, it will be fine. we make 700,000 pickup trucks a year. >> that is a lot. >> we will look out for those as

well. >> do look out. if you get hit by one, it hurts. matt miller, great to have you here. vice president of project development. "bloomberg west will be right back. ♪

>> welcome back. i am cory johnson. this is "bloomberg west," and it is time for the bwest byte. we don't wear ties outta here. >> i noticed that. i went to a press conference today. out of 30 people, i was the only person wearing a tie. the byte is 17. >> the number higher than 60. >> the new mega earth is 17 times the mass of this earth. it is about 560 light years away and it was too big to be classified as a super-earth. it is very heavily and i'm sure you could generate a lot of energy there. >> but not free cash flow as we know. matt miller, thank you for being here. you can get the latest headlines

at bloomberg.com and bloomberg radio as well. we will see you tomorrow on "bloomberg west." ♪