>> live from pier 3 in san francisco, welcome to the early -- to "bloomberg west," where we cover the global technology and media companies that are reshaping our world. our focus is on innovation, technology and the future of business. i am emily chang. is the resume program legal and constitutional question any reports of the surveillance of foreign internet activity is indeed. the board wants changes to better protect privacy rights of americans. rise of the chinese smartphone maker sold 26 million -- shows no signs of slowing.

they sold 26 million in the first half of the years -- of the year. they are inching closer to the top two smartphone makers, lenovo and smart some. mike honda is being challenged in the district of silicon valley. we'll be joined to talk about why he is running and the inequality debate here in the bay area. we have a special guest host for the hour. we have the cheapest creative officer for -- chief creative numeral -- new,. how is that going? >> great. we just signed to istanbul. these going all over with

festivals of innovation. >> what you mean by festivals of innovation? >> we turned the meeting inside out. you can go in and see the company in its native environment. " last year was a host company, and they came in and saw how the sausage was made . >> you also have some of the biggest technology companies in the world signed up to do this. >> google, adobe, salesforce, twitter. it is also interesting to see companies that are not tech companies. they are also changing how business is done. >> you have also found that a number of media companies and have a lot of thoughts on the future of media. later inalk about that the show, but first, the lead story, a federal privacy watchdog gives a boost to nsa surveillance saying it

surveillance of foreign intelligence is not only legal, but also effective. upstream collection programs showed no trace of a legitimate activity and they have helped to improve the , the reportcurity shows. the report urges the nsa to put in more safeguards to protect the rights of u.s. citizens. our editor at large cory johnson is here. >> principally, this report came out and found there were no even .ccidental uses they have recommended a series of 10 different privacy controls to be added on to the privacy controls already on there. >> like what? >> different things about essentially purging data when it is accidentally correct it -- collected. it was generally supportive of

the policies suggesting that they were always targeting for individuals, and did not really address the commercial concerns. they have this orwellian phrase -- "compelled assistance" referring to what happened to yahoo!,s like google, hotmail, and others who were compelled to turn over information. they went deep into the internet backbone to get information when they were not getting enough from the company that exposed a lot more data about individuals that otherwise might not have been gathered. >> we are still waiting from a response from the technologies. john, what is your reaction? >> i do not think this will do much to dissuade the concerns of the general public. in january there was a scathing report. this report is pretty muted. so far, the places where people in the tech knowledge industry

look for, sort of, a marker, is this good or bad, those places are livid. the eff, for example, came out with analysis of the report and said this is not good. when the eff says that, a lot of people in the technology industry say i do not know if i could trust this. >> let's talk to someone who knows this report intimately, chairman of the privacy and civil liberties oversight or for dashboard from washington dc. david, what you make of the board from oversight washington, d.c.. david, what you make of the reaction? >> we did an assessment of the program, and as you said we found the program was effective, if awarded terrorist plots and it provided important advice to our leaders on how to conduct foreign affairs, and the program

is lawfully authorized. also, as you point out, the program collects a lot of information about non-us persons, foreigners, and some information about americans and it is important that protections be afforded to american communications, and that was one of the recommendations, that there be more limits on the fbi access to information for criminal purposes and another aard member and i wrote separate statement saying there should be court approval for foreign intelligence safety access to americans information. >> it was interesting, in your report and demonstrated that a lot of information is automatically shared with the cia and the fbi. it is an interesting read. i encourage people to read it. i put out a link on twitter. tv and you delineate how you approach the study of what was going on, but looks like you chose not to look at the commercial, the economic impact,

the thing so important to the company's in the technology. why did you exclude that? >> our mandate is to balance privacy and civil liberties with national security, and look at legal compliance issues, but we are not insensitive to the business aspect of the program. we have met with the tech companies and other companies that do work in the space and are certainly sympathetic to their concerns. we thought it wasn't for them to have a clear understanding of what this program does and also a clear understanding of what the program does not do. contrary to some conceptions about the program, it is not able collection program -- balked collection program. not every foreigner is subject to having the communications listened in on or e-mail read. they have to be a non-us person, they have to be overseas, and it has to be a for intelligence value for the interception of that information. hopefully, that will have some

impact on putting foreign business partners at ease that the program is not nearly as wide ranging as a lot of people feared it would be. of the major concerns, and cory johnson touched on it, and you did, too, particularly companies based in the united states are getting a lot of heat as to whether or not the internet is regionalized with data secured inside of national borders creating all sorts of issues like germany decided not to work with verizon, or cisco, which has said this has impacted their business. you think this report, with its andtively muted statement, the response from advocacy groups like the eff, is going to put the chairman of cisco's mind at ease? >> well, i am not sure, but what i think it is important -- is important is to look at the ramifications and president obama has said -- started a

process to afford more rights to foreigners under u.s. surveillance programs, and that is one of the things we will be monitoring over the coming year at the presidential request and reporting back on. we have also established in a report that there are already protections for foreigners under american law. having a better understanding of the scope of the program, the protections in place, and the protections that are going to be in place, hopefully will put some foreigners morales. on the domestic -- more at ease. on the domestic side, we could have a debate about whether there are adequate protections. another board member and i, judge wall, believe there should be more protections, which is integral to our regulation of government access to personal information. yourvid, what is assessment as to how involved the tech companies were in this program -- were they fighting it, or were they playing ball? >> as it was noted earlier, it was compelled production -- that

is under the foreign intelligence surveillance act the court authorizes the government to go to these companies and essentially make them provide communications, whether it is access to the internet backbone, the so-called upstream part of the program, or access to e-mail traffic, which is the prism part of the program, but it is not voluntary participation by the companies. they were ordered by the federal court and they would have been subject to federal court sanctions had they not comply with that order. >> all right, david medine, chairman of the private -- privacy and civil liberties oversight board. john battelle with us for the hour. any report says the shift to mobile has been dramatic and it could turn the media business upside down. we look at the numbers next. ♪

>> welcome back to "bloomberg west." i am emily chang. mobile is the new goto place to consume content. more than half of the time americans spend consuming digital media is now done through mobile apps and 60% was spent on smart phones and tablets rather than desktop computers, up from 50% one year ago. what kind of challenges that this brain to traditional media? john battelle, you have put a lot of thought into this over the years. over the last year in particular, what is the biggest challenge that has emerged when it comes to building a media company people a want to consume -- actually want to consume? >> first of all, their extraordinary complexity to the media companies. you have to think not just about one or two distribution channels, but 10 or 20, not just mobile distributional, but

apple, android -- 10 different flavors of android, cross-section with so many different devices. how will you present the different pieces of glass as small as a watch, as large as a tablet and even now as large as television, right? complexity means cost, and the economics of them media business, as you know, martin. -- our same. we have managed to lose the --cept of form and addition a thing, a media object to make complete object has been lost, and instead it is a stream. dipping ineat for and out of but they do not create an experience and a brand. >> you make a great metaphor in a long post causing -- calling a good piece like eating a good meal, sitting down to denver -- dinner instead of snacking all

day long. willen you eat dinner, you put in a lot of time, where the chef will put time in thinking about the ambience of the restaurant, the experience, right? a meal is nutritious, and if you snack all day long, we know that is not good for you. media is like that. you do not take "game of thrones" in two-minute segments over the course of a week. you experience "game of thrones." you experience "bloomberg west." i do not know where we lost the experience of the publication and did in and out. -- dipped in and out. thanks you did -- >> you did a great piece. what is interesting to me is the marsh,: -- marshall mcclellan thing -- how do people change the way they are consuming the new media? >> i think we should probably look at the most -- the dominant

youth case, which is our phone. in and out ofip that phone 500, 1000 times a day. things starting to create experiences for me the way a magazine used to. circa a little app called which has prevalent news stories, but i go in there for a five-minute experience, which is different than what i used to do -- flipping through twitter, discovering stuff, not having a consistent narrative experience through my media consumption. that is what i think it's a big opportunity for us to create in the media business. >> at the same time you have websites like business insider which has been successful repurposing a lot of stuff here and there. . read it, too if that is the thing getting all

cks, how do you decide to put your resources there were into making a meal that might not be as popular? of the things is looking ahead. i look at the success of "huffington post," business insider, as a successor of the past model which was driven by display advertising. i think the future has to do with long-term engagement and experience and you can only do that by creating narrative and making a brand that is truly engaged in the community. brandate that the discussion seems so divorced of what things actually are, but people have favorite things. favorite publications that really engage them and take them away. i know they struggle with mediums. inthere a place for that this mobile consumption? >> i absolutely think there is. we will see later in the hour

use ony apps we actually a monthly basis, and i think the architectural underpinnings of the mobile internet are shifting, and we're going to start having richer, more varied experiences, but we are currently in some silos right now. >> all right, john battelle, thank you for joining us. he will be with us for the hour. we will be right back after this quick break talking about the chinese upstart smartphone maker, nearly quadrupling sales in the first half of the year. what does it mean for apple, samsung, and more, next. ♪

>> welcome back to "bloomberg west." i am emily chang. xiaomi has released sales data,

selling more than 26 million smart phones in the first half of the year. what do the impressive numbers mean for the competition, namely apple and samsung? editor-at-large cory johnson still with me and we're also joined by a bloomberg news reporter. this is not a surprise. we knew the numbers would be big. what is your big take away. >> they said they would hit about 60 million, they seem to be on track, if not a little ahead. .hey will get a holiday bump november 11 is the big gifting holiday where xiaomi sells a lot of phones and they have deals around that. theyare way ahead of where were last year, almost quadruple the number they did in the first half of last year. they are continuing to blow the walk -- numbers out of the water, and they are forecasting

eager numbers next year, 100 million sales in 2015. >> in context, apple probably sold -- we do not know the numbers because they do not give them until the last day of the quarter, but they probably sold about 84 million worldwide. for these guys to sell 24 million mostly in china -- how much of it is only china? >> the vast majority. and the past, it has been around 90%, or about 90%. they have yet to launch in a lot of big markets. the plan to go into many of brick countries, brazil, russia, india are some of the next launches on their radar. right now, this is mainly a chinese story, and as they are proving, when you take over china, you can take over the world. >> right, one point 3 billion people, and hundreds of millions of them with smartphones. bera's jobt hugo

will be -- to see if the xiaomi brand can translate globally, and i wonder if they can. >> it is an interesting model that no one else is doing -- selling high-end phones at a really low cost. they sell it directly to their website in most cases or cut special deals, as they have done in india with one of the big e-commerce companies there, to not pay the retailer a huge fee, to take in all of the money directly, and then they also plan to make up some of the cost in the services they sell on their phone. they have their own app store. the clip money through that, and they also sell software. to a company that uses silicon valley innovation and chinese manufacturing

innovation and taking it all over the world. it is the same model opening up now for this cheat their premium phone. wille of the things xiaomi have to figure out is they are still a relatively young company, four years old, and they will have to figure out how to scale up their manufacturing because right now they are trying to get into tablets, routers, and all of this other stuff, but they cannot build enough of them. they sell out their phones in mark -- second. >> and the tablet market still immature in china at the moment. mark milian, thank you. we'll be back with more of "bloomberg west." john battelle will be back. it is 26 minutes past the hour. bloomberg tv is on the markets. are looking at stocks that are losing a little bit of steam as the day goes on despite the killer adp employment report we saw early in the morning. flat.p is relatively the dow jones is off by about 27 points to hit the all critical 17,000-mark. a few stocks we want to

reghlight, tyson and hillshi with tyson officially acquiring them for $63 a share, and hlshire absolving their payment to buy pinnacle. we are on the markets again in 30 minutes. ♪

>> you are watching "bloomberg west, where we focus on technology and the future of business. i am emily chang. words are being waged over housing inequality and politics. one battle being closely watches the congressional seat held by mike honda. a fellow democrat is fighting to disrupt and -- dislodge him. join us to discuss that race and debate isg inequality the congressional candidate himself, and our guest host john battelle. at thank you for joining us.

you are backed by a lot of people in technology that we cover every day -- eric schmidt, sheryl sandberg, marissa mayer -- how did you get these people to perform -- support you? >> they look at the platform and they believed we needed a better strategy to create jobs and get people prepared for the new economy and that silicon valley needed a stronger voice in washington. platform? your >> won his government reform, getting special-interest money out of politics, only getting support from individuals. number two is saying we have to have new skills for the jobs that will exist, and advanced manufacturing, teaching folks g in the classroom, and then education -- how we have teacher accountability, investment in schools, and have the right curriculum for the challenges of the new economy. that it is not just

the high-minded goals, but they want access and influence the big decisions government is making. we were talking about prism and they want a large voice their. mike honda has been in washington for a long time and has gotten a lot of ears to a lot of important people. how do you counter that? >> his record -- he has passed one bill in 14 years. i did not think he has been effective. you are right, the companies have lobbyists in their own interests, but our platform is focused more on everyone and what it will take to be prepared to participate in the silicon valley economy, and it is not focused on what a company will want in a particular interest. there are areas where we are taking positions in companies -- that companies do not like like overreach by the nsa, pushing for internet bill of rights -- the platform is focused on the district. >> one of the largest issues that is really erupting now, and

silicon valley is at the center inequality, and the way that, you know, the celebrated few make an extraordinary amount of money, but middle income seems to be shrinking, and opportunity seems to be shrinking for a majority of the population. thecon valley is getting target of a lot of ire. what is your point of view on that? how do we address that? >> it is a huge issue. joseph stiglitz had this issue in "the new york times," as the issue of our times. some folks in my district have had everything to do very well and others have been laid off as technology has disrupted their lives, and the question is how do you have an honest conversation about it? some jobs have on offshore. what are the jobs we can keep your? how do we prepare people to operate advanced robotics to have the jobs that are actually going to exist question mark one

final point, the average employee at apple consumers produces -- exist? one final point, the average $2loyee at apple produces million. it is no longer the case with automation to hire a lot of people. >> it sounds like the answer you are suggesting is education and skills, recognizing that some people will switch jobs, lose jobs over and over again, and give them the skills they can move along with. >> that is part of it. we need tax incentives to hire long-term unemployed. on the unemployment rate, 35.8% are long-term unemployed. once you're out of the job market it is much harder to get back in. -- i do know. >> not you in particular, most of these folks know. we have to figure out how to get a long-term unemployed back into

the market, how do we get money the companies had offshore back into the united states, linked to hiring folks particularly in their 40's and 50's? there is one strategy for young folks, it but then there are people that have been laid off and they cannot get back into the market. >> from a philanthropic respecter, how much more involved should tech companies be in education? transportation? giving money be back to the public transportation system? >> the protest against google buses misses the point. that is not causing the job dislocation of the middle class. i think these tech companies have a bigger obligation to be responsible in the community. you go to my district, there is apple and google offices and linkedin, and schools in the same area do not have basic computers, they do not have

access to high-speed internet. rich,a that is technology you have technology-poor schools. these tech companies, it is in their own interest to help the local schools, to help make sure they are partners in public transportation so that 237 or 101 are not congested with their expansion, and i do think there has to be a better effort to get the tech communities and local communities working together. >> where's the money going to come from? discussion, policy but something has to get cut somewhere unless you're going to raise the flag for higher taxes, which you are welcome to do. >> that is honda's policies. one is an actual curriculum change -- it will not cost more money to say we are teaching -- we should be teaching coding in the classroom or preparing folks to operate machines. there is a cost. i will look to cut some overseas

bases. we are still fighting the cold war in the 21st century. i worked at the commerce department. i know there is a lot of bureaucracy and things that could be simplified and cut. we do not need bigger government, we need smarter government. i would close corporate loopholes for oil and gas companies. >> when you look at the prism report one of the things that i was reading was that this has to cost a fortune in some of the rules they rode into creating spends -- of created spending -- mass gathering instead of targeting gathering -- targeted gathering. >> i'm interested -- this is a polarizing question, but an interesting one, do you believe edward snowden is a patriot or a traitor? >> i do not think he is a patriot. i think he should face the consequences of the law. what he did -- i am glad information is out. i think nsa overreached. >> should he be protected by

whistleblower laws? >> he fled the country. wehe were in the country, can have a conversation, but i do not think is a patriot because he really sensitive information than anyone knows that you cannot have a president where it anyone that disagrees with the policies of and and and -- administration has carte blanche to release them. .e has to face the consequences i'm glad information is out. i think the nsa has overreached dramatically. i disagree with the president's policies. i think we ought to declassify justice department opinions and not have mass surveillance. my opinion of him is he has to be held accountable, but the information being out is a benefit to the american public, and salman rushdie once had the great thing about american democracy is there are no secrets, and eventually everything gets out, and we can have an honest debate. congressional candidate, we'll be following your race very closely.

thank you for joining us. >> appreciated. >> when you think about intelligence community the robots, but what about advertising? how ai a shaking of the ad industry next. ♪

>> welcome back to "bloomberg west." i am emily chang. the for sale sign is going up at online company shutterfly, who is working with catalyst partners to find potential buyers according to people familiar with the matter is a the processes in the early stage and might not lead to a transaction. --t allows customers to shutterfly, which allows customers to put photos on pillows.g from cars to there is a wave of change brought by big data and artificial intelligence. one of the leaders in the digital ad space, rocket fuel, had a hot ipo.

since then, the stock has fallen. cory johnson has more. >> rocket fuel almost doubled with its initial public offering, the stock went crazy, sold off, and now it is coming back. stocks do not tell you more -- much. the business tells you more. georgejoined by the ceo john, and john battelle is with us as well. we have so many conversations about privacy, monetization, and you are in the heart of bringing money to companies through bringing relevant advertising. one of the newest tools. we throw around words like programmatic. i cannot explain it well enough. explain it for me. >> ok. in the old days, you would put ads somewhere, they would be at the bottom of the page. these days it is all backwards. little auctions occur in real time as people are looking at

around theobile apps world. anonymous user 32 needs to get a the top of this page. who wants to buy that, and how much would you pay? companies like rocket fuel has built a massive technology platform where around the globe we are trying to crunch these in optionses to bid for ad space. if you can do that well, as you're making the bids on behalf of an advertiser, you have to figure out, what is the chance that the mercedes at it's a response, the ice cream, the shoes ad. >> what is the metric way you say we do a better job than competitors? website we broke it down to return on investment. every advertiser want something a little different. it is not all about delivery or clicks. in aabout -- it is about

car manufacturer, you want people to configure the car online. i might make toothpaste. i might want people to say yes, i do know about the new whitening enamel-protecting properties of the new toothpaste. whatever the cool thing is using -- whatever that thing is, you can use ai to drive it to generate a specific response, not just a click. >> what you are talking about, as we understand it, not just ,he desktop web with banners but the shift to mobile were content producers and publishers see 50% coming in mobile. how does that affect what you do, how does that change, and how to use data to understand that? >> complexity is our friend at rocket fuel because we build ai to figure this stuff out. it is just more ways for the robots to serve and every now

and then they get a pat on the head and they figure out what do i do to cause that. in the mobile world our own result was in the last earnings call 20% comes to mobile channels. it comes through new channels generally. same int all looks the ads,ense that i am serving they have a goal, maybe download a nap, and even better, actually using it. if you do not want them to just download the app, but actually use it. could get the kind of people that want to book travel through their phones, we could deliver great results. >> does that ultimately include television advertising as well? it is the biggest part of the pie. >> i do not see why not eventually. it will be away for advertisers to get smarter and smarter and

know the properties of the households you are talking about and understand the results you're having. it is hard to imagine a world where all advertising is not just rational at some point in that sense of never stop testing in your ads will never stop improving. >> what percentage of your ads are viewed by box? -- by bots? studies.e done if you're a publisher you might be motivated to artificially inflate your traffic to drive more money and if advertisers and their partners are not smart enough they will buy some of this traffic thinking israel people. >> or -- thinking it is real people. >> or they will do it intentionally. >> maybe. we throw away opportunities to on adn ad space -- bid space because they do not pass

our standards. it is mass of the amount of stuff that you would not really want to run a quality brand ad on. >> one of the tools you are using now that were not available even six months ago? >> six months is a tough time frame for tech evolution, but you could not have started rocket fuel before we did because it would have been expensive to build the infrastructure that we have. terabytes, i35,000 cores crunching all of the stuff. the kind of stuff we use is about predictive modeling, and it is up to them to learn the patterns for the luxury car, somehow or another they find it indian -- they find indian the index patriots living in the u.s., or they learn that pregnant women do not respond to

the pickles ads. it is all of this kind of stuff machines that are -- are finding for us. i would say the important thing is the cost. generally, companies invest a lot in automation. avionics -- it is important if the jet falls out of the sky. there's a lot of tech there, but serving the right ad might cost you 1/10 of a penny, but we are producing massive amounts of competition. >> george john, ceo of rocket fuel, thank you. johnson, johncory battelle, and rocket fuel ceo george john. with changes to the internet like the possible creation of collection,nd data many are asking what kind of internet we are actually creating? we are back with our guest host john battelle for a discussion on the changing landscape of the net.

♪

>> welcome back to "bloomberg west." i am emily chang. the internet, as we have known it, is drastically changing. what started as an interconnected web with few rules and global access is slowly being regulated and regionalized and government snooping into our online actions and government is collecting our personal data. what will the future of the internet look like in these trends? ,ory johnson and john battelle our guest host, back with me. is thears from now, how internet different? >> it is a great question because i do not think we know, but if we think about what is happening now, we can imagine what we would like it to be an take actions now to at least skew us toward that at her vision. >> what do we want? .> -- better vision

>> what do we want? elementsf the original of what we call the first web. anyone could put anything out. journalism, everyone would have a webpage. >> it turns out is a facebook page. i am not sure that is the only identity we want to have. we are seeing a move away from that. i is almost like linkedin, have to have the facebook page, but where i really live is over here where i have control over my privacy, friends, interactions. i feel there are safeguards. that is why they are going to snapchat. that is where they have more control. it is a great trend. when i think about the kind of it and we want, we want the original values where it is open and we set the rules on our own. >> there is an aspect to that -- e-mail is an integral part, still, of the e-mail and the way communication happens.

>> what is interesting is there is not a platform of e-mail that is owned by one company. i think that is a good thing. >> here is my question. i recently interviewed reid hoffman, the cofounder of linkedin, is he worried about amazon,s like apple, facebook, becoming too powerful, and he is in the sense that he wonders if there will be room for innovation. will these companies allow this to happen? >> a good use case is happening right now. think about the two ways the internet has rolled out. phase one was the web, html. phase two is the phone, mobile. the website, and the app. the fact is anyone with their website could link to anyone else on the web, and that created value. google was created out of that link structure, and so were hundreds, if not thousands of other valuable companies. in the mobile space, it is a much more narrow divide.

you either have the platform, if you're apple, or google, or you do not, you are one of those future clicked on the screen, or you are not and the reason is to give aot linking vibrant expression of what is valuable in that ecosystem. it is coming. apple announced in may and google announced it last week. be plinking will change the face of mobile. it will change the face of mobile. >> quickly, you have a bwest byte. >> the number has only increased by one or one half. it is a small number. >> it is not sustainable. half of those apps are things you have to engage in. there is not a lot of room for a vibrant economy to really, truly exist. >> and you wonder what the future will look like. john battelle, chairman and founder of newco, and so many

other companies. thank you for being with us for the hour. cory johnson as well. thank you all for watching this edition of the show. ♪

>> from bloomberg world headquarters in new york, i am mark crumpton and this is "bottom line." today, a government panel calls for revisions to the u.s. spy program. then iran nuclear talks in vienna reach an impasse. plus a look at the latest in technology innovation. the curved television. to our viewers here in the united states and those of you joining us from around the world, welcome, we have full coverage of the stocks and stories makinghe