♪ >> live, from pier three in san francisco, welcome to "convert west." i am cory johnson. in for emily chang. is buildinghe buzz about apple's next big thing after ceo tim cook says that he cannot wait to show off new products and services. this comes after they reported solid third-quarter results. revenue and profits rising tanks in part to huge iphone sales. the powerful family dynasty of samsung is facing an uncertain future as the patriarch has been in the hospital since may and there are renewed questions about whether his son will be able to exert as much influence.

health tracking devices are all the rage right now, but what about devices that keep tabs on your car? the ceo of metro mile collects information about gas mileage, commute times, and more. to our lead story, apple is dropping more hints about upcoming products in yesterday's earnings release. the ceo said that they were incredibly excited about the upcoming release of ios eight, as well as other new products and services that they can't did to introduce. nonetheless, he did wait. be asaid that it would very busy fall, creating a lot more was about new products, specifically bigger screened iphones. revenue andain in profit for their fiscal third quarter fueled mostly by rising iphone sales. apple results are always interesting. we can see how a lot of things

are going. the iphone number, as we all know, you broke the story that they have these new phones coming out, i would have expected that to slow down a little bit. >> it is that time of year where people start holding off on buying new models. they probably have friends who are asking -- when is the new phone coming out? >> well, when is the new phone coming out? on the show last night, i put out a note yesterday or today -- i can't remember, speculating that the actual date of the product release based on apple's guidance from explorer. >> it is hard to pinpoint the exact day, obviously, but for the past two years september has been the month that they released them. there is usually an announcement and they come out, than a week or 10 days later they put the device on the market. reallyey bank on is a big kind of hollywood opening where you have those lines that they have had in the past. those can show up in the quarter results that are now here.

it all leads up to the holiday, which is really the block oster time of year. >> the previous date was september's -- september 26. you know, it is like trying to land a 747 on an aircraft carrier. thinking that they will slow down one business and pick up another. one of the numbers that really jumped out at me was the ipad number. ipad sales are really hitting a wall. i think this is the third in the last four orders we have seen a year-over-year decline. what is going on there? >> the market has slowed down, particularly in the u.s. and western europe. while apple says they are seeing more growth in china, india, and the middle east, that is just not enough to make up for areas like the u.s. and europe, which is really where the device has been strongest. and the market is getting more saturated. people are holding onto these devices longer.

smartphones as they get to your are taking on more of the responsibilities that people are using for a tablet. laptops, you know, are still doing well. >> mac sales were strong, although the raw numbers from a few years ago, there are still more macs being sold today. all part of the slowdown. i thought the tim cook in particular, i wonder at what point he is going to stop saying that these were things in the pipeline when steve jobs died and this is tim cook's company now. are we there? >> i think so. there is a new batch of products particularly around wearable design changes that might be there in the new iphone. really, this company for the time being is really dependent on the iphone. it comese device, if out, if they were to sell it huge amount of them it would still only generate about 5% of the revenue that they had last year.

morgan stanley came out with youmates that kind of show the scale of how big apple's business is and it is largely driven by the iphone. as the iphone goes, so goes apple. yeare ipad in its first had $5 billion in revenue. but back then, the company had a 65 billion dollar revenue. now it is a $175 billion revenue company. growth, or call it shrinkage and ipad sales, but a new business that did $5 billion would be a drop in the bucket for them now. if a wearable device as expensive as an ipad, which it with the, probably, success of ipad, which it will be, probably, it would be tiny for this giant company even though they have billions in revenue. >> the thing the iphone has really benefited from here are the subsidies. the u.s., where you can pay $200 for a device

and the carriers are paying much, much more for that. the price per phone that apple is getting is over $600. when you sell 35 million of those, it adds up to some real money. >> quite a bit. thank you ray much, i appreciate your time. turning to facebook, they reported second -- they will report second-quarter earnings later today. mark zuckerberg has been centering on growing their mobile business. mobile ads were 59% of total ad revenue, coming up from well, nothing two years ago. the question is, can they continue to grow their mobile presence? or are we starting to see the end of that kind of growth? the have zach with us from a company that at -- that analyzes ad exchange. when you get on the numbers from oak you start to see mobile ads growing in certain ways and slowing down. is that a slowdown in the business or a slowdown in growth

? writ large or is that just about ace books adoption of this haven't seen i that slowdown happening in the industry with the folks i talked to. with the companies that we work with. still seems pretty gangbusters these days in the ad world. i think it is always hard to things with growth when first start. it moved into a huge number very quickly, but generally it still like and looks to me facebook is still very strong. >> in what areas? >> business is still really good. traditional advertisers have struggled with mobile. it is hard for them to build in the infrastructure and how to turn mobile traffic into mobile revenue. there are so many steps in the process. punch in the credit card, punch in the details. the business is very simple. you get someone to click a couple of times, maps are

installed, you make your money on the backend. those guys have really figured out how to turn the machine into a cash generating engine. they are really driving the mobile business for facebook right now. it is still just really a gold rush. >> interesting. it does not seem like apps are such a big revenue business on a stand-alone basis. what are the kind of metrics we are talking about here? >> the thing about an app is that when you get someone to download one on their phone, especially the ones where you have them continuing to buy things, credits, gold, all of these other pay-as-you-go elements, they can become incredibly lucrative. so, if it costs you a couple of dollars to add a person who will spend hundreds or thousands of dollars on your app, that is an incredibly profitable way to buy revenue. install wires are out there purchasing as many units as they can get and facebook, without a

doubt, is the place to do to do that -- place to go to do that. >> zach, i find that hard to believe. i have a ton of apps on my phone, but john mcclellan was on a few weeks ago and he came with this number, the average number of apps used every month iphone users is like 24 or something, not a big number and it has not changed much. however they have spent hundreds of dollars on in-store purchases . i think that that is probably true for a lot of people. veryrst of all, you are a unique person. special. >> thank you. i feel i am a unique risen as well. >> appreciate that. but among the general population the way that it works is you have a very nonlinear distribution of install revenue. what happens is a very small number of able spend gigantic amounts of money and the majority of people actually don't spend hundreds of thousands of dollars, but enough people do that it makes it a very profitable business.

we call those the whales. the goal of that market is to go out and find those people, get them on your game, and you make all of your revenue from a relatively small number of people. it is hard for the general public to generalize about what is happening because the small number of people actually generate that. >> there is a great cartoon in the new yorker that i will describe to you. i guy sitting in a subway with his shoe on his right foot, barefoot on his left foot, the .ign next to him says by issue targeted advertising. this targeted advertising getting better at finding the guy without issue for mobile device is? facebook be the great beneficiary of this? x absolutely. mobile ramp itself up first. the rest of the market is coming slowly, but much, much stronger on the backside. the mobile business went first, then the rest of the targeted is

this is very quick. what we are seeing across the mobile business is tremendous adoption. they are building out the infrastructure. it is taking them more time. hand,a replacement in one but a bigger market on the other hand if the app install business ever slows down. >> i guess that means the number for tonight obi revenue per user to see if you are getting better targeted ads as a result. thanks a lot, zach, we really appreciate it. >> thank you. >> one of the lifeblood's of the american economy, trucking, also a very dangerous profession. what new technologies are making highways safer for trucks and the rest of us? ♪

♪

" i am cory johnson, this is bloomberg west." a big announcement today, a continued commitment to sponsor to open source cloud platforms. the german-based company is now committed to open stack and have partnered with oracle. s.e.c. and oracle, coming together like cats and dogs. is the world coming to an end? it is happening. to see you,, great as always. i want to talk about this stuff. it is so important as to how the world of computing works, but i want to start super basic -- why the cloud? >> it used to be that if you wanted a bigger, more powerful computing platform, you had to buy a bigger, more powerful, and geometrically more expensive computer. alternately it got to the point where there were not computers big enough to handle google, facebook. they invented this platform that

is described as scale up. want to make it bigger? add inexpensive commodity resources and it scales out on demand. it is infinitely scalable and much less expensive than the old monolith. >> interesting to think that the architecture that that requires, how you design computers cannot he all my computers go here, it will happen somewhere before it gets to this thing that spreads out the work and process that has to be done. >> it requires an orchestration in what they called provisioning , which is what open stack is. it is an open source platform managed by the open stack foundation. >> open source just means a lot of people can work on it, fix it, invent new things to make it work better. yes, but there are companies that are commercializing open-source. one is called the stent cloud computing. rackspace was one of the developers.

very active and open stack. not exactlyle are working together so much as they are members of the same organization. loveill, nice to see that is in the air. when we talk about the way that this works i am blown away by amazon and the ubiquity of it. ibm to goober, all building companies from this web services business. when i look at the way that amazon is treating hash at right now and the way that that company views competition and their suppliers, is open stack sort of a competitor, in some ways, to what is happening at amazon? >> it is. anytime time one company gets what people received to be threateningly dominant, other players -- >> you never would have seen that coming out of washington state before. >> remember, my activity there?

criticizing microsoft's ubiquity and dominance? actually rooting for microsoft because we need a counterbalance to players like google. partly open stack is supported by so many enterprise companies as a counterweight to amazon so that amazon in a sense is not done away with the clout. >> how big is amazon in that department? to put a number into their services and they won't say what the revenue numbers are, it is the new parlor game. >> i don't know other than you get to a point of a where it is just really, really big. >> any inclination on the percentage of market share? >> i do not, other than virtually every startup we have start developing and offering services on amazon and many stick with it. it is a fairly inexpensive way to get started. once you scale big it gets more expensive, but it is a great

way, it has lowered the price of starting software companies. >> real quickly, is open stack the real competition? is it coke and pepsi? >> in a way, although services are still primarily public on amazon. open stack has used much more in so-called private clouds inside the enterprise or for software companies like oracle and sap. >> you will have to come back to talk about the companies you are investing in. please, come back. always good to see you. thank you. all right, coming up next, tinder, not just looking for people meeting their soulmates. the tinder app is apparently being used by the sex industry to target clients. we will investigate, coming up. ♪

♪ uber west."back to " i am cory johnson. let's turn to our wiring the world series. looking at how technology is changing how much has for to an, tech companies are not just focus on connecting personal vehicles. they hope to transform the trucking industry by bringing sensors to the road. we visited their silicon valley office to find out more. >> it is really the lifeblood of the u.s. economy. if you bought it, a truck brought it. everything that we use is a broadside trucks. -- is broadside trucks. we have developed systems for andnced -- advanced sensing

communications. think of it as advanced cruise control in the car, but we do it for a pair of trucks with a direct communication link between them. in the rear truck you are steering. not automated trucks, we are just adding to the ability of the drivers. on the front truck there is a radar sensor looking 800 feet down the road, sensing any obstacle. it detects that in both trucks. the radar sensor can see farther than the human driver can reliably think and it can do it every time. a human driver typically thanks one to two seconds to react to whatever is in front of you. we can do it in about one 100th of a second. inside the truck we tried to change the driver experience as little as possible. video display on the windshield shows you the view from the other truck, controls to engage and this engages the system, but fundamentally you are just

rotting your truck. certainly, fuel is the biggest expense. these trucks typically spend about $100,000 per year on diesel fuel per truck. the efficiency comes from the fact that we can safely put the trucks closer together then you're safe manual driving with aerodynamics reducing wind resistance, saving fuel from both trucks. we have tested the system, driving over 10,000 miles so far in formation. the first large-scale deployment will be next year, 2015. that is when you will start seeing a lot of these trucks on the road. >> they are partnering with the u.s. department of transportation and the federal highway administration to get

its technology on the road. with the chairman of samsung entering his third month in the hospital following a heart attack, his family is risking a losing their grip on the company. who are they? how powerful are they? we will explore that, next. ♪ thet is 26 minutes after hour, meaning that bloomberg television is on the markets. that's take a look at where stocks are trading right now. the s&p 500 is hanging onto a record, but it is a mixed market as well. theave been watching airlines today. delta posted quarterly profits stronger than analysts had anticipated, supported by strong demand in the u.s. in particular. other stocks getting a boost from delta, the first u.s. airline to report second-quarter earnings. historically one of the strongest of the year. we have of course also continued to watch the airlines after the faa room -- recommended that

u.s. airlines not fly into israel given the ongoing conflicts there. updates on that throughout the day and tomorrow as well. more on the markets a bit later. "bloomberg west" will be right back. ♪

>> you are watching "bloomberg west." thevation, technology, and future of business. samsung group's powerful leader is entering his third month in the hospital halloween his heart attack, leaving his family having a hard time maintaining control of the business for the first time since 1938. there is increasing pressure to unravel the complicated ownership structure that has been a part of the company. they also made $5 billion in inheritance taxes. they weather the change?

our in-house samsung expert is with us. sam, you visited their headquarters. you have some understanding of the structure, i imagine. do you feel you have complete understanding? i know that this is fairly complicated. >> does anyone really have complete understanding of the structure of samsung? there are 74 companies that are part of the group and they are all part owners of each other in this kind of ridiculous maze of thes holdings that somehow lee family controls with only 2% of the total shares of stock out there, but they have managed to control the company since 1938. >> there i even say it, like enron? is there something sleazy or dishonest about this? why have such a complicated ownership structure? >> it is harshly about taxes. essentially it is one of the

largest companies in the world. the largest company in south korea. to be able to hold onto all of the various businesses there, from life insurance to amusement parks, smart phones, televisions , and all the things we know them so well for, it worked wires this bizarre kind of arrangement between companies that the lee family remains at the center of. to me about the influence that the patriarch of the family has over the day to samsung workers and samsung's business. >> this cannot be underestimated. when we are talking about the current chairman of samsung, it is sort of like steve jobs at apple times 20. he is really revered. >> really? x yes. >> more than steve jobs? >> because of the way the company functions, it all sort of roles up to the chairman.

anyone you talk to, you might ask them how they became so successful and to a man and woman they will answer the same way -- because of the vision and leadership of the chairman. it is really sometimes quite strange. result, the chairman looms very largely over samsung. with his son waiting in the wings, there is a lot of anxiety about whether or not he will be able to step into some very big shoes. >> sounds more like chairman mao zedong chairman steve jobs. didn't you write about -- wasn't there a story about his but -- his voice piped through the offices? >> so, if you are in south korea and you go to their executive training facility, which is actually next door to an amusement park samsung owns called ever land -- the only reason i mentioned that is it is because it was in fact the amusement park for many years that was the owner of the entire samsung group. that was a company that was the

holding company, if you will, for all 74 divisions of samsung, from ship going to microprocessors. right next door to that amusement park you come to the training center where the voice of the chairman would be sort of on speakers randomly in different hallways and in different rooms, including the frankfurt room, which is almost a shrine to the chairman, re-creating the hotel room in germany where he gave the address back in the 1990's that set the new direction for the company. samsung bought all of the furniture from that hotel room, and it to korea, reassembled at their next to their amusement park. >> that his tour lee normal. >> totally fine. >> weird. great story. appreciate the better understanding of this company. let's turn now to another great company, but somewhat smaller, air where, building the brains behind the drums that make them work.

the new funding will be used to -- well, let's find out. .ohn joins me with mike abbott why put $25 million into this country -- company? >> first of all, the team they put together is amazing. inthe terms of leaders avionics and drones spaces, enabling a bunch of applications on the commercial side to be built, we really believe that this willpower the majority, if not all, of these drone applications in the enterprise commercial space. >> what are you going to use the money for? big party? >> paying for the commercial launch of the party -- of the program later this year. as well as growing our engineering team. >> when you are raising money and you get a lot of attention -- you have been hiring some

people, friends of mine included. i wonder, do you sort of look at scale and opportunity? if you can raise this much, you can do this. if we go for that much, we can do different things. we don't want that much equity right now. is that how you make that kind of decision? >> from the beginning we have had the same platform. i would say that we have grown the vision a bit and that the early focus was on the software running on the drone itself, now the software is on the drone and the user interface that controls the drone with cloud services so that many other companies can plug into the data being captured by the drones. ofmike, how do you size business when you do something like this? you just go bigger or do you do sit down with market studies and figure out what might happen? i knew a guy in the wine industry, a friend of mine, he penciled out monthly revenues for the next 10 years, which is

insane, but to what degree do you try to imagine what will happen in this business and industry? >> it is always difficult. you always imagine the world to be bigger or smaller than it is. from an investment standpoint, we see that drones, there are interesting questions about regulation. that is actually one of the reasons why we were compelled by what jonathan is doing where the company is leaning into working with regulators. in terms of the size? we have estimates that be believed to be really big, but we will see. time will tell. >> what are the crucial things that we need to have that could change it? what are the tipping points that you need? isone of the biggest ones just the platform. the company is building drones or specific allocations like agriculture or law enforcement. they can really focus on the things specific to those

applications. the software for analyzing a certain type of rock or communicating with a police officer on the ground, rather than focusing on the electronics and software, and among the initial drone offerings, which is where those companies today are being quagmire did. >> you basically want to make a fly and let someone else to your out what to use it for. >> because of that, many of the whether its today, be precision agriculture or pipelines in the monitoring, once the platform is out and new applications have been built around these drones collecting critical data -- >> new applications are not obvious. >> i think that that is what is can be interesting. you don't know what the next big thing is going to be. good luck with that and i hope it works out for you. hopefully we will see drones flying all over the place. thank you very much.

>> thanks. >> we turn to wearable devices to track all kinds of things, like health. what about a smartphone the checks up on your car? we will check up on the fit bit that is for your car, next. ♪

♪ >> i am cory johnson, this is bloomberg -- "bloomberg west." we are looking at technology shaping the future of transportation. someone call this the fit bit for your car. a metronome that plugs into your vehicle. checks how the engine is running on a smart own app. smartd by metro mile, a phone provider that allows users to pay for insurance by the mile. they announced their insurance service here in california. dan joins me with more. this is fascinating in so many

ways. not least of which because it comes with an interesting model on top of the device. tell us about how the device works. >> the metronome is a little car.e plugged into the this and drivers don't always have access to what that means. >> how does it work? it is part of the insurance package? >> we give away the device for free. in four states, california, washington, illinois, oregon. we will send you the device for free, we dial the app and it just works. if we find that you have driven the right number of miles, you might find that it fits your lifestyle. >> why for? >> we are rolling out in a deliberate fashion, so you need

to get approved state-by-state. >> are those easier states to get approved in? >> not at all. oregon was our first state and it is smaller. we started there to make sure that we could get the product right. and then we started to grow up in larger and larger states. california is certainly the largest, representing really the perfect state for our product. goes through cellular? >> there is an antenna within the device. it has gps and all of the things that you would expect from a cell phone. that proveshe data to you that someone is a better insurance person than someone else? >> we don't see any behavior. others will use how fast you drive, things like that. all we use is the number of miles. the reason is that miles are about 70% of the variance in risk for insurance. >> really? >> yes.

about 60% of drivers are subsidizing the high mileage ones. we are basically eliminating that. so that the low mileage drivers are paying for their actual risk. >> would other insurers disagree with that? insurance is big business, lots of money behind it, surely they are identifying risk is something you should be good at. >> the biggest issue is that it has been done on a bump and scrape basis for quite some time, but now the friction has been removed. you don't have to check in and bring your car to a shop or whatever it may be. you plug in the device and every month you are billed retroactively. >> why track anything but miles? >> this is basically for the customer. if you have the insurance, you could turn off everything, the gps, the diagnostics, you could just have the mileage. but we found customers found a lot of mileage in understanding their car. for instance, when you go to a mechanic, you want to know what

the check engine light is. we can decode that for you and let them know -- let you know what is wrong. >> really. the notion of measuring risk and insurance, it is one of the things i love reading about in the end of the letter from warren buffett every year, insurance and the market that is right and wrong. >> it is fascinating. >> why haven't other insurers done this yet? >> it turns out that if you were to totally go by miles, the way that we are, you would lower premiums on all of your high-margin drivers. the drivers above the average would be paying more. this unbalancing of the book of business is really challenging. >> basically overcharging the rest of us who don't drive that much? >> basically. we are making it so you pay for your actual usage. instead your high mileage drivers would not the right kind of insurers for us. >> really interesting stuff.

dan, thank you so much. the tinder dating app has seen explosive growth. but it is not just people looking for husbands and wives. fake prostitute profiles are popping up on tinder. why is that happening? next. ♪

welcome back to "bloomberg west." single people looking for love, tinder has profiled billion's. eye ofve also caught the scammers as well. a recent study shows that fake prostitution profiles are running on tinder, trying to redirect users to different services. how are they getting around the spam filters?

joining the author of that report, there are los angeles. this is kind of an amazing -- the whole tinder thing is amazing, but this is yet another amazing part to it. >> definitely. it is a popular service used by millions of users around the globe. it is not surprising to see the scammers trying to target users. >> explain exactly what is going on here. >> there are various types of scams that have been going on for the last year. we published a report about one year ago talking about adult webcam-based spam. fake profiles that will connect with you on tinder and one to match up with them if they sent -- if you send them a message they will go through a script and at the end there is a place to click on going to an adult conversation. it is free to sign up, but they ask you for a credit card and tell you that you will not be charged, but if you don't cancel the account after three days you get charged up to $80.

>> wow. i know they are looking for ways to find revenue, but surely this isn't it. is notously this sanctioned by tinder, this is just a scammer who has seen the popularity of the service and are targeting users looking to make connections. what we found was that in the beginning there was a lot -- there was a lot of adult webcam-based spam. as of late we have been seeing a lot of these fake prostitution profiles on the service. these are essentially pictures of really attractive girls with text on the front of the pictures saying various terminology associated with prostitution. there is a link to the website. you can't click on it, you have to type it in manually. this is to get around spam filters. is there real prostitution happening on tinder as well? >> i have heard reports of that, but based on our research we have been primarily focused on the scam aspect of it. in actuality there is no one

there. these are just criminals trying to make a fast buck. at the end of the day if you go to one of the websites advertise on the picture and you sign up for the service, it is a casual dating website. every time you sign up, they get a piece of that sign up. they get a little bit of money from the service itself. essentially just lead generation. a lot of money has been -- a lot of attention has been paid to this alleged murder of a google executive who found a prostitute online and there was a shutdown of this website idea guy, my red .ook, something like that i wonder if more sort of prostitution is finding new places online to advertise. reallyknow, i can't comment on that, but i can say that what we are primarily seeing his criminals looking for new ways to target users. as apps get popular and services we see that there are

different ways that scammers are looking for opportunities to make a fast buck. >> i wonder if there is anything that tinder can do about this. >> they are doing things on their end. we have seen changes in the last year where they have made adjustments to their service, but at the end of the day these guys are opportunists and they will find a way to get around those filters and find new ways to target these unit -- users. >> interesting story. thank you very much. >> thank you for having me. u.s. byte, we focus on one number that tells us a lot. >> good to be here. >> i like the surprise number. what have we got ashen mark >> 13 point 3 million. >> 13 point 3 million? i have no idea what that is. >> the number of ipads sold last quarter. >> i should've known. >> you should have. it might sound like a big number

. here's the problem with it, it was a decline from the year earlier. it is a problem for apple, as we have been talking about on the show a lot lately. there is so much competition in particularlyace, from samsung. this is an area where in an otherwise up the sales or earnings report yesterday this was the one sort of area where there was more of a downbeat note. it really is a reflection of competition in the tablet market. >> is it competition or market size? 225 million, that is how many ipads have been sold since the product was first introduced four years ago. i wonder how big the market is. are we seeing competition or just the market being stretched to its limits? >> you have to look at the way that apple has its way of cannibalizing itself.

they are coming out with a bigger phone later on this year. -- wes really kind of absolutely did. >> as you reminded me yesterday. >> don't forget. the important thing about that is that that is going to satisfy some of the needs of those of us who like to have a computer in our hand. >> thank you very much. great to see you. you can find us all the time on your tablet and computer. we'll see you again on "bloomberg west" tomorrow. ♪

>> from bloomberg world headquarters in new york, i'm mark crumpton. this is "bottom line." today, israel says its gaza campaign will continue as u.s. secretary of state john kerry works on the cease-fire. remains of malaysian airlines crash victims arrive in the netherlands. a look at how technology is changing the trucking industry. >> to our viewers in the united states, and to those of you are on the world, welcome. we