>> live from pier 3 in san francisco, this is "bloomberg west," where we cover innovation, technology, and the future of business. i'm cory johnson in for emily chang. senior west coast correspondent jon erlichman have all the numbers from los angeles. >> this has become a point in time reminding us of what the profit potential of facebook really is. we have a special "bloomberg west" roundtable. adam burke joins us. he can very much help us understand the business behind

them. also joining us, david kilpatrick who literally wrote the book on facebook, "the facebook effect." and from new york, sarah frier who covers facebook in and out. david kirkpatrick, i want to start with you. we get these quarterly earnings and we are reminded yet again -- aha. wow. look at what they are able to do. what is your reaction? >> we are getting used to days like this. they've had four in a row now now that they have figured out mobile. i think it is becoming increasingly clear what a colossal money machine this company can become and is becoming. my book came out in 2010 and when i wrote it, i had no idea what happened.

i thought it would be a good business >> to that point, this is a company that generated nearly $3 billion in revenue in the three months stretch. about $1 billion more in the same time last year. adam burke, can you explain to us how exactly this works? how are they better able to target ads to people on facebook which then marketers are happy with? >> it really comes down to the data that facebook has. for a while now, it's been well-known they have a lot of information on their social connections but now they have made it possible for advertisers to bring in their own data to the equation and add an information they know about the user, how much time they have spent on the advertiser side, what products they have looked at, and layer that with what facebook's notion of what they

are interested in, where they are, and so forth. very little waste and then you layer on this notion of identity which has become the holy grail as users fragment across devices and you use it on your mobile, ipad. facebook knows you were ever you are. that is really the holy grail of data that marketers are working for right now. >> more and more, the people checking in on facebook are doing so on their phone. sarah frier, it feels like there are a few stories on facebook. wall street story, investors are saying "wow," but then there's the question of relevancy. this massive business and user base with teens, is it still

cool? how does it balance out? >> they're trying to squash those concerns by talking about instagram, messenger. there are different ways that people want to communicate. there were not any questions on the earnings call about teens today. there were focused on the future of the advertising business. facebook has given them what they want to hear. it will distribute to other apps. this will help distribute video advertisements around the web. investors are seeing this and how the picture looks over time. we are past the teens question. that was in the fall when they were worried if facebook would be able to keep up the growth. number of ads in the newsfeed wondering if it would affect the

growth, but now they are putting ads in other places so don't worry about that. >> mark zuckerberg saying u.s. users are spending at least 40 minutes a day on facebook. david kirkpatrick, people are interested in the massive acquisition of whatsapp. they are still getting through the approval process. >> he refused. >> he did address the issue of wanting to allow people on facebook to speak privately. there is the need to address that issue. he is seen as very gung ho about the messaging prospects. >> talking privately is of increasingly important especially to the younger communities that sarah was just talking about. i believe of the last four earnings call, this is the first one that the teens question did

not come up. it is indicative of a changing mood. facebook is so popular that they may not know all those people are who are clicking on the ads but it's a heck a lot of them. i've talked about this on bloomberg before. so many people in the u.s. use their kids or neighbors as a test ground for what's happening with facebook. it is so big that you cannot really do that and have an accurate appraisal of what this service is capable of. >> adan berke, getting back to the business, we mentioned the focus on video ads in part because you can have great video ads relevant people on facebook then you look at the traditional tv business a run for their money. mark zuckerberg talked about taking their time with that because he does not want people

looking through their news feed and see video ads that are not good, first of all, but it seems he wants to make sure that enough people are posting enough video that it will be a more organic process. you will see a friends: video and then a cool video added and it will be kind of seamless -- you will see a friend's cool video. what do you think about that? >> video will be a big part of facebook's next chapter from a revenue perspective. cpm, cost per thousand impressions, the way much advertising is bought and sold, those generated by video ads are 5, 6, even 10 times as high as traditional static display ads. it would be a way to increase revenue without increasing the number of ads as long as it does not create an intrusive experience.

the first shift to mobile that they have executed and then kind of another chapter being video. then the third chapter being how you leverage the data across other publishers. you can see a path for facebook to continue growing revenue for a solid amount of time to come. >> sarah frier, beyond acquisition of companies, we talked about whatsapp and oculus. they like to acquire people. david marcus was at paypal. obviously he is focused now at messaging. why is the payment specialist focusing on messaging? mark zuckerberg said, actually, he is a great product generalist period. there is a need to have better interaction to fuel commerce.

what do we think about this david marcus coming to facebook move? >> he did say that eventually over time -- don't hold your breath -- but there will be an overlap with payments down the line. he told investors not to put it into their models. they will take years to start monetizing on a large scale. messenger he thinks of as facebook in 2006 or 2000 seven. he's bringing marcus on to be the product brain behind it -- he thinks of it as facebook in 2006 or 2007. payments absolutely down the road. zuckerberg has been very good at retaining talent. marcus is just a guy he thought would be good for the job. we have yet to see what monetization is going to look like. >> david kirkpatrick, in terms of the long road, facebook is in

a position to not be able to speak too much about the businesses they have acquired because they are not looking to make money from them just yet but there was a question about china which sheryl sandberg fielded -- there's an opportunity for businesses in china to be taking advantage of facebook, but really not addressing it in a big way. how should we think of the future of facebook in china? >> long-term is the way these people think because that's the way mark zuckerberg thanks. it came through in the call how long-term they are talking about their company's prospects. that was a big part of this issue of what marcus is doing with messenger, etc. before she basically changed the subject, she said they are very interested in china. they care a lot about it. that's an understatement. to the degree mark had learned to speak chinese because he

valued it so highly. they have an interesting inroads there because instagram as usable there. they look at the china eventually tom a no question. >> david kirkpatrick, always appreciate your time. adan berke, appreciate your time. and to bloomberg reporter sarah frier. >> interesting stuff on facebook as always. trucking, a lifeblood of the american economy but also a very dangerous profession. how technology is making the highways safer for truckers and the rest of us. ♪

>> i'm cory johnson and this is "bloomberg west." sap announcing their continuing sponsoring two cloud platforms. the german-based company has now committed to open stock. sap and oracle coming together. cats and dogs. veteran in enterprise software joins us now to talk about this. it is so important how the world of computing works but i want to start super basic. why the cloud? why are more and more doing work in the cloud? >> it used to be if you wanted a bigger, more powerful platform

you would have to buy a geometrically more complex computer. i got to the point where there were not computers big enough to handle google, facebook. they invented this platform described as scale out. you add inexpensive commodity resources and it scales out on demand. it is both infinitely scalable and much less expensive than the old monolithic. >> the architecture it requires, how you design the computer system cannot be putting all of the computing here. it spreads out the work that it does. >> it requires orchestration and provisioning layer and that is what open stack is. it's an open-source platform managed by the foundation. >> lots of people can work on it and advance things to make it work better.

>> there are companies that are commercializing the open source. we have one called piston cloud computing. redhat is very active in open stack. sap and oracle are members of the same organization and not so much working together. >> it's still nice to see love in the air. i really blown away by amazon web services and the ubiquity of it. from the cia, ibm, over all building companies around amazon web services business. when i look at amazon and how competition views suppliers, is that different? >> any time one company gets what they perceive to be threateningly dominant, other players --

>> you would never have seen that coming out of washington state before. oh, wait. microsoft. >> you remember i put a sized microsoft's ubiquity and dominance but now i'm rooting for them because we need a counterbalance to players like google. open stack is supported by so many enterprise companies as a counterweight to amazon so that they do not, in a sense thomas run away with the cloud. >> how big are they and cloud? they don't release numbers. everyone wants to put a number on amazon web services and they will not say. it's a new parlor game. >> you get to a point where it's just a really big. virtually every start up that we've seen tends to start

developing and offering their services on amazon and many stick with it. it's a fairly inexpensive way to get started. once you scale big, it gets more expensive. it's a great way to lower the cost of starting software companies. >> is open stack the industry competition to amazon web services? is it coke and pepsi? >> amazon web services is primarily a public cloud. open stack is used much more in so-called private clouds, inside the enterprise, or for software companies like oracle and sap to base product on. >> please come back, mitch kertzman. always good to see you. tindr, according to symantec, it's being used by the sex industry to target clients.

we investigate coming up. ♪

>> welcome back to "bloomberg west." this week, we look at how technology is changing transportation. they not just focused on changing vehicles, but they want to transform the trucking industry by bringing sensors to the road. we visited the silicon valley office to find out more. >> trucking is really the lifeblood of the american economy.

everything we use is pretty much brought by trucks. we are developing a system to improve safety and efficiency by using advanced communication. you can think of it like cruise control in your car. we do it for a pair of tracks using a direct communication link. as the driver of the rear truck, you are steering. they are not automated trucks. we are just adding to the ability of the drivers. on the front truck there is a radar sensor looking for any obstacle. it detects and automatically applies the brakes in both trucks. it can see further than the human driver can reliably see and can do it every time. a human driver takes one or two seconds to react whatever's in front of you. we can do it in about .01 second. we have a video of you on the

windshield and you have a control to engage and this engage. fundamentally, you're just driving a truck. you can control to engage and disengage. these trucks typically spend about $100,000 in diesel fuel per truck. we can safely put the trucks safer together and for aerodynamics reducing wind resistance we save fuel for both trucks. we have tested the system. we've driven over 10,000 miles so far in the prototype trucks. the first large-scale deployment will be next year, 25th teen. you'll start seeing a lot of

these trucks out on the road with these units. >> peloton technology is partnering with the department of transportation and highway safety to get them on the roads. his third month in a south korean hospital and they could be losing grip on the family. who is the family and how powerful are they? we explore that next. >> time now for bloomberg television's "on the markets." we did have a mixed session although the highlight of the s&p 500 up once again reaching an all-time high. the dow is dragged down largely by shares of boeing with concerns of cost of one of its new project.

"bloomberg west" will be right back. ♪

>> you are watching "bloomberg west" where we focus on innovation, technology, and the future of business. lee kun hee is entering his third month in hospital after a heart attack and the family is struggling to keep control of the company. his son, lee jae yong, will be taking control. they're working on the complicated structure that is sam's son. they will also have to cover $5 billion in inheritance taxes -- they're working on a combo kit a structure that is samsung. do you feel like you have a complete understanding of the

structure? this is complicated? >> does anyone really understand? there are 74 companies part of the samsung group and they are all part owners of each other in this ridiculous maze of cross holdings that the lee family controls with only 2% but they've managed to control since 1938. >> this reminds me of, dare i say, enron not that there is something sleazy or dishonest. is this about taxes? >> partially and maintaining family control. samsung is one of the largest companies in the world. it is the largest and south korea. its revenues are the equivalent

of about 20% of south korea's gross domestic roderick. to hold onto all of the businesses from life insurance, amusement parks, smart phones, televisions, everything we know samsung so well for requires this complicated development so that the lee family remains at the center. >> what effect does the patriarch have over the day-to-day business? >> when we are talking about the current chairman of samsung, lee kun hee, he is steve jobs time 20. he is really revered. >> really? >> everyone you talk to when you visit samsung in the various divisions, you may ask, how have you become so successful?

they will say it is because of the vision and leadership of the chairman. it is sometimes quite strange. the chairman moves very largely over samsung. with his son waiting in the wings, there's a lot of anxiety about whether or not he will be able to step into some very, very big shoes. >> sounds more like chairman mao zedong instead of chairman steve jobs. >> if you are in south korea and you go to the samsung executive training facility, next door to an amusement park that samsung owns, everland, it is the amusement park for many years that was actually the owner of the entire samsung group. that was the company that was the holding company, if you will, for all 74 divisions of samsung from shipbuilding to

microprocessors. go right next door and you visit the training center where the voice of the chairman would be on speakers randomly in different hallways and rooms including the frankfurt room which is almost a shrine to the chairman and re-created 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 the furniture and shifted to korea and reassembled at their next door to the amusement park. >> that's totally normal. sam grobart, "bloomberg businessweek." let's turn now to another great company, aeroware. have a chance to get a little bit bigger now with the series two funding round led by kleiner perkins.

why put $25 million in this company? >> the team is amazing. they have pulled together the leaders in avionics, thrown space and one place to really build the platform to enable a bunch of applications to be built. we really believe that airware will power a majority if not all in the enterprise and commercial space. >> what will you use the money for? >> it will be for the commercial launch of our product. the sales, marketing, customer support for the launch as well as growing our engineering team. >> you're getting attention as a hot startup and you've been hiring some people, friends of mine included. the you look at scale and

opportunity? if we raise this much, we can do this. let's not do this thing because we don't want to sell that much equity. is that how you make the decision? >> we have the same vision for building a platform for commercial drones. the early focus was on the software running on the drone itself. now we are doing the software on the drone, the user interface, as well as the cloud backend so many companies can tap into the data. a friend of mine in the wine industry rode out monthly revenues for the next 10 years. i'm wondering to what degree your wondering what will happen

with this business and this industry. >> having been in jonathan's shoes, from an investment standpoint, drones is not an "if" but "when." we are really compelled by what he is doing at airware where they are leaning into working with them. in terms of size, we believe it to be big, but we will see. time will tell. >> what are the crucial things that would have to happen for that to change? what are the tipping points that would make the drone business very big? >> the first is the platform. agriculture, law enforcement, they can really focus on the rings specific to those applications. the software for analyzing the crop, communicating with a police officer on the ground,

rather than focused on the electronics and software that would be common which is where a lot of the drone companies today are being quagmired. >> you just want to make it fly and write around that. >> whether it is rescission agriculture or monitoring, once the platform is out and we see what kind of new applications are built -- whether it is a precision agriculture or monitoring, we will see what kind of new applications are built and emerge. >> you don't know what the next thing is going to be. good luck with that. hope it works. we will see drones flying all over the place. airware ceo jonathan downey and mike abbott from kleiner perkins. using your smart phone to check

up on your car? we look at a device that some are calling the fitbit for your car next. ♪

>> i'm cory johnson and this is "bloomberg west." we returned to our wiring the world series. some are calling this the fitbit for your car, metronome. created by auto insurance provider, metro mile, they allow you to pay for insurance by the mile. they just heard did here in california. their ceo joins me now with more. this is fascinating in so many ways. you have come up with an interesting model on top of the

device. >> the metronome plugs into your car's diagnostic port. every car made since 1996 has this port and every car has about 200 or 300 sensors. drivers don't have access to that data so we are able to translate that into something that's helpful and you can save a fair amount of money. >> how does it work? it's part of the insurance package? >> we give away the device for free. we are in california, washington, illinois, and oregon. we will send you the device for free. it just works. if you find later that you drive the right number of miles, basically below 10,000 per year, you find out that it fits your lifestyle. >> why those four states? >> we are rolling out in a deliberate fashion because you need to get approved state-by-state. >> are they easier to get

approved in? >> it is smaller. the demographics are about right. we wanted to make sure we could get the product right. then we started to grow larger. certainly california is our largest and it represents the perfect state for our product. >> in the information comes from the device and goes via cellular? >> it's basically a cell phone with a screen. it has gps and everything. >> whether the data that proves that someone is a better insurance risk? >> we don't use any behavior. others use how fast you drive. all we use is the number of miles. it is about 80% of the risk. a huge proportion of people who are subsidizing the high mileage ones.

we are basically leveling that out. the low mileage drivers are now paying for their actual risk. >> would other insurers agree with that? surely they are identifying risk as something they are good at. >> it's been known for a long time that this is true. what we're doing is we actually know the number of miles because the friction is able to do that. you do not have to check in and bring your car and. every month, you're basically build retroactively for the number of miles. >> why track anything but miles? >> you can turn off the gps, the diagnostics, everything. what we have found his customers found a lot of value in understanding what's going on with their car. we can to code what this means and let you know what's wrong and you can talk to a mechanic about it.

>> the notion of measuring risk is so fascinating. it's one thing i love reading about any annual letter from warren buffett, what insurance businesses he's walking away from. why has other insurers have not done this yet? >> if you totally went by miles, you would lower premiums for all of your mileage drivers and all of those above the average would be paying more. this unbalancing is really disruptive. it is spread out among everybody. we make sure you pay for your actual usage. the high mileage drivers would basically not be the right kind of insurer for us. >> metromile ceo dan preston. tinder dating app has seen explosive growth but it's not just those looking for husbands

and wives. more prostitutes are popping up on the app. why that's happening next. ♪

>> welcome back to "bloomberg west." i am cory johnson. single people looking for love have swiped through the tinder profile apps millions of times. a recent study by symantec shows that fake prostitution profiles are appearing on tinder. who is behind the profiles and how are they getting around the spam filters? i'm joined by the author of that report. this is kind of amazing.

>> it's a really popular service used around the globe. it's not surprising seeing them trying to target these users. >> explain exactly what's going on here. >> we published a report about an adult webcam-based scam. they will connect with you on tinder, and if you send them a message they will start going through a message. they will tell you to quick on the link if you want to have an adult conversation on a webcam site. it's free to sign-up at they ask you for a credit card and they say you will not be charged. if you don't cancel the account after a few days you will get charged up to $80. >> wow. i know they were looking to find revenue on tinder.

>> this is not sanctioned but these are scammers who have seen the popularity so naturally they are targeting users looking to make connections. in the beginning, there were a lot of adult webcam-based spam. we have been seeing a lot of these fake prostitution profiles on the service and these are essentially pictures of really attractive girls with text on the front of the pictures saying various terminology associated with prostitution and there is a link to the website. you have to type it in manually. this is done to get around any of the spam filters in place. >> is there real prostitution happening there as well? >> i've heard reports of that as well. we have been focusing on the scam aspect. these are fake profiles masquerading as prostitutes. in actuality, these are just criminals trying to make a fast

buck. if you go to one of those websites advertised on the picture and your sign-up on the surface, it's a casual dating website. every time you sign up, they get a piece of that sign up today get a little bit of money from the service. >> essentially lead generation. there was the horrible story of this alleged murder in silicon valley of a google executive by a prostitute who was found online and there was a shut down from the fbi of this website, myredbook.com or something. i'm wondering if prostitution is finding new places online to advertise. >> i can't really comment on that, but primarily what we are seeing is criminals are looking for different ways to target users. as apps get popular and services bubble up whether it is vine, tinder, kik, there are different ways they are looking for

opportunities to make a fast buck. >> i wonder if there is anything tinder can do about it. >> we have seen some changes were there making adjustments to their service. they are opportunists so they will find a way to get around those filters and they will innovate to find new ways to target those users. >> symantec security response manager satnam narang, thank you. for the bwest byte, we focus on one number that tells us a whole lot. i like the surprise number. what do you have? >> 13.3 million. >> i have no idea what that is. >> that's the number of ipads that apple sold last quarter. it might sound like a big number, lots of ipads out in the market. here's the problem. it was a decline from one year

earlier and it's a problem for apple, as we've been talking about a lot on the show lately, because there is so much competition in the tablet space particularly from samsung. this is an area in an otherwise upbeat earnings report from apple, this was the one sort of area where there was a little bit more of a downbeat note and it's really a reflection of the competition and tablets. >> i'm wondering if its competition or market size. here's a number for you, 225 million, the number of products sold since it was first introduced. i'm wondering if what we're seeing is not competition but the market being stretched to its limit. >> you have to look at the way apple has its way of cannibalizing itself. you can get so many music features on the iphone that you have less use, say, for the ipod. they will come out with a bigger phone, as we have written about

-- >> your team broke that story as you like to remind me. >> don't forget. the important thing about that is it will satisfy some of the need for those of us who like have a computer in our hand. that will satisfy the need of the tablet. >> tom giles, thanks. get the latest headlines on your phone, tablet, and online. we will see you with more "bloomberg west" tomorrow. ♪ >> this program is a paid

notram from a company related to that u.s. government for the assessment. >>