>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover innovation, technology, and the future of business. i'm emily chang. this spending is not stopping at amazon. jeff a's is is still sinking money into everything from building ash from the film centers to amazon prime to the new phone. amazon post a loss of $126 million, its largest since 2012. operating expenses totaled $19.4 billion, edging out revenue. investors may be losing patience with the spend first strategy.

shares are tanking in after hours. winning me in the studio is cory johnson and our bloomberg news reporter who covers amazon. and a bgc partners technical analyst. colin, shares are down almost 10%. what is your take? >> when the shipping is free, the profits don't come easy. this is a tough quarter for amazon and you are seeing a new pattern developing in 2014. when they print the quarter, the stock has been trading often used to snap right back. it has been slowly grinding off and we have losses, close to $20 billion in revenue and you can't make money? for the september quarter, we've got a bigger loss in the june quarter, so investors are getting increasingly concerned that even though we have revenue growth, these expenses are not

going to tamp down and we are not going to see the leverage we once expected. ask yet, they've given amazon a free pass quarter after quarter. is it the end or have they lost their patients? >> it has changed to a new trading pattern and we will see if the losses stick. amazon is down. it is significantly underperforming the broader market. the snap back -- look at the potential amazon has if they could only drive a little margin. this new investment cycle with tech, it's going to continue to be ongoing. >> is this different? >> it goes beyond just the investment they are making. there has been a price war going

on in the cloud computing market. they cut their prices substantially. the area has been a big growing area for them but slowed considerably in this quarter. >> inasmuch as we can see that number. >> is legal what they are doing. they disclose very little. what are the revenues for this business? what are the profits for that business and how they differ from the other model? >> they have the new fire smartphone and reviews have been mixed at best. they give no granularity. they've never released anything

about any candles or anything. fax amazon is waging a price war on every front and want the cheapest prices for all the goods on the site. what is the potential for more people to use amazon? it certainly feels like amazon is dominant it comes to e-commerce. what's the potential for more customers who are not there already? >> cory raised a very eloquent point, one that is not talked about a lot, which is the lack of disclosure at amazon really is troubling. this is a premium price company on any valuation metric you want to look at. you are paying dearly to hold shares of amazon because of the forward potential it may have. but you don't have a lot of critical information. prime customers -- how many prime customers do we have? if that's not a material statistic, i'm not sure what would be. >> what about kendall? >> we have no idea.

they give you the ease open take numbers in their press release. if we knew how many prime customers -- we will give you a better sense of what is available to them in that marketplace because prime customers are better customers and do buy more frequently. we would like to see those numbers. >> why don't they share these numbers if they are good? maybe they are not the or maybe they don't think. -- >> in almost every other company, that would be the case. the fire television sales aren't greater than our plan. do we assume everything else in the release is not from the plan? this company alone wants to keep everything close to their vest.

they are public, so they can use stock compensation to reward employees. otherwise it would be a private company. he doesn't want to share anything with consumers, with competitors, he wants everything to be a secret. >> there is also an element when you're a publicly traded company, you start disclosing something, it might be great now. if you stop disclosing it forever -- look at google. they started disclosing this cost per click about how much they make on an advertisement and now that is dropping and they are probably thinking why did we start getting this number out in the first place. there's a certain benefit in terms of being opaque and amazon has been writing that. but you have alibaba preparing to go public. >> they have nearly $3 billion in profit in the last nine months.

how closely have you been watching alibaba and does the story look a lot better? this is a company that wants you to -- >> they don't necessarily want to hold the inventory amazon holds. what's comparable to them is their gross half it line. they are just selling in their core business, there just selling widgets and making a profit and paying out a fair amount of that money. we want to see them grow into the fee services and fulfillment i amazon services. that would make them more like alibaba. the two margin profit profiles of these mps could not be any different. alibaba gain wildly popular in amazon being unprofitable. >> in the book about it, it is jeff bezos wasn't ready because it wasn't done yet and it's too

early. are we not giving jeff bezos enough time? now we understand why you did it this way? >> if you look at the revenue numbers, those continue to go up and to the right. but they continue to pour that money back into the business. 10 or 15 years, if there are delivery drones dropping off packs of groceries or whatever -- look at the profitability line. >> those crazy people on wall street can make whatever decisions they want to make about the stock and we can call it crazy at a certain valuation, but when you look at the way amazon runs its business, they are clearly running it to grow bigger. the operating profit margins show that they are going to run this business model for as long

as they can get away with it. only time the stock matters to the company is when you think about the employees who work there for some par salaries and need the stock compensation to make their rainy winters in seattle worth it. that is the ultimate question -- would another 90% crash in the stock -- would a third one cause the at good employees to leave and hurt the performance of the business? >> want to give you the last word, since you called a lot of people crazy. >> i am hooked on amazon. i could not picture a world without it and can't wait for amazon fresh to come to new york. i read on my kindle and i like their hardware. he's chasing after a larger picture and wants to have his entire ecosystem just like apple and google, so if you believe in that, there could be upside and the selloff could be temporary, but you have to have some patience.

>> i am an amazon prime fresh customer and i don't think i will ever be going to a grocery store again. thank you all. when you are looking online to buy house, chances are you search for it on zillow or trulia. those two companies could become one. we've got details on a possible merger, next. ♪

>> i'm emily chang and this is "bloomberg west." real estate website zillow is looking to acquire its smaller rival, trulia. an agreement could be announced next week, or talks could collapse. if they combine, it could face antitrust scrutiny. that combined 85 million unique visitors in june, accounting for

89% of all traffic to the top 15 real estate websites. is the deal a win for both businesses and how would it impact consumers question mark cory johnson is back with us. and joining us is taylor glass , the cofounder of an online platform for homes and apartments. thank you for joining us. >> when we spoke last time, zillow had acquired a much smaller company. they've been on acquisitions or he. let's not forget it was the number one search platform in new york city, which is the biggest real estate market in the country. what is happening now is zillow is looking to become the de facto search platform and rentals and sales and trulia is their main competitor. they have the opportunity to do

something here, so they can address the company and looks like it will -- >> they say the deal would be about $2 billion. why would trulia sell? >> the market cap is a lot higher than it was a year earlier. the market cap went flying. the stock is overpriced at the current price, if you can believe that, but more importantly, tying up and getting rid of a competitor and gaining that market share is a big deal. the ability to go out in the public markets, they went almost a year ago. i think it was august 19 of last year. they did a secondary and were willing to raise a lot of money from the public markets. cash is cheap and they're looking to take out a certain competitor and that certainly attractive. they know how to run the company and it's an amazing sight.

you walk downtown seattle nec corporate offices and all throughout silicon valley -- but you walk into this one room and it's filled with ravenous cold callers. these guys are on the headsets, pacing the floor, trying to get realtors to buy ads against the listings and sell really hard. that is a tough, aggressive business and i'm sure he would want to take a competitor out as much as you would want to close a deal. >> what does it mean for us? >> typically, when these companies acquire their rivals, sometimes they allow them to operate independently. they want to some extent preserve the experience and keep as many as possible. for us, it could take out one major player in the space come a but you still have younger

companies and we are one of them trying to create a much needed search experience which is mobile and real-time. there will always be a demand for this additional type of search experience and only a nimble, forward thinking company can provide that. that is kind of where we have fallen. >> in order to do this deal, zillow is going to have to delude itself some way. they will have to issue shares her take on debt. it's unclear how they will be able to do it but wall street may very well afford them the luxury of doing it. in terms of how their business operates, the similarities are going to be the things that will overlap and when the day. >> what does that mean for a company like redfin? they are private but also focused on the mobile experience. what does it mean for competitors? >> i would not consider redfin a competitor because they are a

brokerage. this is a play between two platforms, search platforms. from the search experience, people want to search all the inventory possible to stop from a consumer, you are going to search on a brokers pot form, you're not sing the full spectrum of inventory. people want to see everything from a mom-and-pop listings all the way to multifamily listings. the platform shows the full spectrum of inventory inventory wins. >> fundamentally, it is still a brokerage. >> i have used it to search. that is what i have used it for and i have found zillow trulia and were confusing and not user friendly for me. completely personal. >> they are trying to make the

whole process simpler from searching, discovering house, closing a deal to having a lower commission structure and everything else. being a realtor is a really crummy business, it turns out. they think they're going to make the money and do multiple listings but you have to spent so much money in marketing, old boards, business cards and sign and all that. if they take it on personally, the notion that zillow and trulia can take on the notion of all these people fighting to be realtors, it's about getting eyeballs of people buying houses and taking the money from realtors and the process. >> how do you see this playing out? >> it's hard to tell because who knows what trulia's true potential is. there are talented people who run the business and it's hard

to say. from my perspective, i think coming back to how was the consumer effected, you don't see the full spectrum of inventory and i think once you can see everything, that is the ultimate winner in the space. to distribute it real-time to the renters, i think if you can create that real-time connection, whether it's on the sales side or rental side, that will be the best experience for the consumers. >> thank you very much. something we will continue to follow. coming up, is the connected car a security risk? we will tell you how high-tech cars can become targets, next. ♪

>> welcome back to "bloomberg west." we turn to our wiring the world series and look at how tech is changing the future of transportation. today, the race to get cars connected in the security risks that can happen when dashboards become more high tech is something we are exploring. our cyber security joins us now from washington dc. could connected cars be hacked? is that what you're saying? >> yes. they can in the problem is they

are getting more and more connections -- bluetooth connections, gps connections, that allows hackers to potentially hack a car just like they hack a computer, except you have the threat of slamming on the brakes at full speed and disabling alarms. >> some would argue cars are safer if they have gps capabilities. how do you weigh the risks versus the advantages? >> google makes a strong argument that the more you have self driving cars, that can a woman a woman eight the surprises of human drivers. -- eliminate the surprises of human drivers. but you have to fact her and hackers are a creative bunch. it's potentially a very threatening thing. >> could hackers start driving the car to a different destination? >> they can. the problem is once you get into the central nervous system of the car, you can do anything you

want, just like you can in a computer. it depends on how much control the car allows a computer to have. you can take over the whole thing if you have the right levels of access. that's a downside that needs to be considered. >> if manufacturers are aware of the risk, what kind of security catnip in place to prevent this from happening? >> there are some companies that are forward-looking on this. tesla was a supporter of a hacking competition in china where some researchers showed they could do some bad things to tesla cars. by hiring researchers, these automakers can figure out how to set up firewalls and limit access by intruders. it is a problem computer makers have faith and it's extending to cars. hiring good people is the essential thing. >> jordan robinson. it never ends.

coming up, we will talk about it going. -- about a bitcoin. can it ever replace the dollar or the euro? that is next. ♪

>> you are watching "bloomberg west," where we focus on innovantion, technology, and the future of business. i'm emily chang. today's auction of the domain name bitcoin.com was postponed after coin labs sued to stop the option of the name. coin lab said it should not be allowed due exchange any assets until the suit is solved. we talk a lot about bitcoin, but exactly how is bitcoin created? it is created and made through a complicated process called the

coin mining. we have a quick animation video that break down the process. >> bitcoin mining is a process that generates new bitcoins. here is how it works. first, you need a mining program and the computer with enough power to solve extremely complex problems. the problems you are solving our software algorithms. once a problem is solved then a transaction is complete, the computer server that solved it is issued a re-warden bitcoins. the entire process is designed to mimic the production rate of a commodity like old, but here's the catch -- just like old, there's a limited supply of the coins. 21 million, to be exact. earning new ones gets harder and harder as new bitcoins are generated. >> from mining bitcoins to the

evolution of a virtual currency, some have questions wallowing the collapse of the exchange earlier this year, but supporters argue it's a better long-term currency than gold. is the real value of bitcoin as a currency or a transaction service? you are out with a new piece called "awesome gold," yet you say it could never replace the dollar or the euro. please explain. >> there has been a lot of focus with the bubble and value of bitcoin itself on bitcoin as a store of value, that it might be a currency, and i think that ignores how good it is at being a transfer. one of the things i think we are

seeing right now is that the number of transactions and the number of wallets within bitcoin is still increasing even after the collapse in value. what that says to me as there will be a nice long stable growth in actual use instead of the hope that it will become something that replaces the dollar. >> tony, what can you tell us about the adoption of bitcoin? obviously, it's run into a lot of challenges, but there are people out there singing its praises for the future. >> i think you are starting to see the technology emerge. bitcoin itself is a technology. we use it as a currency, but you can also use it as a payment system or distributive letter to prove property rights. what gives it value and gets people excited is its utility. we are starting to see quite a number of businesses adopt it. the value proposition for

businesses is pretty clear. it is lower risk and lower cost -- >> is it really lower risk? you do not know what the value of it is going to be any given day. >> if you are a business and want to accept bitcoin as a form of payment, when a customer pays you, the payment is irreversible. there's no risk of chargeback or fraud. if you are accepting payments over the internet, you have to be careful as a business because you cannot collect a signature or id, and if you try to collect a payment from someone in a different country, they are on the hook if it turns out it is stolen. they do not have any price volatility risk, either. >> there's a big idea here. it is the ledger they are talking about, the ability to track the history of the

currency. why is that valuable? >> it's extremely valuable. when you buy a house today, you are paying $5,000, $10,000 in closing costs. recording this record transfer, record of ownership and all these manual databases. with a bitcoin block chain, you can improve that transfer with a transactional cost of about a nickel, and the entire world has access to that record and the entire chain of custody backwards and forwards is visible on a public ledger. i'm excited to be someone build out a property rights database. i think it's a fantastic idea. >> marc andreessen, not the least of which, very big fan of bitcoin. who should be the most nervous? >> we will have to watch the cost of a bitcoin transfer. in services you are actually

paying a small fee -- 1% -- in order to have them take on the currency risk, so that is already a transaction fee. it's possible there might be a fee like deposit insurance for people who hold bitcoin, which would drive the cost up again. if the cost of a transfer can stay below 2%, then, yes, it will be very competitive and may provide a problem for visa, and in particular, for transfer services for remittances. that is possibly a long-term problem. one of the things i'm curious about is how high do we think ultimately transfer fees will go for bitcoin transfers?

>> that's a great question. if the benchmark where you think it is successful is 2%, i don't think we'll have a problem. the average industry right now is at 1%, and transaction costs are going down because every company is able to add gail and enhanced features. when you look at a service like ours or others, the marginal cost we had to do a transaction is related to our overhead, salaries, servers. it is the distributed network that really helps reduce the cost. you do not have to have a central data center like visa or mastercard or american express would. it is much more effective than any centralized data point. >> when you are pitching to investors, what is the principal objection you have to get them over? >> the one thing they all say -- they all say, "why would i not do this?" >> come on. >> it's not that they're saying no, just that every company has priorities in a pipeline of other things they need to do, but if they understand the value of what bitcoin can bring to their business, especially as an

earlier adopter, they are more likely to put it high on their priority list. you have seen that with companies like newegg and more recently dell. >> conventional payment fees consume the margin, which is money that could be reinvested, passed back to consumers, or taxed by the government. is it realistic to think that the fees for bitcoin will not rise when it is or if it ever becomes a more accepted, growing currency? >> i think we have just seen the first layer of infrastructure. 1% for companies that offer the ability to get cash in and out of bitcoin. we do not yet know how many layers will move on top of that. i do not think 0% is realistic. i am confident that in people

that use and businesses that use bitcoin managed to carve off some kind of margin, that will go right back into competing with their competitors. i think that bitcoin might be something you have to adopt because your competitors are rather than something that gives you a competitive advantage. >> thanks so much. thank you both for joining us. gm's plans to turn your car into a mobile hotspot are picking up speed. we'll talk about that next. ♪

>> i'm emily chang, and this is "bloomberg west." we turn back to our "wiring the world" series, and one company

using technology to change the future is general motors hoping to turn your car into a wi-fi hotspot. our editor-at-large cory johnson is back with us to talk about the cars of the future. >> gm, in particular, is a company that wants us not to focus on recalls or problems but to focus on the future, some of the technologies they are trying to put into cars. it's an interesting challenge for companies that want to be on the cutting while dealing with challenges on the trailing edge. what is the killer app for cars right now coming out of gm? >> the killer app for us is about connecting people with their vehicle and bringing their vehicle into their digital lives and their digital lives into their vehicle. what we are introducing this year and many of our 2015 model

year cars is a high-speed onstar 4g lte connection to be a source for you and your family as you travel as well as to interact with your vehicle when you are not in it. >> what do you mean "interact with your vehicle when you are not in it?" >> for those of you that lived in the northern part of the country this past winter, we had a terribly cold winter, and we have an application that allows you to remotely start your car from the comfort of your house or your office on those cold winter mornings or afternoons, and we were doing over 20 remote starts an hour in the month of january. we did almost as many digital interactions with our customers for january as we did with our visor. people move quickly to adopted an incredible rate. >> how do you know it has been

used that much? >> every one of those connections to that vehicle comes through our back offices. we know we are starting that car on their behalf. >> so many companies are developing applications. car companies typically have had different sorts of development that was all internal. how do you open up development without opening up the risk of a dangerous driving situation? >> the first thing is a vehicle is a highly contextual environment. we are not a smartphone. we are not intended to have the same capabilities. it is intended to move you in your stuff from one place to another. we want to extend the good parts or the relevant parts of that smartphone or connected world into the vehicle in a way that makes sense for the vehicle, and

we are doing that a couple of ways. one is the connection we just talked about. the other thing is working with people like apple and google about when those devices are brought into the vehicle that the person can use those devices in a way that is consistent with the fact that it is a car. we focused the number of applications, and we were fortunate to work with both apple and google in integration with peoples smartphones. >> i have been talking for a while about the way car companies are getting smarter about developing in-car electronics. what is the biggest problem you think you have fixed in the last year? >> an example is the 4g lte we are rolling out this year on

over 30 models. we are doing it across the gm portfolio -- chevy, buick, cadillac, gmc. we announced going to do this and announced an agreement with our partner at&t in february of last year. from february of last year until june of this year, we were able to take it from reaching an agreement with the carrier to implementing and rolling it out in vehicles. that is 15, 16 months, which in terms of the auto industry is a very rapid turnaround. the other thing we are doing this is as we did this, what we are putting inside the vehicle is a platform. it is not just a single-purpose dedicated to a single application. it is a platform. today, we are offering onstar on that side form as well as data services like a wi-fi hotspot. in the future, we can continue to add applications to that platform without changing the car or the platform. >> thank you very much.

we appreciate it. >> thanks. twitter releases its diversity numbers. is twitter more or less diverse than other tech giants? is it the same old story? we'll tell you next. ♪

>> welcome back to "bloomberg west." i'm emily chang. twitter's diverse city numbers are more or less the same as companies like google and facebook. 80% of the workforce is classified as white or asian. and a blog post, twitter, like other companies, says it is not satisfied with these numbers and is supporting a number of diversity programs including girls who code. is the password dying? a twitter password was posted an article to prove that passwords do not matter anymore, arguing that the added layer used as security makes his account more

safe. his account was not hacked, but hundreds did try to access it and were able to get his phone number as well. is this really the end of the password? i spoke with the president of microstrategy, which links your identity to your phone, allowing you to log in without passwords. i started by asking if what the reporter did was a smart idea. >> i think he was trying to illustrate an important point, which is that passwords are dying and on their way out, which i think people would agree with. >> but they are certainly not dead. how long will they be dying? seems like this will be a long process. >> passwords have been around for a long time, since the advent of networks, so they are the standard way we protect access to online systems, gain access to bank records over the phone and the like thomas so

they probably will be around for a wild, but with 80% of all cyber breaches being caused by compromised passwords, this is an issue that has to be dealt with sooner than later because it is taking an untold toll on the economy. >> what kind of a toll? >> president obama recently gave a speech in which he said cyber security is vital to the economic security and prosperity of the nation. this has risen to the level of presidential importance. ceo's of corporations are losing their job over the issue, and it has become a board of director-level issue. our company has launched a product called usher. it detects all the forms of id we use today, whether it is a drivers license or username and pass code or an id to get into a physical location like a door reader, and it didn't

materialize as to software residing on a smart phone -- it dematerializes those to software residing on a smartphone, which has lots of advantage. >> does this put too much power into your smartphone? what happens if you lose it? what happens if it gets stolen? >> it's a great question. the first question is what happen if your traditional forms of id get lost or stolen today? if you lose your drivers license, it has an expiration date of three years from now. someone picks it up and uses it, they are you for the next three years. there are 40 million lost or stolen credentials in circulation today, but there's no way to locate or deactivate them. if you have your id located on your smartphone, you could deactivate it, located, instantly turn it off. that is the power of a software solution to this problem. >> you guys are marketing this

product mostly to enterprises. what kind of pickup have you seen? >> we have seen a tremendous pickup and an enormous interest across lots of different industries from financial services to insurance too, in fact, governments and universities. a major university here in washington, d.c., is about to rollout usher as their new form of student id. we are really excited about that, and that news should hit in the next 30 to 60 days. >> what if your phone malfunctions? what it drop it in the sink? >> if you drop your phone in the sink, probably what you need to do is get another phone and instantly constitute your id on your new phone. it is better and more convenient than going down and spending the day at the dmv trying to get in a drivers license or going down to a locksmith or trying to get a replacement physical key to a door. >> my interview with the president of microstrategy.

time now for the "bwest byte," one number that tells a whole lot. >> the number is $409 million. this video came out of the surface people at microsoft. credit to "techcrunch" for finding this video. it is a parody of -- something, i don't know what. it is staff showing how cool the surface is. one note is the thing that uses a stylus on the surface, lets people take notes, and a pen-like thing, do drawings, animation, mark up documents, and it instantly goes out to all your microsoft devices. >> but someone did not want this video out there because it has been now deleted. >> i will tweet out the links to this. i thought it was clever. it is nerd wonderful.

>> thanks for watching. ♪

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