>> from pier 3 in san francisco, welcome to the best of "bloomberg west," where we focus on technology and the future of business. i'm emily chang. every weekend, we'll bring you the "best of west," interviews with the power players in global technology and media companies that are reshaping our world. first, our leaders story. mark your calendars. apple will unveil its latest iphone on september 9, according to people familiar. we know the phones what have larger screens. one will be 5.5 inches.

the other 4.7 inches. besides the size of the big screens, what might other features may be iphone have? we spoke to brian marshall and i started by asking about the screens. >> believe it or not, apple is almost two years behind the leaders. with respect to the form factor. it is going to be enough to a massive upgrade cycle. we kind of joked for the past year, it will be the mother load. of all apple upgrades. >> why five inches? that is big. it competes with the ipad. >> it did, the mini. >> the mini, 7.9 inches, no question. the largest smart phone we have en that was sensible was the i.g. flex. it curves across the mandible.

we think the 5.5 inch will be fine. we do not think it was too big. we do not think the 5.5 will be too big. our best to guess it will probably be a 50/50 split. >> apple did not seem to get it right the last time. their low end phone sort of underperformed for them. what does apple do? we do not talk about how well they have managed the supply chain. what does it mean when they don't know how it will take off and are launching it and taking a bigger risk than ever. >> you make a good point. there are 300 million iphone users of which we estimate 100 million are not eligible to upgrade. there are 200 million ready to migrate to the larger form factor canvas. typically, what we have seen with launches recently, it launches and peaks and comes down. now there will be so much wood behind that arrow, we think

this will be 60 million to 80 million units for quite some time and will be a multiquarter refresh cycle. we think it will drive tremendous e.p.s. expansion. >> what else can apple do to move the needle? there's been talk of extending battery life. not much battery innovation the last several decades. i read a story in the "new york times" about wi-fi charging wirelessly essentially. what about this kind of new technology? >> my iphone five is less than 50% charge for the day. >> me, too! >> we have a long ways to go. first will be larger screen and second better battery performance. >> it will have to be a bigger screen. physically bigger battery but more power and thinner. >> thinner, so we can cram more batteries in there. the 6 will be all battery. >> that's the case now when you

break these phones open, almost all the unit inside is the battery. >> we will have expanded surface area and the battery will increase in our view. number three will be the updated operating system. ios 8. frankly, we do not see a tremendous amount of innovation on the actual device. regardless, it will be selling like hot cakes. >> it will sell anyway. you wonder what it will take to get something more? talking about nfc and other things like that that move the needle. >> samsung threw all types of junk on their phone. they have like a barometer on their phone and the waterproof stuff. do you expect apple to respond and throw in chips and new possibilities >> think about it, the cell phone market is a two billion market and smart phones now are over 50%, over a billion units. this is largely a mature market. think about pc's other than the

form factor, has much really changed? not that much. >> right. >> we tried in netbook thing and it didn't work. the form factor of the p.c. is not evolving and we feel smart phones have reached a similar point of maturation. >> apple executives say it's the most exciting product line he has seen in 25 years from apple. tim cook agrees. what else could there be? will an iwatch come out this fall? is there something more? is it just the new phones? >> the commentary from the senior management team, obviously, is trying to rally not only the troops internally but also the public as well. >> yeah. >> so you don't believe him? >> how could a big iphone be more exciting than the original? >> and nothing is going to move the needle from apple perspective with the exception of new, updated iphones. if you think about it, the ecosystem, they will generate over $200 billion of revenue next year. ship over 200 million phones.

even if the iwatch is successful, a grand slam success, it will not move the needle from a financial perspective in our opinion. >> i looked at in the financials from the ipad and it was an incredible success. the likes of which technology has never seen, compared to the phone or ipod or anything. if they were to launch the ipad with the same success and they had in the first year this year to a bigger apple, it would be less than 5% revenue. >> an interesting way to look at it. >> they cannot do anything to match the success that have had. >> when you assume -- when you have sweetheart subsidy deals and coupled with the resell of nan flash and up to 80% of excess gross margins, this is on the iphone, it's so hard to compete with anything else. considering that global cell phone market is at 2 billion units, you cannot get anything else to move with the needle. >> let me pause a threat to apple and see what you think.

t-mobile is out there with the strategy of untying the user to the contract. the users paying full cost of the phone. you have smart phones that have less features like the samsung galaxy but at a much lower cost. does that eat away of the business that apple and samsung has dominated? >> new pay schemes will be a thing of the future, no question. at the end of the day, smart phones cost $600 or $700 without a contract. if you sign a two-year contract, that will be $2,500. there's a little chunk of the price that's actually the phone. the real cost to the user as the subscription service. i do not expect much change to the overall asp's on the high-end market where apple competes. the general smart phone industry is about a $335 asp. over one billion units. apple pays at a category of

more than twice of that. >> brian marshall and corey johnson. apple is also taking steps to control of more of the user experience launching its own content delivery network. how much of a game changer if it? that story is next.

>> welcome back to the best of "bloomberg west." i'm emily chang. apple takes a major step of controlling every piece of the user experience and is reportedly spending tens of millions of dollars to build its own network, its own internet backbone. a report said a small percentage has gone live in the u.s. and europe. apple has reportedly struck eals with large providers to

deliver content like i.o.s. updates to consumers. this means the content can be delivered at faster speeds and without relying on technology from third parties like level three which apple currently relies on. cory johnson and i spoke to an analyst who wrote the report. dan pointed out a trace route, knowing that i.o.s. downloads are going directly from apple.com cast network. i asked him how he figured it all out. >> apple thought large andanies like netflix microsoft and google decided to build their own because they needed to take more control of what they were distributing. for most content owners and syndicators, it does not make sense of going into the business of building. from an economic standpoint, they are not large enough. apple has a lot of different software downloads and streaming as well. if you think about the radio i.o.s. updates and apps, things from i tunes.

they're only just starting off now. right now they're doing a small portion of their delivery but over time will continue to do more. >> you say this content delivery network is huge or potentially huge? >> it is pretty big if you talk to some the isps i have spoken with and they talk about the type of capacity that outlets -- that apple has put in place. what apple has done and is typical of a company that builds its own c.d.n., it not only puts in capacity it needs today but what they need in the future. some of the i.s.p.'s said the traffic apple is passing over their network today is still pretty small but put in the capacity 10 times that for the future. apple is looking at this as a long-term play of where it will play of them controlling the entire ecosystem. >> some other reports show apple apps are only 4% of internet traffic except when

they do an i. o.s. update and is suddenly mcing netflix like, something like 40% of the internet traffic. what does it take, exactly what does apple have to do to deploy this? what are they deploying. >> it is not that difficult. they are deploying servers, in many different locations, not too many because they are primarily focusing on north america and europe. they play servers as well as they place servers in third-party data centers as well as their own data centers they hold. apple controls a couple. centers we know, they built them out. those servers connected to other networks. the way that's done is a cross connect, a link to another network and sometimes you're buying transit to connect to many networks and sometimes you're doing a paid interconnect deal like we saw netflix do with comcast or verizon. apple is doing the same thing. >> they are not laying fiber but turning on dark fiber

that's already there? >> they are not a backbone provider. correct. apple is buying from companies like level three, transit, i.p., voice. they're buying a lot of network resources and putting it together to create their own network. they do not own the cable into the ground or laying the cable. >> when you look at the the potential for this, how big is it? we for the fall it could come to a great use pushing out iosa and the update to i.o.s. 10 yosemite. where is it going to come on a broader scale? >> level three most likely. they point out that while apple is a customer, no customer is more than 10% of revenue. we know they are spending less than 150 million last year. they are probably spending tens of millions of dollars to get their stuff out on the web.

what it means if they're controlling the network it presumes they can contain cost afish eas. if it is cheaper, their growth margins get better. number two, they may be able to tailor it if they are tailoring their servers to deliver the kind of content that apple creates and that will come across faster and cleaner. not just the stuff we know like movies and music or software but things they struggled with ike i cloud that is the future computing and being mobile that apple has had issues with in the past. >> if apple is controlling so much of the user experience, do you think it is something other companies could do as well? >> other companies have done it. apple is late to the game. in building a c.d.n. microsoft, google, yahoo, a lot of these companies started building up in 2006 and 2007. cory is absolutely right. pple has a huge advantage.

their servers are purpose-built. they are built only for delivering apple content. they roll out additional service and i cloud is something that is to performance issues as something apple wants to correct. the c.d.n. is going to become imperative to the quality of service that they're going to provide the customers across all their services. >> what about apple television? it is something we talked about for months whether it is actually happening but couldn't something like this come into play in a big way if indeed apple comes out with a television set or some kind of television service? >> once they wrote the report, a lot of people speculate about an itv. this has nothing to do with the itv. i do not know any other plans. because of the c.d.n. pertaining to an i tv. they are putting this in place for software. they want to improve performance with i cloud and i expect them to use it for

content as well. apple needs this for the size of their business now and doesn't have anything to do with i tv right now. >> what does it have to do about creating a dropbox or something like that? we know it's a place apple looked to grow in the past. this could make them more feasible. >> absolutely. any additional services they want to roll it down the cloud, they can use their c.d.n. 4. they are only rolling it out. microsoft and netflix have done something similar and only takes 24 months before they bring a vast majority of their content in-house. i do not think apple will ever bring 100% of their content but they will bring most of it over time. >> our editor at large cory johnson and dan rayburn. from frost and sullivan. coming up, a group of russian hackers may be sitting on the largest cache of the largest

internet information.

>> welcome back to the best of "bloomberg west." i'm emily chang. how safe is your data? that question is front and center after russian hackers allegedly stole 1.2 billion passwords and 100 million email addresses. the stolen information was collected from more than 420,000 websites. they didn't name the affected websites but are set to include some household names. for more, cory johnson aand i spoke with a vice president of strategy at shape security and started by asking him just how serious this breach is. >> it is very difficult to know

without having to examine the data set. it has not been made public. we will probably learn more over the next two days as more details are released. it is on a much larger scale than previous breaches. >> it's a little scary. we know major websites are affected but aren't going to tell you which websites. why not? how do i know i need to be worried. >> that is an interesting question. if you looked at the previous wreaches it effected a small website. in the case of the ebay breach where you had 145 million credentials leaked, what do the distribution lists look like, is it a vast majority that account for the credentials or a large number of companies? >> there are enormous expenses because of the breach and what the companies had to do to fight this. are there specific companies

will have to face similar costs in the current quarter where they have to pay more to fix it? >> certainly if they discovered they are affected by the breach, they will have significant costs to figure out what went wrong and what to do about it. one of the scary things is there may not be anything they can do about it depending on ed method of attack used to create the breach. some of the details that have been released so far indicate the hacking group started off by just purchasing credentials online from other groups on the black market. they switched to using a bon-net based attack. we use a bot net attack, which you can do is leverage the previous credentials you have stolen to go through the front door of other websites and test those credentials and discover which are valid on other websites. >> let me paraphrase. they learn an individual's username and password and help blast the name user name and password across the

internet where they find out the user used the same thing and the company never knows they have the exposure? >> exactly. that is not something that constitutes the average breach. they do not have vulnerability in their infrastructure. they are going right through the log-in form. >> how do the companies know? >> they can find evidence of user's name and password used. in this particular hack, they found the initial use cases have sent is spam and malicious e-mail links. the companies that have the users that are breached may discover these spam or malicious links going out. >> the report they say is a russian gang. who are these people and what are they doing with the information? are they selling this information? is that the end game? >> is a very sophisticated ecosystem when it comes to credentials. there are many things they can do. it looks like they are monetizing by providing services. like sending out these malicious links.

in some cases they can use the bon nets they've built to create more sophisticated attacks, attacks like man in the browser which can be used to take those credentials and use them to steal money out of people's bank accounts. the level of monetization they can accomplish is based on the specific attack they're selling to the rest of the black market. >> i imagine it affects so many different businesses. 10 years ago the companies that would have faced this kind of thing had businesses online but more and more companies turn from being online to being mobile even. i wonder what the companies' risks are and how they mediate that with insurance or whatever else? >> it is certainly requires sophistication and vigilance in order to be able to maintain a complicated online presence and companies are trying to reach their users as broadly as possible wherever they might be. having an online presence is

essential to about every business these days. >> target the just-released the cost of that massive data breach. $148 million. though they have $38 million of insurance. we keep asking the question, can the attacks be stopped? can a security get so good that it does not happen or will that hackers catch up every time? >> i don't think you can ever make a system that is absolutely unhackable from a theoretical standpoint, but what you can do is create very practical defenses that make certain types of attacks so expensive that the hackers end up deciding to do something else. >> what are those defenses? >> this is something security is based on, having to introduce barriers to different websites in order to prevent automation from occurring. so this gang is estimated to be about 20 people in size and yet have stolen over a billion credentials. the only way to do that is through automation.

if you can prevent the automated tools, the vulnerability scanners they're doing to discover the exploits in the first place as well as all the tools they use to monetize them, then it becomes much costlier for them to then create a business out of these types of attacks. >> sort of putting up walls between websites? >> like what, a quick example? >> our product is called the bot wall and it prevents any type of automate another tack to go on your website. in this particular case, when they're trying to use the credentials and log into other websites to discover whether or not they work, they're actually unable to use a script to automatically log in. if you've got millions of credentials, you can't manually test those and try to log into each one manually. you have to use a script using a bot net to reach that scale. if the automation doesn't work, the attack goes away and the business model fails. >> cory johnson and the vice president of strategy at shape security. >> coming up, list dives into

the car pool feature. they aren't alone. uber is following suit, how do they differ? we speak to the co-founder of lyft next.

>> welcome back to the best of "bloomberg west." i am emily chang. carpooling has gone digital. lyft just launched a carpool program. it is only available here in san francisco. uber has also announced a similar feature that will launch in san francisco later this month. i spoke with john zimmer about how mobile works. >> 90% of lyft ride said some to going in the same direction. we are taking the two routes and matching them up and saving users 62%.

>> uber is testing out something similarly to this month. how will it be different? >> it is flattering to see others follow what we're innovating in the space. i think one thing that we created is a sense of community and this culture of sharing within lyft. it is also true to our roots and vision from the beginning. we started a company prior to lyft where we did long-distance ridesharing. we have come full circle. >> you can save up to 60%. one of mobiles is taking a ride in a direction? >> we will still give you a savings. it might just be 10% or it might be more. >> if i allow some in my car with me i still get this cap. why won't everybody do that? >> we hope everybody does. we think it is the best way to get around. we are creating personal transit at your doorstep.

it is enticing for users. we have seen hundreds and thousands of rides. >> we have a lot of lyft users on our team. there was a bit of and i don't know what i get into an uncomfortable situation? >> people had those questions and we started lyft at the beginning. we have created an incredible experience. you have screening of both passengers and drivers. it is work that well. we have done 10 million rides on the platform. we have over 60,000 drivers. it is more than fedex does vehicles. people do want the service. they are using it in large amounts. that social piece, and works at.

>> writers yet more and drivers pay less. fewer drivers are needed. how does it work from a supply and demand perspective? >> at our peak times in the morning and evenings, it is nearly impossible to get enough drivers to serve those needs. when you create a five dollar ride or a seven dollar ride, that increases demand. we are about creating your daily ride. when you start creating something that is a five dollar price point, people get rid of their cars. the story that has been told previously is what we are doing in this $11 billion taxi and limo market, the way we see it is we are going after the consumer transportation market. that is a $1 trillion market in the united states. 95% of it is people spending money on personal vehicles.

>> you had some challenges in washington dc. some people say it is not really lyft anymore if you take out the fun stuff. other places complained you can't get a ride and there aren't drivers of metal. >> we are seeing an incredible demand in new york city. this is our third highest demand across all 67 markets. we have all been live for about two weeks. markets like chicago that has been live for over a year are not seen as much demand as new york city already has. this is a massive opportunity. we have created new product there that we are calling lyft pro. regulators said it had to be this way. we are bringing peer-to-peer as well. >> how will you get more drivers on the road? they will have to be licensed by the taxi and limousine services. >> there are 1000 drivers lined

up in new york city. people want the opportunity. we are just scaling up really fast. >> that was john zimmer the cofounder of lyft. russell simmons is wanting to increase his empire. we speak with him next. ♪

>> welcome back to the best of "bloomberg west." i am emily chang. as the cofounder of def jam, russell simmons broke hip hop into the mainstream. his notice venture is helping new artists achieve success in the digital world and beyond. they received a $5 million in funding.

cory and i spoke with him. i asked what all that digital is going to do with all that money. >> we want to find important content. we have young writers and directors and comedians and poets and people who need exposure. with our partnership with the music company we are putting out a record of week with samsung. the money -- we don't need his money. it is his brilliance that we need. we'll meet the $5 million. we need the brilliance. we look at the executive pool that is out there, the other tech partners we need to expound upon our ideas. the na li answers. i have known these guys for a very long time. having him and limiting the amount of money i take, they own a great piece of it.

i am happy to have them the cause of their brilliance. the idea is to find great content and create content that will be different from the marketplace and make it difference. >> let's talk about that brilliance. he was an investor in maker studios that disney bought. he knows where the revolution of video is going. where is the revolution going? >> it is interesting. the younger demographic, the top five recalled stars in the world for kids between 13 and 18 are all youtube stars. that has replaced additional celebrities. when russell explained his vision of trying to use these lap forms for short form video

and unearth this new talent that has not been able to break through, now they can publish themselves with these guys taste making and using platforms around them and taking that talent into movies and record labels and television shows. it was a marriage that was too good to be true. >> when kanye west was saying he did not know any better. hollywood is so segregated. we had a moment with bernie mac and chris tucker and tracy morgan. they emerged at one moment because there was an integration process. no one except some of the older guys like kevin hart have emerged. it youtube is a place where artists can emerge the spite the lack of creativity in hollywood.

i get the chance to say yes instead of asking an executive to say yes. that is very exciting. there is so much young talent and people who have not gotten a break yet. youtube will give me that break. hollywood is regressive, but they live in fear. they have not done a good job of integration. the girl on scandal is the first black girl to lead a show sense julia. >> that was in the 1970's. i remember that as well. >> it is a giant white space and want to fill it with creative content. >> is this musical content? >> yes. we have music every week. we are putting out a record every week. >> that is a kind of release schedule to we would've not seen in the music industry.

what is it about the digital era that makes you want to do it this way? >> this technology that lets artists upload their music and samsung has funded this bill that which is part of our process. this -- we built this. they upload the music. we curate from that. these are artists who built themselves with huge youtube followings or social media followings. we put the single out every single week. a lot of them have become stars. already. >> it is not just the pace but these platforms are global. we are finding talent all over the world. i think what historically people thought of as urban is everybody. it is global and everywhere.

>> the girl that they are showing right now grew 600% in sales last week. it has everything to do with the collaboration of all of these tech ologies, especially youtube support. i've mentioned samsung eight times, but they have funded this. >> speaking of collaboration, jay-z was at one point the president of death jam. we have been covering the on the run to her. you are seeing other artists pair up. this is the only with furnace to make that kind of big money these days? >> we are looking at all of the artists. they have deals with the pieces of everything that the artist does. thai reese is a movie star. jay-z is a business guy. there is a lot of branding exercise.

i created a clothing business that i got jay-z to be partners in. there is a lot of ways to exploit emerging talent. there are areas that they want to exploit their celebrity. that is what we do. we are a immediate company that understands all kinds of media. we have movies at different studios and lots of the artists desire to be in them. that makes us a unique company. >> that was def jam ceo russell simmons. foursquare has revamped its app to focus more on location-based search. is this enough to draw users back to the service? ♪

>> welcome back to the best of "bloomberg west." i am emily chang.

foursquare is trying to get back in the forefront of users minds. they hope you will draw more people to the service. it focuses on location search and helping people find restaurants and businesses. the check-in feature was moved to a separate app called swarm. i spoke with dennis crowley. take a listen. >> we had a focus on local searches. this has been since 2010. over the last four or five years we have gotten so much data around the types of places that people go and what they do. what we are trying to do is personalize the local search. it feels broken that if you go to yelp where people get the same search results. we want users to get different results depending on what their tastes are.

>> i agree with you that nobody has cracked local search at. i could have used this when i was walking around looking for a restaurant to eat at before the jay-z concert last night. foursquare is known for mayors and badges and check-in's. people are asking me to ask you what is the up take on the swarm and why are you doing it this way? are you seeing more users? >> we look at the app that we had created. we realize that some people were confused. we want to use the search but we don't want to check-in and some people did not know we had a search feature. we broke it down into two apps. we launched swarm in two weeks ago. it seemed like people that were checking in on the old app on a checking in on swarm.

that is great for us. we have lost some users. we are set up to dominate local search with the core app and innovate with apps that meet up with friends on the swarm map. >> you are tracking users continually. why will it use this information willingly when you have people flocking to secret? >> one of the great things about the new app is we are not sharing your location with friends anymore. that was one of the complaints we heard. people did not want others to know where they were all the time. even though foursquare understands the places that you go to, we do not share that. it just makes recommendations stronger and more personalized. >> we have talked about how products have evolved. you are positive and confident about the future. what do you think this next

phase is? is it a make or break phase for foursquare? we have had a strong roadmap since we started the company. how do we collect data from all of the interesting things happening in the world? we give it back to people in the form of personalized search recommendations. have done this since 2009. we have a lead over anyone else. nobody is approaching the space like we are. no one is building the technology that we have. we learned so much about the world. this is when the first chances we have to show people what we can do with all the data we have collected. we are super excited about it. >> you have always said you want to remain independent. how long are you going to keep at it? how long will you try to break through? >> we will do it until it works. we feel strong about the condition of the company.

we have generated significant revenue. we have generated more in 2014 than we did all of last year. we are in a fantastic position to execute well. >> that was dennis crowley of foursquare. food shortages are one of the world's biggest problems. one start up has found a new way to make eggs without eggs. we will talk with him next. ♪

>> welcome back to the best of "bloomberg west." i am emily chang. how about eating scrambled eggs or an omelette minus one ingredient, the eggs. what? hampton creek foods is a startup that makes plant-based and alternative. they have more products in the work.

they are backed by bill gates. what is the technology behind them? i spoke with their founder and asked why he started this business. >> you think like most people, this is why we started up with mayonnaise. our idea is that food just needs to get better. it could be about cookies. food needs to be healthier and more affordable. we are started out by saying there are 400,000 plant species around the world. we can use them to make everyday food a little bit better. we don't have to talk about all the hall. and the sustainability though we believe it. we want to make the good thing work for you. >> isn't this made out of eggs? what is actually in there? >> eggs are one little piece of the food system.

eggs don't always come from the best places. they are not the safest. we identified one piece of this system to make better with plants. we have the oil and water. instead of the egg giving you the texture, we use a canadian yellow plant. we work with farmers in western canada. we identified these plants using this science and biochemistry. we start but don't end with the conventional egg. >> it looks like it has the same amount of fat and calories. is it healthier? >> it has no cholesterol. let's say you are having a hamburger. it has less cholesterol. people have egg allergies.

there are no antibiotics associated with this whatsoever. there is less saturated fat. >> you also make cookie dough. it this cookie dough has no egg in it. you are selling this. you've got a new retailer. >> we have been really fortunate to combine this philosophy of making food better for everyone with a technology that makes awesome products. we are going to be beginning this movement with target on august 24. this is the best retailers in the world. they align with why we are doing this in the first place. >> you've got other grocery chains online. >> the top two grocery stores in america. it we've got safeway and kroger. we have whole foods and we are watching with walmart.

>> what else can you make without eggs? are we going to be eating fake chicken? >> the key is what is outside the conventional egg. we have all of these issues in our food system. we have rising rates of diabetes. maybe sugar is not the best thing we should have. we have foods that could be more sustainable and use less water. we are identifying plants that are better than sugar. we find plants that could be a hyper source of protein in the developing world. the more we find things that just make things better. >> that does it for this edition of the best of "bloomberg west." you can catch us monday through friday. we will see you next week. ♪

>> welcome to a "bloomberg west" special, "the baidu billionaire: inside the google of china." i am emily chang. i sit down with the baidu cofounder, robin li, for a rare, exclusive, live interview. we will talk about how he built baidu into china's largest search engine, and the challenges of running a business in a country with censorship. his relationship with tech icons like mark zuckerberg. and what he thinks of apple. but first, here is an introduction to the booming business that is baidu. china is one of the fastest- growing economies and tech industries.