>> live from pier three in san francisco, welcome to "bloomberg west." where we cover innovation, technology, and the future of business. i'm emily chang. google is hoping its latest shot -- moonshot takes flight. testing delivery drones and taking aim at amazon. we look into the challenges of drone flight and how long it will be before a drone delivers packages to your door. besides the big screen iphones, apple's september 9 event is a mystery. we know apple will unveil a wearable device, but will it be a watch and can apple really have big success and watches,

and why is apple building that mysterious white building at the site of the event? we will look into all these key questions. and burning man will catch fire theanother three days as annual festival brings 70,000 people to nevada's blackrock desert. how big is burning man, and why does it attract so many tech titans? lead. to our a genetic week in-amazon rivalry -- dramatic week in the amazon-google rivalry. amazon bought videogame site twitch, and now google has revealed project wing. like amazon's octocopter -- don't look for the technology soon. google says it will take a few years before the system is ready for commercial use, but it is possible. not to mention the drone delivery technology is several years away from government approval. cory johnson with me here in the

studio. joining us from san diego, paul kedrosky. in new york, an attorney specializing in commercial drone law. via skype from philadelphia, a university of pennsylvania engineering professor. thank you so much for joining us. vijay, i will start with you. you think there is so much potential here and that is going to happen sooner than we think. >> absolutely. i think the potential for developing autonomous aircraft is there. not only that, you can have them scale down the size of technology for deployment not just in rural areas, but also in populated urban areas. >> paul, you are a bit more skeptical about what google is doing here. what is your take? >> i'm wildly bullish about drones in general. but i mean, in general i think this is much more about proof of

concept and a little bit of a recruiting exercise for google. it's really important for google to demonstrate constantly to would-be hires that it is sitting at the leading edge. not just doing tedious stuff like improving search. some of this is a marketing exercise directed at stanford students as much as it is a project they hope to bring to market. it's important to keep those two things in mind and not expect anything in the near term from google other than it being an even more attractive hire. >> how do you respond to that, vijay? >> the question is is it commercially viable and what sectors it is viable in. i do think in certain areas such as farming, delivery of high-value products, there is a business case to be made. there are things that autonomous aircraft can do that other machines cannot do. given that we are always short of people that are skilled, especially in countries like

africa and australia, there are lots of things you can do with the small vehicles. technology is maturing so rapidly, not just in terms of computing, but the hardware we used to build these aircraft. the rate at which the technology is gaining acceptance, socially and from an economic standpoint, that rate is increasing dramatically. like paul i'm very bullish on , this. but it is hard to predict where the business case can be made. the only thing i'm sure of is that the business case can be made and the technology will be here sooner than we expect. >> what about the legal case? google had to do testing in australia because the laws in the united states are too strict. what kind of legal challenges lay ahead for delivery drones? >> it is quite dismaying that google had to go overseas to do testing on these technologies.

we are talking about a company whose technology in search was developed with the assistance of the national science foundation. for it to have to go overseas is really a step backwards for the country. with respect to regulations, what we have right now is a situation where there are no specific regulations regarding unmanned aircraft systems. in the interim while the faa has tried to come up with rules, it has told everyone to start using them for commercial purposes. with respect to testing, it has been restrictive. >> brendan, does the data that they gather in doing these kinds of tests help make the case and informationkind of you can submit here in the u.s. to get faa approval? >> that is the idea. part of the problem is it has not been clear to date what they faa has required that will give anyone the green light for using these systems. as we reduce the weight and

altitude of some of these drones, the safety case becomes quite clear. they will not pose a great hazard if you are flying to say couple pounds 50 to 100 feet off the ground. >> this google effort was profiled deeply in an atlantic piece today. one of my favorite lines, yeah, unicorns could also win the kentucky derby. google is saying this could be as innovative as the pony express as the u.s. postal service. do you see that potential? >> i see huge potential for drones, but the delivery case is tougher for me. in the atlantic article they talk about how they have to do these reverse sky hooks because these consumers, as soon as we see a package on a drone we want to go in and grab it. unfortunately, these copters have the capacity to cut your fingers off. so they have to use fishing line to lower the packages to the ground to prevent us from

sticking our hands in and losing fingers. keeping it away from consumers as long as possible and focusing on industrial apps will keep the lawyers at bay and help the market progress faster. >> i love that paul is our unicorn expert as well. let me ask you in terms of the , engineering challenge, what is the principal thing that google is trying to solve here in terms of the engineering challenge? in that atlantic article they talk about having this big question whether or not it is possible. they decided afterwards it is possible. what was the question that was answered? >> the technical challenge is how to navigate. going from point a to point b, you can do this. commercial aircraft can do this but timelessly today. with package delivery and other civilian applications, if you have to navigate the last 100 meters down to the warehouse or to your porch or what have you autonomous late, that is where

issues of safety come in. not just about consumers, but imagine a robot trying to sense the environment and trying to figure out how to navigate in a safeway. -- safe way. we are not even addressing the possibly adversarial behaviors of consumers wanting to throw baseballs or what have you at these vehicles that are flying. you really have to think about what kind of sensors need to go in and what computers need to go on board, how to really implement the kind of things that faa is thinking about on a macro scale, but now you have to do this on a micro scale. all that combined with the fact that, remember, quadcopters burn 200 watts per kilo they carry. anytime you put a sensor or computer on board, your burning lots and lots of power. as we know from laptops and cell phones, one thing that does not act in our favor is batteries. so it is a complex design problem to solve all of these

challenges. >> amazon and google have been very secretive about their drone. -- efforts. i wonder, which company do you think is better equipped to win the drone delivery war, and is it google or amazon or somebody else? >> the drone delivery issue -- amazon has all the urgency. they want to knock ups and fedex out of the middle of the delivery loop. they have a real stranglehold in terms of cost. google, this is an experiment to whole bunch of different ideas that apparently initially started with aid and relief and disaster circumstances. they were not coming at this from a delivery standpoint. so i give the lead far and away to amazon. >> a quick last word, who has the better chance? >> i agree with paul. the urgency is for amazon. the chinese are already doing it. amazon has to step into the fray. google has a big advantage from a technology standpoint.

you think about how they think about the google car. self-driving cars. it is really a car with lots and lots of infrastructure that is not on the car. it is in the cloud. imagine being able to leverage all the cloud infrastructure to navigate the last 100 meters. google already has that. it has done it in two dimensions on the ground and has 3-d infrastructure and -- to deploy cars on the ground. for them to extend this to aircraft is a lot easier. , amazon has not been working on that until this point. >> university of pennsylvania vijay kumar, thank you so much for joining us, as well as attorney brendan schulman. paul kedrosky, you are sticking around. more after this quick break. coming up, take a look at this. a mysterious white structure popping up in cupertino, where apple is hosting its september event. what is that about?

we will have the details, next on "bloomberg west."

>> i'm emily chang. this is "bloomberg west." on bloomberg television, streaming on your phone, tablet, and bloomberg.com. we are just days away from apple's big event on september 9, where the next iphone or iphones will be unveiled. now we have learned we will also see wearable devices. will apple's highly anticipated smart watch make its debut? we are back again with our bloomberg contributing editor, paul kedrosky in san diego, as well as cory johnson. adam, what is this big, white building that apple is building all about?

>> they have set up shop at the flint center, down the street from their headquarters. they are building a structure next to it. it could be a demo area. after they do the product unveilings, it is somewhere for people in the media or other visitors to check out the products. i have not gotten a tour of it yet. >> do you know if they will sell a 30-foot cube? >> it is where steve jobs unveiled the first imac, right? >> yes. they unveiled the macintosh and also the imac after steve jobs came back and took over control of the company. >> could this event be as pivotal as those were? is that what apple is signaling? >> it certainly could be. i don't think that is the signal. it is a convenient location. it is booked by intel next week for the development forum. it may be that the space they

wanted is not available. a lot of important events here that is where the compaq hewlett-packard merger was approved. >> everything apple does is so deliberate. i wonder if there is a bigger meaning. what do you think? i know you are not excited about the new watch. >> maybe a brainwashing center to convince people they actually need another device on their wrist. [laughter] i'm not very excited, but i don't know if you saw the story this morning, that it may not even ship until january. they may not even be taking pre-orders next week. this is iphone-esque, trying to freeze the market more than anything else. apple doesn't have anything to ship according to that story, and it would not surprise me. if that is the case, this is about staking a position more than launching a product.

trying to keep everyone else from gaining share. which is bizarre, considering there isn't much share to be gained. this is a classic market not growing very quickly. >> what about the idea that nsc chips would be part of the watch or the phone, and this would make mobile payments easier whereby you could just swipe your phone at a checkout counter? >> this is another one where there is an opportunity there. there has been a lot of buzz in silicon valley about, we could make payments with our phone. it is something that companies like google, ebay, a lot of companies have been trying to do and it has not taken off. for most people, using a debit card or cash works just fine. apple has some things these other companies don't have. >> the thing you have is a stash of credit card numbers few companies can rival. better than almost in the company in technology. they have the payment information and permission. they also have their fingerprinting technology which

adds a certain level of security that nobody else has. they are set up in an interesting way to make nfc work in ways no other company is, but it could be another one of those zero billion dollar businesses. >> how optimistic are you about nfc technology, which is huge in japan but has yet to take off here in the united states. >> i'm wishy-washily optimistic. in general i think it is fantastic. death to wallets, all that. i want it to happen, personally. when you try to explain it to normal people, people say i can only do that with credit cards. i have all these other ways. yes i hate cash. , i worry that the take up here will be much different than a take-out for this technology elsewhere around the world. there is a certain inevitability to it. i just wonder if the take-up will be slow and full of deep valleys. >> wishy-washily optimistic. that's why we love him. [laughter]

bloomberg into being editor paul -- contributing editor paul kedrosky in san diego, thank you so much. adam satariano, we will be looking for more scoops about apple from you. a fight over legroom on united nations -- united airlines flights this week has turned into a social media uproar. how did twitter judge the guy who installed the knee defender? find out next. ♪ >> welcome back to "bloomberg

week -- west." earlier this week united airlines grounded a flight from newark to denver after a fight broke out between two passengers. one man had installed a device called the knee defender, which prevented the seat in front of him from reclining. the woman whose seat was locked in an upright position got so upset she threw her cup of water

at him. the fight did not end after the plane made an emergency landing in chicago and both passengers were kicked off. a passionate public debate about who was more in the wrong has broken out on social media. bloomberg television head of research eric chemi joins us from new york to talk about how twitter judge the argument. cory and i are completely split on this thing. he is tall, and i am not. i think this thing is completely obnoxious. >> you don't think it is obnoxious? the tall people like me who suffer. >> obnoxious to other people on the plane. if you are on a plane, you have got to realize you are in a cramped space. >> so you are on the drink-thrower side. >> these planes have had reclining seats our entire lives, so for you to say it is obnoxious for someone to recline the seat is of noxious on your part, cory. that is what twitter data suggested. thousands of people and millions of impressions talking about this exact fight, three to one was the ratio blaming the guy

with the knee defender. >> that is because short people are on twitter in excess size. [laughter] what happened, quite seriously, the amount of legroom on planes has shrunk over the last couple of years. the average space for most airlines in an economy seat is 32 inches. that is down from what it was in years past. >> that is not the problem of the person in front. >> it makes a big difference when you only have three inches to go. >> cory makes a good point. originally what happened on twitter was the fight people was talking about was which of these two people were more at fault. then the conversation switched. once they started talking to ira goldman, the guy who invented the knee defender, he started blaming the airlines. he was able to change the online conversation from who was wrong between these two people to why the airlines are so bad. if you look at cory, he is the example of someone who instead

of blaming the guy with the knee defender, is now blaming the airlines. >> what is going to happen first? our planes going to have more space, or are they going to ban the knee defender? come on. what is easier? injetblue crammed more seats , realized the mistake, and now expanded seats with more legroom. virgin america does the same thing. they have more seats with more space, on average 35 inches instead of 32 inches that other airlines tend to average. they're pulling a lot of customers in for that reason. >> if he cares that much, he should have bought a seat in first class. >> they already had more money for these bigger seats. jetblue, a lot of their analysts say they would get more money if they were able to reduce that legroom because they feel like there is more revenue to be had, and forget the customer pushback. that is the pushback from the stock market. >> this one will be fun to follow.

eric, you are welcome on the show anytime as long as you take my side. [laughter] eric chemi, head of research for bloomberg tv. so obnoxious. >> it's not. if a seat slams into my knees and i can't walk when i get off the plane, it's about protecting myself. >> i'm not going to change my mind on this. >> i'm fragile. >> in the wake of the jpmorgan hacking, how much money to spend -- do banks need to spend too protect themselves? we talk about the real cost of cyber security, next. ♪ >> time for bloomberg television on the markets. i'm matt miller. let's get you caught up on where stocks closed for the day. not a heck of a lot moving on the dow. the s&p 500 up a third of a percent.

nasdaq up 0.5%. s&p closing out its best month since february. up about 3.7% for august. in february we were up 4.1%. ♪ >> you are watching "bloomberg

west," where we focus on innovation, technology, and the future of business. lending club, one of the largest online loan services, has filed -- an ipo. an online the peer lending site has facilitated over one billion dollars in loans in the second quarter alone. what could be ipo mean for the future of banking? ,ory johnson is still with me with david golden from new york. david, your company does something similar to what lending club does, on a smaller scale. what do you see as the potential

for peer-to-peer lending in the united states? >> what you will see, like many industries, how huber is disrupting-- uber is logistics, alternative financing will disrupt banks. similar to the lending club model. banks are not providing the appropriate working capital both to businesses or consumers. >> tell me about that. how is the lending environment for small businesses different? always -- most banks cannot make money providing a business loan for $30,000, $40,000. they focus on larger loans and primarily backed by the sba so risk is mitigated. they tend to put business owners, they look at them as consumers. they are giving them a small business credit card or requiring them to give a personal guarantee based on the home equity loan, which is

really a consumer loan. so you are finding that like other industries, you see technology, an alternative way of thinking to disrupt the way businesses and consumers have done for hundreds of years, the bank is the primary source of capital. >> it seems like the innovation isn't just on the side of the person of the money. the lender and the ability of investors who want to get a rate of return in an arena where it wasn't available to them. >> that's correct. essentially banks traditionally take in deposits anywhere, from the old granny is putting in her lifetime savings and banks have to be careful where they are making their loans. in the marketplace a lot of , individuals and institutions looking at this platform at lending club and others as a way to get a higher return on investment. >> lending club's market value than 97%illion higher

of banks on u.s. exchanges. is this fair? >> it depends on who you are asking. lending club is not about you to -- value today on earnings. -- see a profitability valuation based on future growth. what it is doing for the transportation industry. lending club is almost like ebay. you have buyers matched up with sellers. you might be selling baseball cards. on the lending club platform, the product is money. the buyers being the borrowers and lenders being the sellers. wall street is looking at this as more of a technology play and more of a valuation indicative of that. >> there is so much more competition to the lending club and i wonder it of all of the borrowers and lenders are sharp -- to show up on that platform, do we expect those rates of

return to the investor or borrowing costs to come down a lot because there is more competition? >> there comes a point whether it is on lending club or where we offer our working capital for businesses, you have to price the risk. it is no different than an auto insurance company if a driver has five accidents with the next 12 months, you will charge them a higher premium than a driver that may not have had an accident the past five years. no different than how we operate. the greater the risk that the lender or the funding source is taking, it has to be priced properly. there will be some price pressure. but there is a floor, that is some point there is not a return. the risk is too great without getting the proper yield on the money. >> the founder and ceo of am erimerchant. we will continue to follow the lending club road to ipo. thank you.

speaking of banks, jpmorgan and at least four other banks were hit by russian hackers this month. sensitive data was accessed. how much do companies need to ban to protect themselves? olivia sterns has been looking at the cost of cyber security and joins us from new york. jpmorgan had been preparing. they were spending like a quarter of a billion dollars. >> it will be a quarter of a billion dollars by the end of 2014. up 25% from they're going to 2013. have about 1000 staff specifically dedicated to cyber security. it is rare that they have gone public with this type of information. companies very rarely break down specifically with their spending on cyber security because the thinking is any information just makes them more vulnerable to an attack. i did find some information , how much by sector different sectors are spending on cyber security infrastructure. it turns out that financials

spent more than $10 billion, information technology companies just behind them. health care, energy, defense all lower. a fraction of that is spent on water and waste. financials are clearly a popular target. also spending the most to defend themselves. >> this was detailed in a bloomberg businessweek story. it appears that these hacks are all related, that this was a larger and more coordinated attack. what are they doing to prevent this from happening again? >> there comes a point at which the level of sophistication is such that there is no amount of money that they could spend to protect themselves, particularly if the hackers are sponsored by a foreign government. that expertise is that there is no amount of private money they to defendd just

themselves. so maybe it is not worth arming yourself to the teeth in that sense. but other numbers were pretty interesting. thinking about hacking, target comes to most people's minds because they were very publicly hacked at the end of last year. it turns out that was only the fifth biggest data breach since 2005. the biggest one happened last year, 200 million consumers had their information accessed by hackers. target is the most public banks are most vulnerable. >> target is still struggling to pick up the pieces after that attack. thank you so much. there is only a few days left of the annual burning man gathering. what does it take to pull off the event year after year? that and more when "bloomberg west" returns. ♪

>> i'm emily chang, and this is "bloomberg west." a company that provides cloud-based services for life sciences is showing big growth. shares are soaring after revenue was up 53% and the company posted a 50% gain in profit. cory johnson is back with more. >> aveva is the salesforce for the pharma industry. or something. the ceo and founder joins me. is this the right way to think of your company for the shorthand? >> for the shorthand, the way to think about it is that we are delivering the industry cloud for life sciences. the industry specific software for companies. our companies are pfizer, novartis, eli lilly. we are delivering cloud solutions to help them with their most critical problems.

these companies are trying to improve and extend human lives. a very specific mission. we are helping them do that, to help them develop drugs faster, bring them to market more effectively. so, we are trying to transform the industry. a specific industry. >> i saw a study that demonstrated the notion of how the software industry works. i covered this for a long time, but it blew my mind, the specificity. industry-specific software is 20% of all software sales. i was amazed by that. bigger than the database market. massively. much bigger than the operating system market. has this always been the case? what has the trend been there? >> you know, what is happening, it has been the case, but it is accelerating. here is a point i tell people. industry specific software is

four times as big as the e.r.p. market. with cloud software, you can tackle these industry-specific problems more effectively, you can use the use of that to generate data. what it is it is accelerating , the value of industries. >> so the chart does not mean you have ford writing custom software for auto plants anymore. will we see more than the future, not less? >> they are writing custom software, that was not even included in the 28%. going forward, we will see less custom software. our customers are developing less custom software because they are using solutions. they can deploy these in 12 weeks rather than developing it and taking two years. >> what is it about that industry, particularly your industry that you have to customize around? >> they have very specific requirements about how to

develop a drug, what kind of data do they need to bring, what kind of audit trails? they have very specific needs about how they promote their drugs. which doctors can they talk to? how do they treat drug samples, how can they treat dangerous or controlled substances. they have a tremendous amount of legislation. it is caused by the need for patient safety. these are life altering drugs and there is a certain way you have to be controlled around that. >> the top five software vendors in your industry -- it is amazing to where you see in the ranks. in virtually no time, a couple years. you were top four among all companies offering software to the life sciences business. >> what we are doing is pretty transformative. the companiese, were operating in a pre-internet mode. think of yourself.

>> you are just banking on the growth of the internet. >> it is transformative. for our customers to use the internet to collaborate with customers and partners and -- in fundamentally new ways. that is a disruptive technology, and that is causing excitement and growth. we willr we announced cross the $300 million revenue mark this year, and that transformation that disruptive , technology, that is what is fueling our growth. >> ceo and founder of veeva systems, thank you very much. >> the movie "spark, the burning man story" gives viewers a behind-the-scenes look at burning man in the nevada desert. we will discuss the event when "bloomberg west" returns. ♪

>> welcome back "bloomberg west." labor day weekend is upon us. while some are traveling to the lap of luxury, 70,000 people will be spending a long weekend in the nevada desert for burning man. cory johnson is back with more. >> people talk about it as a life-changing experience. i have not gone. but this wonderful documentary is called "spark" talks about what it is like to be there and carries that conversation forward.

this is my conversation. interesting stuff. >> "spark" is the group of a small intimate group of artists who have this huge dream of creating a place where people can truly be themselves without any judgment. the highest calling is to collaborate on art and we were filming this movie at a time when that community had gotten so big and world-famous, a global phenomenon. the question is what happens to those ideals and that dream when you get big and famous? can you hold onto that dream? >> there is an element that has come to burning man. for a long time i have known , people back east you want to connect with something about silicon valley that happens at burning man. is there something that is at burning man? >> absolutely. silicon valley is famous for innovation and new ideas and people taking risks on things.

if you think about it the root , of innovation is great problems, necessity is the mother of invention. the old quote from plato, way back. you say, ok, i will go for my summer vacation. i will build some crazy huge thing in this big sandbox out in the desert. a giant dust storm comes up and creates all of these challenges. you have a lot of the combination of the space to try something new and do something crazy at the same time. lots of great challenges and problems that are really inspiring and engineering challenges. the fusion of this engineering challenges with the open campus for creativity. that is a real inspiration for people that come here for technology. >> you have a background in technology. you have run a couple of startups before.

i wonder, i feel like the connection to the art world and the world of silicon valley is often not there. we see this in other cities more , a connection with arts and business. i don't see so much in silicon valley but burning man is very much the opposite. talk to me about that. >> i don't think it is the opposite. i think the roots of inspiration and creativity and innovation are the same. you have to take a risk to go into uncharted territory. you have to be unafraid of how you will be judged. you have to be unafraid of failure. look at the start of world. aople start companies, have big dream, maybe it works, maybe it doesn't. if it doesn't, they go to try to start something new. burning man by its very nature out there in the desert, they -- these big things you build, they disappear, you burn them down. then you pick up the pieces. if you are trying to create some big art project, you will be

judged by the critics. but if you're building a project out there, and you will burn it down, you can take risks. you don't have to worry about being judged. it is all ok. that creates a kind of freedom. this is kind of what silicon valley represents to a lot of the rest of the world. i see an interesting kind of fusion of the two at burning man. people talk about the rich, successful techies, but they don't realize that so many many of the entrepreneurs who started with nothing, that was their summer camp. >> what are the vibes, what do people talk about? >> it is interesting because it has gotten so big and well-known that many of those conversations about burning man have changed a lot. but when you're out there, you're in this harsh environment, you might be in the middle of a total whiteout dust storm.

dressing up in some crazy outfit trying to ride your bike with no navigation across a two mile expanse to try to find your camp or your friends. you run into all kinds of other people. you have no idea who people are. everyone is just a human being and a peer and there is not this hierarchy that we have in our society. >> there are the stories about the expensive rv's and the fancy private jets to get there. but it suggests there is more of a a tiered structure their. -- there. >> once people hear that wealthy people with private jets are going to burning man, doing , they bring good judgments in this world and what that must mean. i am sure you can find anything you want to find out there. what is interesting, when you have somebody come in like that,

maybe they are coming in because they were curious about it. maybe they are only swooping in for a couple of days. i know people like this. then they get inspired. that's is very different than i thought. this is interesting to think about what i would do, if it was not about money, about status, about any of these things i being judged on in the world. if you can just go back to that, childhood, the kind of spark of creativity. just do something different. you see a lot of that. >> the sense of the suggestion, people change from the experience. >> the most common conversation after somebody went there for the first time, i had no idea. and i have something i want to build for next year. theuse of that feeling, success of burning man is creating this culture. leave alleel you can yourself-limiting beliefs and baggage behind and kind of try

something new. that is inspiring and that leads to a lot of new ideas and new things. >> steve brown, the director of "spark, a burning man story." leave all of your baggage behind, cory. just go to burning man. >> is that what will happen to my baggage? >> it is time for the bwest byte. what do you have? >> 5999, that is the latest -- the lowest price of the latest product from go pro. it lets you strap a camera on your dog. they released the product this week. it is really cool. >> i think you need to get this for your dog. >> i think my kids would love seeing life from bear's view of the world. . had a black american lab i would love to see what was occurring to dive into the water. >> he probably would see a lot of knees. that might need to be defended. [laughter]

have a great long weekend. bye. ♪

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