>> live from pier three in san francisco, welcome to "bloomberg west," where we cover the global technology and the future of business read first a check of your headlines. the world health organization says that nigeria is a model for how to stop the ebola virus. they were just declared free of the disease were no new cases were reported. the who says that an aggressive government response and effective contact program help stop ebola. new concerns about the chinese economy.

a report says that their growth will slow it must than a decade. wake up, we keep an eye on china, because it is the engine for global growth. whether you believe the numbers are not, i think it is the largest credit bubble going on in the global right now, one of the largest in history. >> strong words. the government says that it will refuse broad stimulus action. facebook may be looking to increase influence in china. joined the business goal. leased spacently in beijing and plans to expand in china despite being blocked in the country since 2009. and microsoft is launching new features for its azure cloud service. including a partnership with dell for a new hardware

offering. they also announced partnerships with cardera and cloud. and a new marketplace where users can shop for features. now, to our lead. it has been a big day for apple. the company's new big data system apple pay is live. now fourth quarter earnings are blowing past estimates. revenue in the quarter, $42.1 billion, a 12% gain. the company reported net income up 8.5 billion. the company sold 38.3 million iphones in the new quarter. up 16%. that includes about a week of the new iphone six and six-plus but ipad sales are down again. joining me our editor at large cory johnson and in new york, anon in boston. it seems to be a tale of two products. the iphone blowing it out of the

water, the ipad disappointing. what's your takeaway? >> the ipads were meant to be weaker than expected. there was a new product coming. the product has been getting stale, tablet use has been growing. people are starting to figure it out. there's a screen with a larger pc that can doa a lot. hopefully the product refresh and ipad refresh helps reinvigorate that trend. >> cory? >> there are a lot of reasons for that. it's growing at a pace we've never seen great big companies pace. on a very consistent basis. >> and ahead of the holiday quarter. >> ahead of the quarter. they would have every excuse to say we only had the new iphone for only one of the 12 weeks of -- of the 13 weeks of the quarter. we were selling old products and it was old because the consumers knew it so we saw a slowdown of sales. and they probably did that you

that shows you how large that strength was. which is 56% of sales. largest percentage of the things that they sell in most of the company now, and it is strong. >> should we be worried about the ipad numbers? >> ipad numbers down third quarter in a row and down 13% over the year. i think it is worrisome for the company. we've seen nine months of declining sales. is this as big as the ipad business gets and we're already, because it grew so fast, are we already in replacement cycle territory, not growth territory. for the tablet. i find it hard to believe but everything about the ipad is growth is hard to believe. >> let's talk about the picture for apple global little. the demand for the iphone was higher in demand in every country last year and higher than expected, right? >> one of the things that we

ought to do is take a step back and look at it from a holistic perspective. if you look at the interconnectivity of these different products, the i.o.s. platform, there's a little bit of something in there for everybody. but one thing that apple is very good at promoting this interconnectivity among different products so as you migrate from an iphone to an ipad to a mac, there is seamless integration and i think apple makes that happen better than any other disparate system. maybe in the year 2015 we think what do we use a p.c. for, a tablet for, and a phone and by the way, what screen size do i use? if you look at the entire product spectrum, there's an apple product in there for every price point. all premium prices are elective to the competition but there's a product at every price point and there's a platform across the board.

>> let's talk about the other thing we talked about during the break, the pricing of macs. the mac's numbers were really, really strong and my motto goes back to the late 1990's and there is no quarter in which the mac price was as low as the $1,200 that it was. that is so much closer to the competition, much more than ever before but the idea that the mac is finally being pulled along by all this other stuff i think is awesome. >> i also cover the p.c. industry and there was a lackluster p.c. i'll improving, less decline -- albeit improving a, -- improving, less decline. the macs is surprised on the upside. sure, the p.c. sales helped them and on top of it they saw some sales in china too, where, if anything, p.c. demand has been weak and all of the p.c. makers have been citing weakness. this is a notable update.

relative to the competition. >> i can't live without my laptop but that's just me. what are you looking for in the coming holiday quarter? what should we be watching? >> i think you want to see the product as a whole work together. i want to see some interconnectivity between these different products. i want to see one connecting to the other. i want to see apple pay take off. i want to see iphone 6 and iphone 6 plus sales. this is the first full quarter sales of those products so that should be very, very strong and i'm really curious to see what happens to the refreshed ipad platform. >> we'll talk more about apple pay coming up. thank you very much. apple pay officially rolls out today but some big-name retailers aren't offering it. ing in.g in -- opt we'll tell you why. and you can watch us streaming on your phone, your tablet, bloomberg.com and amazon fire

tv.

>> i'm emily chang and this is "bloomberg west." apple pay arrived at select retailers today so how's it going? kyle takes a hands-on look at how the service works. >> apple pay is finally here. if this works as well as advertised, iphone users will soon be able to leave all their credit cards at home. let's go see how it works.

to use apple pay you're going to need the iphone 6 or the 6 plus. the newest versions of the device. you also need the newest version of apple's operating system. irs 8.1. once you have that in place, use the touch i.d. to open the phone and then go into apple's passbook pass. this is where these cards live. i've already added two cards to this, and you'll notice they look like the cards in your wallet but there's no name or numbers on them, which increases the security that apple is shooting for. you can toggle through and choose the one you want or you can add another card by tapping here and taking a photo of the card. i have got my cards loaded now. let's go shopping. i want to buy a new iphone case. for my new iphone. it scan it like a regular product. i use the touch i.d. and hold it in the general idea. shows up as a beep. there's a little vibration and

the transaction is done. >> kyle stock there. well, for more on apple pay, i want to bring in john carlton and christina cordova, head of business development at strike. cory johnson is still with us. strike one of the payment systems helping to power apple pay transactions. so far today, it is only been a few hours, that how's it going? >> it's been going really well. i think one of the things that's great about app pay is that it's bring together both consumers and merchants. for a long time it was this chicken and egg problem and a lot of really big retailers on the merchant side are watching today. we're working with over 15 merchants that are now apple-pay enabled. for in-app purchases. it's fantastic. >> john, do you have a swat team behind the scenes right now? >> there are a lot of people at strike making sure it runs smoothly but if you download

instacard or wish or lift, they're running on apple pay. >> i want to back up a little bit and to talk about what happens behind the scenes. tim was boasting that it doesn't cost the consumer or merchant anything but it costs the bank something. maybe you guys can take us through -- christina, i'll pick on you -- the two or three pieces of a payment component . maybe compare what happened with a credit card now and how apple pay is different. >> sure. in terms of what the consumer experience actually is, you download passbook, add your card to the application. verify its use, like putting in a little code they email you and you're essentially up and running. you can download an application and start paying with it right away. what actually happens in the background -- >> because that is what i am thinking of. for all the businesses and business users we have, it's a fundamental change. tell me if i am wrong. the way it used to work is the consumer, i whip out my credit card. the merchant gets all the credit card information, usually.

like target or home depot or another trusted merchant. of course, they are both that acts. hacks. ta they keep that information, they send it to the bank. the bank verifies it and approves it but all my credit card data is moving upstream and downstream. >> with apple pay, when you use your card, it's going to the issuer, whatever bank issued you the card. and getting what is called a d- pan, a digital personal account number. it uses a bank that represents the credit card number but isn't actually your real number. when you end up paying with a merchant that has apple pay, what's associated with that dpan is a cryptogram, which is a one-time use. so when that transaction occurs you're not passing along your real credit card information. if anything ever gets compromised you don't have to , like issue a brand-new

, physical card. >> there are two big changes here. one is because you have the one-time use cards, you're not sharing your credit card everywhere you're shopping. the credit card number is not stored on the phone or with the merchants you are shopping with. but the other is that because apple has the existing credit cards, all the existing itunes accounts on file. i set it up this morning and i was already to use the credit card i already had on itunes. for all these merchants they can enable one-tap payments in their apps that before they were going to have cumber so many set you must. >> there's a decent list of merchants set up already but there is a really long list who aren't signed up. john, why wouldn't retailers sign up right away? >> i think with large companies it's always going to be overcoming the inertia there and you'll have a little bit of an uphill struggle to bring change. i think on the retail size --

side we'll see that happen over , the time. we're not worried about the apps but the experience. whereas before it was entering all your details, it's one tap on the thumb print sensor. and so we think the fact that paying in an app is 10 times easier than it was before. you've seen that all of the major apps really are supporting apple pay already. that has driven them to move quickly. >> any data so far how many people are using it? >> with strike? >> it's a little bit too early to tell. we're starting to see the payments trickling in. >> it's just been a few hours and we're seeing a number of transactions across all merchants. >> let me ask you. other payment companies, google wallet most importantly, while they have some of the same characteristics, they're getting the credit card information and finding out a way to advertise to you based on your spending data. apple is not doing. from what i understand. is that is that where they're willing to take one on the chin,

privacy the customers say they want? >> yes, apple has been very clear. they were said when introducing this we don't know what you bought, where you bought it or how much you paid for it. >> and not so with google? >> right. that's very much apple's positioning here. that's particularly top of mind for people of late caring about their credit card security. the system is phenomenally designed. and we think between the -- even if you look at things like the fact that the payment on the phone, at a kiosk or in an app, it happens with a tap. before people were bouncing around entering other codes and as. it was harder. then just using your credit cards. apple have finally taken the combination of security plus user experience do make it both a better experience and more secure. >> john carlton, co-founder of strike and christina cordova,

head of business development there. i can't wait to try it myself later on too. carl icahn is getting his way with ebay. yet again a huge move on the , board of the e-commerce giant. and that involves one of the biggest names in silicon valley. details on that next. >> welcome back to "bloomberg

west." i'm emily chang. but capitalist and netscape cofounder marc andreesen stepping down from ebay's board of directors after a very public

battle with activist investor carl icahn. the two have sparred about ebay's plans for paypal, and icahn has accused marc andreessen of conflicts of interests. this week, the giant announced that they would follow his advice and spin out you may make here. following the back-and-forth -- spin out ebay next year. cory johnson is with me now. i spoke with andreessen and we talked about the future of ebay without paypal and vice versa. i want you to listen to what he said. i asked him specifically is innovation dead, is this a sign that innovation at ebay has -- died. >> it's a sign of change. the industry is changing. it's a sign that the technology is changing. it's a sign that there is the opportunity to do more and better if you're smaller and more nimble. >> they probably wouldn't like the indication that they're following icahn's advice but they made this decision, according to andreesen. independently this was the best

decision for ebay to spin off paypal. >> mark andresen is on the board , ebay, someard, companies that have struggled but yet seen as a visionary in , silicon valley. we know icahn bought shares of ebay and bought shares in it because we wanted to make more money. the things he brought up are interesting because the voices of silicon valley don't often say there's a conflict there. listen to what he said when carl icahn talked to us about andresen and the problems of having him on this board. >> if you ask me my opinion of him, he's the kind of guy i get outraged at because he preaches of fiduciary duty. he's given a duty there and he absolutely breached it with skype. in, he went out and bought that stock. he knew microsoft wanted it. paid the equivalent of 1.8.

they sold it for $8 billion. that money belongs to the shareholders. >> now, marc andreesen said he recused himself from these decisions but you look at the numbers and you say who's fighting for ebay? ebay bought skype at $6.2. they had to write down a bunch of it, but they're able to sell it to marc andreesen's fund. andreessen's fund turns around and sells it in less than two years for $8.5. though andreesen says he' recused himself. and i have no reason to doubt that is true. at some level, carl icahn says his fiduciary responsibility was to ebay and make sure that ebay saw an $8.5 billion value for this, not somebody else. and so you can understand why he would be upset. a listen to what he had

to say about activist investigators specifically. >> the activists come in because the companies are cheap, not expensive. the other side is that the industry is now changing so fast, if you're a big technology conglomerate, you have all -- competition in every single business from all these startups and new companies and your ability to fight a five-or six-front war at the same time is really challenging. and so, at some point i think you want to split up to be more aggressive and nimble. which means going to smaller and more independent companies. >> admitting it's a tough job that companies face like ebay and h.p. sometimes you have to make those tough decisions. maybe activist investor should not be did dating. -- dictating. >> it's a tough job to be a board member at. no one feels sorry for the board members. they make a lot of money but also gain a lot of insight. if you're a board member are you fighting yourself or fighting for the company that you're a full-time employer or are you serving the fiduciary interests of that board for which you're

serving? >> a complex love of relationships in the technology industry in silicon valley. thank you, cory. coming up, we're talking about apple pay, debuting today. what does it look like? that is next. >> you are watching "bloomberg

west" where we focus on technology and the future of business. i'm emily chang. i.b.m. shares plunged today after the company announced it will not meet its five-year goal to double earnings by next year. the company says revenue fell 6% in the third quarter. net income dropping 100% to 18 million. that includes a $4.7 billion charge for unloading its chipmaking unit to global foundries. i.b.m. is paying global foundries $1.5 billion to take the underperforming unit off its hands.

software and services also declined in the quarter, so how much trouble is i.b.m. really in? i sat down with our editor in large cory johnson, alex, who covers i.b.m. and david kirkpatrick, who recently spoke with i.b.m.'s c.e.o. take a listen. >> if services is going down, that's probably the biggest news item besides the glitzy thing about having to pay somebody $1.5 billion just to take the chip business off their hands. so, you know, the reality is this is a giant old conglomerate in an industry that is changing really rapidly where players are becoming increasingly specialized. i think, overall, that's a lot of challenges all together. >> cori, what would you say. jenny, was she left holding the bag here? was this something put into play long before she took the c.e.o. position? >> i am always quoting warren

buffett, who says when a manager with a bad reputation does business with the manager of a bad business, the reputation of the business that survives. i.b.m. is in a crummy business and they're trying to get out of it. but they have also been undertaking this -- you mentioned profits and they said they were going to bubble -- double profits. when you look at the net income for the company, the actual profits from the business they've been getting worse and , worse for a long time here and it continues to get worse and they've been painting that, trying to make that look better through share buybacks. they've been borrowing money to do share buybacks. now they have a ton of debt. they have more than $14 billion due in debt in the next few years. and they are saying they will have free cash flow problems. it's going to impede their ability to buy back shares, to pay down the debt but more importantly, by lowering free cash flow and having already promised to use their free cash flow to buy back debt and

buyback shares, they're unable to get into the businesses and invest into the businesses they want to be in that they made that problem worse by going into the shares and borrowing money to do so . how wrong was warren buffett about ibm, or is i.b.m. going to pull out? buffett says it's for the long term but when you see today, where all the gains he's had and his investment has been i raced -- erased you start to look at , that question. i.b.m. has a long way to go. they really need to transform , you know, their services business. more than 50% of the business. their software business. they need to get that into this era of cloud computing and they really have to get up to speed. some are calling for more deals to buy in to get that speed but now that ginni is out from under this e.p.s. road map, the onus

is going to be on her for the steps going forward and how they can keep up in this quickly changing industry. >> you know, we hear a lot, and ginni said our industry is facing a lot of change. i hear buzz words from her. cloud, social, mobile. we are moving their. there. david, do you think i.b.m. is making the right choices? >> they've bought a few little companies here and there that are clearly good decisions but you just did your interview with mark at dream force. the fact that 1000,000 people came to the dream force i think is indicative that we crossed the chasm quicker than old technology companies like i.b.m. thought we would. ford sierra cloud. -- towards the era of cloud. that's a big problem for them. their infrastructure is expensive. that's why they're paying people to take off their hands this chip business and they have a lot of costs to maintain their

hardware businesses which are not selling as much stuff. because to: high as a service. -- does people want to buy it as a service. that is a really serious problem. i.b.m. is a survivor. they've done a great job for a long time surviving. i think they will survive but they may not be growing for the foreseeable future very much. >> and to that point, if you work at i.b.m. and you're suddenly told, that watson thing you've been trying to sell for the next three years, tell people not to buy one. they can vent a little bit of france -- rent a little time on it because now it's part of the cloud. if you've been telling customers for the last 10, 12,15 yeah, we're going to bring you a lot of expensive hardware and it's the best and you have to own it or you can rent it for a couple of days off the cloud. it puts not only the new visitors off to a bad start, the old businesses are suddenly challenged. and the credibility of the sales team is challenged.

>> there with alex and our bloomberg contributing editor, david kirkpatrick. i want to turn to facebook. an apology today for the behavior that led to a restraining order against him in 1996. facebook bought what'sapp earlier and gave jan koum -- it details multiple incidents over a seven-month period in the statements he said i thought i was irrational and behaved badly after we broke up. i'm ashamed of the way i acted. and ashamed that my behavior. i am deeply sorry. for more, i'm joined by sarah, who broke this story. this happened 18 years ago. why is it coming out now? >> well, it's something that as jan koum comes to the point in his life where he's a multibillionaire, he is one of the rags to riches story in silicon valley.

now he's on the face of forbes. -- the facebook board. he's becoming more prominent. i think people want to know this as part of his past. he's coming out -- he is not hiding behind a no comment here. he's coming out and fully apologizing for what he did and saying he's learned from it and he's a different person now. >> when did facebook learn about these allegations? >> we don't know. we don't know but when we came to them, they said we're going to talk to jan about this and get full story. buto we heard from jan, facebook told you obviously this is a guy on the facebook board now with mark zuckerberg. >> they're letting his words speak for the case. they're not taking any extra action from what we have heard so far. , --eems that a are saying they are saying, listen, he's being eloquent about this. coming forth and saying this was

a problem and he's acknowledging that and it doesn't have bearing or they're not explicitly saying but they're implying it doesn't have bearing on him today. >> do you think facebook will have to do more? >> will see. one thing that is clear is that executives have had to answer for some of their past actions. feagle had to apologize for those emails he sent during his from fraternity days and he had to answer for a donation he made to an anti-gay marriage campaign he made in 2008. so there are other incidents of the past coming back to provide can't -- provide a context to an industry leader today so we'll see what happens here. i think he's being very open in this case. he sent a statement to all of his employees and, you know,

facebook isn't no commenting either. that i saying we're listening and you should too. >> he's the third largest shareholder. behind mark zuckerberg and the cofounder. should we be at all concerned about how facebook vets its leadership? >> facebook isn't talking about what was vetted or how jan was vetted. of course it's an extremely long , process. the acquisition was announced in february and didn't close until this month so it's gone through e.u. regulators, through everyone. so you'd think this kind of thing would come up but it was in 1996. it was a really long time ago. >> i don't want everyone knowing what i did in college so hey. sarah, who covers facebook for bloomberg news, thanks so much. >> up next, taking aim at costco and sam's club with a mobile a.m. -- mobile app. the new york start-up looking to turn the wholesale club business upside down. >> i'm emily chang and this is

"bloomberg west." it's not just silicon valley. tech is exploding in silicon alley. new york city becoming a hotbed of savvy start-ups. especially in certain industries. one company, boxed, is using new tech caps on distribution challenges. selling consumer products in bulk without traditional

wholesale club membership fees. we go inside in our first installment of our weeklong special, "new hack city." >> what happens when successful tech entrepreneurs take over a boring warehouse just outside of new york city? you get boxed. >> we wanted to build a service that no one had built yet. shop devices.- shop devices.

the future of shopping will happen on mobile devices. \ we're trying to get ahead of the curve. >> boxed is the e-commerce answer to wholesale clubs like costco and sam's club. buying in bulk without the membership fees. >> saving you a little bit of money. >> nearly eight in 10 orders qualify for free shipping. the boxing are filled in warehouses in new jersey and las vegas. strategic locations to reach a large part of population in little time. >> 88% of our packages arrive in two days or less. to the general consumers it seems like we're traditional. behind the scenes we're still very much a technology company. >> how do you find out what's in the order? >> tap on the side on a particular order. you've claimed it in our software. >> what is going on in here? >> even if you look at the robot we're trying to get better. >> embracing technology is second nature for wong, who sold ape toevious company astro zynga in 2011. >> you came from the gaming world. what made you want to sell toilet paper? >> at first glance it's like there's no overlap at all but there is quite a bit. we learned how people like to interact with games and different experiences on their mobile device. we brought all that knowledge

into building a smooth, beautiful experience on mobile. but a shopping experience instead of a gaming experience. >> with $8.5 million in funding, mainly from east coast investors, boxed has experienced rapid growth, posting an eight-figure revenue just months after launching. >> we are lucky in that e-commerce is something the east coast does well and we've been able to tap into that. >> boxed tries to take a bigger bite out of the $600 billion grocery business. >> we are going against them of the biggest names in retailers and companies on the face of the earth. it is not easy task. i think we'll get there. >> shelby joins us now from new york. i would love to not have to pay my costco membership but how can a little app really compete with a warehouse giant like costco? am i going to get the same experience? >> that's the big question. this company is trying to do it , genuinely trying to do that using technology, not just too

manage inventory and improve their shipping procedures but they're using technology to target young shoppers who might be buying toilet paper now but will need to buy diapers, food, all kinds of things for their family in a couple of years and boxed is keeping things personal. even though they don't have stores, they do not have relationships with customers in person they write little notes and send them in shipments. so if someone buys diapers they say hey, hope the baby is doing well. if it is toothpaste, they say something about a beautiful smile. they are making sure toe include that personal customer relations aspect in their company even though they don't see customers face to face and they're hoping, you know, we're saving you time , we are saving you money, saving you a lot of inconvenience going to their stores and carrying heavy goods around. they're hoping that the personal interaction and also the impersonal action of buying bulk online will help them in the future. >> all right, shelby holiday.

thanks, shelby. apple releases new numbers on about its iphone and ipad sales today. we'll tell you what to watch for in their fourth quarter earnings report next. and you can watch us streaming on your phone, your tablet bloomberg.com, apple tv and , amazon fire tv.

>> welcome back. i'm emily chang and this is "bloomberg west." you can also catch our early edition, 10 a.m. pacific. it is time for the bloomberg bite, one number that tells us a whole lot. cory johnson back with us as well as sarah who covers facebook and twitter for bloomberg news. what is the byte for today? >> that's a hint. the number is four. that is the number of law firms that facebook c.e.o. mark zuckerberg are suing as well as nine lawyers from those firms for aiding in paul's claim he

owned half of facebook certainly before the i.p.o. those are part of a lawsuit and facebook is suing back saying as soon as they knew the claims were fraudulent they should have dropped their involvement. >> remind us who paul singly or is. ceglia is. >> paul ceglia has a website called streetfax he wanted zuckerberg to develop for and he did some work for him shortly before he developed facebook. fax is fax., they were these machines before we had mobile. >> basically facebook is saying that the law firms knew these documents were fake and they took the case anyway. >> they stayed on the case and they should have known and if they stayed on the case, facebook says it means they were in conclusion with paul ceglia to force an early settlement or under the assumption that facebook would pay to make them go away.

and they would share in that chunk of money. >> what do the law firms say? >> they say that's totally not true, of course. they were acting in the best interests of their client. they thought everything was -- >> they claim they were injured but they did $100 billion i.p.o. so how injured could they have been? you know, this is the kind of thing normally pursued by the state bar association and may yet be. but facebook is so ticked off, and mark zuckerberg apparently is so ticked off, they're going to find new extents of the law. >> how often do you see law firms being sued? >> not too often, especially not a major law firm like this one. >> you see lawyers suing lawyers a lot. when i was on jury duty, i cannot talk about the case, but i can tell you that it was lawyers suing lawyers just a few weeks ago. but this kind of case is fairly unusual, not least of which because they'll probably spend more money in pursuing this than they would have in settling it.

quite likely to prove a point. >> obviously mark zuckerberg has a lot to worry about what do you . make of the fact that mark zuckerberg is pursuing this and filing suit? they certainly could have settled this quietly. >> i think it is a matter of principle, but they felt like they were -- they tried to take advantage of them and they're going to let it hurt them. they want to go back and fight them. >> i think facebook was under a lot of pressure to settle this from their investment banks, from their investors. just make this go away. we can't take this company public until we clean up the ownership. maybe you think it is clean, but if you just pay these guys they'll go away. and we can get this clean. you have to imagine that facebook faced a great deal of pressure before the i.p.o. to resolve these claims. just because there were so many vested interests in the ipo --. >> and personally for zuckerberg way back in the day, ceglia never finished paying him for the little bit of work he did. on that website. >> there are the facts,

apparently. the founding story is so dramatic. you could make a movie about it. oh wait. [laughter] all right, sarah, who covers facebook. and thank you all for watching this edition of "bloomberg west." headlines at the top of the hour on bloomberg radio all the time. bloomberg.com/technology. we'll see you later.

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