>> live from pier 3 in san francisco, welcome to "bloomberg west," where we cover innovation, technology, and the future of business. i'm emily chang. is a check of the bloomberg top headlines. a coastal storm a beheaded for the east coast. they winter storm watch has been posted from new jersey through central massachusetts for wednesday and thursday. the national weather service says expect 10 inches of snow in this area. chuck hagel is stepping down from his post after 21 months in office. attention within the white house over strategy and the rise of new security

challenges to the country. the president called him a steady hand at the defense department during the time of transition. he has yet to name a replacement. is delaying aggressive plans to expand into five more countries this year. to the viceng president hugo barra. the smartphone maker has been in talks about boosting production of their low-cost devices for markets like india and brazil. considerny may also manufacturing in indonesia. espn says the red sox have an agreement in place to bring fee agent -- free agent publicized of all to boston next year. -- blow sandoval. blo sandoval. to our lead. samsung electronics is considering a major leadership shakeup. the management structure will be across 70 companies that make up

samsung group. since hise the first father was hospitalized in may after a heart attack. samsung,test twist for as the family plans for its succession. samsung is facing some major challenges in the smartphone market, when it comes to smartphone market share. alternativesost like xiaomi are nipping at samsung's heels. apple is always a challenge. according to the wall street journal, the head of their mobile division could be moved out of his role and stripped of his co-ceo title. taking his place, another co-ceo, b.k. yoon. as the journal reports that the samsung galaxy s5 sales are 40% below forecast. what do the leadership changes mean? i want to bring in crawford del

prete, research analyst at ibc. the leadership structure is very complicated. howe co-ceos, explain to me exact of this works. what would change if someone new is named? greg samsung electronics is divided into three parts. is the world's largest electronics company, it's big enough to support three different executives. you have one in charge of the mobile business, one in charge of home appliances and then one in charge of display technology and semiconductors. what we are seeing here is the possibility that the person presiding over the mobile division until recently may no longer be in that role. yoon.l us about bk he has been running home appliances and tvs. why should he be in charge of

mobile? >> i think the rationale has as do with one person's talent and ability as it does with the way electronics is coming together. mobile technology, home technology come the lines are blurring. pioneeredn who smartphone tech. your smart phone, your home appliances will be working together anyways. it may as well be under one leader. >> crawford, how much does sam has to worry -- samsung have to worry about here? he presided over there rise in mobile as well. >> they have a lot to worry about. they lost 12 points of share over the last year. q3,ter to quarter, q3 to 2013 to 2014. the u.s. share has been more stable, but in the smartphone business, over half the market is is ap including japan.

they have a business that is really shifting. the key message here is the smartphone business that they grew up in is not the smartphone business we will see going forward. new competitors, new modular competitors. >> who are the real competitors we are talking about? aside from apple, is it xiaomi or lenovo? >> less corner, xiaomi broke into the top five. 212% growth year-over-year. now they have shown me, apple is as well a significant competitor. primarily in mature markets for that most profitable customer. but samsung is one of these companies that fillets their products all over. they have many products for many different parts of the world. i would argue they need to start consolidating those products. come up with more iconic products.

they can start winning back that most profitable customer. let's not forget one of the reasons they are losing shares because apple was so late with their product cycle. now that apple is out with larger screen products, samsung is really feeling the pinch. >> sam, how often do samsung do reorg's like this. on what is this based is happening in the market right now, how much is this just happened at samsung? >> the company is constantly moving large numbers of people around. they recently announced they will ship off some hundreds of engineers from one division to another. they want to remain agile, and head of the curve. that being said, it's obvious that the mobile business isn't even what it was one or two years ago. they may be trying to make more strategic decisions based on that new reality. the only candidate we could possibly identify to leave mobile? >> as far as we know, it would

seem to be consolidating under yoon. i've not heard about anyone else rising to be considered. this would bring together two major parts of the company under one leadership. >> crawford, how nimble is a company like samsung? it's a gigantic company. can they make the changes you are talking about? >> they can certainly consolidate the product line. it will be difficult for them to be nimble. they grew up in a smartphone world, where was a situation where being heavily vertically integrated meant i could have a massive cost advantage. the game has changed. it has moved more towards design, even more towards tuning products for specific regions. i think they need some stronger leadership, and quite frankly, leadership in korea that will listen to that regional leadership. to be able to tune products, fewer products, more effectively to the needs of specific markets. that he remains

in poor health condition -- how much is that impacting what is going on here? >> i don't think it is impacting it that much. the company is well set in terms of what it is trying to accomplish. it recognizes the challenges it faces. the numbers not going in the direction they would like it to. i think they expected this. they realize the mobile market is always changing. if you are the cheaper producer, there's the possibility of an even cheaper one. they may move into more a supplier position as they do as much a branded leadership position in mobile. >> sam grobart, who covers samsung for us. thanks. crawford del prete of idc, thanks. the alibaba ipo brought in millions for yahoo!. what will she do now? how is she dealing with the heat from investors?

up next, kathy savitt's years her thought -- shares her thoughts on it all. ♪

>> i'm emily chang. this is "bloomberg west." a lead to a half years since both the meyer took the reins at yahoo!. she is focused on the move to mobile, and so much more. questions remain about the company's future, and criticisms from investor. i sat down with kathy savitt to discuss all these topics. -- is yahoo!hoo!, a tech company or a media company. >> yahoo! has been steeped in technology. we believe in using technological innovation on the things that people consume and

enjoy every day. media, some is of it is e-mailing communications. some of it is about curiosity and discovery. >> so got it was a technology and media company? company focused company that uses technology to innovate in media, in communication, and a discovery. >> steve jobs said you have to choose. do -- tok you have to really figure out what your customers want, what they need, and a focus on something where you feel you can deliver uniquely. doneis what yahoo! has since its inception. digitalusing on that daily routine, and actually innovating on them and making them delightful. >> snl, what happened there? you were able to sell ads

against him, and now, you no longer do that. how big a loss was that? >> snl is a terrific franchise. our users continue to enjoy watching the full archive of clips on yahoo!. we are no longer selling the advertising. onhave instead been focusing the original and partnered content that we have invested in in 2014. >> howard digital magazine stacking up against what you see on the grocery newsstand? >> we are really excited. we have been excited about the progress and growth. we have 10 magazines now. the oldest magazine is 10 months old. the youngest is about three weeks old. eclipsing,y are certainly on the desktop side, many of the standard competitors that have been in the space for years and years. the growth as we now take this digital magazine onto a mobile platform, is really exciting for yahoo!. >> marissa mayer, what has it

been like working with her for the last several years? explain your working relationship with her? >> she is a true innovator. in consumer technology and american and global business. she is a product focused ceo. she has really helped us figure ,ut how to we take these on our -- product's, whether it's searching communication or media, and really connect with users in new ways. that has been a privilege and delight for me. on herble to be leadership team, and it has been a lot of fun. she has put together a team of executives around her that are passionate about making these daily habits inspiring and entertaining. in passionate about connecting with users again, putting them first. >> she has been under constant pressure's she took over,

whether it's from investors or the press. how fair is that? marissank in many ways, has always been heads down, and focused on yahoos users and customers. end-users, advertising agencies, advertisers, or shareholders. i think that has been her compass since day one. i don't notice any difference, and i think it is amazing. onare so heads down focused our core audiences, that the rest is noise. it's about trying to innovate for our users, innovate for our customers, and it if we really focus on our users, we think that good things will,. >> you mentioned the noise coming from investors and the press. how comfortable are you that marissa and the executive team can quell some of that tension? >> i think it is about executing

and focusing on our users, and our karate as is. at the end of the day -- core audiences. at the end of the day, we need to spend our time delivering for all of those users, advertisers, and shareholders. we think that people will be focused on our results, as opposed to on anything else. >> how you think the board and management will handle the ali baba tax question? marissa andoth ken have been straightforward by saying we are going to answer that question for the end of january. we will have our shareholders best interests at heart. we are committed to returning value. >> my interview earlier with yahoo! cmo kathy savitt. toolsive surveillance monitoring governments around the world. we talked to a researcher who

uncovered the fearsome bug, next. streaming on your phone, and apple tv. ♪

>> welcome back to "bloomberg west." i'm emily chang. a new cyber surveillance tool is targeting governments around the world, and it is almost impossible to detect. behind theate may bug known as region. the company t describes the malware as something rarely seen. 2008, andn used since it has targeted 10 countries. what kind of intelligence gathering is region capable of?

semantic reach research joins us now via skype from a light. thanks for joining us. you were one of the earlier researchers. tell us about this new bug, how you found it, and how bad it is. >> it is very similar to what we saw earlier. a sophisticated advanced piece of malware. it would take a very long time to develop. looking at this a year ago. it's very difficult to collect all of the pieces. of doing allable sorts of activity. hackers can plug in modules according to what they need. if they want to steal your keystrokes, they can do that, if you want to look at your screen, they can do that. if they want to connect to a cell tower, they can put in modules that can do that. you thinknc. --

russia, saudi arabia has been hit hardest. the united states be involved? >> we look for that sort of information inside threats. we didn't find anything that could indicate exactly who is behind it. but those are the types of countries you would imagine would have the resources and intelligence to be able to put something like this together. >> we spoke with a security researcher, who talked about the state of cyber war around the world. i want you to take a listen to what he had to say. argue we are in the cyber war every day with other nations, trying to get access to our research and development, talking about stuff that costs tens of billions of dollars over many years to develop. or you could just deal it. that was in response to a question could cyber war be

world war iii? what would you have the same of the state of cyber warfare today, is it world war iii already? that really open peoples eyes to what is going on right now, what is possible. we had physical destruction of equipment. we haven't seen that again cents. we continue to see these sorts of campaigns launched by governments against other countries and telecoms, against individuals. they really are capable of stealing everything on the computer. that's the world we live in today. i wouldn't say it is world war iii, but certainly there are lots of countries doing this. they are capable of stealing all sorts of things. >> how worried should governments be, what should they be doing to protect themselves? thatis is something governments should be worried about. we have seen target individuals. this is a concern for everybody. when you are dealing with these threats, it's the most advanced

threat to tackle. trying tolike us are improve technology. you need to be patching regularly, you need to be aware of your security installing security software to do with these threats. >> this bug has been collecting information for six years. is there any way to destroy completely? >> it has been active for six years, which is a long time to be able to stay a secret. that goes to show you the link of the governments are go to to conceal their work. what you need to do in this particular case, we have now analyzed it. we are able to protect against it. we are analyzing cutting-edge threats all the time to get a leg up on the attackers. thanks forurchu, joining us on "bloomberg west." it sounds serious. another story will follow. telecom countries raced

out bid each other. will these massive investments pay off? that's next on "bloomberg west." ♪ >> it's 26 minutes after the hour, which means bloomberg is on the markets. i'm julie hyman. let's take a look at where stocks are trading on this holiday shortened trading week. we are seeing a mixed picture. the dow is lower by eight or nine points. the s&p hanging on to .2%. the nasdaq is higher by two thirds of 1%. bigr wall is one of the movers. those shares are trading at the highest level in more than five months. that's after the red box video kiosk rental unit would raise prices by 25%. those rentals will now cost $1.50.

jenny montgomery upgraded the family restaurant chain. the firm has $11 a share on that stock. more on the markets later. "bloomberg west," will be right back. ♪

>> you are watching "bloomberg west," will refocus on innovation, technology, and the future of business. i'm emily chang. the fcc is holding the biggest wireless spectrum auction in history. while the fcc had expected around $11 billion in bids for 1600 licenses, telecom companies have now surpassed $34 billion, and the auction continues. joining me with more on the battle for the airways, jonathan sponsor. why are these airways so desirable? >> we know the mobile future is

a very exciting future. we have seen year-over-year 81% growth in mobile data usage. growth, a hockey stick it's a golf putter growth we are beginning to see. the airwaves that are now up dropped in -- up for auction offer opportunities for high dense areas in our country, making them extremely valuable for carriers and innovators to begin to think about deploying more for consumers. >> these are good at transmitting data, but not good at penetrating buildings, am i correct? >> there are different types of bands and spectrums. the spectrum under auction at the moment is advanced wireless spectrum three. it has incredible characteristics to actually be able to offer current -- for urbanpropagation areas. it allows it to be spread over much broader areas.

the lower the frequencies, the higher the opportunities there are four better urban penetration. this is very value for. the market price is showing it. >> where did all the spectrum come from, and what does it compare to what's out there? >> with exciting about this spectrum auction is that of the -- up to 65 megahertz will be put into consumers hands, not only for mobile phones but for hospitals, schools, public safety networks. 40 megahertz of the 65 megahertz are actually coming from the united states government. it's a huge tribute to the commerce department, to the fcc, to the white house and congress, to envision for the first time the government saying we have a lot of spectrum. we will repurpose it and make it useful for consumers. a lot of that is coming from the defense department.

>> could this news spectrum dramatically change the hierarchy as it is right now in the carrier world? at&t and verizon at the top, t-mobile and sprint in third and fourth. >> what's exciting about this auction is it has 70 vilified bidders. bidding forw who is what and in what amount. we can assume there are large incumbents. but there are also a number of smaller regional players. there are foreign bidders that are involved in this auction. there's a huge mosaic of interests that are at the table trying to figure out how they can use parts of this 65 megahertz spectrum. what is important is this is just the beginning. the fcc has been working with congress, with broadcasters, with industry to even make more spectrum available in future auctions. this has actually blown right through and $11 billion reserve

price to get north of $34 billion. i think that's a great signal that the future of our next spectrum auctions could be very bright indeed. >> how likely is it that the current hierarchy we see among telecom carriers in the united states will actually change as a result of this? >> one of the exciting things about the mobile sector right now is the intense competition we are seeing. you have sprint and t-mobile really advancing significantly in building their marketplace, building a consumer base with innovative. x and services. -- innovative products and services. it's in flux, innovative, and the competition is accelerating across the spectrum of companies we are watching. where that will go next as a result of this auction and future auctions really will depend on the will and constancy and commitment of all of the companies involved.

>> you are saying things could change? >> absolutely. >> you go back and forth between here in washington, talking to the fcc. what is your position on that neutrality? >> there are a number of ways to get to an open internet and net neutrality. amongst those goals are not only rules that were set only four years ago and endorsed by the administration that allow for flexibility for restraint in the way we regulate our wireless world. but there are other parts of the existing laws that could potentially be one for frameworks are moving forward. i don't think the plan the president has offered, which has taken this beautiful, innovative environment we are in -- the internet -- and making it applicable to public utility laws that word vance 80 years ago. there are many ways to get in it or trolley. i don't think the president's

plan is the best way. i really hope that the fcc under chairman tom wheeler will be able to maintain their independence and also, a vision of making sure our internet can continue to innovate and attract the kind of investment it needs to become a truly open internet. >> how likely is it the fcc will go against what the president asked? >> there is great precedent of sec chairs -- sec chairs taking advice from the president, incorporating some of the advice, and going in different directions. tom wheeler has an opportunity to do this. i hope there will be a reasonable and progressive approach to incorporating the best, the most flexible, the most innovative approaches to ensuring open internet for all americans come all consumers, resigning our wonderful internet to the status of just another public utility. >> either way, we don't know until 2015. jonathan spalter, thanks for

weighing in. >> thank you. cofounder biz stone left the company to become a venture capitalist. we speak to him about his next big thing when "bloomberg west," returns. you can watch us streaming on your tablet, phone, bloomberg.com, apple tv, and amazon fire tv. ♪

>> i'm emily chang. this is "bloomberg west." encore to twitter

with an app named jelly, aimed at making search more human. he wants to have more fun with his latest app called super. it lets images share users. can share with friends almost anonymously. we ask what that means. i'm joined by twitter cofounder biz stone. great to have you here. anonymous-siish. i like it. >> most people don't even use that feature, they just post under their own name. we have this toggle that if you want to complain or say something you wouldn't normally say, say something about a secret admirer. you can flip a switch, and a little groucho marx will show up is that of your face. we say in on them -- if you are, because

only following one person, and that person post anonymously, you know who it is. we don't want to give the wrong impression that you were definitely in the clear. >> how does this work? you can post things with prompts. >> it turns out, people like to express their opinion on the internet. who knew? we decided to make that a really fun thing. we start them off with a superlative statement like, the best, the worst, or i love. that's how we came up with the word super. we set them off with emphatic statements, and then as you are typing, we are searching backgrounds for an image. an put i cene image behind it. if you don't like it, you can choose another one. it's inspired by the artist arbor kruger.

-- barbara kruger. it's going back to our roots of being fun and creative. were not claiming were disrupting any market, or creating a global innovation that will change everything. we are just having fun. >> on that note, it has been said that is jelly over? you and i have talked a couple of times. >> you loved jelly. >> i did. it kind of fell off the chart. is jelly still happening? >> the people who use it love it. when it works, it really works. we are not going to get rid of it. it wasn't fun. if there's one thing i have learned, it's that if something is fun, then people will use it. if a lot people use it, it has the potential to be important. people were using jelly to do their homework. >> i was looking for travel tips. [laughter] it's not great, but fun. if it's fun, there's a greater chance of hundreds of millions of people using it.

that's when you can make a dent in the universe. we went back to our roots, totally fun, weird, in your face, kooky, big, hyped, artsy. fun, quirky, weird become huge, big companies? >> the nose -- who knows? it's not like we sat down and said let's topple regimes. we were goofing around. made every if we tweet into a webpage, and then we did it. we were just having fun. that's the key. if you are laughing at work, you know you were off to the right thing. >> people are comparing super to secret, which is not fun. it's quite controversial, not the most respected app out there. what you think? >> they are comparing it because our images are square,

and you can put text on top of image in a square. there is a lot of stuff that looks like that. but it's very different. 95% of our stuff is public. so, no one is saying anything mean or nasty. fun,are mostly saying intriguing, interesting, cool, weird stuff. >> what would you compare it to? >> i compare it to designing a little poster. said --ly, to the team, it's like you take a tweet and put it on top of an instagram, at the tweet doesn't need to be good, neither does the picture. it together, they look like a cool thing. othern share that out to social networks, and you made a cool work of art. >> to the messages disappear? >> there out there. you can delete them if you want. >> you know it's important to get mind share. how do you think this will stand out?

>> it launched less than a week ago. i think the mind share will be around the creativity part of it. it's fun, it's creative, and because of that, it has potential. we don't know what the community is like get. we will have to see. we look for patterns, and encourage what we like. >> this is the first time you have been ceo. you have been ceo for how long? >> about a year. >> what surprised you most? that most ofrned the job of ceo is communication. if the board doesn't hear from you, they think you are doing a bad job. even if you tell them we are doing a bad job, they are like ok, good. we are doing a bad job, he is doing a good job. be inve to constantly

communication with all employees, everyone on the board. i work on sundays, and e-mail everyone who uses that to tell them everything that happens this week. i spend most of my time communicating. half communicating, half working on the product. it's a lot of typing. ceo, biz stone. we talk about twitter when we return. details onsharing super. more with biz stone, next. ♪

>> welcome back to "bloomberg west." i'm emily chang. biz stone is back with us, he has just released a new app that allows users share images with messages written on the top. i would ask you about twitter. i know you are not involved in the day-to-day, but it has had a few bumps in the road over the last several weeks. what is your take on all of it?

let's start with management changes. the coo outcome a new cfo, new product type. what's going on? >> there is a lisbon management changes from day one. -- there has always been management changes from day one. twitter needs who it needs when it needs it. i found twitter is a living thing, and it needs who it needs when it needs them. that's reallynd what the job of these executives are. -- mostly it's just guiding it. >> it's not a concern? >> not concerned. you have to think about decades. this is a company of enduring values. i know wall street thinks quarterly and all that stuff. everything is hyper. hyper short cycles. but you have to think about these things decade out in order to think correctly about them. no concern here. faith as alete

leader. i hired him. i didn't believe we could even get him. he's a veteran. he has seen it all. he can handle it. >> he's funny. i will give him that. how supportive are you of the changes he has been making, not just in management but when it comes to products? >> i told them you are not driving the fancy car. the is your car, 90% of people who work at twitter came here with you at the helm. you are the boss. it's your car. >> he doesn't have to answer to you? what about the board? >> of course not, it's his company. boom. of course yes answer to the board, they busted chops now and again. but everyone answers to the board. >> how about the product changes? instant timeline features? >> you should change product all the time. change it, change it, change it. what's that phrase?

don't ask for permission, ask for forgiveness? that's the way to go. >> the criticism is it's not changing fast enough. >> they change it a lot internally. there is a lot of people don't see. there is tons of innovation going on. i have talked about this idea that even people who twitter.gged into they see it in magazines and newspapers. they see on tv. they talked about these 500 million logged out users who come to the website and don't login. is that in -- an opportunity come over a missed opportunity? >> people say if you leave the website industry, more people will sign up. and then there's people like me who want to go and see content, and love it very. my favorite pictures on there, i can tweet at him. i love that.

charge.in >> how big do you think twitter could be? >> 7 billion people, minus people who can't read. read, maybeoom to they can teach everyone to read. they will reach every person on the planet. >> what's your take on what's going on in the tech world? >> i think valuations are tied to value. it has the word in it. if a company has value, whatever kind of value that is, they deserve the valuation they get. whether they need it back into it, like its high now, but they will get there. there are companies that have value, or will have value. they are just companies.

over -- uber?for >> that i has to be tough. it's a different business. you don't have to go around the world fighting governments, trying to work our way in to city of instructors. that has to be tough. you know want us to be in your city, forget about it. she has to get in there. >> what about the journalists? >> i haven't been following that. it's a tough job, but i don't know about the gossipy stuff . i have a three-year-old son. >> you are watching cartoons. >> on building legos. theou are here to bring us

byte, one number that tells a lot. i'm told you have a great number . >> one he five. -- 25. it represents an unprecedented partnership. the app store turned red. data apps are going to donate a percentage of the profits to the fight against hiv-aids in africa. is an amazing organization. they will create an aids free generation. >> that's a bold statement about an organization. >> it's going to happen. i have been following them since they started. when a woman is on retroviral pills, they can have a baby

without aids. >> biz stone, thanks for joining us. ♪

>> from bloomberg's offices, this is bottom line. to our viewers in the united states, and those of you joining us from around the world, welcome. we have full coverage of the stocks in stories making headlines today. peter cook has the details on defense secretaries resignation. phil mattingly has the latest on efforts to reach a deal on iran's nuclear program, and shall be holiday looks at the most annoying airports in north