>> pi live fromer 3 -- live from pier three in san francisco, welcome to "bloomberg west." i'm cory johnson. here's a check of your headlines. key economic indicators rose in december. at the world economic forum falling gas prices are boosting consumer sentiment. there are concerns with housing as the sales of previously sold homes rose 2.4% in december less than forecast. goldman ceo lloyd length fine is

more optimistic about the -- lloyd blankfein is more optimistic about the economy this year than last year. >> it is hard to deal with the background noise. the background noise affects almost everything we do. i cannot think about technology without thinking about the number of heads i have to hire to lb systems. it is a fact of life. no choice, no problem. >> he also finds that liquidity will follow demand as the market scales. microsoft has fired another shot in the cloud war. they will work with revolution analytics for their clowns -- cloud offering. the terms of the deal were not disclosed. e-commerce has claimed another victim. skied mall has bitten the dust.

skymall and its parent company filed for bankruptcy in phoenix. sky mall cited the competitive retail environment and the increase of mobile devices on planes. now erin levy rings the opening bell. this is the day as the company he founded in his usc dorm goes public. box raised 175 million dollars, above the evaluation it received in july. shares remain high in the first day of trading. despite a business model with marketing costs that are bigger than revenue. what is box and how does it work? let's check it out. let's unpack box. what is this leading cloud service? it helps businesses manage and

collaborate on documents stored on the cloud. it has 32 million users, over 20 south 5000 -- over 275,000 organizations. 10 years ago the ceo dropped out of college to start box and has brought in fantastic sales growth, but nary a profit. most of the money has been spent in marketing. when box takes the focus off the marketing, sales slow down. a year ago, sales were at a 150% clip. with marketing down to only 97% of sales sales have fallen to 70%. so, ceo aaron levie might have

to start thinking outside the box if you want to turn this into a profitable business. earlier our very own leslie picker spoke with aaron levie about how relieved he is the company finally got out of the gate. she asked him that very question. >> we started the company 10 years ago with a very simple mission. we are now at a $225,000 annualized run rate. i think the businesses been misunderstood because we sort of look like and feel like a consumer company and that is confusing, but we sell to enterprises and we help enterprises manage their most critical corporate information whether it is a life sciences company, and hospital, a media company, a service institution and the way that we do that, we do all of the compliance and governance and security issues,

but we build products that make it really easy. >> in the 10 months you are -- your company has been public one of the key points is the cash burn rate. we are looking at $9.4 million of cash burn every month. how do you turn that around? do you see profitability? >> one of the unique things about our business model across the broader markets is the vast majority of our revenues are recurring subscriptions are it we have visibility into what our future cash flow looks like and what we did, we make decisions on how aggressively do we want to spend to make sure we can compete for new customers. they existing customers continue to grow over time and they stay with us, but then we have to go and invest in building better and better technology, but also going and working with new customers. if you think about it, the only way you can sell to or work with a general electric or eli lilly

or a toyota is if you can show up with the level of sophistication and scale that ibm or microsoft is going to show up with. that is what you have to invest ahead of the curve. of that is why we are building the start appearing we do not have all of the resources, so we have to develop them with investment. when we go into partnership with a customer, that tends to be a long-term relationship and the revenue continues to recruit -- to recur. >> so you do see profitability in the future? >> absolutely. >> competition has been a big factor for couple years, with google and microsoft coming into the fray, driving down prices. how do you plan to combat that? what is your key strategy and making box more competitive? >> the key thing, the products that you mentioned, the companies that you mentioned have storage services they provide two services -- to customers. we offer everything from these services to the content, at

scale all of that information and we allow you to develop on top of that. there are things where we have the pricing dynamic of the storage industry -- as the price of storage goes down over time that is a good thing for us because that is the base of our infrastructure. that directly improves our cost of goods sold. we actually see the pricing pressure happening because of amazon and others as a good thing for our business model. we can continue to exchange on top of that. all of the software that goes into managing your corporate data. >> one of the biggest topics talked about at dobbins this week is cyber security -- at davos this week is cyber security. what would happen to box if there were a cyber security breach? >> we invest heavily in security -- everything from operational security software security, security of our network, security of our employees. all of those investments. it is important to realize the

legacy environments that most organizations have where they have all of their files, all of their critical data on their servers where one breach occurs and you have access to all of that data, we help protect customers from those kinds of things. you actually have all of it -- the monitoring and security controls where you can understand how your information is being used. and you are actually helping improve the security, improve the compliance they have in their industry. >> that was box ceo aaron levie with bloomberg news's leslie picker. how strong is their business model? we will dig down into how box really works and if the company can truly compete with the likes of google and microsoft. that is next on "bloomberg west ." ♪

>> i'm cory johnson. this is "bloomberg west." cloud storage provider box public after a rough road going -- getting there. a couple minutes ago you heard box ceo aaron levie talking about how is business model is misunderstood, but is it? my guest knows a thing or two about cloud storage. when the filing dropped a year ago, my job dropped at how high the expenses were and how far they were -- not just from profitability, but the business model seem to require more and more cash. what are your thoughts? >> it is important to keep it in context. if you remember the era leading up to it, the playbook for most

companies was growing grow aggressively and if you do that, you will be rewarded. that sentiment shifted during that time when they filed the s1 from a growth mindset to a value mindset. >> i want to talk about this. it shows the sales growth. when the marketing spending was high, sales growth was high. when they took their foot off the marketing, sales growth was slow. yeah, the broader market, the conversation started to change but doesn't that show the company cannot walk with marketing? >> no, i think it is a question of the efficacy of marginal marketing dollars. there are very few companies with that kind of scale that are growing -- >> with that service. >> yeah, exactly. they are at a roughly $231 million run rate. and it is not the 100% they had before but as these companies

grow, they will show some decelerated growth. >> if they grow into a big business and can stop spending more than they taken, that will be great. the key to this business will be keeping those customers around. aaron levie insists his dollars are recurring dollars. and customers once they go into the box box they never go out of the box. at what you think about that? >> i think there is a lot of truth to that. that is one of the interesting things about the model and it is one thing that wall street does not fully understand. it is viral. they have a viral products and a viral systems model. you see this with consumer businesses. the way it works with rocks, the fundamental use -- with box, the fundamental use a handful of users, it just naturally and virally grows without any supports from the box salesforce. >> so another words, if i start sharing documents with kim, who

works with me, if she wants to share a document with someone else in new york, the corporation sorted on packs box? >> right. good branding on their part. that is our works. they end up getting a lot of natural, organic, viral growth without any support. economically how it works, if a customer place -- spends a dollar a year, it compounds 30% a year. you think $1.30 in your two, and by your five, $2.85. that's a very popular is secular, 30% secular tailwind helping to drive growth and ultimately will yield a very profitable business. >> that's interesting. i guess without the customers, it looks him is like graduating classes -- it looks almost like graduating classes. the class of 2012 is not spending a lot more -- >> they go through that in the s1 and they go through the

cohorts showing the behavior is very consistent. >> i wonder if certain types of customers are more likely to leave a platform like that en masse. if i start using something as a model starts using it and it grows a bit, they go ok, now that we have 100 people using a cloud storage business, let's look for the best one. you know what, microsoft has a nice offer. that's oracle corporation. let's move everyone off that. >> i don't think so. you start to see that in some of the behavior of these cohorts -- you would at least see some higher turn rates if people were leaving en masse. this is much more than filesharing. there is a lot of document sharing, co-authoring that is pretty sticky. if there was a real risk of this type of turn, i think you would see it in the numbers. that is not to say it is never going to happen, but it has not really shown. >> we will see what they have to

say about turn. >> once they stick to it, once you put it into the s1 your kind of obligated to it. >> i also wonder if the types of companies that use it, the big businesses -- if there are small businesses that are more sticky or big businesses are more sticky? >> usually, bigger businesses are stickier. they dissected that churn. my guess is most of the charms or smaller businesses and bigger businesses were probably a lot stickier. >> interesting. i appreciate it. >> thank you. >> will ubs be on time this year? customers are concerned. it cost the company a fortune last year. they couldn't get the packages out on time. this year they spent too much

controlling traffic flow. that's next on "bloomberg west." ♪

>> i'm cory johnson. this is "bloomberg west." sony is delaying the release of its fourth-quarter reports the cause of the hack attack. the company is unable to produce the full report by the expected february 16 deadline. instead they are asking for permission to file its earning statement on march 31. james franco and seth rogen's film "the interview" will be

open on netflix starting tomorrow. ups screwed up christmas last your. they vowed that would not happen. -- screwed up christmas last year. they bow that would not happen. this year, they over prepared. there is one theory that they spent too much money on the peak days of cyber monday, december 22 -- they spent too much money. their shares are down the most in six years. the company says it sought to hundred million dollars in excess of ready expenses in the fourth quarter. why did ups overshoot and why is it so hard to reject? -- predict? joining us, a guest who helps ship with carriers like ubs. >> public companies too. small companies, big companies. >> talk to me about this. >> logistics. >> it seems impossibly hard to

do but undershooting one year big-time, overshooting the next year, big time. can they ever get it right? >> their crystal ball is better than mine, but they still have two predict these 12 months out. they are spending 500 million dollars on infrastructure. you got to know where to do it. it's a really tough thing they have to do early in the year predict how it is going to play out your this is the other side. we saw the other side in 2013 where they undershot and missed deliveries. and then the fact that there were not new stories about missing deliveries indicates hey, maybe they spent too much money on this, but it still there and they will make use of it over the coming years and most important thing they don't have to turn away customers now. that is the big thing. in their business, especially the amount of revenue they do in the fourth quarter, being able to say we can handle it no matter what, that is a huge win for them. >> the ceo came out and said we provided a great customer experience but we overspent by a

lot. it's not saying costs ain't nothing. i wonder when you look at the expenditures they made, they talk about the additional cost during the holidays and trying to make up for that --that hurt them competitively? >> i think that is the way it should be going, right? you look at the uber style of surge pricing or demand-based pricing. the ceo said that they were going to look at new pricing initiatives. and that is a big part of it. there is no reason that december 22 should cost the same as july 22 right? i think it is important to get compensated for the extra volume. >> talking about amazon, the biggest of them all -- don't they have the ability to really quickly switch from one carrier to another if one is raising their prices? >> not that quickly. these take time. they could not do it overnight. what amazon has done, they

have shipped it to where they control it until the last mile, so they have more control, but these are long-term contracts. >> so, amazon does not sort of have the ability to say, you know what we are going to use more ups trucks today because the variable rates are changing >> -- are changing? >> i don't know that deeply on their infrastructure. but you have to prepare, especially with their sales. >> what did you see go down on the holidays? >> we had an exceptional month. we are with all of the carriers. we did see big volume with all of the carriers. the main thing we saw, people were prepared. after 2013, the market shifted. you have a lot of e-commerce and doing their marketing earlier. cyber monday, that whole week the reseal going on, so they made sure to get the goods out at the beginning of december

instead of waiting until the last minute. >> so, what are we going to see with ebay? they grew year-over-year. now there is ups saying -- hey cyber monday, this is not as big. i wonder if this is saying that christmas was not as strong as we thought were is the problem shipping? >> oil prices were down, but the people most likely to be affected by this are low income earners in per capita they are doing the least spending. i think it was the standard 11% and i think it will continue to grow like this. >> yes and thank you very much. we appreciate it. everyone knows where the phrase open sesame comes from, right? alibaba. jack ma talks about how he came up with the name of his e-commerce giant. that and how he is destroying

chinese e-commerce business. that is coming up next. ♪

>> you are watching "bloomberg west" where we focus on innovation, technology, and the future of business. jack ma went to harvard four times, is a fan of forest gump and uses the philosophy of tai chi in business. he spoke to charlie rose in davos. here is his explanation of how he chose the name of ali baba. >> when i started, i thought international, global. we should have a global name. interesting. like yahoo!

but i had been thinking for many days. i thought, ali baba is a good name. i just happen to be in san francisco that day. i was having lunch and i asked the waitress, do you know about ali baba? i said, what is ali baba? she said, open sesame. they all know about ali baba, 40 thieves, and i think this is a good name. so, whatever you talk about, ali baba is on top. [laughter] >> you have said before in creating ali baba, you had to create trust. >> yes. >> because people in china were used to face-to-face. how did you create trust? >> i think because we are doing business on the internet i do not know you, you do not know me. how can you do things online

unless you have trust. for him commerce -- for e-commerce the most important thing was trust. when i first went to the u.s. for raising money, to talk to venture capitalists, a lot of people would say, jack, no, no, no. how can you do business on the internet? and i know we have a tough system. the credit system. it's impossible to do business. in the past 14 years, everything we do is trying to build up the trust system, the record system. charlie, i am so proud today. today in china and in the world people do not trust each other the government, the people, the media. it is all, this guy is cheating. with e-commerce, we finish 50

million transactions every day. people do not know each other. i don't know you. i sent products to you. you don't know me. you wire money to me. i don't know you. i give a person a package. he took something across the ocean, across the river and said, this is the trust. we have trust happening every day. >> but you create by creating an escort account in the beginning? >> yes. >> you keep the money until they release the product. >> that's true. ali pay. when i had this idea -- i love davos. it was a big decision. the first two years, it was just e-commerce for information. we talked for a long time, but there is no business. if there is no payment, no banks want to do it. thanks say, oh, no, this thing never works.

so, i do not know what to do. if i start to launch a payment system it is against the financial legal laws are you have to have a license. but if i don't do it, e-commerce will go nowhere. so then i went to davos, i listened to a leadership discussion. leadership is about responsibility. after i listened to that panel, a gave a call to my colleagues. i said, do it now. immediately. if there is something wrong and the government is not happy about that, if one body has to go to prison, jack ma goes to prison. because it is so important for china and the world to trust the system and if you do not do it i think, if you do not do it properly, if there is money money watch, i send you to prison. and people do not like it.

somebody people i talked to at the time about alipay, they said, this is the stupidest idea you have ever got. i do not know if it is stupid. as long as people use it. >> you have invested a billion dollars. >> yeah. >> it turned out to be a pretty good investment for yahoo! the first time he raised money on your own outside of china for investors. >> yeah, i am thankful for all of the investors because 1999, 2000, a lot of people say, jack is crazy. he is doing something we do not understand. a lot of venture capitalists give you money because the american model is already there. it this is ali baba. >> this is crazy. >> yeah, this is crazy guy.

i remember in "time" magazine they called me crazy. i think crazy is good. we are crazy. but we are not stupid. [laughter] we know what we are doing. but if they do not think what we are doing is good, we have no chance. the money we raised, we are thankful. so, if our investors make a lot of money, i feel that is an honor. >> that is jack ma talking to charlie rose in davos switzerland. next, who is getting rich at apple? we have all of the gory details of apple pay. big surprises. find out who is bringing home the benjamin's on the world's most valuable company. ♪

>> i'm cory johnson. this is "bloomberg west." apple is pulling back the curtain on expensive pay packages. angela aaron is the iphone maker's highest-paid executive. she joined apple last may. she made $73 million in the last seven months. joining me for this and other revealing numbers, bloomberg senior editor paul kedrosky. $73 million for seven months? that is a good seven months for her. >> i would not even have to work seven months for that. it is one of those things where in some sense this is just the way gets reported, right? as you and i know, a good chunk of what she makes is obviously in stock grants and compensation

in some of that is sort of the makeup grant to make up for stocks she had a burglary that she was not going to divest which he last, so something like half of that came from there. so, that is pretty normal right? >> break down some of that. i think the components are interesting because you do see this with rewards with other companies. she got only a $4.5 million salary and 400 thousand dollars bonus. it's interesting. because the stock could become worth a whole lot more. also a lot of moving expenses. $780,000 moving expensive. then the options she had at her old job, she was able to negotiate them for what she was giving up to go to apple. >> yeah, something like half. something like $32 million was to make up for a grant she could of easily no longer employed at burberry.

in some sense it is all perfectly logical. absolutely gargantuan numbers of course. and i suppose the deeper surprise for shareholders, if she really believed in the future of apple, would she be happy with smaller grants. that is the question. how much should be upfront and how much should be praised appreciation. >> also from a cash perspective she would much rather have a lower salary and have better long-term gains and the taxes would be lower for her. >> yeah, absolutely. a kind of gives you an idea what the base salary means. a $500,000 base salary is meaningless when it is pumped up to the use numbers on the basis of equity numbers. it is like the game that wall street likes to play were you have 250 thousand dollars salary and then it is pumped up with

grants. what does it mean if there is no longer performance bonus? that is why can's -- compensation opponents get up in arms about the whole idea of equity grants. it is given to you straight up and there is no riding along stock. >> gain also, and i feel sorry for tim cook and his $9.2 million. when he became ceo he took a massive pay in terms of stock options, couple hundred dollars. $78 million in his first year as ceo, but he got a big raise for this year? >> yeah, a big raise for this year on both fronts. i'm not sure how to read into that. the bigger one is her number. he felt like he could shake the company and bring in the right person. and now we have got this sort of retail expert in-house and he does not need a director on the

board, one of steve jobs's guys on the board in apple's retail channel. >> 99 thousand dollars and personal security expenses paid for by the company. i thought one of the interesting things in the filing was how the competition works and they created a secondary list of companies to compare themselves to they called iconic brands or -- these used to be mega cap companies like berkshire hathaway. now they are saying iconic rands -- brands. 3m, nike, procter & gamble pepsi. when you compare yourself to qualcomm, everyone loves it. as i was interesting to have the secondary list of companies to compare themselves to. >> yeah, i was going to suggest you compare yourself to an iconic tv host cory and see what you get out of that. >> [laughter] >> it is this fantastic cheat

and how you change your p are company. the criticism -- using these kinds of select groups, that leads to huge skews, so creating an even more skewed group strikes me as largely insensible . it's a real and run -- real end run. >> really quick i want to mention aware think. vacation pay. some of the executives were paid not to go on vacation. talking about apple culture and how hard those people work in the get paid for it. >> that's interesting. i cannot think of anything like that anywhere else. it's kind of kudos for that. it's an unusual way of doing that. >> paul kedrosky we suffer you gladly. at the top of the hour mark crumpton joins us. what is up? >> it has been a week of

international development. we learned last night about the death of saudi arabia's king abdulla. he has been succeeded by his half-brother. will opec oil prices be affected? sandy berger will join me. following this weeks of visit to cuba by a u.s. delegation, what is the next move in building closer ties between the two nations? indira lakshmanan is live in havana. bloomberg's joe's wiesenthal will have the latest from athens . a lot to cover today. it all begins of the top of the hour. back to you in san francisco. >> market, i think today's show should be in a big comfortable chair with a cuban cigar. >> you read my mind. >> thank you very much. technology, eat sleep, work,

and bills. we will talk to one of the world's most famous architects about changing architecture and making mistakes in building the headquarters of the next "bloomberg west." ♪

>> on cory johnson. this is "bloomberg west." major technology companies, apple, google redesigning their headquarters. but the task of building a functional corporate campus can prove more than challenging. for the big companies and the architects alike. joining me to discuss the challenges of designing for tech companies, a prize-winning architect. it's great to have you on the show. when you see companies that want to build an icon for a campus what do you think -- is there some kind of megalomania to keep them in these actual works? >> i think it is very

understandable that companies want to reach a certain size and realize that they need a unique working environment for themselves. it is really interesting that most tech companies have everything grown and developed themselves and invent themselves . basically, this is work and they developed this architecture. when you reach critical mass, obviously you need to know and how it can work best. >> it's interesting. particularly with technology in silicon valley, there are two driving forces. companies feel like they get to a certain size, whether they are apple, it intel -- samsung.

they feel like they can create a building like they imagined but they also think they can change the world about how they -- the rules about how they work and what they do. one company doing this right now, facebook. they have hired frank gehry for their corporate headquarters. facebook is building a city sort of. apple is doing something entirely different with an enclosed sort of space. what works? >> i cannot really comment on what works, because i'm sure apple and foster a very specific ideas about what works for them, and i think it's really interesting the foster building which is pretty hermetic and very sharp and pronounced, and gehry's building is really flat and a new expanse of improvised

conditions. they are so different even though both are tech companies. it really shows how interesting architecture can be and how important it is to work with architects in terms of articulating what works best for you. >> you know, i have read jane jacobs, how cities work, and i know you are so inspired. i know you are so inspired by new york city in the way that new york city has its accidental architecture around it. i wonder, knowing a city like that, how it informs the design of the buildings you start from scratch? >> well i think every person and every architect has a different culture.

if there are things that you like or you don't like. my relationship with new york is very direct. and we thought about how these designs were warranted, how to design in a particular way. who was this designed by? in new york it kind of very by architect with more movements from the population at large. but at some point, you really think -- you forget all of that and you have a more narrow focus, basically on your client. because the key and architecture is to dialogue so you can have a good client and can position the dialog. to some extent, to really focus, you have to ignore everything you knew and focus. and that constantly will give you more information and also to taste for me where your friendship is allowed to go.

>> fascinating stuff. rem koolhaas thank you very much. we appreciate it. the b-west byte. one number that tells you a lot. what have you got? >> the number today is 7 million. that is the number of mobile transactions at starbucks stores everything week. google has been huge for starbucks. 13,000 active users. that is 16% of total tender right now. digital innovation has become so important to this company. when howard schultz announced the new ceo, he did not announce someone with restaurant experience. he named kevin johnson. he previously led a network company and was a 16 year veteran it microsoft. >> it's interesting when they they -- made that ownership at

square, it shows that they are trying things all the time. >> and they really try to push their own act. starbucks says it drives incremental sales. it's also about gaining loyalty, this starbucks reward program on mobile, and it also provides platforms for this one-on-one marketing experience. they're reaching people through the act. so mobile is at the center of starbucks, huge growth push in the next five years. and they are also forging into china as well. >> all right, shall be, i will let you run downstairs to starbucks. i know that you will be racing down there after this. thank you very much. we always have the latest headlines all the time on your phone, your tablet bloomberg.com and bloomberg radio. you will see more "bloomberg west" on monday. ♪

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>> live from bloomberg world headquarters in new york, this is "bottom line." i'm mark crumpton. 12 years in the united states and those of you joining us around the world, welcome. -- to those of you in the unites states. starting a new classic car index. joe weisenthal in athens where greek voters are getting ready to head to the polls. we begin with