>> live from pier three in san francisco, we cover innovation technology, and the future of business. here is a check of the top headlines. oil prices shown little movement as king abdullah posco brother ascends to the throne. growing threats from militant groups like islamic state. the former u.s. national security advisor. >> i think it will not be a challenge to handoff authority. the succession was well-planned. she has been the crown prince

and it has some very strongly. i do not see any challenge to it >> king solomon has indicated he will maintain the policies of his predecessors. expedia is buying travelocity for $280 million in cash. this is after a 2013 marketing agreement. expedia owns hotwire and hotels.com. go pro has teamed up with the national hockey league. its first partnership, the players will wear the cameras during the all-star game skills competition. they will also wear them during that game on sunday. go pro has been trying to position itself as a media company, but it will not own the video from the game. a dispute involving the rocket

program. less in the air force will work together to complete a certification process, allowing space x to compete for future launches. space x accuses the air force of the legally shutting out a market that could be worth as much as $70 billion through 2030. box ceo aaron levy brings the opening bell after the cut source company goes public 10 months after initially filing for an ipo. box raised $175 million. this is just above the evaluation in the july funding round. stocks closed up 66% despite their business model where marketing costs are bigger than revenue. what exactly is box? check this out. >> was unpacked box. what is this putting cloud service -- is this cloud

service? it's let businesses collaborate on the cloud. it's 32 million users in over 45,000 organizations, although more than 80% use it for free. 10 years ago, ceo aaron levy dropped out of college to start talks -- box, and he has brought fantastic sales growth, but mary a profit. he's been $1.75 -- he spent more in revenues -- he spent more in marketing them in revenues. a year ago sales were at a 108% clip. but now they are only 97 percent of sales. growth has grown -- 70%. 165 million in losses in the last year.

ceo aaron levy might have to start thinking outside the box because he plans to put this through a profitable business. >> leslie picker spoke with aaron on the floor of the stock exchange earlier today. >> we have been building our business for the long term. we started the company 10 years ago. we have continued to develop that mission over time. there is annualized revenue. in the process, the business has been misunderstood. we sort of look like and feel like a consumer company. that is confusing. but we sell to enterprises. we help enterprises manage information, whether it is a hospital, a media company. the way we do that is, we handle all of the governance and

security issues those companies have very it will make it really easy to interact with the end-user. >>, the key sticking coats -- point is your cash burn rate. the marketing and sales have been a big expense. how do you turn that around? dca path to profitability? -- how do you see a path to profitability? ask the vast majority of our revenues is recurring subscriptions. we have visibility into what our current cash flow looks like. we look at how aggressively do we want to spend to compete for new customers? existing customers continue to grow and stay with us. we have to go and invest in building better technology and working with new customers. when you think about it, the only way you can go work with general electric, eli lilly, or

toyota is if you can show up with the sophistication and scale that ibm, microsoft, or emc shows up with. that is what you have to invest ahead of the curve. we have been a startup. we do not have those resources on day one. we have to build them and invest in them. once we get a partnership with a customer, that tends to be a long-term relationship where the revenue tends to recur. >> at this stage, you see profitability in the future? >> absolutely. >> competition has been a big factor. it has been an interesting couple years, with google and microsoft driving down prices. how do you plan to combat that? what is your key strategy in making box more competitive? >> the products and companies you mentioned have sore services -- have services they provide. we not only store the content,

but help you search organize and scale all the information. we have an open platform you develop on top of that. the pricing dynamic for the storage industry -- as the price of storage goes down, that is good for us, because that is the base of our infrastructure. that improves our cost of goods sold and our infrastructure cost. we see the decreasing in pressure happening as a good thing for our business model. we have value on top of the storage. the software that goes into organizing and managing your corporate data. >> one of the biggest topics that has not been talked about ed douglas this week is cyber security and how executives are scared of that. what would happen to box if there was a cyber security breach? >> we invest disproportionately in security, everything from software security, operational security, network security employee security, all those investments. it is important to realize that

a legacy environment most organizations have, where they have all of their critical data on servers where all that has to happen is one breach occurs and you have access to all that data -- we help protect customers from those events. when you put your critical corporate files in box, we have the visibility, monitoring, and security controls that help you understand how your information is being used. these are financial services situations. we are helping them improve their security and compliance in their industry. >> that was ceo aaron levie with leslie picker. box may have just popped in its public debut, but how strong is the business model? we talk about how box really works, and where did the company can compete against emc, google, and microsoft. ♪

>> i and cory johnson. cloud storage service box had a rough road to its ipo, delayed 10 months with concern about an inch. it you heard box ceo aaron levie talk about how his business model is misunderstood, but is it? you know a thing or two about cloud storage. when the filing dropped almost a year ago, my jaw dropped at how high the marketing expenses were, and how far they were not just from profitability, but the business model seemed to require more cash than the business generates. >> remember the lead up to that in 2013 and 2014. the playbook was grow and grow

aggressively. if you do that, you will be rewarded in the public markets. that sentiment shifted during the period when they filed their s-1 to a value mindset. >> this shows the sales growth, up on the left. when the marketing spend was high, the sales growth was five. when they took their foot off the marketing, the sales growth was slow. doesn't that show that the company cannot walk away from this? >> it is an issue of the efficacy of marginal marketing dollars. they're going at 70% a year, and there are few market -- few companies of this scale growing that quickly. they are a pretty elite company. the most recent s-1, they are at a $230 million burn rate. that is in the realm of the sales forces of the world. as any of these companies grow

they are going to show some of this. >> if they grow into a big business and cannot stop spending more than they take in -- i guess the key is something keeping this around. the recurring revenues customers once they go into the box box -- what do you think about that? >> there is a lot of truth to that. it is one of the most interesting parts of the model and something wall street does not fully understand. it is a very unique business environment. it has a viral product. you see this with consumer businesses. the way it works with box is the fundamental use of the product is to share and collaborate. if a handful of users in a company start using it, it naturally grows without support from the box salesforce. >> if i start sharing documents with kim who works with me and

suddenly she wants to share a document with richard in new york, the corporation sort of unpacks the box? there it is. >> that is good branding on their part. they end up getting a lot of natural, organic growth without any support or need from the sales force. if a customer spends a dollar in year one with the product, it compounds 30% per year. the same customer spends $2.85 by year five. it is a powerful 30% secular tailwind helping yield a profitable business in the long term. >> the customers they sign-up are hopefully not graduating but they have incoming classes. the class of 2012 is spending a lot more. >> they detail that in the s-1 pretty nicely. they go through the cohorts showing that behavior over time is very consistent.

>> i wonder about the type of customers, if certain types of customers are more likely to leave a platform like that. if i start using something and it grows a little bit, and then the corporation says, now that we have 100 people using a cloud storage business, let's look for the best one. microsoft has a nice offer. emc is better suited for our whole corporation. let's move everyone off that. their customers could flee. >> i don't think so. you start to see that in some of the behavior of these cohorts. you see some higher churn rates if people are leaving on that. this is much more than filesharing. there is a lot of document collaboration, content authoring. it is pretty sticky. it has security and compliance to integrate with or systems. if there was a risk of this term, you would see it in the numbers. it hasn't really shown. >> we will see.

if they stop telling us about churn -- >> once they put into the s-1, your kind of obligated. >> i wonder if the types of companies that use it -- if big businesses and aaron was citing some big companies -- some of them are sticky. what do you think? >> bigger businesses are stickier. they dissected that churn. on a company or local basis, i suspect the bigger businesses are a lot stickier. >> did you get your holiday packages from ups on time? customer service is costing a fortune. it is time for the holidays. this time, they spent too much money. managing traffic flow next.

>> sony is delaying the release of a quarterly earnings report because of a hack attack on sony pictures entertainment. sony says it is unable to produce a full third quarter report, but expect a february 16 deadline. the attack was blamed on north korean hackers. the company is asking for permission to file its final statement on march 31. if you have not seen that movie yet, now is your chance. "the interview" will be available on netflix starting to morrow. -- tomorrow. in 2013, ups missed thousands of

deliveries over the holidays. the company spent $500 million on new technology and next to workers to handle holiday deliveries last year, but it over prepared. the deliveries were not as big as they thought it would -- they were going to be. except for cyber monday and december 22, they spent too much money. a pre-announcement today sent shares down the lowest in six years. the company paid $200 million in excess operating expenses in the fourth quarter. why did you guys overshoot shipping demand last year, and why is it so hard to predict? small businesses maybe had to help shift packages. >> that is public companies as well. small and big companies. >> logistics, right? it seems impossibly hard to do. under one year big time.

overshooting next year big time. can they ever get this right? >> their crystal ball is better than mine. they have to predict these 12 months out. if you are spending 500 million dollars on infrastructure, you have to know the right spots. it is a tough thing they have to do early in the year, for the cap everything is going to play out. this is the other side. in 2014, they missed deliveries. the fact that there were not news stories about the missing deliveries, for me, indicated this fact too much money on this, but it is still there. they are still going to make use of it over the coming years. they do not have to turn away customers now. in their business especially near mount of revenue they do in the fourth quarter, being able to say, we can handle it no matter what -- that is big. >> we overspent by a lot. $200 million in excess operating costs is not nothing. when you look at the

expenditures they made, another thing -- they are going to have additional cost that are going to raise prices during the holidays to try to make up for that. could that hurt them competitively? >> i think that is the way it should be going, right? you look at the hoover style of surge in demand-based pricing. the ceo said in the announcement that they were going to look at new pricing initiatives. that is a big part of it. delivery on december 22 should cost the same as july 22. i think it is important that they get compensated for the extra volume. >> amazon, the biggest of them all -- can they switch from one carrier to the next? >> not that quickly. these take time. they cannot do it overnight. what amazon does -- the shift more of it to really control it until the last mile.

they have more control. these are long-term contracts. >> amazon does not have the ability to say, we are going to need more trucks today because the rates are changing that rapidly? >> i do not know that deeply on their infrastructure. it is hard to imagine they could switch just like that. you have to prepare. >> what do you see over the holidays, in terms of cyber monday shopping? >> we had an exceptional month. we are across all the carriers. we didn't see big volumes. -- we did see big volumes. people were prepared. the market shifted, and you had e-commerce companies doing their marketing earlier. that whole week, there were sales going on. they make sure to get those goods at the beginning of december instead of waiting until the last minute. >> the marketplace business grew

outside currency 5% year-over-year, slower growth. now we see this news from ups, saying cyber monday and december 22 were not as big as we thought they were going to be. christmas was not as strong as we thought. or was it problems in global shipping? >> oil price was down, but the people most likely to be affected were lower income earnings. some of the things they thought were going to lead to increasing commerce i think did not. i think it was a standard 11% year. i think it will continue to grow like this. >> kegger? i was thinking about security parties. everybody knows the phrase "open sesame." alibaba is an e-commerce giant restoring trust in chinese business.

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>> we focus on innovation technologies and the future of business. alibaba founder jack ma says he was rejected by harvard university 10 times, is a fan of "forrester gump," -- "forrester gump -- " forest gump," and how he chose the name alibaba. >> the internet is global. we should have a global name, a name that is interesting. like yahoo!

so i have been thinking for many days, alibaba is a good name. i happen to be in san francisco at a launch, and the waitress come -- at a lunch. the waitress comes. i ask her, do you know about alibaba? what is alibaba? open sesame. i go, good. people all know about alibaba open sesame. and i think, this is a good name. whatever you talk about, alibaba is always powerful. >> you have said before that in creating alibaba, you had to create trust. because people in china were used to face-to-face. how did you create trust? >> i fink -- i inc. -- i think we are scared of doing business on the internet.

i do not know you. you do not know me. how can you do business if you do not trust? i think when i first went to usa for raising money talking to venture capitalists, a lot of people say, china is doing business on a sheet. how can you do business on the internet? the credit system, without that it is impossible to do business. the past 14 years everything we have tried to do is try to build up the trust system. charlie, i am so proud today when i talk to the young. today in china and in the year -- in the world, people do not trust each other. the government and media -- because of e-commerce, we finished 60 million transactions

every day. people do not know each other. i do not know you. i send products to you. you do not know me. i wire money to you. i give a person a package. i do not know him. he takes that across the ocean, across a river. this is the trust. we have at least 60 minutes of trust happening every day. quick secret isn't escrow account in the beginning. -- chris you -- >> it was in escrow account in the beginning. >> it started as alipay. for the first three years alibaba is just a marketplace for information. what you have what i have. we talked a long time and do not do any business because there is no payment. no banks want to do it. i do not know what to do.

if i start to launch a system, it is against the financial legal laws, because you have to have a license. if i do not do it, e-commerce would go nowhere. i went to davos and listen to a leadership discussion. leadership is about responsibility. i give a call to my friends and my colleagues and say, do it now. if something is wrong and the government are not happy about that, one body has to go to the prison, jack ma go to the prison , because it is so important for the world to be able to trust the system. if you do not do it, i said, and do not do it properly, stealing money i will send you to prison. that was the thing. people do not like it.

so many people i talked to at that time, they say, this is the stupidest idea you have ever got. stupid or clever, as long as people use it. >> an investment of $8 billion. it turned out to be a pretty good investment for yahoo!. one time after another, you raise this money on your own outside of china with investors. >> i am very thankful for all the investors. because 1999 year 2000, a lot of people say, jack is crazy. he is doing something we do not understand. there is such an american model already there. alibaba, we do not see this kind of model. this is a crazy guy. i remember my first time in time

magazine they called me crazy jack. i think crazy is good. we are crazy, but we are not stupid. [laughter] we know what we are doing. but if everybody agrees with me if everybody believes our idea is good, we have no chance. the money we raised, we are very thankful. if our investors make a lot of money, i would be proud. >> alibaba founder jack mott talking to child -- charlie rose in davos switzerland. who is getting rich at apple? m s.e.c. oiling cap this morning, -- an s.e.c. filing hit this morning. ♪

>> apple is pulling down the curtain on some of the expenses paid packages offered to top executives. the title of the highest-paid executive. the woman who left burberry last may made $73 million in the last seven months. several other revealing numbers in the proxy filing. maybe this is wealth porn. i don't know. $73 million, seven months -- that is a good seven months for her. >> i would not even have to work seven months or that. i would happily take it for less. it is one of those things where, in some sense, some of this is just the way it gets reported. you know a good chunk of what she makes is from stock grants and stock-based compensation.

some is a makeup grant, to make up for wealth she had at burberry that did not depressed because she left. a lot of financial chicanery that goes on. that is for the normal, right? >> i think the components of this are interesting. she had only a $400,000 salary. $70 million in stock awards in the year. interesting, because those could become worth a lot more. also, a lot in moving expenses. and then the options she was giving up at her old job, she was able to negotiate them to make her whole to go to apple. >> something like half, 33 million of it, was to make up for grants she would no longer have because she was no longer

going to be an employee at burberry. in some sense, it is perfectly logical. it is gargantuan numbers. for shareholders, if you really believe in the future of apple, shouldn't you be happy with smaller grants and stock price this is -- appreciation, riding along with shareholders? how much should be upfront versus how much should be getting price appreciation? >> she is also known from a tax for spector -- she would rather have a lower salary and long-term gains. the tax would be lower for her. >> it kind of puts the lie to the idea of what the base salary means. a 500 thousand dollars base salary is meaningless when it is pumped up to these numbers on the basis of equity grants and options. it is like the game wall street loves to play, where i am guaranteed $20 million a year in performance bonuses. what does that mean anymore when that money is guaranteed?

it is no longer a performance bonus. which is part of a reason why some of the compensation consultants get up in arms about the idea of equity grants. it is not in alignment anymore. it is given to you straight up. there is no more writing along with stock. -- riding along with stock. >> when tim cook became ceo, he got massive pay in terms of stock options, a couple hundred million dollars. $370 million in his first year as ceo. but a big raise for this year. >> a big raise for this year. i am not sure how much to read into that. obviously the bigger one is the aaron's -- is the other number. he felt he could shape the company and bringing the right person. the flipside is somebody else leaving the board. he has his retail expert in-house and does not need drexel are on the board. he was a steve's jobs -- steve

jobs guy. >> those personal security expenses paid for by the company -- i thought one of the interesting things in the filing was how the compensation committee works. they created a secondary list of companies to compare themselves to, that they called iconic brands. these to compare them to make a cap companies like vercher hathaway. now, they are saying iconic rounds, like 3m nike, johnson & johnson, pepsi. i find that interesting. when you compare yourself to qualcomm, you love it because qualcomm pays their execs so much money. i thought it was interesting to have the secondary list of companies to compare themselves to. >> i was going to suggest you compare yourself to an iconic tv host and see what you get out of that. it is this fantastic sheet in terms of how you change your peer group.

the criticism historically of compensation committees has been that they use this comparison of fortune 100 compensation. using these kinds of select groups. that leaves a huge skew. creating an even more skewed group strikes me as largely indefensible, in terms of coming up with compensation. it is a real and run. -- end run. >> the vacation pay -- some executives were paid to not take vacations. that tells you a little bit about apple culture, how hard those people work. >> i will say kind of a kudos for that. it is an unusual way of doing things. >> nobody's giving me more time off. thank you. technology is changing everything. the way we eat, sleep, work, and build. we talk with one of the most famous architects.

how technology is changing architecture, and technology firms could make big mistakes. ♪

>> major technology companies like amazon, apple, and facebook are hiring some of the biggest names in architecture to come up with some cool campuses. the task of building a functional campus can prove challenging for companies and architects. joining me from new york is run cool glass -- is rem koolhaas. when you see companies that want to build an icon for a campus what do you think? is there megalomania that keeps them from building something that actually works?

>> is actually very understandable, when they reach a certain size that companies have to realize they need a unique working environment for themselves. it is really interesting that most tech companies have basically grown and developed themselves and invented themselves in buildings that were in no way intended for them. they basically living developers ' architecthre. when you reach critical mass what is my identity, and how can i work best, -- work best? >> in silicon valley, there are driving forces. one is the space. companies feel like when they get to a certain size and they can take over enormous space and

create a building with it would have always imagined. but they also think they can change the rules about how they work and what they do. i do not know if you have listened to some of the companies doing this. facebook has hired frank gehry. apple has foster partners. samsung has [indiscernible] facebook is building a city sort of. apple is doing something entirely different, with an enclosed space. what works? >> obviously, i cannot really comment on what works, because i am sure that apple and foster have a very specific idea of what works for them. i actually found it really interesting that foster's building, which is really hermetic and very sharp -- aaron frank gehry -- and friend gary's building -- and frank gehry's

building they can be so different, even though they are tech companies. that shows you how interesting architecture can be, and how important it is to work with architects, articulating what works best for you. >> i read jane jacobs "how cities work," the size of the architecture and around the architecture. i know you are so inspired by new york city and the way new york city has accidental architecture around it. i wonder what, knowing a city like that, how that informs the design of your buildings. >> i think that basically every person and every architect has an unconscious. and in the unconscious, you accumulate things you like and

do not like. although initially my relationship with new york was very direct, and i really thought about how it is designed, why it is a particular way the interesting thing in new york -- it is more movement from the population at large. at some point, you really forget all of that, and you have a more narrow focus, basically, on your client. because what is key in architecture is the dialogue that you can have with the client, and the position of that dialogue. to some extent, to really focus, you have to ignore everything you knew, and you have to simply focus on that one single thing. but of course, your unconscious feeds you constantly with more information and also dictates where your fantasy allows you to go. >> fascinating stuff.

rem koolhaas really appreciate it. bwest byte, we focus on one number that tells us a lot. shelby what have you got? >> 7 million. that is the number of mobile transactions that starbucks stores every week. starbucks mobile has been huge. 13 million active users. mobile payments account for 16% of total tender at starbucks right now. digital innovation has become so important to this company that yesterday when howard schultz announced the new ceo he did not announce somebody with restaurant experience. he named tech industry leader kevin johnson as the number two executive. johnson previously led juniper networks. a 16 year veteran at microsoft. it goes to show how important the digital pushes for this company. >> really interesting. when they made this investment

or partnership with square which they since backed away from, it shows they are trying new things. that's their goal is to push their own app. it is not just about payment. starbucks says it drives incremental sales. it is also about gaining loyalty. the reward program has done well. it also provides a platform for one-on-one marketing. they are reaching people through the app. it is not just a payment platform. mobile is at the center of starbucks. huge growth push in the next five years. not just in the u.s. they're also forging into china. >> i will let you run down to the starbucks in the bloomberg building. enjoy some quality time down there after this segment. remember, you can get the latest headlines on your phone tablet bloomberg.com, and bloomberg radio. ♪

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