>> live from pearre three in san francisco, welcome to "bloomberg west." i'm cory johnson. here's a check of your bloomberg top headlines. u.s. stock posting gains after being down for part of the day. the nasdaq and dow up about 1%. crude oil erased its earlier drop. mcdonald's which is replacing its c.e.o., and boeing were among the winners. the senate has voted to defy president obama and aprove the keystone x.l. pipeline but

they're five votes short of the majority needed to overcome a veto. san francisco based visa set a four for one stock split in march. the world's largest payment network reported gains for the first quarter and profit. profits up 12%. sales up 7%. payment volume up 11%. to $1.2 trillion. visa has embraced new technology like apple pay and is poised to benefit as consumer spending rises in the u.s. indiana governor mike pence has pulled the plans to start a state-run news website. the website was going to offer prewritten stories to the media. it was criticized by indiana lawmakers in both parties as well as journalists who likened a state run news outlets you might find in russia or china. pence said the goal is to better report news from state agencies.

he calls the project poorly crafted. one of the -- two of the biggest companies in technology have reported fourth quarter earnings google and amazon. amazon's sales in the fourth quarter holiday season up 23%. and they turned a profit, -- up 15%, to $29.3 billion. and they turned a profit. it was a smaller profit than last year's fourth quarter. meanwhile at google, sales up 7%, net income up 41%, but the average price of an ad fell and after a 2% decline last quarter, this quarter the 3% decline and google continues to spend, spend, spend with operating expenses hitting $6.8 billion in the quarter. joining me to help figure this out, brad stone, author of a book on amazon. let's start with google.

the google results for interesting but the, you know, wall street doesn't like it, i don't care, but it is interesting that the business is in some important ways decelerating and the prices of ads actually falling. >> yeah, i mean what you're seing is that a lot of this applies to google too. the core business to some degree is experiencing some commodityization. even though you're getting significant demand, prices continue to drop. and i think at the same time, you've got a company that's investing for the next 100 years and it's really difficult to reconcile those two things if you're an outsider not there seeing how these things all come together. going forward, google needs to acknowledge that. i think they probably either need to start reining in some spend offering setting expectations differently so people can get their heads around what the cycles will look like for this company that's investing for something that's over the horizon but has a core business that's changing today. >> the skoal ssh sales growth is

still there but the decline in that rate of growth is pronoubsed. >> yeah you look at a lot of other companies in commodtizing businesses, those businesses grow they grow really, really well but the margins continue to drop. google's experiencing that but they're not providing a lot of transparency on the progress in modernization of some of these efforts. >> and the click growth was there but again slowing down quite a bit all the way down to 14% in terms of the number of people clicking on ads. that's suddenly, you know, when it was 25% down from 31% not a big deal. but 25 17, 14 that's getting slower and combine that with the value of a click, it looked like that was going to bottom out last quarter it was down to only negative 1% but the add prices decline -- but the at prices decline. that's bad news. >> it is bad news and that will continue system of what google needs to focus on is engagement.

getting people to click on those ads and they seem to be making progress there. but at the same time they need to get people to pay up for that engagement to preserve a.s.p. >> brad, i'm sorry, i'm ignoring you, he's sitting here across from me, i'm ignoring him. what do you think about those results? >> investors don't seem that worried. mobile continues to be a big challenge. mobile ad returns are lucrative for them and the ire phone, such a runaway success, the relationship between google and apple so tenuous, i think that's a big potential weakness in google's armor if apple decides to go another way with default search on the iphone. >> they talked about that in the conference call fora shoo -- yahoo. it would be interesting if apple were to take some of oh the wind

out of google's sales. but let's talk about amazon, your baily w.i.c. i know you've been pore -- your bailiwick. i know you've been poring over these numbers. >> it was a good day for amazon investors. got the top line beat. got a profit a remarkable thing for amazon, over $00 million for the fourth quarter. maybe more important, they're listening to shareholders. there's two points in disclosure that i say they're going to start breaking out a.w.s. numbersed in the first quarter so next quarter. >> really? >> yeah, they said that on the conference call. number two they talk more got into more detail about prime membership. they said it's up 53%. that's a key part of the business. if you're an investor, one of those long-term faithful shareholders, taken a beating over the last year as the market has gone up, it shows amazon is listening, they want to create more transparency.

>> $to billion probably mostly web service, i can't wait until they break that out. every glest we have on bloomberg west who has a company to launch is doing it on web services and their services growth is pronounced, probably the size of the business will compel them to preport that. what's your big takeaway? >> my big takeaway, the price elasticity point on amazon prime hasn't been reached yet. there's a ton of demand for the product. we're seing that amazon is an incredibly valuable service but people will pay up for improvements on it. people pay up to lubricate the gears associated with amazon. there's interesting value there my other takeaway is you need more. we're going to see more and more scrutiny in those numbers. enge it's smart of them to start showing that. if they're going to play and be

the backbone and spine of so many companies out there. >> i think it will also help to understand why the business in international only grew at % and the domestic business grew so much more, over 20%. but those mysteries maybe have to wait for another quarter. brad stone from bloomberg wiz week. we appreciate your time as well. we're going to hear from ali baba's co-founder next. ♪

>> this is "bloomberg west," i'm cory johnson here's a look at the world news headlines. the death toll from a gas explosion at a mexican hospital has been low toferede two after an earlier report of seven. dozens were hurt in the blast

that damaged the children's and maternity section of the hospital. a tanker was delivering gas when a hose burst. pilots cut power to a critical computer system and that contributed to the plane's eventual crash. the. u. aproved further sanctions of russia for their support of pro-russian separatists. they're meet to develop more sanctions including names to the black list of ukraine officials that have been involved in the consulate. >> facebook has grown, now he is focusing on growing that.

>> you are legendary for growing facebook. how much of it was you and how much was facebook? >> i think it was 99.95% facebook and like 50 basis points me. i inherited an unbelievable leader who had an unbelievable vision and i was lucky to have a group of people who wanted to tolerate me for, you know, four or five years. >> but i know for a fact that start-ups today are consciously looking for their chamah -- chamath. they have a nickname for you charlie fox trot, which stands for c.f., which also means crazy effer. are you a crazy effer? >> yeah. >> more of that interview

tonight on "studio 1.0." ali baba sees focus but is that hurting growth? they have a slower rate of growth an the prior quarter. they have 340 million active buyers but more shopping on mobile ads on mobile generating less revenue. they're also dealing with a recent chinese government report accusing the company of allowing fake goods and other fraud to sell on its suite of websites. earlier, betty spoke with ali baba banker joe psi. >> on the monetization rate we reported 1.6% which has been trending up. one thing to remember about mobile is we have now 265 million monthly active users

coming to our mobile apps to buy things. so that's a very, very good result especially in light of the net add. we added 48 million monthly active users in this quarter. so we believe that as long as you continue to attract users on mobile to buy things, to engage on your platform, at some point, monetization will follow. and one thing i would like everyone to remember in the fourth quarter, ali baba generated $1 billion u.s. dollars in revenue. so this is a very substantial number. we broke that $1 billion mark this quarter. >> joe on other developments, and by the way spoking about mobile yahoo saw some good mobile ad revenue growth in their quarter just a day ago, marisa mier has now spun out her ali baba shares into spinco. would you have any interest in buying all or part of spinco?

>> we don't anticipate entering into an agreement with yahoo or spinco. this is something that is the right of yahoo to do. their bored has obviously decided to do the spinoff. from our interspective operating the businessday to -- day-to-day, today we have a 15% shareholder in us, yahoo. after the spinoff we'll have another 15% shareholders, spinco. it doesn't really change anything from our perspective. but i would like to just take this opportunity to thank marisa mier and also jackie resus, who has been on the board of directors until the i.p.o., they've been great partners with us over the last couple of years. >> joe, i know you're a great deal maker you have made lots of deals for ali baba. is yahoo on your radar at all? can i ask that? >> we are very focused on our

business in china. if you look at the deals we do in terms of investments and m.m.a. activity, over 90% of them are focused on how we grow our user base, how we increase user engagement and how we expand our categories in china. and with limited activity that we do outside of china is very much focused on the cross border trade. always with one leg in china. how that is how to enhance our ability to serve small businesses to sell chinese business -- chinese businesses to sell to overseas consumers and more so now how to help small businesses from around the world including u.s. to sell into chinese consumers our platform of 334 million active chinese consumers. >> joe i mentioned earlier about the fight you have had in recent day, i'm sure it's not something you wanted to talk about or that you would want to

talk about on a day like today but the fight you've had with the chinese regulators over alleged fraud at ali baba. the fact of the matter is, that is one of the risk factors here in buying into your company. what exactly are you doing to combat fraud on your online marketplaces, joe? >> so, the underlying issue is an issue that we take very seriously. ali baba runs retail platforms that trade $370 billion a year on a last 12 month basis. that's a lot of transactions. so in a way we very much reflect very significant part of the retail economy in china. the issue of fake product counterfeit products, are really a matter for the -- all the participants in the economy to solve. they involve both online efforts and offline efforts and we --

let me just say this. you know, for us there's nothing that's more important than the trust that consumers have in our platform. that means they should feel comfortable to come to our platform to buy things and trust that our vendors are selling them high quality goods. so we take a very draconian approach toward counterfeits, we spent a lot of resources and money and people to combat this problem. we've worked with law enforcement agencies to actually shut down factories and warehouses that make counterfeit products and put people in jail. we are doing as much as we can on this issue. >> that was ali baba's vice chairman george tsai. coming up, we find interoffice

love non-american style. ♪

>> welcome back to "bloomberg west," back to our top story, ali baba, shares are down 15%. wall street, where's the love? there's a whole lot of love at ali baba, as our executive producer found when she traveled to ali baba's campus in china to get a firsthand look at working at the ecommerce giant. >> when you enter ali baba's headquarters in china, it's a

lot like stepping into any tech campus in silicon valley. inside there's a starbucks to fuel all-nighters, yoga classes, and three cafeterias serving dishes like peking duck and noodle soup. but the perks don't stop there. ali baba takes it one step further, helping employees to find love, marriage and even start families. it may look like any other tech company but the culture here is unique. employees refer to each other as ali people and many assume nicknames taken from novels. >> one of the big influences on jack's life was an author who is a martial arts novelist. as the early days, people took on nicknames of different characters in these martial arts novels. >> that fighting spirit has attracted young people to work at ali baba. the average employee is just 30 years old, works 9:00 to 6:00

and has a starting sally of -- salary of nearly $33,000, more than seven times the salary of average chinese workers. >> it attracts young chinese at the top of their field because it's an exciting corporate culture, people feel they can break down barriers and do new, cool, innovative things in their work life. >> jack ma is also unlike any tech company founder, from serenading employees to playing match mashe. a heart-shaped dating board between the gym and cafeteria is filled with photos and fobe numbers of single employees looking to find love. >> every year jack ma marries couples once a year and they have foe tofse ali babies.

>> those families can get an interest free loan for a down payment on their first home and over the year, ali baba has also given birth to a whole new generation of chinese internet companies. former employees have helped start more than 145 new businesses. >> they've attracted people who believe they can do something different. individuals who are dreamers and felt they could change the chinese economy through ali baba. >> this close knit culture has been a critical part of ali baba's aea aye debitity and kepting -- keeping it in the family has helped it grow into a global power house. with over 24,000 employees, more than facebook and yahoo combined. candy chang, bloomberg, china. >> that is crazy. office love, imagine that the

c.e.o. of sling tv is going to join us next. you can watch us on your tv tablet and amazon fire tv. ♪

>> you're watching "bloomberg west" where we focus on innovation technology and the fouch of business. i'm cory johnson. maybe a cord cutter's dream, sling tv started rowling out this week. it costs just $20 a month but gives subscribers access to chabbles they would usually get from cable. what's the reaction been to this launch? >> you know, the reaction has been beyond what we expected. it's been a phenomenal reaction. and we opened up our website on january a 5 where people could

preregister on sling dome and it's been beyond the expectations. >> the most interesting offering is the espn devices that you haven't been able to get any other way except cable or satellite. >> this will be the first time people can subscribe to espn without those traditional contracts with cable or satellite. that was one of our key objectives is, we know that millenials this is primarily targeted for, love some of the content that's available on cable and satellite but don't like the model of two-year contracts, credit checks commitments, installers, wires, all othat. we wanted to create something more like spot fi or how millenials consume music but for television content. >> i bet cable companies love this. maybe not. >> well, you know, i think we'll see. to me, for me, i think the cable companies should love it it

enables them to sell more broadband which is their most profitable business. >> but you know, their business also is to hook people in big packages with the promise of espn if you want it that you have to get other things. you want cnn, you have to take tnt and other things. those are the hooks they use to jack up cable bills to not $20 but $120 a month. >> yeah, you know, i think that business will continue to be strong. i think the real issue is what we're seing is younger generations coming out getting out of college moving out of the house getting their first apartment, they're not choosing pay tv in nearly the same rates the generations before them did. we're targeting that market. >> they also like to schedule what they're going to watch and when they watch it but there's d.v.l. or capacity for that, why not? >> you know, we work with the programmers to make as much of their content available on demand as possible. for many of our channels we have a replay service.

anything broadcast in the last three daysing scroll back and watch. a lot of them provide big catalogs of v.o.d. content. our goal is to get the providers to provide as much v.o.d. as possible. >> i've watched hbo lead the way in how they want to go other the top but they're tightly tied to people who already have a subscription on cable because that's where their money maker. what have -- what ways have they offered feedback? >> i think the real landmark deal in this industry was when we announced our deal with disney and espn last march. i think what they saw and what the other programmers we've announced deals with since then have seen is that there is a demographic that these traditional bundles are not reaching. the only way to keep your business growing is to really come out with packages that meet these consumers' needs.

the traditional big bundles aren't meeting the needs. they need services like this to reach them. >> you're saying espn is not reaching millenials? i thought that was the amazing thing about espn, it reaches young men who don't consume a lot of media in any other form. >> what i mean is that that is a popular channel for that grup of viewers. the problem is, they're not signing up to pay tv in nearly the same percentages as the generation before them. they want to watch the content, love the content but they need a different business model to get the content to them. >> what are the numbers like in terms of them not seeing -- signing up for, what are we used to seeing and what are we seeing now? >> in rough numbers about 100 million pay tv householdsed in the u.s. there's about 125 million homes. the numb of homes continues to grow, the number of pay tv households is declining slightly. that gap between the two is growing. the biggest contributors to that growing gap is millenials.

>> interesting. how does the business tie in with, you know your corporate parent there? are there economies of scale or relationships that already exist with broadcasters so you're able to offer something like this? why wouldn't sling tv work as a completely separate entity? >> you know, we couldn't do this on our own because if we rely on the programming relationships dish network has with all our programming partners, we did set it up as a somewhat separate entity because we needed teams who are focused on building this business and not worried about what is the satellite business and where do i put my time. we built a company where everyone in my company is focused entirely on the o.t.t. business but we rely on dish network heavily for things like programming. >> interesting stuff from roger lynch, c.e.o. of sling tv. we appreciate it. >> thank you. >> then will you be able to stream your favorite tv shows mid fliggete? we'll talk about the future of wi-fi, even the present of wi-fi

in the skies. that's next on "bloomberg west." ♪

>> i'm cory johnson, this is "bloomberg west." the f.c.c. is waiting -- is debating whether to lift its ban on in flight cell phoner is vess. they could decide whether to allow in-flight voice calls. meanwhile, airlines are racing to bring wi-fi to their flights. several do have wi-fi but how fast and how useful is wi-fi? you have launched a satellite service and have the fastest internet connections happening in the sky on jetblue and elsewhere coming from your satellites. >> we're excited about that. we saw bloomberg did a story on

that. now it's not just ranking do you have why nigh at all it's how good is it and we're excited to see that. >> i tend to fly virgin america and i get go-go with that, i love virgin america but can't stand go-go because the connections are so slow. they're trying to follow your footstep. trying to provide satellite access rather than terrestrial access. >> there's a lot of confusion about what makes wi-fi good. it's not just going by satellite it's the kind of satellite you have and the thing we did is, we talk about this before launched the satellite about three years ago, had more band width than the rest did, and it's all that band width that makes it so fast. >> i was talking to one of your former investors earlier today, he described it as the most powerful satellite ever ever launched is that fair? >> that's right. >> how do you figure that?

>> we count the amount of band width. what makes internet access slow is its congestion. too many people trying to use the same band width and interfering with each other. you need to measure the total band width you get. that's the criteria we use. now we've got another one going up that's more than twice as capable as that one was. that's going to enable taos do even better than we're doing now. >> where is the coverage for satellite two going to be? >> with the first we covered the continental u.s. with the second, we'll go fre this the tip of south america to europe. all over north america, jetblue abhour -- has been our launch customer, and the caribbean is a big market for them, we wanted to cover the caribbean for them and we wanted to get to europe, where we can hook up with a partner there and provide coverage for flights from say,

mexico city to dubai with that same quality of service. >> wow. what is it about the ability to send all this wi-fi. it's not just more but the band width you use. >> there's really no substitute for having a lot of band width. to put numbers on it, our first satellite had about 140 gig bits of capacity. the -- gigabits of capacity. the traditional ones people are using have about one one hundredth of the band width. so people are competing to get access to it. all that band width we have is what makes it fast and responsive and what lets you do streaming. so for the first time people can do netflix or down load videos, they'll be able to watch live sports. there's no -- >> why get off the plane? just stay up there. what interests me is europe, suddenly there a lot of

companies, space accent and google facebook, all talk about ways to get wi-fi to lots of people. you are competing against some companies that don't care how much the business costs. >> right. >> what are you, crazy? >> no, we -- so we think, transmission connectivity, it's an essential business. one of the three legs of information. think of processing, storage, and transmission. transmission requires facilities. you've got to have things that are cost effective. so what we're doing is we're trying to make the most cost effective satellite. we think that that's the path we're on despite -- these other ones, they're interesting technology. i don't think they'll be as cost effective as we can be in that same time frame. >> why not? why can't facebook's solution to provide internet access with internet.org or others do that and google's plans, why can't they be as cost effective as yours? >> these lower orbit ones are

talking about launching large numbers of state lites. think about it two ways. there's a large amount of band wid -- there's an amount of band idth you can -- band width you can put through a satellite and how efficiently. the other factor that's important is delivering that band width on target. you don't want tons of band width over the middle of the ocean and have lots of demand in bangladesh or india or parts of africa. not only do you have to manufacture or create that band width effectively, you have to deliver it on target. one of the big issues in dealing with low earth orbit, which we work on, we do stuff for low earth orbit one problem is the band width is fairly evenly distributed over the world. if you look at any measure of business activity it's concentrated. you can look at concentrations of people, flight routes, minerals, economic activities.

the band width in the world is very focused. >> if you can't get a connection in san francisco, get in a boat and move. time for a checkle of world news. germany's inflation rate turned negative. deflation for the first time in more than five years. prices in europe's largest economy fell 5%. worse than economists predicted. last week the central bank committed a trillion euros to fight deflation across the euro area. china will now allow game consoles to be sold nationwide after a trial program ended a 14-year ban last january. manufacturers like sony microsoft and nintendo stand to profit from the change. the industry may be worth $10 billion there. and russian online dating service settled with a hacker to

prevent the leak of 20 million users' addresses. ransom. they paid an undisclosed amount and he agreed not to release the information. they called it a reward for find aling vulnerable. and the next step in microsoft's mobile strategy, an inside look next on "bloomberg west."

>> i'm cory johnson, this is "bloomberg west." microsoft unveiling its latest move into mobile. their acquisition last month of an email app maker here in san francisco called accompli made the news. they announce plans to give office away on rival operating systems but what can they do to improve the crummy experience of email. they've got a plan. i talked to current microsoft outlook general manager javier saltero. >> we're trying to make mobile email more than about just reading mess -- messages in line for coffee. it's an incredibly medium we've

used for decades, but when we started -- accompli the company that microsoft acquired that i was c.e.o. of, we said, here's this extraordinarily important communications tool, it's underutilized on the device everybody has in their pocket. >> they probably have i.o.s. or an droid. i like the microsoft operating system but it hasn't taken off. how do you expect people to use this new app on those systems? >> we said look let's think about situations, people -- the hard thing about building great email products is that everybody uses email a little bit differently. the challenge is people talk about opinionated design and building mobile products that have a point of view and all that. so you can have a strong point of view -- >> what do you mean? >> make feature tradeoffs. design a product to appeal to a specific situation and the

challenge is, email has thousands of specific situations. you have probably thousands of emails in your emails -- inbox or maybe you're an inbox zero. >> i'm both. my bloomberg address, zero. i try to have no emails in it by the time i leave the desk. but i'll look right now my personal email as a result, i can't keep up. i've got 900 unopened emails. >> exactly. somewhere in between that is many different ways that you can approach the problem. what we said even before there was a single line of code written was let's think about situations, let's actually think about what is it take a random sampling of a thousand people and said what holds you back from doing better email from your phone, what would they say that would be universally true across the sort of large sample of different habits? we came up with three things that guided our process as accompli and today with the launch of outlook. >> what are they? >> composing anything but the

simplest message, too hard. finding things inside of your email and sort of the associated personal knowledge base it represents, too hard. switching in and out of apps to get simple tasks done too hard. those three things add up to people reading lots of email -- >> i want to go over it, number one, too hard to do email. number two, can't find the stuff in your inbox, and using it with the other stuff on your phone is too hard to do. >> the third one is particularly difficult because it rubs up against one of the primary virtues of mobile apps. one app, one purpose. the uber app does one thing. get an uber car quickly. email is a conduit of actions into other apps. get an email from me saying i'd love to come on your show, when can you do it, you go to the calendar look at my schedule, and the beautiful thing about those three things we identified is, they kind of cross into each

other all the time. in that scenario, we're trying to set up a meeting, right i, you know, without outlook i'd have to go -- switch out of the email app go to the calendar, look around, remember stuff, switch back to email and type a bunch of stuff. that's usually more than ample excuses for me to not deal with the message from the phone. >> outlook obviously is so widely used but not so much obviously on i.o.s. or an droid. >> it didn't exist until today. that's the exciting thing, to bring that familiar brand and that familiar experience and all of the goodness that represents that as an email tool and communications tool into this new operating system. >> do you get a sense with microsoft, you've joined microsoft recently do you think they're embracing these changs in a different way than they have in the past? >> absolutely. long before we started talking

about them about a partnership and ultimately an acquisition one of the first remarks we had about the industry not respecting tradition and instead respecting innovation and that resonated amongst the small team of experienced people we had at accompli now at outlook team that's cause to pay attention to what was going on at the time with the company. now that we're inside it, we see that everywhere. interesting sea change for them. >> that was microsoft outlook general manager halfier saltero. now we focus on one number that tells us a whole lot. allen what have you got? >> well, the number is zero. that's the number of drones that the federal aviation administration wants people flying over the super bowl. we'll see if the public heeds that. >> yes, let's take a listen to public announcement from the f.a.a.

your tax dollars hard at work. check this out. >> going to the big game? have fun. cheer on your team. and keep it a no drone zone. don't spoil the game. leave your drone at home. >> leave your drone at home. that's hilarious. this is an actual ad. i'll tweet out the link to it later. allen, they can't come up with regulations but they can come up with this? >> in this case there are regulations that prohibit regular aircraft as well as unmanned aircraft from flying over large sporting events. the f.a.a. is just reiterating this because super bowl is such an unusual, over the top event. >> i'm reminded that in 2008 when it was in the same location they did the flyover with the air force jets but it's a domed stadium new york one could see it from inside. i guess they won't with drones either.

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