brad: virtual reality takes center stage in silicon valley. we will show you how the technology is going to be used and what companies are poised to be the big winners in vr. ♪ i'm brad stone in for emily chang and this is "bloomberg west." coming up, amazon milk, amazon baby food -- we will look at what jeff bezos may have planned it next. should apple worry? xiaomi's hugo barra opens us to us about the company's plan to expand in the u.s. and the emerging class of social media celebrities. i will introduce you to the brains behind twitter's plan to create original content. that is ahead.

now to the lead -- vr. those are the only letters you need to know about what is next in tech. that is according to a new report from piper jaffray. i am talking about virtual reality. to piper jaffray's point, this week, it seems like everywhere you turned there were stories about companies pushing into vr technology. in 15 years, we could see virtual-reality everywhere from the hospital to the courtroom if sales take off and prices come down. so far, facebook, google and microsoft have spent billions on vr tech. plus, years of development from sony, samsung and htc and those products will hit the market soon. joining me is jean muster -- gene munster joins me now and maha ibrahim, an investor at keenan partners in silicon valley. thank you for joining us. gene, i will start with you.

15 years from now, you say vr will be everywhere. are people ready? do people really want to strap these headsets on and peer into virtual worlds? gene: they don't understand what the value that will be created for this and the utility and experiences. i think if they would understand what they could get out of it, they would be ready. it will take some time for the content and experience to be refined. as that gets refined, we think this will be as dramatic of a technology shift for consumers as the smartphone was 10 years ago. we knew the smartphone was coming. it has become much bigger than we thought. that is probably where we are at in terms of vr and longer in terms of augmented reality. brad: everyone seems to be thinking games will be the first application. you have seen failed attempts in the past. we were just talking about the

nintendo virtual boy. are you sure it starts with games? what are the obstacles to adoption? maha: the days when i walk around like this -- it is probably several years from now. this is a space where there -- where the ecosystem clearly has to mature for people to feel comfortable enough to go forward. we saw the precursor of this in google glass and that certainly did not have enough applications in the ecosystem to really make it useful for consumers. i can see vr -- a first phase being in spaces like the courtroom or hospital. having this being a consumer play really needs to have different exciting apps. most likely games, but game developers need to be incentivized to devote tens of millions of dollars to this. brad: gene, i saw the ceo of facebook's oculus unit earlier

this week, and he said the launch of the oculus rift next year could be around $1500. in your report, you said you think some of these firms will have to give these devices away along with smartphones. what happens? what does the price point need to be? gene: initially, that is not even the starter -- $1500. gear vr is available for $200 but you can take an existing high and samsung phone and make it into a vr experience. to answer your question, the price point needs to get down to $100 or $200 for all the great experiences. this will take time. we are seeing 500 million units by 2025. this is a decade away, but ultimately the price curves will flow quickly downward and that should, once the experiences are available, really start to fuel the demand for these devices. brad: let's move from vr to ar augmented reality, which is

overlapping the virtual frame on top of what we see in the world. apple just bought a german company called metaio. tell us what apple wants to do with the company. maha: all ar companies i have seen over the years have been from europe for some reason. so i don't know what is in the water in europe that is causing them to want augmented reality. brad: you don't think it is a big opportunity? maha: it is. apple is smart because they know they will drive this shift if there is one. a lot of the ar companies we have seen have been in the gaming sector where they have been in location-based services. without that support of a big platform distribution, they have all fallen flat. if they are going to take shape and take hold, it will have to be driven by some sort of big brother like apple. brad: gene, i was surprised to see that you think ar lags vr, but ultimately it is the bigger opportunity. why?

gene: it is the blending of the virtual and the real world. there are applications of the amount of data that we see every day, the amount of information that our eyes pick up, and there is data that can be overlaid with that that can create new experiences. think of what google glass tried to do, but an experience people wanted to use. imagine never forgetting somebody's name or being able to look at a building and know what tenet is in. it is infinite what can be done in augmented reality. where virtual-reality is a good starting point but it will be games, live sports entertainment, things like that. we think augmented reality is 70% of the opportunity longer term, but it will take longer to get to the displays right. brad: maha, do you agree with that? 70% of the opportunity eventually? maha: i think so. apple is trying to own the retail store. with their technology coming

out, they are trying to have better analytics for retailers to understand who is buying what and where and what quantities. having ar on top of the apple platform allows them to go deeper in their relationships with retailers. commerce will naturally follow. brad: i want to ask you both are -- i want to ask you both what you make of google cardboard headset. this allows you to insert your phone and use it as a vr display. is google trying to be disruptive and is this a serious player to compete with facebook and microsoft? maha: i love what google is doing. they kind of threw a nuclear bomb into vr right away. they are like screw having it be commoditized in three years. they will commoditize it from the get-go. if you want to start with a pizza box, god bless. it is a phenomenal way of google entering the market. brad: gene, is google cardboard a serious entry in the market? gene: i think maha hit it right. they are making a statement.

they are showing that they are wanting to have a presence in ar. it is a great marketing trick to be a part of it. it increases the average person's awareness of ar. brad: ok, gene munster from piper jaffray, thank you. and, maha, you are staying with us today. it has been a busy week for dealmaking, especially in technology. semi conductor giant avago is buying broadcom for $37 billion, marking the biggest tech deal of all time. there is also equinix acquiring rival telecity for $3.6 billion. and then there is intel. reports say it is near a deal to buy altera for $15 billion. in consumer tech, facebook and apple alum dave morin is selling his social networking app path to daum kakao corporation. what is driving all the deals? it is the investors. they are hoping consolidation

can keep slowing technology growth. with cash piles huge and low interest rates, buyers can afford it. next, amazon taking a cue from walmart. we will tell you how jeff bezos is looking to expand. plus, hugo barra sits down with emily chang. we will show you what he has to say about expanding in the u.s. as we had to break, -- head to break, check out this creature from the m.i.t. robotics team. it is called a cheetah. it can clear hurdles all on its own. ♪

♪ brad: some breaking news -- president obama says the senate must act to extend the nsa's phone dragnet methods first exposed by edward snowden. that program would have expired on sunday. another developing story -- silk road mastermind ross ulbricht sentenced to life in prison for creating the drug dealing website silk road. the federal judge believes he tried to arrange the murders of five people he wanted eliminated. amazon is expanding its grocery business. according to the wall street journal, amazon is beefing up its private label lineup to include milk, cereal and baby food.

what will this move do for its bottom line? joining us again is maha ibrahim. why do retailers like amazon and walmart -- why do they do white label products? maha: they want to own the experience, own the margin structure. amazon in particular wants to own -- brad: the prices of these are cheaper so why are the margins higher? maha: i don't think they are higher -- it is higher than obviously going through a branded middleman or a cpg manufacturer because they take those companies out of the picture. they take the middleman out of the picture. in amazon doing this, they are going for the lowest margin products on the grocery shelves. it is a confusing push. brad: amazon has been trying to private label products for 10 years. it started with kitchen stuff. it never really seemed to really work. partly i thought that was because they didn't wanted to privilege their own stuff versus

their manufacturing partners. and partly because it is not really customer centric. you are putting your products in front of your customer and yet here they are amplifying these programs. is this driven by business necessity? maha: it seems to me it is going against the grain which is why i'm confused. in this on-demand, excess capacity, collaborative consumption model, you are seeing companies like instacart pop up that are taking advantage of the no-capitalized model of selling groceries. brad: instacart fulfills from costco or whole foods and delivers it. maha: it is a delivery on-demand model for groceries. amazon is going retro and taking the web band circa 1999 approach which is yes we will own the warehouses, the trucks and even own the supply chain in selling

milk and baby food -- brad: they did diapers last year , diapers and baby wipes, and that they had to stop the sale of diapers because of the manufacturer. what are the risks here? what does amazon need to be worried about? maha: amazon becomes a consumer packaged goods companies and there are risks associated with that going as far as having fun with the fda and dealing with any outbreaks, particularly with dairy foods. and, they are owning the supply chain through the delivery so there is really no one to blame but themselves for a really low-margin product. brad: they can drive prices down which they love to do. last question -- we have seen amazon expand same-day delivery to 14 cities. in new york, they are fulfilling from other stores, not just their fulfillment center. it seems like they have really started to notice companies like instacart, maybe one day uber,

that turns stores into delivery nodes. is amazon trying to take into account this next wave of delivery services? maha: without question. they are trying to own the customer experience, period. if that means going through the grocery chains and actually just providing the last mile, they will do that as long as it is amazon branded. if it means in the case of milk, owning the milk, branding the milk -- they will do that. as long as you as a customer are feeling you are immersed in the amazon experience. brad: what do you think amazon milk tastes like? maha: what does amazon prime milk taste like? [laughter] brad: even better. thank you, maha. google is holding its annual developers conference in san francisco this week. xiaomi's hugo barra was at the event and sounded excited about what he saw.

hugo barra: it was a big google i/o. possibly the biggest we have ever had in terms of all the announcements that came in because android am, which we have been waiting for -- love what they have been doing. android pay which we knew what was going to happen, but it is a big deal from an ecosystem perspective. i'm really excited about the internet of things initiative -- brelo operating system -- because it really means android finally manages to expand to anything really that one can think of -- in the home, in the office and whatnot. i'm very excited about that. we will be riding all these trends, using all these new stk's. i'm looking forward to getting my hands on it. brad: barra made his name as the public face of android. he left google in 2013 for xiaomi. emily chang asked him if he was going to build his own os to

compete with android. hugo: we would not build our own operating system for smartphones or tvs or these products simply because it does not make sense to do that. we would much rather use that engineering horsepower building interesting services and capabilities on top of android that add value versus starting again. there is no real reason to do that. if you think about it, if you build an operating system, you also have to build a developer ecosystem and that is one of the hardest things to do. everyone who has tried has completely failed despite having the resources we would have as a startup. which we kind of still are so we would not. brad: catch the full interview with hugo barra on "studio 1.0" thursday nights at 7:30 p.m. right here on bloomberg tv. coming up, there are celebrities and then there are internet celebrities. we are talking social media superstars with a startup that

gets them paid. as we head to break, check out this -- a san diego man who thought his iphone was gone forever when his brother accidentally threw it into the ocean. not only did it survive the descent, but it filmed the whole thing. we will be right back. ♪

brad: time now for the daily byte, one number that tells a whole lot. today it is $4 million. that is the ucla scholarship fund launched the team behind "the big bang theory." the show's cast, producers and sponsors are contributing to the fund for low-income stem students. the move follows a pay dispute

among the cast last year that turned out well for jim parsons, johnny galecki and kaley cuoco. they now make $1 million an episode. needless to say, the stars can afford to sponsor aspiring scientists and engineers. the first 20 scholars will be announced this fall. it is the age of the social media star. the selfie generation that has figured out to build an online following of millions and big brands want in. niche is the startup that makes that happen. pairing companies with social media stars for advertising. three months ago, they were snapped up by twitter and since then the creator account has doubled to 11,000. joining us now is niche cofounder rob fishman in new york and maha is with us as well. rob, niche is no longer niche. that was low hanging fruit. tell us, for the uninitiated what are internet celebrities and give us an example?

rob: over the last few years the advent of mobile applications like twitter and fine, and recently periscope has given rise to new content creators. they have worked in ad agencies or even high school students that have amassed audiences of millions, tens of millions of followers who tune in every day to see what the latest is with those folks. brad: do they have any hesitance about bringing advertisers into their spots? in previous generation, we might have called that "selling out," but they seem to be embracing advertisers. rob: we look at it as selling in. they need to support themselves and they are creating free content for their fans every day. we try to pair them up with best brands. the numbers speak to that. brad: maha, tell us what victorious does, and what the

advantages are of not just twitter but other platforms like snapchat and youtube. maha: once the social media celebrities have amassed enough of an audience or following, they find the economics do not work in their favor. they are pumping tens of millions of views on a monthly basis on youtube or twitter and really not getting a huge piece of the economics. eventually they want more. our company victorious is helping to make mobile apps and mobile marketing so that the social media star can then have their own little place or big place where the followers can truly follow. brad: rob, niche was acquired by twitter around the same time twitter acquired periscope. tell me about how niche is doing and what role you are planning. -- what role of -- what role you

are playing in the company. rob: it is really exciting for us. brands were increasingly coming to twitter and saying i love that you have hundreds of millions of users, but i don't know what to say on twitter. a tweet is no longer 140 characters -- you need videos and animations. we have the best content creators in the world and we can team up with brands to create humorous, compelling content that travels across the twitter universe. it is a perfect combination of the creative force of the talent and the distribution. brad: rob, do brands have any fears about being integrated or accompanying this kind of user generated content where sometimes anything goes? rob: yeah, there was definitely trepidation early on. most of our clients are repeat customers and they come to us because they've get the look and feel of user content. but the needs -- niche software

team works very closely with some of the biggest brands in the world to partner with these creators to get their ideas and concepts. everything is looked at before it goes live. you get the look and feel with the vetting process that brands expect elsewhere. brad: maha, how big is this opportunity? maha: that is a mix of authenticity and ugc, yet some sort of production value. we believe the same thing -- i believe the same thing that as the stars grow, they will need to produce content that their mass audience is more comfortable and digestible. brad: ok, niche co-founder rob fishman, and maha, my guest host for the show. thank you. that is everything in this edition of "bloomberg west." tune in monday for a conversation with rich riley. we will see you then. ♪

john: i'm john heilemann. mark: and i'm mark halperin. "with all due respect" to fifa's sepp blatter, you can count on our support for the right price. ♪ mark: on the show tonight, the music man -- bernie sanders faces the music and the ed gillespie musical. first, the latest news from the indicted former house speaker, dennis hastert of illinois. several news organizations reporting he allegedly paid a younger male hush money to conceal sexual misconduct that occurred during his time as a high school wrestler coach and teacher in illinois. not much new being reported