♪ grexit on cory johnson and for emily chang. this is the best of bloomberg west. we will bring you the top interviews and news stories. coming up, tesla showing some ankle this week. giving buyers their first peak at the model 3. we'll bring you the highlights. plus microsoft on artificial , intelligence after an embarrassing ai meltdown. the next computing game changer. it is getting crowded in the market for music streaming. we're going to check with two

rising players as they get ready to go head-to-head with apple music and spotify. for our top story this week, tesla taking reservations for a mass-market vehicle. the $35,000 model three. iphonelining up around -- people put down a $1000 reservation on the car. it will not be available until 2018. it is all part of tesla ceo elon musk's master plan to enter the high-end of the market and then drive down the market as fast as possible to higher volume and lower prices with each successive model. they did not do that with the model act's -- model x. with my wife tesla needs the model three to sell like hotcakes. >> it arguably the most important vehicle yet. the new car will not launch fully until next year at the earliest, will be priced more for the mass-market. with mass-market, comes mass competition.

competitors like gm and bmw are working hard to catch up. there were only four electric models in the u.s.. by the end of next year there , are expected to be almost 60. as any car dealer knows, the against,ls you are up the harder it is to make the sale. the more you have to spend to promote and market the product. this uses up a lot of cash. tesla already burns a lot of it. worse, both competitors have a big edge. they sell millions of regular lossescks to absorb the threeir model challengers. tesla right now is valued at $30 billion, putting it in the top 10 carmakers of the world. but its sales cannot come close

to matching other companies. take a look. you cannot even see them here. to buy this stock at this price, you have to believe they can change the global car market and beat everyone else what they do -- while it does so. the model three will have to move fast to catch up. tesla's investors. >> i spoke in portland, oregon with more on tesla's plans. >> i think liam hit on all of the most important issues here. number of a challenges going forward. they said all along, even as a luxury company, their brand is underpinned by this idea that they are on a mission to make cars for everyone. this is the first vehicle that will take a step in that direction meeting fully. execution is everything. >> tesla is fueled by big subsidies for the car. some states have added to that. we have seen those subsidies

going away, particularly in europe. norway in particular. the suggestion is that by the time this gets out, they say they're going to ship in the last quarter of 2017. they shipped, they only made six cars. so full production, 2018. we look at all of the competition out there. mercedes, bmw, we have a lot of cars that will be there to compete with them in the all electric space even before this thing is in production. >> i think that is why tesla is taking this step of going ahead and collecting deposits before they even show the car. i think they want to create the perception that they will be the first to market with the affordable electric car. the reality is there will be a lot of competition when they get to market, assuming they do not delay the actual launch of the car.

so, huge challenges there. >> back to that pricing, is that $35,000, does that not include a lot of the extras people will want with the car? we have seen that with the other model tesla's or the average price is much higher than the basic list. >> they have a choice, they can either have an affordable car that beats albany other competitors by every measure or , they can have a car that beats -- delivers a solid profit over the competition. they cannot have both of those things. the real question here with this launch, what we will look at, is which side of that equation are gecko --hey aired on erred on? are they going to continue to be the competition and build their brand by offering more for less

or are they going to start generating profits at some point to support their ridiculously high valuation? i think you have to err to the latter. that threatens to disappoint consumers. >> the model s is so cool. even at $100,000 they lose money on every sale. what are they not going to put in this car? if you lose money on every sale, you cannot make it up in volume. despite the old saying. >> as great a product as the model s is, its reliability and quality has been like that. if you actually do the research on this vehicle, drive units, something like 80% have had the drive unit replaced. >> the drive unit? that is a big deal. >> yes. is a consumer device company.

edmonds is a consumer advice company. their test model had the drive unit replaced twice. they are on their third drive unit. as you get into this mass-market, people become more demanding. it is an interesting dynamic. mass consumers rely on their car more than luxury consumers. they will be a lot less forgiving if these quality problems persist. as they ramp up production, without a great track record of manufacturing quality, those defects are likely to go up. so all this put together spells a tough challenge for tesla and elon musk. >> microsoft makes a big bet on artificial intelligence after led to a a i bet stream of racist, sexist, profanity tweets. you there new take on ai, part spotify and pandora

two. singing a different tune. we will hear from someone later this hour. ♪

>> this week microsoft is , hosting their annual developers conference in san francisco. they are announcing their intention to be a leader in artificial intelligence. was last week, their latest kind of hilarious and

embarrassing. there ai tweeted racist and sexist things. >> we want to take that power of human language and apply it to all of the computing interface. to do that you have to infuse , for computing around us intelligence. , that means you have to bring forth these technologies of artificial intelligence and machine learning so that we can teach computers to learn human language, have conversational understanding, teach them about the broad context, people places things. , context about your preferences, your personal knowledge. so that they can really help you with your everyday tasks and everyday life at work and elsewhere. clerks are talks to an analyst in new york as well as our

numbered news reporter who attended the conference. i started asking her does , microsoft have a future in ai? >> there are ai programs that do things for you in a human fashion. microsoft wants them in commercial areas, but also to sell you things and provide customer service. they're not only going to make them themselves, but they were pitching at the developer conference is that they were asking people to write bots themselves. >> we've had people on this program say microsoft is quietly making a big comeback. is microsoft very relevant? >> people are paying attention again. there are lots of exciting and interesting things happening. this is a company that is more tendon to the overall state of programmers than it used to be in the world of coding than it used to be. every now and then, the old

microsoft comes out and bad happened withthat tape. -- tay. >> interesting, it is so interesting that microsoft as a company dominated technology, every conversation about technology regardless of the aspect not so long ago -- 10 or 15 years ago maybe. what matters most with microsoft? >> what matters most is building a future. the mobile area. steve ballmer, i think that is probably one of the biggest hits on him. it put microsoft in this position. for the future, it is carving out a new market. artificial intelligence seems to be part of that. conversation as a platform is a strong part of that. i also think that the success of his or her whatever -- dena --

dina? azure.y >> everyone pronounces it differently. that is a huge success for them. you see a lot of your clients talking about this. >> i think they are part of the big two. what microsoft hopes to do is infuse intelligence into that delivery of cloud-based services. >> intelligence like a bouncing paperclip that is going to tell us how to use word. >> hopefully it will be better than our old friend clippy. for example, in this instance developers can call on these , different apis to create different box. there are all these cameras today, and they could tell you your emotional state. they could tell you you're happy, sad, you are 31 years old, your 51 years old. they're trying to make those tools available so developers and incorporate them into their own programs.

>> your thoughts on the cloudy echo -- cloud? >> i think that they are killing it in the cloud. they are number two. azure is a big deal. i think we are back to 50 -- clippy. it was based on the idea that conversational interface would help people deal with all the complex of the in mark software. things like watson are trying to do it for the whole world. not just one application. >> why didn't that work? the idea was not a problem, but it had no intelligence. it did not know what you needed -- what he needed most of the time and it did not know when to shut up. these things will understand your context, what you need and when you need it. that is really the bet for them. >> have you used amazon echo? the alexa think -- thing.

have you seen a echo -- have you seen it? >> it is catching on for a reason. it seems to understand natural language. >> you can do something with it too. siri works, but i don't use it. i think that is a common expense. >> people use it for things like they are in the middle driving, and they need to send a text. but, it is not super intelligent. today, they showed this idea of being in a chat about travel and there is a box that gets into the conversation that makes a recommendation. that is proactive intelligence. it is different. >> is this anything more than the advancement of moore's law? machine learning has been talked about for 70 years or so. are we finally at a point where right now, it is only because of

the advancement of semiconductors or something else going on driving this? >> people in the world of ai will to you that things around deep learning, there have been some new statistical approaches and new models for representing knowledge and doing weird things with data. a computer just beat a person at go thanks to google. new things are happening. there are new approaches. there is a lot of excitement. the basic idea is the same. the dna of tey is not entirely dissimilar to what we see from clippy. what's new is you have huge amounts of information available to everybody that they can use to the open web and giant databases that they can play with. also, billions of more users to interact with these things. >> >> that is our own deana vass. return, a little-known japanese pinball maker soaring

this week after reports that it might be behind the fbi hack of that san bernardino iphone. that story is next. sound cloud launches a long -awaited premium service. why sound cloud will survive the streaming wars from their ceo. ♪

>> let's take a look at apple. the fbi said they cracked the the fbi said they cracked the security of the iphone used by the san bernardino gunman without apple's help. a little-known company worked with the fbi to crack the phone. they saw their shares soar 40% after that report.

i sat down with bloomberg reporter, alex webb. >> it sounds like the company we should all know about. it is completely off the radar. it has a rudimentary website. it is like a holding company. i have a number of different assets, they have this israeli firm. >> a small company. this is an interesting company. we should see it more as a shuffle master, a company that makes slot machines, things like that. it is interesting they are in this business. this is not a huge secret in the intelligent community. >> the fdr has had a contract with them for a long time. has had a contract with them for a long time. the fbi contracts with a lot of different people. when i was looking last week, people were saying there may be 10 companies that could do this and any number of those work with the fbi in some capacity. there could be an office in san francisco with two guys who are experts that might help the fbi locally.

>> it is not just software, but it is a machine, right echo -- right?cho -- >> people talk about this, but it is a box that you can plug into a pond. you are getting yourself a little more than me. i am british. let us pretend it is an atlantic cap. >> the company is based in japan and israel. >> it was bought by the japanese in 1990. it remains largely independent. they have offices in the united states. their largest r&d is done in israel. >> there is a lot of cyber security work that happens in israel. >> yeah, it is actually one of expandedns bloomberg there in our tech

coverage. there's a lot of innovation there. >> here's the question. if the fbi has had a contract with them for a long time, the fbi said they needed apple to get into this phone, and they did not meet apple. one wonders when they realized they did not meet apple and if the court case was an excuse to get a legal ruling to get into a lot of iphones. the -- ithat is one of think that is something experts have been talking about. it seems the fbi could have done this for a long time, that means judges will be circumspect going forward when they look at these rulings. they will have a second look and say to law enforcement agencies, you are sure you cannot do this. who are you using? have another try and come back. >> we don't know if these founders of this company came out of the army that leads to a lot of companies doing cyber security.

it suggests that israel has some of the strongest ability to hack and get information when they want information. >> if you think about it, going back six years now, the bug that infected a lot of factories around the world. people suspect that came out of a combination of israel and the u.s.. >> it is been reported that the u.s. and israel combined in that. certainly a focus in defensive and offense of tools. >> they have a huge amount of ability there. people say that the greatest concentration in this area is the nsa. well, if the fbi cannot do it, surely the nsa can. >> that was our bloomberg news reporter covering apple for us. coming up it is getting crowded , in the market or music streaming. pandora and spotify have high hopes of cracking this market. if you like bloomberg news check , us out on the radio.

you can go to bloomberg.com or the bloomberg at. you can check us out in the united states on sirius xm. we continue after the break. ♪ . .

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so when you get home, all you have to do is enjoy it. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. cory: welcome back to the best of bloomberg west. and i'm cory johnson, in for emily chang. competition is heating up in the music streaming business. this week got hotter. deezer is the most popular in france, that is just the beginning for this company. they hope to fuel international growth with an ipo. those plans were squashed. francine lacqua sat down with hans albrecht. >> we decided that the market was not there. there are conditions which were complicated. we always had other options.