♪ emily: i am emily chang. this is "bloomberg technology." drones flying over a u.k. airport creating chaos during peak holiday travel. authorities are launching a criminal probe. a big investment by big tobacco pushes it valuation of e-cigarettes to $38 billion, more than spacex or target. is it worth it? and 2018, the year apple lost its mojo? we will see if they can reclaim their hype around signature

products in the new year. our top story, the index gained 35% halfway into 2018 but now looking like they will finish lower than they started. the index made up of popular tech giants including facebook, apple, amazon broke through a key support level. baidu has been the biggest laggard, falling 30% this year. joining us to discuss, mike regan. walk us through the losses and whether there is expectation this volatility in tech in particular will continue. michael: tech gets most of the blame for the stock market selloff by merit of being the heaviest weight in the index. i don't think you need to look at the entire market and blame it entirely on tech. if you look at the performance of all the sectors since the

last record of september, it is energy, industrial, consumer discretionary shares that are performing the worst. tech is down but it is not just the tech story. we really have to look at the entire market climate in order to figure out when tech can bottom. emily: what are folks saying about the prospect for the big unicorn ipo's next year? lyft, uber, airbnb? michael: this is a big issue. sort of the stereotype is investors get nervous when a flood of ipo's come into the market. that has been credited with being the downfall of the dotcom bubble. so many stocks, it is a supply and demand issue. when you flood with new supply of stocks, it weakens the

overall market. goldman sachs, a few others are predicting 2019 has the potential to be the biggest year for ipo's on record. i think of it as the famous meme where the guy is walking with his girlfriend but checking out the other woman. investors have walked with the faang stocks hand in hand, and you wonder if they will start checking out the new ipo's coming to market and do some damage to the rest of the legacy tech that is the heavyweights in the index. emily: investors are going out, then where are they going? michael: one place is into simple cash. money market mutual funds. which they buy short-term funds. if you look at that over the last few weeks and months, it has gone parabolic. more than $3 trillion in total

in money market neutral funds. the reason is the short-term treasury bill rates have gone -- some are yielding 2.25% or more, and in this environment where everybody is worried about the future, it is attractive with that yield to park your cash especially at year-end where investment managers want to present a clean sort of risk free edition two investors given volatility. emily: all eyes on 2019. you will chart the path forward for us. thank you so much for stopping by. how will the tech volatility impact to the private market? here is graham brown from new york. they rated two new funds at $120.2 million and $60 million. how is the public market volatility impacting your strategy?

graham: thank you for having me. it is great to be here. in terms of our strategy, we are looking to be consistent through downturns and bull markets as well, you see great companies being founded through the recession, airbnb and uber, and you see what is in the pipeline for ipo's which have been founded since the bull market in 2008, 2010. we raced the first fund. we are looking at the earliest stage of funding area we are coming in, a first institutional partner. there might be a couple people raising ideas up to $10 million. we have a long way to go until the company thinks about ipo. we think five to seven years but that has been pushed out even longer from the amount of financing available for late stage companies. you think about these private ipo's, these mega-around with

$100 million plus that we have seen about 100 over the last year compared to 20 ipo's. and is enabling companies to remain out of the public markets and private for longer. when they go public, they do larger ipo's. you see this with a lot of the pipeline next year. our strategy, we look at making 20 investments year in terms of following on. i think we think 2019 is remaining true. there will be people founding new companies in markets. we will be excited. emily: you have got later stage companies that will be looking for exits. are you concerned about what might mentioned, a flood of ipo's being a precursor to another bust?

graham: less so. comparing it to the dot-com bubble, you have some substantial revenues, highly engaged in loyal customer base is, and many of them profitable. you have businesses that if they choose not to go public are still sustainable and have other options. you have a healthy m&a market. depending next year, it will continue as well. emily: you invest across the country, but there is a focus in new york. when will new york have the $10 billion tech company? graham: we have it if you count we work. it is a matter of time as the ecosystem matures. you are seeing many companies passing the $1 million market, great exits over the last year, flat iron. there is virtuous cycle. you have founders, employees

reinvesting into the ecosystem and more and more partners in new york from the investing side. many of the peers as well continuing to support the ecosystem, so you are going to see more and more of the companies going out of new york. it is a matter of time. in terms of $10 billion plus companies, we have we work. emily: what is hot, what is not for 2019? graham: we are excited about health care and what is happening in that market. you look across our portfolio, we like to invest in brands and understand brand building really well. a big part of that is improving customer experience. you see health care approaching 20% of gdp. you have misalignment incentives with people and the actual patients who are the customer. you have a lack of customer centric model. you're seeing interesting things that the industry starts to

adopt technology from a sort of customer management standpoint, then new models of care that improves access to health care and affordability as well. we have one company in new york, ai, and ai health care business called k health that helps to empower consumers to make smarter decisions about their health and set of having a search at google and then arriving at the fact they need to go to the er. it takes patient data and routes them through the most intelligent process. we see that for 2019 as well. emily: health care is the one to watch. graham, thank you for joining us. facebook is working on a cryptocurrency that will let users transfer money on whatsapp. bloomberg is reporting the

network will first focus on the india market. facebook is doing something pegged to the u.s. dollar. one of the busiest airports in the u.k. thrown into chaos after drones disrupted flights. how should the industry be held accountable? check us out on the radio, listen on the app, bloomberg.com and in the u.s. on sirius xm. this is bloomberg. ♪

♪

emily: london gatwick opened while still on the hunt for drones. the event shows how easily drones can cause massive disruptions. for more on what happened, we have the cofounder with the person who makes commercial drones. not great in the midst of holiday travel. what do you think should be done to prevent things like this from happening? >> we have to stop treating drones as if they are two ways. they require knowledge of the law and physics to fly them. toy stores don't seem the right place to have these. the second thing is there is lots of different kinds. we don't distinguish between drones that are a go kart and drones that are like a 14 wheeler truck because the industry has not differentiated enough.

we don't know which one is being used and if it has been handmade. it has been modified in some way. the batteries don't even last that long. either they have a lot, they are stationed around, or somebody is replacing the batteries and putting them in the air but no matter how you look at it, it does raise the point every drones should have a beacon or signifier on it that permits it to be tracked and detected which it currently doesn't require. emily: drones are likely under a lot of trees, so do you think they should be sold as toys or to novices at all? >> in the u.k. next november you will have to be registered. no matter what age, you are held to be liable for the legal environment. they cannot be flown above 400

feet. they shouldn't be flown beyond a certain distance legally under the faa or caa. if you put a drone in the hands of a kid, do they know this? the answer probably not. that is one thing. this was something different, someone who made a deliberate effort to do a repeated attack on one of the biggest airports in the world and disable it area when i worked for president george w. bush, one of my issues with terrorism to the u.s. economy in the aftermath of 9/11, this falls into that category of someone deliberately trying to be as disruptive as

possible. we don't know why and what kind of drone they are using that it raises the question about drones in the environment without the right control and without anything to signal they are there. emily: should airports have more authority to disable drones? >> you can try and shoot it down but a high-powered rifle, that bullet will go maybe five miles. you will hit a lot of things you don't intend to. it is hard to hit one in midair especially at night. you have to hit it in the right place. that option isn't easy. using a net, not easy. you are talking about airports that cover many square miles. jamming devices are logical except they jam the aircraft as well. we need better systems in place. the australians were good in anti-drone technology at the

commonwealth games. but it costs something to have protections in place. emily: do you worry this will hurt legitimate use of drones, one of the things your company is trying to do? >> it will increase the attention of focus. in the drones we make, they can't be used unless they have permissions. you need an id, password, they are tracked 24/7, we know where they are. they are meant to be flown autonomously. you are alerted if they are not. companies that want to use them for legitimate business tasks will want a higher degree of certainty and control over these so no one can take it and hot dog with it or do something like we have seen. if it makes the industry more focused on the difference between what is a go kart and a ford and the fiat and a land rover, that is good. if it gets everything more

focused on the danger to aircraft and say these are aircraft as well, that is a good thing for the drones. emily: will be watching to see if those drones are located there is a cofounder of h robotics. a bad year for facebook continues amid new data breach revelations and lawsuits. what does it mean for leadership next? you can check us out at technology and follow the global breaking news network on tictoc on twitter. this is bloomberg. ♪

♪ emily: facebook under fire about concerns of violating user privacy, not fighting misinformation and election meddling fast enough, facing government scrutiny after reports from the new york times showing it shared more personal data that disclosed in deals with companies. all of it calling facebook leadership into question. sheryl sandberg has shouldered much of the blame.

joining us to discuss, megan smith, who served as chief technology officer under president obama. she worked at google and recently started shift seven where she has committed to filling stem jobs. with facebook and google in the spotlight, do you think somewhere along the way of these companies went wrong when it comes to their social responsibility? >> these are the challenges of our time. you can use technology for good, you can use it for bad. what we need from these leadership teams across the board is a lot of focus on what will they do to support users with more transparency. this is troubling about people not knowing about the data sets being shared with partners and that also control. you can think about the europeans are doing an amazing job now about the digital self and personal privacy. this is not property, this is

your self in a digital form. people need more control. that is an urgent need. all of these management teams need to step up to this. emily: the have also been calls for mark zuckerberg to resign and sheryl sandberg. do you think that is a solution? >> i don't have a comment on that. what needs to happen is across the board we need a couple of things. one would be more technical people actually in the government side and regulation side and areas of the nonprofit so we can have conversations about what we will do to get creative. i like the work from the europeans. some of the work at shift 7 -- if you type. how do you team up as technical colleagues and stay on the harder issues not necessarily self-driving cars but areas of privacy, foster care, and tech could be applied to anything. one thing around tech and media, what you talked about, we can use technology to solve more problems than just this area, so let's not just monitor regulate

it and fix this area and focus on it, let's also apply it to other harder challenges. emily: you focused on trying to fill these stem jobs and how to get women in those jobs and underrepresented minorities. women and men have different views. do you think is silicon valley had more diverse workforces these companies would be better run? megan: definitely. we know it is not about women and men but broad perspective, people of all backgrounds and socioeconomic backgrounds. better decisions, better financial decisions, the data is

there from the research. we need to get it done and need leadership teams to prioritize. they don't care enough and are not moving fast enough. there about the technology but not a lot of progress. time is up. we need to do this. we are also working on what you see on screen. we are working with caa and have published a study about what we see in movies and tv. what you see, you need to see it to imagine it. we talked about media and geena davis' work. 15-1 boy programmers to girl programmers are that teaches -- it is terrible. what can we do to help media represents women? the study is about female lead films making more money at the box office across every budget level from 2014 to 2017. emily: you found that movies starring women make more than movies starring men.

megan: correct. looked at the data, look at films and data sets, who is first on the call sheet. if it is female lead versus male lead at all box office levels, they made more money. so there is a lot of common wisdom in this. it is more risky -- the data doesn't say that. have you heard of the bechdel test? it is a funny test. over 300 films, these top grossing films, over 40% of them couldn't pass this little test. it is there is two women in the cast, they have a conversation not about a man during the

entire movie. we found if you can pass the simple test of having more dimensional women, you actually make more money every single box office level. so getting this through is economic opportunity for the country. you want the confidence of everyone. you can see it, you can imagine it. it relates to diversity in tech and every single field. emily: amen to that. and the industry can get more money, as you have found. always great to have you here. ceo of shift7. companies pouring billions of dollars into instagram-sponsored posts, but one shows they may not be reaching legitimate audiences. that is next. this is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast.

♪ emily: this is "bloomberg technology." i'm emily chang. the rise in social media has brought about a marketing transformation. companies are turning to instagram to reach their audiences and drive sales. a new study shows the brands spent $2.1 billion on post on instagram. it is not all genuine engagement. the study found that 11% of the engagement for the posts were generated by fraudulent accounts or bots. here to discuss is our guests. >> we realized brands are

spending millions and millions of dollars on instagram. they are looking to reach millennials to get that engagement because the millennials are not watching tv. what they are missing is, bots are coming in and pretending to generate the activity. emily: that's not a huge surprise. it is the number surprise you? >> that is almost a quarter of a billion dollars wasted by advertisers. these brands are spending money on instagram looking to reach millennials. they are just not getting that. emily: brands don't think -- realize they're wasting money. >> it's not just the fake followers. we have all seen those. it's the fake engagement. the fact that bots are commenting and liking and sharing things and there are all these inauthentic networks of activity.

emily: how have brands responding? >> they are excited because they are looking for data or someone to say what is my actual roi? they are cautious about how do we continue to police what's going on? they have platforms like mote and will verify. native content, these into graham post, you don't have anything from a brand perspective. emily: there was a story about how aspiring influencers are producing fake sponsored content to boost their credibility. explain this. >> it is a fake it till you make it mentality. people are saying that -- this is the new reality tv. everyone is running their own

personal brand show online. having sponsors there might convince other sponsors to come. that is what they are doing. you see this happening on instagram all the time. i have seen these groups on facebook where people have followed trains. if you follow me i will follow you. we can comment on each other's posts. there are instagram engagement pods where people say comment within a minute and we can boost each other. there are lots of ways to gain these systems which makes it hard to understand how the money is working. emily: it undermines instagram's business model because now it is facebook's main hope in terms of ads. what is instagram's -- what is it doing to combat this? >> want to draw a distinction between the influencers and how you can buy ads. what instagram has done is they have tried to get rid of bots

but it is a never ending battle. they will do a big purge, then they will find another way to come back. i think that there is always going to be some percentage of engagement that is fake. i was surprised to hear that it is a quarter of a billion dollars. emily: we are consistently asking is this bad news going to hurt facebook or instagram or at will advertisers take their money elsewhere? we hear that there is nowhere else to put your money. you think brands are going to leave these platforms or continue on the same path? >> i think they're going to

continue because there is nowhere else to go. when you are trying to release the millennial did demographic, where did you go? emily: is there really nowhere else to go? >> there is twitter and snapchat and tictoc. when you try to figure out how to reach people in this mode, there is just instagram and pinterest. those are the people who are sharing brands in a native to their own personal desires way. the way advertising and personal content gets intermixed, the ftc has tried to make rules about this. people don't follow them. emily: fascinating story. the fake comments and likes. thank you so much for stopping by. coming up, apple has lost some ground since becoming the first company to hit $1 trillion. we will talk about how they can get back on track in 2019. ♪

♪ emily: 2018 was a banner year for apple. after hitting $1 trillion valuation, shares pullback after concerns about slowing demand from the iphone. his next you're going to be better for apple? >> i am not a financial analyst. the big thing apple has going for it is a lot of the fluid

customers waiting to buy whatever apple lunches next. i was talking to one of the large carriers on the phone and they said 70% of their base is apple. that is not a bad problem to have. emily: this is a company it is still fully reliant on the iphone. two thirds of its revenue, trying to make a transition to a services model. can they do it? >> yes but it will take a while. 2019 could be tougher for apple because the reality is, i agree with what julie said, people are looking for the next thing apple makes but they don't have anything coming that will have a big impact. emily: i have a chart here showing how dominant the iphone still is. >> 2019 for smartphones, it gets interesting into areas. 5g and foldable. apple is not going to be there.

emily: apple has decided not to double down on 5g next year. they are waiting another year. the iphone cannot be folded. >> my concern is because of that focus and the desire for something interesting from a hardware perspective, it will not be there. margins are lower on services than on hardware. that is why the market is starting to react because they are saying if you move to a services model, what does that do for long-term profitability? emily: are you excited about the double phones? >> no. it's a guy thing. it doesn't have to fold for me because i have a purse. emily: is it going to be a little blip or a thing? >> foldable phones are not new. the mass market could be new. i could agree about 5g, but what it enables is virtual reality.

while we can say that is exciting, we still need content and a business model. there has to be something there for that technology to carry and deliver an amazing experience. emily: apple is working on content, but it is still a tilt in the water. >> it is a very competitive environment. apple has to be more willing to accept users from other platforms. they started to show that with apple music now working on the echo. that was important. there are a lot of services they have offered up until now that have only been the best experience if you are an apple person. there is a much wider world out there. that is a philosophical change they have to make. emily: i want to talk about

trade. apple is facing potential tariffs. in the trade war on the iphone. we have seen a much more diplomatic tim cook. is apple going to escape this one? >> i don't think so. that is why there are a lot of concerns about the smartphone market. i saw my old friends saying they think 2019 could see some growth in smartphones. it will be modest. you have seen a lot of challenges. apple tried in india. they have tried in other parts of the world. there are only so many people who will spend a thousand dollars for a phone and most of them have it and they don't feel the need to upgrade. emily: do you think political

issues will impact the market for apple in china and india? >> one of the things bob is pointing out is they have a very fluid base of people who can afford a thousand dollars for an iphone. what we are seeing is, there is not a big one hit wonder like the iphone sitting on the horizon. it is going to be more connected devices, more products and services and more of a portfolio of services and hardware that drive their revenue and growth. it is not just one thing and we all needed. it is harder growth. >> i completely agree. the issue is as far as the street and investors, that is a harder story to understand. it puts more questions in people's minds.

that is how we are seeing the market react. emily: we will have to have you back midyear next year. have a wonderful holiday. still ahead, juul is one of silicon valley's most private companies. this is bloomberg. ♪

♪ emily: juul deal with all tria just transformed the layout. the altria deal makes juul more valuable than other closely held companies like airbnb, spacex but still less than uber.

more valuable than target, ford, lift. >> it is crazy. this is a company that started selling in 2015 so it is remarkable that the sales have exploded. they positioned themselves as the cure-all to tobacco addiction and now they are aligning themselves to big tobacco. emily: their products are on the shelves next to cigarettes. talk about the safety issue. >> this is the real problem. nobody knows because it has not been around long enough. based on what we now know, it doesn't look like a great thing. we do know that they are a lot safer than cigarettes currently because you are not getting the

tar burning affect you get with a traditional cigarette. we don't know how the vapor affects the lungs. that is why a lot of people feel this is an unconscionable company. some people have gone so far as to call it evil. emily: we have tried to get an expert on the show and you have told us a lot of people don't want to be associated with it. >> investors don't want people to know they are investing. these people are becoming multimillionaires overnight. emily: they promised to give employees cash as a bonus. that is 1.3 million dollars per employee. >> i think they are giving more money to people who have been at the top the longest. it is a remarkable amount of cash. $2 billion to 1500 employees. people are making a lot of money

in san francisco. emily: will this get through antitrust? >> they believe it will. emily: talk about the company story. it is based in san francisco and started three years ago. >> it actually started eight years ago. two guys at stanford design school came up with the idea. they were addicted smokers and they didn't want to be smoking cigarettes all the time. they developed the e-cigarette. it did not hit the market until 2015. at that point, it exploded. one mistake that they made was advertising on instagram with young models. them saying that they are going after adult addicted smokers, the 40-year-old is not using instagram. that did not align with their mission.

they have been getting in trouble for that. emily: is there concern it could cause a new generation of addiction? >> absolutely. ake this cure is creating whole new generation of addictive nicotine users. emily: i want you to continue reporting on this story, it is so fascinating. launch, stitch fix was cheered as a new e-commerce platform with a woman at the helm. well investors initially poured in, it is faced with a new challenge. it fell 60% in september due to stalling user growth. i caught up with the ceo in april about how she sets her company apart from the competition. >> it's a very different ballgame in apparel. amazon is amazing if you want to get something cheap and fast. the reality is there is much more new wants. having millions of pairs of jeans to choose from isn't actually that helpful if all you

are looking for is jeans to fit your body will. eye, but we feel a lot of confidence i and strengthen the discovery element, a different business than what we are seeing most today. emily: would you ever sell to amazon, to a larger retail giant? >> it is clear we have chosen an independent path. we thought about all the outcomes available to us, and we have a deep belief, and still do, that this is a company that deserves to be an independent, publicly traded company, and there are tons of market opportunities ahead. we are very focused on the independent path. emily: there are a lot of other companies trying to do what you do, other subscription services, whether it is daily look -- >> what differentiates us is not the subscription tag. the business is one you can do

monthly, you can also do it all a card. people are not paying the same amount every month as you would in a normal subscription business. we are in the business of personalization, one to one, human personalization. emily: how real is the data and ai platform? how valuable is it? >> it is so real and incredibly valuable. a lot of buzzy terms around big data, but what we are doing is high signal, data that people are actively sharing with us, that pertains exactly to the experience they are having. people will try five things on, let us know, these are two big, these are too small, this is too expensive, i love it but i have are the things that people are naturally sharing with us to help us understand what they are liking and not liking. 100% of the time, we know who buys what. a 25-year-old woman in louisiana

but these genes. 85% of the time we know why. she's letting us know these are too expensive, too cheap, i love the way this that's, -- this fits, and both the breadth and depth of that data is incredibly valuable. emily: if you have all this data, do you need all those stylists, or do the stylists go away? >> the stylists are very important part. what the data allows us to do is onhave a predictive ability clothes and people and what's going to happen. we're very able to highly, accurately predict -- this has a 72% chance of working, 38% chance of working, and that data is presented to the stylist. the stylist is part of the selection process and relationship building of explaining why she chose things, and building that relationship. emily: in 2017, stitch fix went public at $1.5 billion

valuation. you are also the youngest female founder to take a company public. how did that feel? >> the whole public offering process was rocky for us as a company. it wasn't as smooth as you might want it to be. but at the end of the day, it didn't really matter, and this is a company that has been underestimated before. we are happy to prove ourselves in the public market. that day of being able to celebrate and remember the journey we were on was -- it was an incredible day, an incredible day to share with all our clients and employees and investors and the people who have had such meaningful impact on how we got to where we are. it definitely was a day i will never forget. emily: what's it like on the other side, post ipo? easier, harder? >> it's different. i think about in my job, the seven years i've been doing this, every year i think of myself as rehiring myself in a new job and committing to that

new job. every year has been so different than years past. there were years when my job was making sure everybody is getting fixes out the door so they would arrive to clients on time. that was the most important thing i was doing in 2012. emily: what is your job this year? >> i have private and public market investors that we are building trust with, spending time with, earning the trust of. there are small things that change, but the heart and soul hasn't changed. the way that it is different, i think it has made us better. we look at our financials better than we did before. at the end of the day, we are focused on making sure we build lots of long-term value for shareholders, which includes new wereholders, employees, and feel a lot of responsibility for that. emily: can stitch fix continue to prove itself in 2019? that is one we will be watching next year.

you can watch the full conversation with katrina lake at bloomberg.com. that does it for this edition of bloomberg technology. we will be back after christmas day. whatever you celebrate, have a wonderful holiday. if you need a break from the holidays, we are live streaming on twitter. follow our global breaking news network. i'm emily chang. this is bloomberg. ♪

>> the following is a paid advertisement from time life. robin: my name is robin williams. announcer: hold onto your hat. robin: for those of you one acid, this is a frisbee. announcer: the time has come for an epic event. it's mind blowing. it's jaw-dropping. most of all, it's genius. >> genius. >> genius. >> genius. announcer: time life probably presents a once-in-a-lifetime collection decades in the