brad: i am brad stone in san francisco, in for emily chang. this is "bloomberg technology." in the next hour, uber ipo details. the ride-hailing start up plans to offer shares from $44 to $50. much as $10 billion. plus, amazon reports first-quarter earnings. how did the e-commerce giant measure up on cloud, ad sales and many other businesses? and the future of mobility.

global footprint expanding, but competition as well. we speak with chief operating officer joe kraus. our top story today. uber plans to price its ipo between $44 and $50 per share, which could value the ride-hailing company at up to $90 billion. for more, i want to bring in bloomberg technology's eric newcomer, who helped to break the story. $90 billion. that's not the $120 billion bankers were promising. what has happened here? eric: i think wants to set conservative expectations. they watched lyft, pinterest. pinterest setting below its last private valuation and lyft trading below the ipo price. they want to make sure they get the narrative right, and they would rather take the hit for being close to the last private round rather than have to backtrack later on. brad: it is obviously early. the price range will probably go up.

but can you discern anything about the enthusiasm among among the bankers for uber's other businesses like uber eats? eric: uber eats is a real question mark. doordash, with the help of softbank money, has competed with uber. uber wanted to be an unabashed growth story in food delivery but now has a much bigger asterisk by it. questions around uber eats are tampering expectations for the ipo ever so slightly. brad: a lot of competition all over the world. you mentioned lyft. how much is the lyft saga of the last month where the stock has been down considerably, weighing on the minds of uber executives and bankers? eric: they are certainly watching it, because there is no obvious comp. lyft is the best point of comparison. on the other hand, uber has a

much more global story. ride-hailing in many parts of the world, and stakes if it doesn't. uber eats, even if it is not growing like a like, is still a growing business. much more big story than lyft. there's a lot of reasons to compare with lyft, but uber wants to remind people they are a different company. brad: eric newcomer. thank you, and good job breaking the news. now to earnings. amazon reported quarterly profit exceeding analyst estimates, demonstrating the company's focus on cloud computing, advertising and other high-margin businesses continues to pay off. amazon also narrowed losses on international operations, helping to boost profits. however, it is not all good news. outlook for the second quarter is less stellar. revenue and income guidance are both a bit light. to discuss further, we're joined by michael packter and branch

-- and jeffrey's analyst brent. michael, you have been an amazon bull. lots to like. now a more profitable company than has historically been true, and yet some of the warning signs about future spending and future growth. what do you make of the quarter? michael: the upside, because they generated 43% margin, and they can't spend all that money. they have $25 billion of gross profit, and managed to only spend $20 billion of it. that's the story. this company has run out of things to spend money on. obviously they will keep building fulfillment centers, but not going to grow materially year-over-year, building the same 50 or 100 every year. they are just minting money.

the negative in the story, investors don't appreciate the third-party mix went up again. bezos says it was 58% of sales last year, 60% this quarter. it's a great margin story. investors get spooked by the guidance. they are confused by the top line. the stock isn't of enough on this print, but it was up about $100 in the last few weeks. brad: it really is a remarkable story. a company we think of as retailer, but it is now primarily a third-party market place cloud computing company and increasingly advertising company. what does the quarter tell you? >> i think michael hit on the margin. revenue in line, margin double d year on year. so we have a call margins can continue to double. you look at the big internet names, and they have declining margins. facebook, google, a number who are spending to keep up with amazon, so somewhat of a rare bird in terms of revenue growth

decelerating but seeing margins improve. we think the biggest concern is wall street still felt this should be a 20% topline story. we think it is more reasonable to think mid to high teens, and with acquisitions 20% growth looking at the margin profile, that's driven off aws, the ad business and recurring subscription business, which will continue to compound. you can sell a lot of low-margin deodorant, but you have a higher margin software businesses that will give investors more predictability around the future of cash flow. brad: let's talk about the ad business. the growth rate year-over-year was about 34%. this was a business almost doubling in size in previous

quarters, so is there any reason to think that ad business for amazon is slowing down, or are these accounting minutia? michael: i think it is perfectly correlated to the sum of online store sales and third-party services sales growth. add those categories together, that tells you the activity on the site, and search at amazon is people looking for a coffee maker, and results will pop up just like looking for a coffee maker on google. they are getting paid for that, because purchase intent is nearly 100% when you are searching on amazon. it will be perfectly correlated to purchases on amazon, and anybody who models advertising to grow significantly faster than that is modeling it wrong. brad: brent, i want to ask you about the international business. it has improved, but still a 9% growth rate and operating loss. how much of that can be traced

to india, where amazon has made a large investment, and some policies have changed around allowing non-indian sellers to operate? brent: the biggest blemish in the quarter was the international miss, relative to where we were all at. -- was looking't for a much higher number. the north american business picked up the slack, if you will. international historically has been very hit and miss. as they expand into these markets, they are not the same dynamics as in the u.s. you go to australia, the delivery speed is not the same, so they have to invest and use infrastructure to get delivery where they want. so the goals we would like to see are probably not, to michael's point about the straight-line ad business, you cannot really straight-line the international business. it will be wonky.

we think there is a tremendous opportunity. we have traveled to many of the countries they are in, and asked end-users about their experiences in japan, in europe, in south asia. there's clearly, this is where it is headed, the same dynamic. placing more items in the adding subscriptions, and other services. the overall basket continues to grow, and will track what the u.s. did. right now, if you're looking for a blemish, it would be top-line, achieving international missing. then the ad business, i think everyone believed it would grow faster than it did. think pretty minor relative to a company that just blew up the earnings number. brad: michael, let's talk about the next quarter a little bit. estimates have come in a little light, but obviously spending is one thing investors pay a lot of attention to with amazon. so many growth cycles over the years.

we have both followed the company for a long time. that jeffhe chances bezos does find a way to spend all this capital, going into another period of hiring and expenditures, not only on new servers but new kinds of technologies? michael: i think that facebook and amazon and probably google have all this in common. they all promise to spend a ton of money, and then manage not to do it. you saw facebook drop their opex growth by 300 basis points. amazon just can't manage to deploy the capital. i expect google will do the same thing. i think there's a 0.01% chance that bezos manages to spend more than he takes in, and we suddenly see earnings decline. they guide low and they crush. they beat by $1 billion this quarter, and they will beat by $1 billion in perpetuity until the stock goes to $2500 and it is fully priced in.

so they are not going to spend this money. there are no initiatives that are stupid. no fire phone anymore. the only thing some people think is stupid is content spending, $1 billion for "lord of the rings," but even that might work out. brad: ok. we have to leave it there. michael pachter, brent thill, thank you both for joining us. coming up, the chip sector has been on a ride since the start of the year, outperforming broader markets. we look at one major player, intel, next. this is bloomberg. ♪

brad: shares of intel are falling in after-hours trading, as the chipmaker cut revenue for

the full year, and ceo bob swan says the company is taking a more cautious view. to discuss in new york, bloomberg cross asset reporter sarah ponczek, and in the studios here, nico grant. let's start with you. an 8% after hours drop, what is going on? nico: very little good news. essentially, what is happening is the datacenter business at intel, which is making chips for the servers that help run the modern internet, computer networks, the same chips that big cloud computing companies like amazon, microsoft and google use to build out their presence around the world, that business has been sliding. we saw that last quarter, and we are seeing it again for the current period we are in. the problem for intel, this has been a very profitable business unit and a great source of revenue growth over the last decade. brad: another worry has to be that the next business the

, smartphone chip business, intel got out of that, and apple settled its dispute with qualcomm. are investors worried about that and what the future holds for intel? nico: intel was always much weaker when it comes to smartphone chips than qualcomm, so it wasn't going to be a huge part of the company's business unless they were able to turn that around. the expectation was always qualcomm and apple would settle, but it was just on what terms they would. we saw as you said intel said it would pull out of the business after qualcomm and apple decided to end litigation. in this quarter, what investors are looking to, they aren't going to see improvement intel promised in the datacenter business. bob swan told bloomberg earlier this afternoon that essentially it is taking longer than they anticipated for that demand pickup, because all of their major clients already have stockpiles of the chips. they are not buying new brad: ones.

sarah ponczek, you pointed out the semiconductor indices have outperformed the s&p 500. is this now a dramatic reversal? sarah: if you look at the philadelphia semiconductor index, it is pretty amazing, up 35% this year compared to the s&p up 17%. that's why going into this earnings season there has been such a focus on semiconductor stocks. the narrative has been that demand is waning, and yet even as company after company comes out and issues warnings, we haven't seen that turn around yet. early this week we heard from texas instruments, their ceo issued a warning and we still saw the semiconductor index rise, texas instruments rise. now we have heard from intel, and xilinx we also heard from today had its worst day since , 2000. next week we will also hear from the legs of qualcomm, the largest holding in the index. intel is the fifth-largest. we will have to see if there's a straw that breaks the camel's back if we hear too many warnings.

brad: more earnings i want to ask you about. tesla reported, and wedbush, one analyst called it one of the top debacles of his career. is that overstating things a little bit? sarah: i don't know if he is overstating. he is probably the most dramatic on the street with his statement out, however you look at wall street analysts and they are not happy right now. when you look at tesla results, you have a record drop in deliveries, and one of their largest debt payments they had to pay down. that puts cash balance and free cash flow at the lowest in three years, which is an issue for tesla. they have had such an issue becoming profitable, and elon musk keeps saying they will reach profitability eventually. but seeing numbers like these, it makes you wonder how long it will actually take. ahead of the earnings report, there were many on the street said that maybe the company, if they held that conference on

autonomous driving earlier to shed light on that rather than the numbers. that's not what you want to see. clearly you look at the numbers, we are seeing tesla fall. now it is below $250, which previously acted as support. the lowest since 2017. brad: elon musk now says there is merit to the idea of raising capital after saying for at least a year he wouldn't. nico, i want to touch quickly on microsoft at the doorway of a $1 trillion valuation. why was it a good quarter? nico: it was not a debacle for microsoft this quarter. the reason, there was broad-based growth at the company led by cloud computing efforts. we saw azure, its public cloud, grew 73%, a touch down from last quarter. but it has continued to grow at massive rates. microsoft also got a boost from office products, windows 365, cloud products.

everyone was very happy, sentiment was high among investors. even small divisions of microsoft like the surface line of devices, which now makes microsoft the fifth biggest pc maker in the u.s., even that did well. everything increased. brad: we could have three $1 trillion tech companies before long. sarah ponczek, nico grant, thank you. we will speak with intel ceo bob swan on friday. coming up, amazon is expanding cloud business in asia. how it is competing with alibaba amid trade tensions between china and the u.s. next. this is bloomberg. ♪

brad: as we discussed earlier, revenue from amazon web services jumped 41% in the first quarter. meanwhile, aws is pushing deeper into the asian market. earlier this week, amazon's thed services are announced

new regional infrastructure center in hong kong as they grow business in china. the aws director of greater china alex young sat down with david ingalls in hong kong to discuss. alex: globally there's about $4 trillion spent on i.t. by enterprise based on our projections. about 10% is being spent more directly, on infrastructure capabilities. so it's still a very early stage. david: so 10% of $4 trillion is cloud. how big is china? alex: similarly, they have about 4 trillion renminbi in enterprise i.t. spending, 8% to 9% on the so-called cloud infrastructure. david: and you can't tell me what your market share is? alex: we cannot disclose that. david: how fast are you growing? alex we have been growing very

: rapidly in the greater china region, enjoying high double-digit growth the last five years. david: double-digit is closer to 11% or 99%. are you closer to 11% or 99%? alex: really close to triple digit. let me put it that way. david: in terms of competition, apart from yourself, because i'm sure you guys have the best offering, but who has the next best out there? alex: it is also coming from the customer. it depends on the customer, and what industry the customer is coming from. they have special needs, customers coming from different backgrounds or industry. so i would say, because we have been operating cloud services almost 14 years, and have listened to customers over the last 14 years and built so much capability, which we continue to grow with thousands of smaller services. we tailor to the needs of the media industry, financial sectors, government sectors.

the internet space, which is where we started the business. we continue to develop that, and also work with a lot of smart manufacturing. as you hear early on, we have been partnering with volkswagen. david: that is the trend beijing in anyways. my question to you. you don't want to grow just because the industry is growing. you want to grow faster. that alludes to market share. how do you compete in greater china, especially on the mainland? you are an american company. politics has been an issue surrounding tech. it's not as if the services did not exist before aws. how do you convince a chinese customer it is safe to use your service? alex first of all, we are proud

: of what we have been doing in terms of how we protect customer data. we put security, data privacy, data protection as our number one priority. from a technology, operational point of view, around the world, regulators recognize us. we are one of the best. david: the business environment is a function of regulation in these markets. if a government agency in the u.s. wants data, you will do -- you will fight to do what the law allows to prevent that client data from getting to the government's hands. how does that dynamic apply in china if the government wants client data? i would imagine sanctity of data is paramount. alex: wherever we operate, whether it is in china or the u.s. or in europe or in hong kong, we have to comply with local laws and regulations. when there is a government theyy or regulator and

come in with a legitimate subpoena or whatever, we will look at that, we have a legal team to look at that, and see if it is legitimate. if it is not against local law, we will inform our customer at the same time, so that we give the customer a time window to defend themselves, and then it is more on the process. brad: that was amazon web services managing director of greater china, alex yung. coming up, over the last two years, scooter startups like lime have disrupted transportation and ignited an investor frenzy. but can they compete now that uber and lyft are hitting the public market? we will discuss the micro mobility climate, next. and "bloomberg technology" is livestreaming on twitter. check us out @technology, and follow our global breaking news network, tictoc, on twitter. this is bloomberg. ♪ ♪

brad: this is "bloomberg technology." i'm brad stone. in june of lime launched its 2017, first fleet of pedal bikes . now less than two years later, the electronic bike and scooter company is celebrating over rides worldwide. 50 millionjoining me to discuss is the chief operating officer joe kraus. nice to see you again. hard to believe it has only been two years. investors continuing to be very excited about the scooter business. i guess my question is now that we have just come through a winter, and i expect the business is seasonal, are riders still enthusiastic?

>> as you mentioned, we just celebrated 50 million rides. globally. one of the things that is interesting is it has only been 13 months since the company offered scooters. we are in 85 markets and 26 countries. the amazes me is how fast growth is, which is a function of how youthful the service is, but also how global. europe is an unbelievably great market. those roads were built for horses and humans and cars were the retrofit. all across the world and especially europe, you see micro mobility. brad: i'm not sure north america was built for scooters. i think we have that problem in san francisco. to one extent has the company had six ace for safe avenues for micro mobility? >> if you look, there are about 300 million trips in the united arees a day in cities that

less than a mile and a half of driving, or over a mile and a half of walking. if you consider utilization of a day, youfour trips per need about 75 million scooters in the entire country to serve that need, even if you take 10%, 7.5 million. there's a limited amount that cities are allowing to be deployed and we are working with every city to try to get more scooters available because everywhere we go, we see an incredible adoption of that vehicle type. the primary reason is one, it is the closest thing to a magic carpet the world has ever seen. you get on and fly. second is time savings. i can move every day from the caltrans station to my office, 20 minutes in a car, seven in a scooter. that is three days of my life i get back every year using it. we are working on how do you make it safer, protecting bike lanes, separating high-speed traffic from low-speed traffic . we are working with cities to

make that happen. brad: you guys have been prolific fundraisers. you guys have raised over $700 million. we just reported that uber is ready to price its ipo. to what extent is a successful uber ipo helpful for lime? >> i think it's important . full disclosure, through my prior job, i have some exposure to uber shares. but i think it is really important mainly because i think there is a revolution happening, which is what i would call the great unbundling of the car. the model for the last 100 years has been you own a car, you do everything with it. short and long terms, trips in a city and out of a city, but that is changing. it is changing because the internet and smartphones allow you to summon a vehicle when you want it without having to own the vehicle. the next step is happening as well. instead of using a car for

everything, you can use small vehicles for short trips and bigger vehicles for longer trips. unbundling of the car be it , access over ownership or small vehicles for shorter trips and bigger trips for longer trips -- is happening and i think the uber ipo is just one part of the trend. brad: i would imagine you had some exposure to goobers financials since you were in financials- uber's since you were an investor. is there anything specific you took away from uber or lyft s1? >> i think one is at least as it relates to lime, the importance -- investment of both companies in micro mobility and the importance both of those companies put on the ipo using smaller vehicles for short trips , both to the benefit of the economics of the business, but also because there is tremendous time savings and customer demands. that stood out to me. brad: but that means they are competitors and of course, uber acquired one of your competitors, jump bike. how seriously do you take them

quite deliberately coming into your market? joe we have a great partnership : with uber. like in any early market, the definition between a competitor and partner ends up evolving a little bit. we will integrate into the app. at the same time, they offer their own suite through jump. i'm not worried about it because right now, 99% of people have never ridden any scooter of any kind, so most of the market is ahead of us. i am not terribly worried. brad: do you anticipate consolidation? joe: it is a capital-intensive business. you mentioned how much money we have raised. we are focused on excellence of operations which allows for positive unit economics, and this is a complicated business. we have a supply chain in china that builds the spoke scooters and sends them to 85 markets across the world and they are operated by local teams. it is a complicated operational business and getting it right and making positive margins is hard.

what do i expect to happen? right now, there's some big competitors and a bunch of smaller companies. i do expect because it is a capital-intensive business that scaled players are going to win and i think many of these small players will struggle to raise capital later in the year and early in 2020. i do not know if that is consolidation, but i think scale matters. brad: how big is the geographic opportunity? you talked about europe. obviously, you started in the u.s. what countries are you investing in right now? joe: if you look, we are on five continents. we are investing pretty much globally across the world. for example, just a couple of days ago, we launched in bogota, colombia, and montevideo, so we have a wide geographic footprint from australia, new zealand, through latin america, both western europe and eastern europe, tel aviv -- we are all over the world. brad: is there anywhere does not work? joe: i think there are some

markets. i would point to southeast asia. china for example right now, it is actually illegal. these scooters are illegal because they are classified as cars. i think india would be tough. brad: i don't think you want to ride a scooter on a road in india. joe well, yes, exactly. : you have a combination of willingness to pay infrastructure, ability to move vehicles around, so there are some markets where i think mostly concentrated in southeast asia, that will be harder to operate in. brad: last question, safety. there have been lawsuits from riders who have been injured. lawsuits on other companies as well. how do you improve the safety and make sure people are operating the scooters and e-bikes responsibly? joe: our goal is to make a scooter safer than a bike. we do a ton of things in this regard. obviously, one of the things you can do is give away lots of helmets, and we have. over a quarter million helmets.

the second thing is this is a new vehicle type. so education on how to ride them and education on where you ride them. lastly, working with cities. cities across the states have a program called vision zero where they have zero pedestrian fatalities. they want to protect pedestrians and bikers from cars. separating cars from pedestrians and bikers. we are working with cities to develop those. kraus, thanko joe you for joining us. coming up, we talk about the online world of antiques. this is bloomberg. ♪

brad: india's high court lifted the ban of the popular tiktok app in the country. it was blocked by google and apple on concerns the app was exposing children to disturbing content. it is a victory for its parent company, which was valued at 75 billion dollars last year. it also comes as a relief for other startups hoping to cash in on the world's fastest-growing smartphone market. the e-commerce landscape is not just the domain of sites like amazon and ebay. it's also home to high-end luxury goods. 1stdibs is one of the premier names in the online space. recently it raised $76 million in series d funding. last wednesday, it announced a collaboration with the auction house christie's so now you do not have to wait to buy a $3000 antique italian white marble bust. you just go online and fill up your cart. ceo.ng us to discuss, the

nice to talk to you again. this is almost a 20-year-old company and you just raised a considerable amount of capital. talk to us about what it means for first dibs and how you will use it. >> the company is almost 20 years old. it was initially used for putting the antiques market place online. since then, we have morphed into a marketplace for luxury designs in general. our fastest-growing categories are what we call new and custom or contemporary design and jewelry. we raise these funds from a combination of financial investors. t. rowe price was the lead investor, and also group artemis, which is the owner of christie's and the primary shareholder of the caring group in paris. there are new categories like

jewelry and contemporary design, and also our fast-growing customer segments like interior design and luxury consumers. brad: tell us more about your partnership with christie's. their parent company is an investor, and yet, that is an auction business. how do they avoid disrupting themselves by listing, i would imagine, a selection of their merchandise on 1stdibs? >> it is a pretty complementary fit. first it is the largest digital marketplace for luxury design. one way to think about christie's is it is the long -- largest off-line or analog marketplace for luxury design. this collaboration is the marketing of a collection curated by christie's through a 1stdibsion of both the website and our new gallery in new york city. brad: let me ask about that gallery. i'm fascinated by these e-commerce firms that are going

omni-channel and opening bricks and mortar locations. you guys were one of the first to do it. how are these complementary to the business? which forsell design, many buyers, it is important to touch and feel and see in person. although the show room is big, 35,000 square feet, as i mentioned, it actually represents less than 1% of the product in our marketplace. for the customer whom the in person marketplace is important, we offer that. but for the customer comfortable buying online, we offer that as well. brad: do you expect to expand stores and open them outside new york? david: we do. we only launched this one in february, so we are still in learning mode, but it has grown faster than expected, and it's doing quite well. we have a long wait list of suppliers who are interested in exhibiting and it has been popular among both designers and consumers. so i think we would look at most of the major design centers as potential venues for a facility

like this. brad: 1stdibs is no longer the only game in town when it comes to antiques. companies like cherish have been raising money. what is the new competition meaning for you guys? david: i really don't view any of those direct competitors as direct competitors for our business. vintage and antique design, while it was the original core of the business and is still an important part of what we do, it no longer is our fastest-growing category. i view our competition similar to many online disruptors as off-line alternatives for what we sell. we are many times bigger than our direct competitors, but the majority of spend in this market happens off-line and that is what we are gunning for. brad: is there friction between you and some of the sellers that primarily sell to physical stores?

david: there is friction for digital in general and retail, traditional retail. i don't think it's any different than any other market. actually, most of our suppliers are interested in figuring out how to do digital and finding a digital channel. the existing incumbents online like amazon, for example, is not geared toward the luxury market. the way we think about it is the race for the $50 order has been won by a combination of amazon and walmart in dollar terms. the race however for the $5,000 order has not been won. we sell roughly 50 orders a day above $5,000 and those are mostly from suppliers who would not be comfortable selling through amazon or walmart. brad: those are extraordinary numbers. one last question, and i cannot not ask. you also sit on the board of twitter. jack dorsey recently paid a visit to president trump. i'm curious how you counsel your ceo on the topic of balancing,

you know, extremist content on the platform but also making sure you are not tilting the service toward one political party or not. it is something that all social media ceo's have had to deal with recently. david: i appreciate the interest, but jack does a great job representing the company and i would suggest you direct those questions to him and his team. brad: fair enough. 1stdibs ceo david rosenblatt. thank you for joining us. still ahead, are amazon investors excited about future profits as past investments pay off? we will wrap up our coverage of amazon's earnings, next. this is bloomberg. ♪

brad: snap has served the former

mcdonald's executive to serve as its chief marketing officer marking the fourth addition to executive ranks since november after several high-profile departures. as the former vice president of mcdonald's, he oversaw the company's strategic brand and consumer marketing efforts in the u.s. back to amazon. first-quarter earnings are out and the tech giant reported profit of more than seven dollars a share, handily beating estimates. amazon says it is still reaping the benefits of investments made in 2016 and 2017. the big question now is -- are investors more excited about record-breaking profit or will they be more worried about more hiring and spending coming later this year? joining us know, amazon sales and advertising platform. also with us, i were a reporter from bloomberg intelligence. thank you both for joining us. first to you, a busy day in the tech sector, but for amazon, the stock is up 2% on this beat. some concerns about next quarter.

what do you make of the results? >> the last four quarters, there is a trend over here. in line revenue, massive beat on profit. like you said, advertising margin contribution continues to be strong. aws growth continues to be strong, so what we are seeing in the concern building about spending is they are moving from prime two-day shipping to offer more prime one-day shipping to secure the market share longer-term and that is where the incremental spending is going to come from apart from the expansion in aws, logistics expansion, content expansion, things like that. this shows they are managing profits well, so expect a steady revenue growth story, but profit growth longer-term will be higher. brad: one of the things i find fascinating about amazon is it is less and less a retail business and more and more and e-commerce marketplace.

you run a company that advises brands how to sell to amazon and you also, if i recall, worked at amazon back in the day. to what extent is this a moving target for you and your colleagues? jeff bezos in his recent shareholder letter said third parties are kicking the 1p butt. >> it's a great question. as we see the trends that have happened on amazon in the past -- call it eight quarters or so, there is a significant shift we see in amazon focusing more on profitability as opposed to sales growth. really coming off of amazon's stated goals of eliminating people from various processes, starting to launch private-label goods and also, to your point, and democratizing the marketplace in the way that 1p's and 3p's by playing on the same field. for instance, what used to be likeable only for 1p

amazon marketing services are now available for 3p. at the end of the day, the consumer is winning, but at the expense of 1p's and 3p's trying to compete with each other. all the profitability is taken away and passed to the consumer. brad: any time a market place giant makes changes like this, people complain. marketplace sellers have been complaining. the traditional complaint of the 1p seller has been counterfeits and fraud. amazon has been trying to address this. have they had success? >> i think they are making big strides. they are starting to think about being very intent for about who is a 1p and who is a 3p. if you are a brand manufacturer with a legit business, then you are a 1p. however, if you are a distributor or a wholesaler, someone who is just aggregating demand and selling it, they are starting to move to a more 3p platform. there are rumors of a program

called one vendor which is launching with amazon with a stated goal of having 3000 to 5000 vendors on the amazon 1p platform. moving everybody else. the 1p business is not going away. it was just become a lot more consolidated to those who are legitimately brand manufacturers. brad: one point of friction for many sellers has been the advertising business. they find out they are charged to appear high in search results. some of them don't like it. yet in the earnings results, i noticed it seems like the growth rate has slowed considerably. are we reaching some kind of limit for how fast amazon can put ads in search results and on the site? >> first of all, there was an accounting change last year. where they used to count or negative cost of sales and negative now they look at revenue. that gave a one-time step, so we are dealing with that. the deceleration is not as big as we think it is. second, if you take the other segment number, the business within it is growing faster than the segment.

what we see happening is as the traffic grows and as amazon goes after video ads in their app, giving up more music service and things like that, they will expand materially. as far as pricing is concerned, theoretically, the roi amazon can deliver on advertising should be the highest out there because they have the data. they know exactly how much conversion you can get from this advertising, so i think it will normalize the pricing, but right now, i think the focus is on driving margins by capturing these additional sellers that come online. >> we are seeing a lot of the arbitrage opportunities that used to be there about a year ago are going away. it used to be easier to get a good advertising cost to have a very lucrative return on investment on your ads business and amazon.

that is starting to taper off because everybody is jumping on the bandwagon because everybody realizes this is the only closed loop system out there where you can truly measure the roi on what you spend. i think the bar is no really high. the cost to spend on amazon is only going to increase. brad: last question to you. we don't have a lot of time. the physical stores, growing in the low single digits. it shrank last quarter, so maybe it is an improvement, but have they figured it out yet with whole foods and the bookstores and the four-star stores? >> this will be a longer-term push for them. the opportunity and groceries is online. the physical stores, they will have to expand physical stores to see that growth, but what they are seeing is all the price cuts helping drive growth in little more than what was before, but it remains a single-digit story for now. brad: something for us to watch. guru hariharan of commerce iq and jitendra waral of bloomberg intelligence, thank you. that does it for this edition of

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