taylor: i am taylor riggs in new york. this is "bloomberg technology pure cow big tack in the firing line of the u.s. government. apple and google face new scrutiny over the dominance of the app stores and the fees they charge to developers. plus, our drones the key to amazon locking down his deliveries? we take a look at the commerce giant's plan. and going the distance. ,ellets on files ipo paperwork

but does the home exercise startup have enough demand in the public market? but first, two hours top story. i'm a continued look at the u.s. government's antitrust investigation into big tack. marketlooking at one dominated by apple and google, app stores. they run the world's two biggest app stores, accounting for more than $100 billion last year. apple has 45% of the market and google, 25%. the two control more than 95% of all mobile app spending by u.s. consumers. apples ceo tim cook denied that his company has any monopoly, telling cbs news that "i don't think anybody reasonable is going to come to the conclusion that apple is a monopoly. hours share is more modest, we don't have a dominant position in any market. hours share of smartphones in the u.s. is typically the high

30's. on pcs, it is much lower p or cal -- lower." joining us to discuss is john burkey, the ceo and founder of brighten.ai, specializing in artificial intelligence for autonomous vehicles. before that he served on the siri development group at apple. i know we have been talking about the app store. first, take a step back and walk me through wife these companies have a monopoly and make your case for why they should be broken up. john: i think the market share numbers are really interesting. within the enterprise local market, where a lot of the value is, the apple market share, if you google it, it is higher than 30%. when i did my research, it was 85%-90%. i am not a statistician, but these are big numbers. i think also you have to look at the 30%.

there is no cost basis to the 30%. you have to ask yourself why google and apple both have the same rights and are they really competing or is it sort of an agreement that we are going to charge 30% and everything is going to be good. they are making big money out of this and until this moment, nobody has really pressed very hard. taylor: talk me through what is the standard, if you well. even on the government's website , they say being a monopoly is not illegal. these companies have every right to pursue aggressive pricing in order to maintain an anomaly -- maintain a monopoly and only when consumers get hurt is it a problem. are consumers getting hurt? amazon arguably has been lowering prices. what is that like? john: to your point, amazon is another thing -- google and facebook and those companies are

different, more like advertising companies. talking about apple, i think the thing is is they have done really well back in the old days. when i was there the first time, we were almost at. it was the mid 90's and a lot of guys are still there from those moments and have done really well. a lot of the reason why this is complicated for them emotionally is they are not used to being in this dominant position. the question is for a company like spotify, should they be paying apple probably more than they pay the u.s. government? because apple gets 30% of revenue, not profits. there is no deductions. if you are spotify, it seems rough to compete with your competitor and hand them 30% of your cash. to put a fine point on it, there are some cases like that. in terms of customers being harmed, you see a lot of companies like netflix rearrange

their whole way to charge customers just to get around the apple tax, and that's kind of strange. we all want to concentrate on making great products for the customer. if apple didn't have that big tax, netflix and other companies would make it easier to purchase their products. taylor: given your history and experience with apple, what does an apple breakup look like to you? with the separating of hardware and software, how does the app store come into play? what are the concerns of how apple could be slid up -- split up? john: you are going to make me popular with my friends at apple. taylor: that's our job here. thinkin these cases, i there is a lot of remedies. you can imagine for example after some discussion, these companies just agreeing to lower their prices, their percentages. or you could say, does apple

really need to have the app store? apple could be asked to let go of the app store and be the platform company, just not charge that percentage. they could have some other model. you could see that could happen. i don't think that would be particularly damaging to apple. if there is a market for app stores, that would be super interesting. one of the things we noticed when we use the app store is it is not particularly good at what it does. it is hard to find products if you don't know what you are looking for. if there were more specialized app stores, that might be a better place. taylor: what does this mean for the future of innovation? i am thinking of a small company who expects that in a few years, they could be looked at being bought out by a big company like apple or amazon. does this make them more nervous about developing the big innovation if there isn't a good exit path for them? john: good question. honestly i think both the

companies you are talking about will not in the foreseeable future have an issue with cash. a few years ago during one of america's financial crises, apple had more money in the bank than the united states of america. i think there will still be plenty of money to purchase startups. on the others with a couple of changes, maybe there will be more open markets for smaller companies. some of the things apple does as part of its muscle memory -- which is a really good muscle memory. one of the things i want to say about this week is apple came out really strong about privacy, and i am proud they did that. not everybody does that. this is clearly in tim's dna. i think that is really good. some of that muscle memory is a bit overprotective. we all do that with our children and other things. apple could make it easier to do some of these things. there is a bunch of cases that

are kind of technical around services and apps and things, but we could have a more innovative place. taylor: i spoke with scott galloway, a professor at nyu who has studied a lot of these big tech companies. he made a bold prediction that within the next five to 10 years , we could see smaller six to 10 companies. through your research, do you have any idea of how many companies this could be? are we looking at potentially up to 10 different companies? john: i think it's a good question. when you look at the remedies for a company like google or facebook, you could see those being split up into separate companies along with remedies around -- i think in facebook, you could see digital accounting stepping in, a company like pwc providing audits so that user data is handled better. you can see that maybe that would be split. you have to begin with the end in mind. what do we want?

we are proud of these amazing companies. they are a big part of why america is so strong today. that, butt to wreck we also want to continue to have innovation. we are all struggling, america, with the digital divide. not just inner cities and others , but also mainstream america in the middle of iowa. part of the stuff we are talking about is how to make that continue to be better. one of the things we are worried about with a company like amazon is the walmart effect. these big companies can accidentally make small main street worse, can accidentally shutdown stores. they don't mean to do these things. part of the remedies we have seen in the past are things like the cable companies, the phone companies are forced to run lines out to the country, so every american gets a chance. you could see that happening with some of these things, too. you could see splitting off from the big four, big five.

you could see at a second level, maybe you have four or five companies. maybe aws is no longer part of amazon. who knows? i think all of us americans, we do like capitalism -- not all of us, but capitalism is a good thing generally. we want it to work. we have stories from our history books where a big company got to powerful. i think apple is one of those cases where they have done really well, we should let them have a victory lap, then we should find a way -- it is like playing checkers with your kid and you are doing too well, so you back off. some of those cases are for apple, they can just change the field a little bit, make it more open. taylor: wonderful insights, thank you. that was john burkey, ceo of brighten.ai.

youtube is cracking down on videos that promote hate speech and extremist content. the streaming company says it will prohibit videos with white supremacist, neo-nazi, and conspiracy theory content, such as holocaust deniers and sandy hook truther videos. the move comes as critics have continued to mount that youtube is not doing enough to keep those but he is coming online. coming up, if amazon gets its way, you may no longer be looking out your window for the delivery van. instead, you might be looking up to these guys. that's next. this is bloomberg. ♪

taylor: it was about six years ago when amazon was touting its october copter, a drone that would bring packages to your doorstep. that has not come to pass, but

on wednesday the e-commerce giant enabled a new ai drone to be used in deliveries of small goods. amazon says it will be built with components designed to meet faa regulation. back in october, alphabet subsidiary wing became the first drone company to win faa approval to operate as a small airline and is planning a delivery test. joining us to discussed is bloomberg's regulation editor, john morgan. 40, a the phone, tom senior research analyst. thank you for joining me, tom. give us an update on what we know about the drone so far and more importantly in your research, how this fits into amazon's overall strategy. tom: going back in time when amazon first talked about drone delivery on a network television show, our viewpoint was they were trying to basically break the duopoly of fedex and ups, to

the extent that we still see the cost of delivery as the achilles' heel of amazon's business model, to the extent that fedex and ups are able to raise rates every year, even during the great recession. the fact it has taken years to get this far, essentially a beta test for drone delivery, suggests that technological and regularity hurdles are still quite significant. i do think when you think about its ability to empower one-day delivery, that offsets some of the pressure from fedex and ups. this is an important issue from amazon. taylor: john, you heard tom talk about regulatory hurdles. we do know they need regulatory approval. any indication of what the timeline for that might be? john: they have been working behind the scenes. we know the federal aviation

administration give them permission to do testing. they are still a ways off from coming up with the complete that will passage govern how the business will be conducted. as often happens in the industry, policymakers let the technology involved -- evolve, then set rules for the road. so far we don't know when that is going to be done, but they are working on it. taylor: tom, talk to me about how this fits in amazon. we talk about their high-growth profit margins, like amazon web services. how does this drone fit into your overall thesis for the company? where do you expect it to start to make money? tom: absolutely. to the extent amazon is able to deploy technology to improve shipping costs, i think this is a big profit-generating opportunity for amazon. if you look at their recent performance, what you are seeing is a mix of third-party unit

sales on the platform, which have been beneficial to their profits as they get higher margin when someone else is on the platform and they collect a commission, rather than amazon itself. jon, talk to me more about alphabet's wing. back in april that was the first to get approval. amazon seems trying to play catch-up. what do we know about how different this is from wing and how alphabet has been leading the stage on this? jon: we have been waiting for amazon to pop up. alphabet had been more public. we saw the tests last year where they were delivering popsicles and burritos to customers. amazon, finally, the company we most associate with rapid delivery, finally has rolled out this technology, which is somewhat different. i think the video there reflects , alphabet's program involved

lowering the goods from a hovering drone with a rope and pulley. amazon is taking a different approach. they are actually going to come to your lawn and land, or within a few feet of the ground. that required more technology. they have included some artificial intelligence they say will allow them to spot close lines, pets, and things, and land safely. taylor: tom, i finally want to ask you, in the last conversation we were talking about some of the antitrust and breaking up some of these monopolies. forayeems to be amazon's into helping gain on pricing power and insulate themselves from pricing pressures. is this the right move at the right time? what do they face right now? there are some concerns about a monopoly. tom: definitely. in one paper we just published about the death of amazon, one

of the things we talked about was regulatory risk. specifically with the company be required to separate the aws unit from retail. we don't think that would affect the long-term performance of stock. that -- i think as long as amazon -- for example, they recently dropped the practice of requiring third-party sellers to sell products at the lowest price point. to the extent this is more about enabling sales on amazon and to the extent that they offer good opportunities for third-party sellers on the platform, i don't think this would trip antitrust. taylor: that was bloombergs john morgan and tom forte. coming up, e-commerce is on the rise. with that, so is the demand for warehouse space. how online retail giants like amazon and walmart are shaping industrial real estate, next. this is bloomberg. ♪

taylor: earlier this week, blackstone group announced it is acquiring 100 million square feet of u.s. warehouse space. the $18.7 billion deal is one of the largest industrial real estate deals in history, but it is also a big bet on e-commerce. this is as online retailers seek more warehouse space to expand operations and cut delivery time. joining us to discuss is ben conwell. one step this is just in what is otherwise a much-needed trend we have been waiting for. ben: you are right. thanks for having made. this is one indication, one transaction, albeit a significant one, that is consistent with what we have seen nationally and even

globally, of sophisticated, institutional capital that invests in different types of real estate, making very bold, strong moves to build their logistics asset portfolio. this is clearly a vindication of what we see, not always at this scale, but certainly the investment thesis is the same. taylor: what types of industrial warehouses and real estate deals are you seeing the most demand right now? can you characterize it by deals that are over a certain million square feet or certain areas to speed up delivery times? what types of deals are seeing the most demand? ben: we see it really spread across three different kinds of logistics assets. the first is that kind of building that gets so much publicity and media coverage. that's the large e-commerce fulfillment center that is 800,000 square feet, 900,000

square feet, or even well over one million square feet. these are buildings that employ a tremendous amount of technology. they are extremely expensive to develop, and they employ a significant number of people. that's part one. part two is because successful online retailers, and even legacy physical retailers, are constantly trying to bring more inventory closer to the consumer, that's driving a movement for smaller fulfillment ofters, more in the range 200, 300, or 400,000 square feet , deeper into urban areas. the third that probably has more vase now than the other two is in the last mile, it is the last touch point, the last transfer point for orders through the delivery chain before they go

out for final delivery to your house or office. interest investor all three of those categories. taylor: how has interest been recently? i wonder if we made the moves fast enough to convert what was other retail, mom-and-pop shops, or a retail store -- i walked up 3rd avenue and an old retail shop is empty. have we converted those fast enough, repurchasing them to modern loose -- use? area inis a very hot the investment field right now, that conversion opportunity of taking underperforming real estate, retail, real estate assets and repurchasing them for logistics, among other uses. today we are still in the very early stages of that, of logistics space available in the u.s. today.

only a very small percentage is the conversion of former retail assets. i think we will see more of that as we go along and a smart capital is looking hard at opportunities to invest in that conversion. taylor: talk to me quickly about geographics. you are in seattle. big real estate prices, thanks in part to amazon. what regions are seeing the hottest trends? ben: we see it historically -- typically we see this kind of investment interest in the major distribution markets nationally. generally ports, they long beach, dallas, atlanta, miami, chicago, new york, new jersey. with the increased demand from investment capital to find logistics assets for their portfolios, we are seeing more and more movement to what we used to call alternative cities

that today are getting significant activity. taylor: wonderful, thank you. ben cromwell at cushman and wakefield. coming up, more tech companies caught in the fray after the last block while away from buying u.s. technology. we discussed the battle next. this is bloomberg. ♪ . . . .

taylor: this is "bloomberg technology." the battle over trade and technology between the world's two biggest economies has entered a new phase with allegations china reneged on commitments made at the negotiating table, triggering a fresh round of tariffs. where do we go from here? we bring in the president of gulag technologies, advisor to u.s. congressional staff on technology and cybersecurity as a global fellow for the wilson center. great to have you here. i wonder, from where you are

sitting in d.c., was this the right approach to get china to sit up and pay attention? >> the banning of huawei was definitely the right step for this administration. we're facing two forms of , technology espionage espionage.tate definitely the right policy at the right time, and it puts a lot of pressure on china during these trade negotiations. taylor: i have heard a lot of reallys say that huawei is a separate issue from trade, that trade and tariffs is one thing and huawei is a national security issue and conflating the two is not appropriate. >> it is definitely appropriate because in china's case, when they perform intelligence gathering, they use it for the benefit of their companies and

forms ofnomy, so all intelligence from china are definitely national security issues. we really have not been able to do much as an industry. companies like t-mobile, people who have been victims of espionage from huawei, they do not have a lot of recourse so this is a crucial thing the white house has done. taylor: you talk about how it puts pressure on china. what have you heard from u.s. tech companies and the backlash they have experienced and maybe some of the pressure they feel? >> not only can u.s. companies not died huawei, but you cannot sell components -- not only can u.s. companies not buy while huawei. anyone working with china has been put on notice that this is something the administration takes very seriously. t-mobileou mentioned

and at&t, verizon, some of these other companies. how much does this help them in the race to 5g? >> i think it helps u.s. manufacturers because we want to keep u.s. companies part of the 5g infrastructure, and 5g is not just a new, faster phone. it will change the way the u.s. uses the internet. it will change, for example, the death of wi-fi. you will not have wi-fi in your house. everything will be connected directly to the internet. huawei bans their components as well. sort of pull this into the cybersecurity conversation, and we often talk to analysts who say the next war that is fought will not be traditional but will be fought

through cyber security. what kind of conversations are you having with congressional leaders about how we stay ahead ? the cybersecurity war >> when i meet with people in washington, d.c., i talk about something called the cyber poverty line were above it, you have organizations that have everything they want. they have every cyber product they ever want, and they are still not secure, so they hire hundreds, maybe even 1000 people to look for hackers and attacks getting through. people below the poverty line -- small schools, you and me at our house -- we don't have the secure to keep ourselves on an internet made of insecure components to begin with. on that frame, you run into heat of issues. one, keep adversaries like russia and china at pay. two, for everyone else, we need to do education of the average citizen. most people do not know what their data is worth or how the internet actually works and to

be able to make decisions about what they should buy. a lot of the focus is. what can we do to raise awareness in the average u.s. citizen so they can make smarter decisions in cyberspace, but also, what can we do to put pressure on china and russia to stop messing with u.s. ? berspace taylor: i was cutting you off on the point where you mentioned that we do not know what our data is worth because that leads to a broader conversation we have been having all week with the doj talking about antitrust probes and breaking up what seemed to be big monopolies. i wonder, what is your take on that? has this shown that some of these companies are unable to protect our data, so as to the government's job to step in the? >> i'm not a trade expert or monopoly expert, but i would -- but what i like to tell people is in the airline industry,

there's a tremendous amount of .versight, regulation, control with cyberspace, we are really putting our digital lives in the hand of these organizations, sometimes for free, sometimes we are paying them to do so. the problem is we got here over .he last 20 years how do you separate my data from facebook or from linkedin or these other services is really a difficult problem, especially in the face of these new privacy regulations. taylor: difficult problems with the difficult solutions and conversations. thank you. onwe have been covering bloomberg, the house panel covering an antitrust investigation of these big technology firms. it is prepared to issue subpoenas.

>> this is a review broadly of the dominant technology. they are engaged in anticompetitive behavior, behavior discouraging or eliminating competitors, if they are discouraging innovation and and if theyship, allow users to control their own data. this is an opportunity to use the investigative process which will involve depositions, hearings, witnesses, if necessary subpoenas, document requests. roundtables will bring some of the best technologists in the

country thinking about what is the right response, what is the answer. we need to identify the challenges, but it's hard to come up with a solution, so we want to ensure we have the best data, the best thinking, the most accurate information. of the rhetoric, there's all this different rhetoric on the right and left, but if necessary, would you change the statute? >> one of the things we need to look at carefully is the existing antitrust statutes. it is important to remember those were drafted principally during the railroad monopolies, which was a very different time. one is also exciting is this is a bipartisan investigation. there's republican and democratic support or doing this in a thoughtful, responsible way. there may not be agreement with every solution at the conclusion of it, but i think people recognize it matters all across

the country. the u.k. government wants clarity on the u.s.'s plan to ban huawei. a u.k. delegation is headed to the u.s. to figure out how that export ban on huawei will affect companies overseas. two british officials said their government had no advanced notice of the trump administration's actions and it has further delayed the u.k.'s decision on allowing the chinese company to supply 5g phone networks. britain is conducting a review of the telecom supply chain that was originally due for publication in the first quarter of this year but has been pushed indefinitely back. coming up, melinda gates is using her platform to speak out against inequality. will other wealthy tech titans follow? >> bill and warren and i believe we should not have this in equity that exists in the united

states. we need to do something about that. philanthropy with government, ath the private sector, with non-governmental organization, that side of partnership and that ecosystem can do the best for the world. ♪

taylor: the home cycling startup confidentiallyed for an ipo -- home cycling startup peleton. they sell exercise bikes and treadmills with tablets that stream live fitness classes. ? at do we know so far from what i was looking at the statement, we did not even know the number of shares that would be listed, but bring us up to date. what do we know? >> window goldman sachs and jpmorgan are leading the field.

what we don't know is that the shares, the price, the valuation.-- the more details will come later, but what will be interesting to see is what has been the risk factor. they recently had a lawsuit where music labels sued them for using the songs without paying royalties. there are little problems like this along the way that we should watch for, but apart from that, this is a very exciting listing. it's a brand known to a lot of people. to me about that evaluation. a lot of the concerns with lyft uber were these tech companies that frankly got above andselves and those ipo's valuations had to come back down to. what does this $8 billion valuation say about where we are now? uber's listing, there were

talks about how it was overvalued, but today we have seen it back at its offer price for the first time since listing, so maybe that price after all is the true value of what uber is worth. it's actually more than $8 billion that pelotonn is lookingat -- peloton is at. it will be exciting to see how bankers interpret that number. this would be a big jump from the private value. taylor: i'm sure we will be the data in the end. something makes me wonder what are the risk factors. i think of a few competitors here in midtown where you can go take cycling classes, but you do not necessarily have an at-home bike. is peloton trying to get you to

give up those classes? >> in fact, they have studios as well. they are trying to get consumers toget out of their home, go the studios, and participate with other people. they have corporate partnerships . they have the bikes and treadmills and hotel chains. they are going to diversify their client base and where the bikes will be outside of homes. taylor: another story we have been following his in shanghai where the shanghai exchange has foroved three new companies this tech force. what is this? >> it is the chinese version of the nasdaq. for china, it is a mission they need to complete and do well. for the first time, they have

approved three applicants and most of the applicants in the pipeline are not companies we were expecting, but good revenue, good profit, so potentially will be good first batch candidates. taylor: certainly a lot going on in the tech world. thank you. meanwhile, melinda gates sat david rubenstein for a wide-ranging conversation about the foundation and its $50 billion in assets. plus, how she tries to keep her children grounded amid their wealth. take a listen. david: when did you first meet will? >> i met bill three weeks into my job. i had never been to new york city. i had never hailed a cab. microsoft sent me to new york for a business meeting. my female remake -- microsoft makes you have a roommate when

you are traveling on the road. my female roommate said come to dinner across town after the meeting. i came late from the meeting i was at, and i sat down, next chair was empty. 10 minutes later, bill came in, sat down next to me. that is what i first met bill, three weeks into the job. david: he said how about getting to know me better? a bunch of ussaid are going out dancing tonight, why don't you come? i actually set i had other plans . back at microsoft, a few months oner, everybody worked late friday nights, quite late on saturday, so my car was parked next to his in a parking lot and we struck up a conversation and we talked for a while, and then he asked me if i would go out this waseventually -- a saturday. two weeks from friday night. i was 22 years old.

i was like i have no idea what i'm doing two weeks from friday night. i said that's not quite spontaneous enough. he asked my phone number called me about an hour later and asked if this is spontaneous enough, how about tonight? then he said but i have a user group meeting at a dinner i have to go to, so how about a glass of wine downtown? i agree to meet him for a glass of wine. that was our first date. taylor: you can watch the full interview on the david rubenstein show tonight, 9:00 p.m. in new york on bloomberg tv. still ahead, hp's lawsuit against mike lynch is heating up. we discussed the latest in the trial next. this is bloomberg. ♪

announcedacle wednesday that it has secured a cloud computing alliance with microsoft. the partnership will help oracle fitness its database and make software applications more attractive to companies that may be considering the move to microsoft. similar partnerships have helped microsoft thrive as the number two provider of cloud storage behind amazon. former hewlett-packard ceo meg whitman gave her first testimony in the company's lawsuit against michael lynch. hp is suing him over claims he regularly inflated his company's sales. this is in reference to an email from 2011. ae told the court it was

moment of anger and disappointment about what happened here, and "i should not have said it." niko grant in san francisco. give us the latest. i have not been following this case. >> thank you for having me. meg whitman said out loud what one could surmise she would think privately, and that is what is so unusual because she does have this reputation for being mostly conservative and very calm and rational in her demeanor, but basically, we got inside today into just how dysfunctional hewlett-packard was in the time around the deal and just after, when it was to whitman.nsition we learned the board was very dysfunctional. the board had wavered on if it was a good idea for hp to buy

autonomy and also insight into meg whitmand started to look at this software asset her predecessor had bought. this was the beginning of the who was thenlynch, fired by meg whitman. taylor: talk more about the dysfunction between the executives and the board. i believe i read they had unanimously approved the deal, but under the papers a little bit, you read about more skirmishes that were happening. how dysfunctional was this board at the time? >> hp's board was infamously dysfunctional around this time. this is a board that have fired carly fear in a -- carly fiorina years before, then fired mark hurd over and expense issue. they really were interested in seeing hp be this supermarket of

a tech company in which it could own any type of asset and sell it to its customers, so there hp to be interest for this ibm-like business that could sell software, but then, when it turned out that this was a bad deal and autonomy was a paper tiger, that's when the infighting began and the question became, you know, how can we spread this blame? whitman, even though she had to clean up the mess, also had some measure of blame because she was one of -- she was on the board of directors at the time. taylor: any backlash from meg whitman today? >> none that i can say. i think whitman at this point has earned her reputation for better and worse, but right now, she's focused on running a new

micro entertainment competitor to netflix. taylor: that does it for this edition of "bloomberg technology." remember, we are live streaming on twitter. be sure to all of our breaking news network at tictoc twitter. this is bloomberg. ♪

paul: welcome to "daybreak australia." we're counting down to asia's major market opens. paul: here are the top stories we are covering in the next hour. wall street climbs on speculation mexico tariffs will be avoided. oil is in a bear market is u.s. stockpiles rise the most in 80 years. movesat/renault merger closth