>> i am taylor riggs in san francisco. this is "bloomberg technology." mark zuckerberg's meeting with facebook employees gets leaked. why the social network ceo is ready to go to the mat against the u.s. government. plus, back in brazil, uber is reentering brazil's slums.

we look at the opportunity that awaits. vc's and executives will meet in silicon valley this week to discuss whether the system for ipo's is working. could there be an easier solution? but first, to our top story. facebook ceo mark zuckerberg is ready to take on the u.s. government if elizabeth warren wins the presidency. this is from leaked audio obtained from beverage about zuckerberg during a july meeting with employees. mark if elizabeth warren wants : to break up the company, i would bet we will have a legal challenge and i will bet we would win the legal challenge. so basically, does that suck for us? yeah, i mean, i don't want to

have a major lawsuit against our own government. that is not the position you want to be in. you know, it's like we care , about our country and want to work with our government and do good things, but at the end of the day, if someone is going to try to threaten something like that existential you go to the , mat and fight. taylor: zuckerberg also spoke on a lot of other topics, including facebook's proposed cryptocurrency, libra, and the competition with the chinese video app tiktok. joining me is the general counsel for net choice. they are a lobbying group that represents big tech companies like facebook and google, a nd in studio with me, sarah frier who covers facebook for , us. so sarah give us your take on , first, what zuckerberg is saying that they are ready to , fight. sarah: zuckerbergc has had pretty good luck. himing really came out of testifying in front of congress. ,e had a $5 billion ftc fine

which is just a slap on the wrist in many respects. , he has had a pretty good track record of coming up against the u.s. government and winning, so it is not surprising to me that he thinks it would totally "suck," in his words, but also, a little surprising to be declaring victory so soon before it happens. taylor: yes. let me bring you in here. from your perspective, how concerned are companies like facebook and big tech when they think about someone like elizabeth warren getting the presidency. >> thanks for having me here. what you are seeing is mark zuckerberg being very excited and being very transparent in his discussion about what is going on. now there are a lot of , businesses, not just in the tech sector but across the entire spectrum that are worried , about the notion of just being broken up because they are big, and what you are seeing here today is mark zuckerberg talking about the rule of law and the fact that under the existing

rule of law, the government just does not have a case to bring against facebook. taylor: and carl, how prepared or not prepared are these companies to take on what could be a serious legal challenge? carl: i think all of these businesses have looked back over the past decade and have seen what has gone on, what has transpired, and they are fired up, ready for enforcement action against them, and they have got great legal standing and great attorneys, and more importantly, they have the rule of law on their side. taylor: sarah, it is really interesting that carl brought up the word transparent. what was your take on zuckerberg once this was leaked promoting it, and being fully transparent on facebook, and saying, ok, here it is. here is the whole thing and , posting it on facebook? sarah: i think he has no choice. i mean zuckerberg has had a lot , of gas over the past years and has been asked to testify by many governments and has said no.

he testified in the u.s. and europe, but there have been a lot of questions about whether he will come to the u.k., whether he will go again to congress, and this is a way to say, "look, this is the way i am when i am raw, when i am not being turned into memes, in front of the camera, in front of congressional testimony." this is how he is, and you can tell he is much more natural this way. he does it every week. they sent it to all of the employees. they could watch it over the weekend. it is a tradition there. it is very interesting to see him in his element. taylor: and is this sort of a rally of the troops, if you will, or does this hurt morale? when leaks like this when things , that are on a weekly basis are exposed? sarah: this is the first time i can remember that a full audio transcript has been released, so it does speak to the tension within the employee ranks, that

a lot of employees are not sure if they are working for a company that is on the right side of history, and they are questioning him. you see in the transcript that they ask him about his voting power several times, and some challenges authority at the top hisnd sort of challenge authority at the top of facebook, and he responds by saying, by referring to something that happened in 2006, as the reason why he has authority, the fact that he turned down a $1 billion acquisition offer from yahoo!, so it is very interesting to see how he goes up against those questions over and over. taylor: and carl, to be fair, i want to bring in a tweet from senator elizabeth warren, and it is that it is a corrupt system that allows facebook to engage in corrupt practices and to fumble their responsibility to protect our democracy.

what do you think of elizabeth warren's response? carl: there is a lot to unpack in that question. whether it is anti-competitive, it is hard to say there is no competition when you see mark zuckerberg expressing internally that they are worried about new market entrants, like tiktok. then they had the settlement with the ftc, and as i said before, they were lucky to even get that out of them, and in respect to protecting our democracy, we are here on bloomberg tv. i do not think michael bloomberg is going to use this network to change the outcome of the election any more than i think mark zuckerberg would use facebook, so i just think that senator warren is throwing stuff at facebook, and maybe that helps her in the polls. taylor: carl, i want to bring up another audio clip that we have that the verge of course did obtain in this audio recording here. take a listen. >> it is just breaking up these

companies, whether facebook or google or amazon, it will not solve the issue. it does not make election interference less likely. it makes it more likely. other companies cannot coordinate and work together. taylor: carl, your reaction to zuckerberg saying that breaking up big tech, whether it be amazon, facebook, or google, does not solve the problem, which makes it harder to regulate, because instead of one big company, it is 20 companies. carl: it is not about regulating 20 different companies. 20 companies. -- there are many agencies that have oversight over the tech industry, but it is also the notion of having a centralized place where platforms can figure out what content is spam, what content are bots, what content is coming from overseas, and then in a more comprehensive fashion address those problems, so that is what i think mark is talking about here.

since facebook is large, they do have the financial backing and ability to see many different routes of attack so they can protect american interests and american democracy. taylor: and sarah, talk about facebook's argument. i have heard this from several experts that -- sarah: over and over, this argument that being bigger helps them solve the problem more efficiently and with better resources. i do not really buy it. i think that if you are facebook, and you have all of these different services, certainly, you can say, if you're finding this problem on instagram, you might find it on messenger, too, and you might find it on whatsapp, but there are collaborations they have done with companies outside of facebook. they take down terrorist content, and they share this among themselves. they do the same thing with child exploitation content. so that all of the companies can take it down it once, so if the companies are broken up, you could easily have that same kind of arrangement, where they all share information broadly.

taylor: sarah, i want to pivot quickly, to competition, because , carl very smartly brought it up about competition, and facebook talking about tiktok, and facebook is responding to the competition by developing, i believe, lasso. did we learn anything more about that product? sarah: it is really interesting that zuckerberg wants to push that in countries where tiktok is not that big and also that he sees tiktok as instagram explore means instagram stories, and that he will try to shift instagram in that direction. he has tried that many times over the years, copying products, trying to push them out to a similar user base, but we really have not seen that really take hold except for with instagram stories, so it is always a shot in the dark.

we will see if it works, but it is very interesting that tiktok is the new existential threat for facebook. taylor: carl and sarah, thank you both for joining me. now, sony has cut the price of its playstation now price in half. this now reflects the increasing competition online. sony also said it is adding limited runs of titles such as grand theft five. sony is the industry leader in video games. and coming up, a favorite of millennials, forever 21 facing bankruptcy. is that in part because fast fashion has moved to the e-commerce realm? we discussed, next. this is bloomberg. ♪

taylor: the millennial mainstay forever 21 has filed for bankruptcy or fashion retailer says it obtained through him in $50 million financing to help it stay afloat, but the bankruptcy shows another sign of the punishing pressures of the broader retail apocalypse in which the rise of e-commerce siphoning away shoppers from brick-and-mortar chains. joining me from washington, bloomberg's opinion columnist, sarah ponczek. sarah, when you take a look at forever 21, could they just not keep up with e-commerce in their online retail presence? sarah: that is certainly a part of what happened here. they said e-commerce comprised 16% of their sales in the court filing, and that would be a lower penetration than we see for the apparel business overall, and you just do not have to look that far to see the

companies that are sort of eating forever 21's lunch in this space. i think fashion nova is a good example of that. they were an early pioneer that was building a fast fashion brand that was tailored from instagram from the start, and i think that forever 21 has suffered at the hands of brands like that. taylor: you mentioned instagram. talk to me. how has social media and instagram changed the way the marketing releasees fast fashion retailers surviving? sarah: a lot of these retailers have had to partner with influencers, of course, and fashion nova has gotten the likes of cardi b and kylie jenner, these huge names with millennial engines the consumers consumersz -- gen z consumers. instagram is rolling out features like shopper bull posts that all of these brands have to try to figure out how to master

and keep up with. look, it is important for any retail brand to understand that ecosystem. especially for one like forever 21 that courts a teen shopper. it is just really important. taylor: we know the story of forever 21, a 15% penetration rate online in this day and age does not cut it, and you have the e-commerce subscription models. you have companies like rent the runway. the list goes on, really disrupting this market. what is the difference? a subscription-based model? what are they doing to disrupt the market? sarah: yes, so stitch fix, in particular, is really a data play. they are trying to amass all this data on their consumer and they have sort of built their brand from the beginning on that idea. that they are not just soda thinking of merchandising as an art but as a real science, so thinking of everything from the measurement of a sleeve to the aesthetic of a particular garment.

all of that is based on feedback they are getting from customers, so the theory is they are going to be able to manage their inventory in a smarter way and just create a more pleasing experience for customers over the long haul. fast fashion has been going with letting 1000 flowers bloom type of a model. some of these are going to be hits, and some are going to be misses, so definitely, these upstarts like stitch fix are bringing something new to the game. taylor: are these idiosyncratic stories, or like you said, you have to be more science-based, more data based, in order to succeed in this competitive market? sarah: there are certainly idiosyncratic things about forever 21. they over expanded their stores too quickly. they had stores that were huge, 35,000 square feet, and maybe they only needed to be 10,000 square feet, so there are some things specific to the decisions they made, but there is no doubt that data is going to play a huge role on merchandising decisions and more in your stores and website, and we are

still at this place right now where retailers have a lot of data, and they do not know how to harness it, and the ones who figure out how to use it and make it actionable, those are going to be the ones that win. taylor: data and science, finally entering the retail world. sarah, thank you for joining me. coming up, uber has been missing from brazil's favelas for years. can they keep drivers and riders safe? next. this is bloomberg. ♪

, in brazil paulo

is uber's biggest market, but , for years, they have avoided the biggest region, the favelas, for the safety of riders and passengers, but now it is making another attempt to bring rideshare back there, and they have a new program to keep people safe. to tell me about it down in sao paulo, our reporter is standing by. she wrote about this in the latest issue of bloomberg businessweek. antifa joining me. and for the classic bloomberg size and scope, tell me of the importance of sao paulo and latin america to uber? >> greetings from sao paulo, taylor. actually sao paulo is brazil's , largest market, and they also told me that two other large cities, mexico city and rio de janeiro, are among their top five, so it is a very significant market for uber.

taylor: fabiola, this is not uber's first attempt to go into the favelas. tell me about the difference with years ago. fabiola: in 2014, they were very aggressive, expanding all over the city, and a couple of years later, a wave of violence against their drivers led to at least 16 deaths, uber does not confirm those numbers. they are pretty scary, right? and this time around, they decided to partner with local entities that foster development inside the poor neighborhoods, and assess the whole region, and design pickup points to make

sure drivers and riders are safer around the favelas and not necessarily getting into sidestreets, areas that are poorly lighted. taylor: is that strategy working? do drivers and riders feel safe? fabiola: according to the ones i spoke to, yes, they feel safer, including those inside these communities, and there are large communities in brazil. at least 10 million people live in the favelas, and they circle around these communities, $20 billion a year, taylor, to have an idea, so it is an important market, and it is growing pretty fast. last week, just last week, there was a renewed wave of violence against uber drivers, not just uber but other apps as well, so they have to decide if this is the right approach or not, but it seems to be working well. taylor: one of the other approaches you were discussing was working with development authorities that are local and other people on the ground.

is that how they were accepted back in the favelas? is that the right strategy this time? fabiola: yes, they were much more careful this time, talking to the residents, and there is a specific favela, and they sponsored soccer matches and events. they were in depth in the community to understand their needs, and they also had a fair to help get more drivers from inside this community, so the community is pretty happy. i spoke to a person who has a stand at the pickup point that uber installed, and it is a physical pickup spot with wi-fi and benches, something i have not seen in other areas in sao

paulo, and he said his business is doing pretty well. his pickup point. and all of the riders told me it is much easier to get an uber in a favela. taylor: amazing on the ground reporting. that is fabiola moura, joining me from sao paulo. shares of apple closed on tuesday within striking distance of record levels, with the new iphone models seeing strong demand. ceo tim cook said sales of the iphone ii saw a very strong start, and he could not be happier with the launch. shares closed below the record from one year ago. and there was an upgrade of a trio of semi conductor stocks, with demand. -- broad-based demand remains

weak, but the industry has found a true bottom. microchip technology and semiconductors were raised to sector overweight. the analyst said that for the first time in several quarters, we are not seeing demand trends getting worse. and finally, analysts have raised the price target of snap from $11 a share to $14 a share, talking about strong trends in the quarter. analyst michael nathanson said that while there has been concerned about a recent spike in users, there is the viral success of their filters would not be sustained, but it does appear that snap has maintained a firm grasp on the users and has grown its base even further. and coming up, a tough year. silicon investors are meeting to discuss redesigning the whole process. this is bloomberg. ♪ sometimes your small screen is your big screen.

and with the xfinity stream app, which is free with your service, you can take a spin through on demand shows, or stream live tv. download your dvr'd shows and movies on the fly. even record from right where you are. keep what you watch with you. download the xfinity stream app today and get ready for xfinity stream tv week. watch shows like south park and the walking dead october 7th through 13th.

taylor: this is "bloomberg technology." i'm taylor riggs in san francisco. silicon valley is looking to disrupt the ipo business. a venture capitalists are -- venture capitalists are meeting tuesday to discuss whether the system for public offering is still working, after a year of many of the biggest deals slumped. one possible alternative, direct listings. to discuss, i am joined by bloomberg's sonali basek and technologies" olivia carville. sonali, let me start with you, what are we looking at during

the tech ipo summit going on today? sonali: there's a lot going on with the direct listing model in particular. obviously we have had two very , big ones, spotify last year and then slack this year. slack went smoothly and airbnb is reporting one as well. this is a model becoming much more commonplace so who do we have at the event today? not only venture capitalists but hundreds of privately held companies and executives invited to consider this model. lawyers as well as market makers, president of the new york stock exchange, a lot of people able to make this happen. taylor: what is the issue at stake because i cannot wrap my head around it? overvaluation, the fact a lot of the ipos have gotten well? what are they still concerned about? sonali: the venture capital community for a very long time have not liked the fact there is an ipo pot, which means there is money left in the table. this is not the same for everybody.

if you are a major investor and invited to the ipo, you like that you were brought in early. the venture capitalists like the direct listing model because presumably it is smoother into the ipo. the market sets the price rather than investors. right now if we think about what is happening, we have jay ritter that did a lot of research about what they call a systematic mispricing of the ipo model. about 30% on average, morgan stanley and jp morgan. taylor: olivia, talk to me about the differences between the ipo market and direct listing. if you are a company that needs to raise new money, you probably need an ipo because a direct listing does not give you new cash, right? olivia: correct. the difference with a company like airbnb, a private valuation of $41 billion. last quarter, more than $1

billion in revenue. they don't actually need to raise any additional capital. that is one of the points of difference between a point of listing and ipo. -- a direct listing and an ipo. you don't raise any additional shares or capital. for airbnb, it could be a benefit to go down this road because not only do they have to not deal with raising additional capital, that don't have to deal with traditional ipo roadshows. and it can be seen as a more streamlined or simple process to access the public market. taylor: olivia, with airbnb, we are hearing rumors perhaps they might or are considering a direct listing. specifically with airbnb, why direct list? olivia: there are a few things we could talk about with airbnb. one of the benefits is the fact that only to raise additional capital, as always saying. -- i was saying. another issue with the company at the moment is they have employees or longtime employees who are keen on cashing out. they want access to that money.

in order to do so, the company needs to go public. with direct listing, you are listing shares directly on a stock exchange without going through the traditional ipo roadshow. the company will be able to sidestep wall street and avoid some of the underwriting fees. but they are also allowing those insiders to cash out. taylor: sonali, what is a key takeaway? does direct listing take away the proportion? sonali: the ipo market is a big market. international firms, private equity firms, that is the way the exit as well. the ipo model works for a lot of firms and a lot of firms need to raise that money. so, lo and behold, there were still a greater demand for direct listings than there were in the past. it is something in the direct listing process, it cuts out a lot of the banks involved and usually there are only a couple that matter. some banks are still very important in the process and get a lot of fees from these listings but it is a smaller amount of firms.

you have market makers that are playing a larger role as well. taylor: sonali basek and olivia carville, thank you both. i want to stick with his general -- this general theme of ipo's. we have been watching wework hit the pause button on its ipo on monday. monday the company said it is , exploring the sale of the minority stake into a female focused co-working startup. it is both a wework competitor which involves one of its investments, known for its mission of women empowerment. to discuss, i am joined by ellen huet. what is really interesting is what the cofounders road in their letter. we want to get back to basics, -- wrote in their letter. we want to get back to basics, focus on the core business. is that part of that strategy? ellen: it is a puzzling question because when wework invested in wing, $32 million investment in 2017. of all the investments wework made, this one made a lot of sense. i different co-working model.

a slightly more targeted demographic for its customers, but it is co-working, close to wework's core business. the business has invested in a wave pool company, all sorts of stuff that usually leaves company observers scratching their heads as to why there would be an acquisition. taylor: not only co-working, which, like you said, is aligned model, itk's business is supposed to be aligned with -- it is supposed to be empowering a female working environment of which wework has been criticized for having an all-male board and not doing enough to be more inclusive. does this not go at odds with that mission as well? ellen: i am reading the tea leaves out here. it does seem a little odd that this would be one of the first investments they want to the -- to try to divest from. on the other hand, maybe this is something that is going to be

just part of a pattern with wework where they are really cutting back, and maybe investments in wing that seems to make sense on the surface are not going to be aligned, not going to be something to keep going forward. taylor: we have heard other rumors, selling off a private jet they have. that could make more sense from the pure headline perspective, let's say. do we know how much money all of these investments are expected to raise? ellen: i think that is also a big question mark. a lot of the investments were mixes on stock and cash. talking about acquisitions as well as investments. wing was an investment two years ago. some of these other things selling off were acquisitions, companies that were purchased by wework that are maybe being sold now. it is unclear what sort of return they are getting.

the overall tone has been questioning whether it is worth it for wework to go through selling these companies. they were not huge acquisitions to begin with so it is unclear how much they recoup. taylor: any indication of what those companies' reaction has been like? another investment wework, what they have been saying? ellen: for wing, it has been a question of is wework more of a helper or investor, or they would end up being too close in becoming competitors on a higher level? i know the women who run wing are very ambitious and have a lot of plans for making it a huge network, not just of members part of the co-working spaces, but a network of professional women. it is possible that may the relationship was one where both sides were ok with the idea of divesting. currently, there is a wework executive on the wing board. the copresident and also hold titles like the general counsel.

taylor: wework is looking to gain cash by selling off investments. where do they stand in terms of cash on hand? ellen: cash on hand is running out. this is part of the pressure on getting this new loan we reported. instead of the $6 billion loan available to them, now it seems like they are in talks about a different $3 billion loan. they need cash to keep going. taylor: new talks, new terms. ellen huet, thank you for joining me. coming up, do you know what the world's most used digital currency is? the answer may surprise you. we take a look at that, next. this is bloomberg. ♪

taylor: now back to our top story. that leaked audio of mark zuckerberg from a company meeting obtained by the verge publication. during that employee gathering, the facebook ceo was heard defending the company's controversial cryptocurrency libra. , mark: the public tends to be more dramatic, but the bigger thing is engagement with regulators around the world, and less dramatic. those meetings are not being placed on camera, but that is where a lot of discussions and details get hashed out. taylor: to discuss, i would like to welcome spencer bogart, general partner at blockchain capital partners. around libra and all these cryptocurrencies, what is the general tone when it comes to working with regulators right now? spencer: in the case of something like bitcoin, there is

no one to work with the regulator and that is part of the point. it highlights differences in design that something like libra has. do i think libra could be an interesting project? absolutely. do they have their work cut out for them? most definitely. taylor: your analysis, which struck me, you actually increased polarization. why? spencer: when you look at the underlying basket, they published what they looked like. if you think a lot of the holders of this might be people outside the u.s., particularly potentially people, and again, the purpose here is to help unbank populations. all of a sudden, they would have access to usd where they previously would not. many people in congress testified, many of the senators were concerned, whether it would infringe on the dollars and the currency's status. it would probably help cement the status.

taylor: your takeaway is regardless what happens to libra is the general theme is not going away. there will be some kind of crypto coin or currency that investors or people are looking to use instead of the dollar, right? spencer: i think in the case of libra, it is still backed by these currencies and i think we will still see more efforts. we see it from the large crypto exchanges as a competing effort. i think we will see more shots on goal as people trying to roll out an effort like this and maybe from someone less contentious than libra. i think libra has a good chance. taylor: another story we looked at was tether, by trading volume, more than bitcoin even though bitcoin is still more popular. why? spencer: two things to be helpful is nuance. one would be to design cryptocurrency.

tether is a digital asset perhaps, but because it is backed by usd it is different than something like bitcoin, right? the second thing, the use. tether's main purpose is a liquidity tool on top of exchanges and facilitates transfer funds. in that respect, the trading volume is a good flexion of its actual usage. in the case of bitcoin, trading volume is not indicative of its actual usage. i am using bitcoin today but i have not traded it. taylor: has the volatility of bitcoin pushed people into more of these stable coins? spencer: i think they occupy two different realms. i think people interested investing in bitcoin, something that is stable would preclude the point of investment in the first place. but something like tether is useful considering a lot of traders in the space are dollar-denominated investors. if the alternative is they are trading crypto assets against bitcoin, that is not work as well if you are trying to denominate all your returns in usd.

something like tether that is stable and where they can denominate the returns in usd has value. taylor: where are we with libra, bitcoin, tether -- the differences between all of them and different regulations potentially for all of them? spencer: bitcoin is at the safest end of that spectrum. regulators have been clear this is not a security. it is much closer to a commodity. its regulatory status is in the clear. something like tether is somewhat uncertain at this point. it is regulated by certain currencies book not necessarily by the u.s. something like libra, it is very uncertain at this point. we are waiting for final design specs and waiting to see what happens with regulators. taylor: spencer bogart of blockchain capital, thank you for joining me. on tuesday, ups announced a milestone in this development of drones used for delivery. david westin spoke earlier with david abney, the chairman and ceo of united parcel service, and asked about the approval by the sec and why it is so

important. david: it's high value, but time is of the essence. some of these big hospital campuses, it could take you 30 minutes to go from one end to the other because you have to go around the buildings, red lights, and busy streets. what this allows is a matter of two or three or four minutes, we a hospital can take a blood sample, we can deliver it to the lab in three or four minutes and that saves so much time. they could take just hours previously. that is why we started out here. let me give you a life to death example that could happen. we will use wake med hospital as an example.

they have multiple clinics around the raleigh area first -- for snake bite venom, antivenom. they may have one does because it is so expensive, it is not used frequently and it expires. now they can have the one dose new matter where the patient comes in. we can deliver it to the facility the patient is at in the matter of minutes. that could be an actual life or death situation so we are excited about that. david w.: this is beyond line of sight. between campuses, i know some are vast, but can you go between campuses? david a.: yes, we will be able to go between campuses. that is one of the very interesting parts of this. then, as the faa finishes the rights, we will see different applications, including at some point, we will see at home

deliveries especially in rural and suburban areas. so, we are excited about where we are. we are way ahead of anyone else but there is much more to come and ups is going to lead the way. david w.: give us a peek into that. health, high-value product and some urgency. what is the next area that make sense for ups? david a.: first, when it comes to health care, we expect to be -- you know, we are in one now. we are in wake med. we expect to be in dozens and over 100 sites. there is a lot of expansion in health in different products. then, we will look at other campus like environments. whether it is education or other large corporate office type situations where you can have that same value proposition.

and then, we believe at some point and when the rights are written, we can take a ups package car and as the driver is delivering their route, have a drone docking station at the top of the car and the drone just continues to meet the package car and maybe delivering it at the same time we are delivering. there are all kinds of potential weaken can enable our drivers -- we can enable our drivers with. taylor: that was ups ceo david abney with bloomberg's david westin. still ahead, shares of the biggest online brokerages plunged today after charles schwab announced plans to get rid of commission for online trade. we have the story next. this is bloomberg. ♪

taylor: shares of the biggest online brokerages plunged on

tuesday after market leader charles schwab announced plans to get rid of commission for u.s. stocks, etf's and options. it is the latest shot in an escalating price war. rivals will be pressured to make their own cuts. to discuss, i'm joined by bloomberg's john gittelsohn in los angeles. we have been talking about this for ages. is charles schwab playing catch-up or are they leading the industry on this? john: they are saying they are feeling pressure from newcomers to the neighborhood. companies like betterment, robin hood are offering free services so charles schwab is saying this is happening anyway so let's get ahead of it. "why wait?" was the word from the chief financial officer of schwab. taylor: how long can all of these companies survive if i am not paying to use them? john: that is a really good question. we will see. i think there will be a lot of consolidation in the industry.

the ones that cannot figure out a model to survive, they won't survive. we don't know. e*trade has talked about being a target for acquisition for a long time. schwab has other sources of revenue. it mainly operates like a bank and gets the majority of its income from net interest margins. in other words, a lot of the account holders have cash accounts and it makes money on the interest spread. taylor: consolidation and net interest margin, as you mentioned, what other sources of revenue can we see given the rates? john: a lot of the asset managers want their funds listed on schwab so they charge fees for that. there are other services they can charge fees for like advice, although that is getting very competitive to with the robo advisors out there. and then there are different kinds of, like lending security, margin trading options.

there are more advanced types of securities. if you short shares, people pay to borrow shares to short them. there are other ways these firms can make money. but everything is getting squeezed. taylor: you have been covering asset managers for years and years. how does this whole thing begin? was it the move to passive, the rise of etf's? how did we get to the place where consolidation and other sources of revenue were the only way for some of these companies to survive? john: it dates back even further. do a back to the 1970's, charles -- if you go back to the 1970's, charles schwab itself started off as a discount broker. when the sec said there are no limits on commissions, a lot of wall street firms said let's raise commissions in that case. schwab said no, let's cut commissions.

that is how they started getting business to begin with. their whole history has been cutting fees. they have what is called the virtuous cycle where they say we cut fees, cut expenses for consumers. we get more consumers using our services and we are able to increase our overall revenue by having a bigger pie. that rewards our shareholders. so far, it has been paying off. taylor: quickly, the consumers win. who loses? john: the people who lose are the people in the advice asset management, and stock brokerage industries. those guys who many of our viewers are out there making their money off securities. they better consider the future of my career. taylor: john gittelsohn, thank you for joining me. that does it for this edition of "bloomberg technology." "bloomberg technology" is livestreaming on twitter. check us out, @technology.

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